quantitative easing

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When the Money Runs Out: The End of Western Affluence by Stephen D. King

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Mortgage rates come down, homeowners with a mortgage are, as a result, better off, companies’ borrowing costs drop and, thus, spending begins to revive: if we all believe this, a rate cut can become a self-­fulfilling event. Quantitative easing, unfortunately, doesn’t offer the same intuitive message: for many, it sounds distinctly suspect, has no personal relevance and, thus, makes little difference to economic behaviour. And with economic performance far worse than the protagonists of quantitative easing expected, the credibility of such esoteric measures has steadily withered on the vine. 74 4099.indd 74 29/03/13 2:23 PM Stimulus Junkies One reason for increased scepticism relates to the impact of lower long-­term interest rates – thanks to quantitative easing – on pension fund deficits. As Charlie Bean, the Deputy Governor of the Bank of England, explained in a May 2012 speech: Quantitative easing does not inherently raise pension deficits. It all depends on the initial position of the fund, with the movement in liabilities and assets likely to be broadly comparable when a scheme is fully funded.

This is a form of financial repression, a way of ensuring that the government is able to rig credit markets to suit its own aims even if the economy as a whole may perform less well as a consequence. Quantitative easing may originally have been designed to improve economic performance but it has also allowed governments to raise debt on the cheap. With economic stagnation, quantitative easing has merely allowed governments to postpone the fiscal ‘day of 80 4099.indd 80 29/03/13 2:23 PM Stimulus Junkies reckoning’. And the longer stagnation persists, the worse the reckoning will eventually be. Quantitative easing is a useful way of masking persistent increases in government debt, as if those increases come at no economic cost. It is also, by implication, a useful way of allowing governments to muscle their way to the front of the credit queue: with the value of government bonds in effect ‘ring-­fenced’ by the actions of central banks, quantitative easing in a risk-­averse world will only encourage more and more investors to invest in government bonds.

So if a fund starts off relatively ‘asset poor’, the sponsors will now find it more costly to acquire the assets to match its future obligations . . . A corollary of this is that the cost of provisioning against additional pension entitlements being accumulated by currently serving staff unambiguously rises.6 This would, perhaps, be a small price to pay if, as a result of quantitative easing, the economy quickly recovered, allowing quantitative easing to be reversed. In that case, bonds held by the central bank as a result of quantitative easing would be sold back to the market, yields would rise and the pressure on pension deficits would be alleviated. Yet this hasn’t happened. Compared with a typical period of recession, during which interest rates fall rapidly only to rise swiftly thereafter, the absence of meaningful recovery leaves pension funds facing the prospect of permanently lower interest rates and, thus, growing difficulties in meeting their obligations.


pages: 248 words: 57,419

The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

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Instead, it sold some of the government bonds in its portfolio to raise the cash it needed; and, in the third quarter of 2008, it obtained a $300 billion loan from the Treasury Department. Quantitative easing began near the end of 2008. From that point, the Fed began buying credit instruments from the banks and paying for them by depositing money (money freshly created for the purpose) into the accounts in which banks held their liquidity reserves at the Fed. As discussed in Chapter 1, those reserves had steadily dwindled to next to nothing by the time the crisis began. That suddenly changed. They jumped from $33 billion in mid-2008 to $860 billion by the end of that year. By September 2011 they had grown to $1.6 trillion. Quantitative Easing: Round One Quantitative easing is a euphemism for fiat money creation. The “quantity” referred to is the amount of fiat money in existence.

Currency manipulation, therefore, can be measured by the size of a country’s foreign exchange reserves. The value of the currencies that are not pegged can be highly volatile. Moreover, short-term currency movements are notoriously difficult to predict. Quantitative Easing and Asset Prices The immediate effect of quantitative easing is to push interest rates down and to push stock prices and commodity prices up. As just mentioned, in a capitalist system, when a government borrowed money it pushed up interest rates. That is no longer necessarily the case. Today, interest rates are determined not only by the demand for money but also by the supply of money. Consider the second round of quantitative easing. Between November 2010 and mid-2011, the Fed created $600 billion and used it to buy government bonds. That allowed the government to borrow money to finance its very large budget deficits without pushing up interest rates.

See also U.S. economy Election of 2012, issues of government spending and indebtedness Emotions, in Mitchell’s theory of business cycles Energy and energy prices. See also Solar initiative, proposed excluded from CPI in New Great Depression quantitative easing and England Equation of exchange European Central Bank Extended-baseline scenario, of Congressional Budget Office Fannie Mae: conservatorship of credit creation and decline in liquidity reserves quantitative easing and U.S. debt guarantees and FDIC Federal Reserve. See also Quantitative easing commercial bank reserves (1945–2007) end of gold standard, creation of fiat money, and expansion of credit policy actions regarding New Depression Federal Reserve Act of 1913 Fiat money: end of gold standard and creation of government deficit in 2013 and 2014 and Fiat Money Inflation in France (White) Financial sector: debt and lack of liquidity reserve requirements and credit expansion Fiscal stimulus, needed with additional quantitative easing Fisher, Irving theory of debt-deflation Fixed-interest-rate debt, in diversified portfolio Flow of Funds Accounts of the United States Food prices: deflation and excluded from CPI quantitative easing and Foreign causes, of credit expansion Bernanke’s global savings glut theory and central banks’ creation of fiat money and foreign exchange reserves possibility of end to China’s buying of U.S. debt Foreign exchange reserves.


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The Curse of Cash by Kenneth S Rogoff

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A few key further points in the literature are introduced in an appendix to this chapter (grouped with other appendices at the end of the book), which gives a flavor of some of the issues that need to be taken into account. QUANTITATIVE EASING We now turn to alternative approaches that central banks have adopted to deal with the zero bound, short of negative rates. This section deals with the policies that the monetary authorities actually used during the financial crisis, namely, quantitative easing (QE) and forward guidance. Our purpose is to ask to what extent these various alternatives obviate the need for negative interest rate policy, or at least mitigate it to a large extent. Since the financial crisis of 2008, most advanced-country central banks, including the Federal Reserve, the ECB, the Bank of England, and the Bank of Japan, have engaged in massive and aggressive quantitative easing. The scale of the interventions has been extraordinary. The Federal Reserve’s balance sheet rose from around $700 billion at the outset of the financial crisis to a peak of more than $4 trillion and roughly 25% of GDP.

Some have argued that the zero bound hasn’t really turned out to be all that important, because central banks have found pretty good ways to get around it, using unconventional tools such as “forward guidance” and “quantitative easing.” The first involves telling investors that the monetary authorities intend to elevate inflation in the future, even if they cannot do it now. When it works, forward guidance succeeds in bringing down the real interest rate, even if the nominal interest rate is stuck at zero, since of course the real interest rate is the nominal interest rate minus the expected rate of inflation. A second idea is quantitative easing (QE). We discuss QE in much greater detail later in this chapter, but essentially it involves using short-term central bank debt to buy long-term assets, such as government debt, thereby bringing long-term government interest rates down.

And the Bank of Japan’s QE program has already reached 70% of GDP, proportionately far greater than in the United States. And if it maintains its current pace, the Bank of Japan’s QE program is on track to hit the 100% of GDP mark within 2 years. Quantitative easing has been the focus of extensive recent empirical research, though subject to the major constraint that experience so far has been limited.21 We will turn to this research shortly. In a nutshell, much of it basically constitutes event studies that look at the impact of quantitative easing announcements on market interest rates. There is almost certainly a transitory effect (even when the announcements are partly anticipated). But it is hard to know how long lasting the effects have been, basically because of the strong downward trend in long-term real interest rates after the financial crisis, a trend that seems to have its roots in many factors other than just central bank policy.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

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When these factors finally did converge, in 2010, the result would be the international monetary equivalent of a tsunami. CHAPTER 6 Currency War III (2010–) “The purpose . . . is not to push the dollar down. This should not be regarded as some sort of chapter in a currency war.” Janet Yellen, Vice Chair of the Federal Reserve, commenting on quantitative easing, November 16, 2010 “Quantitative easing also works through exchange rates.... The Fed could engage in much more aggressive quantitative easing . . . to further lower . . . the dollar.” Christina D. Romer, former Chair of the Council of Economic Advisers, commenting on quantitative easing, February 27, 2011 Three supercurrencies—the dollar, the euro and the yuan—issued by the three largest economies in the world—the United States, the European Union and the People’s Republic of China—are the superpowers in a new currency war, Currency War III, which began in 2010 as a consequence of the 2007 depression and whose dimensions and consequences are just now coming into focus.

Like winners in many wars throughout history, the United States had a secret weapon. That financial weapon was what went by the ungainly name “quantitative easing,” or QE, which essentially consists of increasing the money supply to inflate asset prices. As in 1971, the United States was acting unilaterally to weaken the dollar through inflation. QE was a policy bomb dropped on the global economy in 2009, and its successor, promptly dubbed QE2, was dropped in late 2010. The impact on the world monetary system was swift and effective. By using quantitative easing to generate inflation abroad, the United States was increasing the cost structure of almost every major exporting nation and fast-growing emerging economy in the world all at once. Quantitative easing in its simplest form is just printing money. To create money from thin air, the Federal Reserve buys Treasury debt securities from a select group of banks called primary dealers.

By buying intermediate-term debt, the Fed could provide lower interest rates for home buyers and corporate borrowers to hopefully stimulate more economic activity. At least, this was the conventional theory. In a globalized world, however, exchange rates act like a water-slide to move the effect of interest rates around quickly. Quantitative easing could be used by the Fed not just to ease financial conditions in the United States but also in China. It was the perfect currency war weapon and the Fed knew it. Quantitative easing worked because of the yuan-dollar peg maintained by the People’s Bank of China. As the Fed printed more money in its QE programs, much of that money found its way to China in the form of trade surpluses or hot money inflows looking for higher profits than were available in the United States. Once the dollars got to China, they were soaked up by the central bank in exchange for newly printed yuan.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

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British inflation has been by far the highest of the major European economies, and the Bank of England acknowledges that its quantitative easing policy has contributed. Europe had begun to notice Britain’s quantitative easing – but as an example to avoid, rather than to follow. Professor Werner’s view With no consensus among British economists about QE, who better to consult than the person who coined the term in the first place? Richard Werner, an expert on Japan, now of Southampton University, came up with the name in 1994. He has an unexpected perspective. He believes the whole QE exercise in Britain, as it was in Japan, is a ‘sham’, and isn’t really QE at all. ‘The Bank has dug a PR hole for itself with quantitative easing. I don’t know why they are using my expression,’ he tells me. His ‘expression’ arises from a translation of a specific Japanese term, ryoteki kanwa, which he devised a couple of decades ago to shine a light on the inadequacies of the sluggish policies of the Bank of Japan.

Behind the imposing façade that glowers over Threadneedle Street, the Bank was preparing an experiment in ‘financial repression’, an experiment that was to test the balance between credibility and calamity. It was called quantitative easing. Every schoolchild is familiar with ‘The Magic Penny’, the morning assembly song: It’s just like a magic penny, Hold it tight and you won’t have any. Lend it, spend it, and you’ll have so many, They’ll all roll over the floor. Only in Britain could there be a ubiquitous children’s song that invokes the concept of the velocity of circulation of money. After all, it was in Britain that David Hume and John Stuart Mill developed the quantity theory of money, the classical basis for modern monetarism. So it is entirely appropriate that Britain is currently conducting the world’s biggest experiment in the creation of magic money. Quantitative easing (QE), as it is officially known – or ‘printing money’ as it has been more colloquially described – has seen a flood of magic pennies wash through Britain.

In January of that year, he regaled me with the finer details of Dutch economist Willem Buiter’s blog, and with his own appreciation of the difference between quantitative easing and qualitative easing. The former referred to the sheer amount of buying the central bank could do, the latter concerned an attempt to lower interest rates in specific markets, such as mortgage debt and corporate credit. So this was a policy initiated and decided upon by the Bank, but with considerable input from the government. At the top of the Treasury the assumption was that the structure created would be used, as was the case in the USA, to buy a wide range of commercial, government and mortgage debt, but that operational decisions regarding such purchases would be left to the Bank. And so, on 5 March 2009, quantitative easing was launched in Britain, accompanied by a cut in the base rate from 1 per cent to an unprecedented 0.5 per cent.


pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

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They are taught in central banking kindergarten never, ever to lose control of their balance sheet because that might cost them control of bank reserves and the money supply. That said, the Fed did lose control of its balance sheet somewhat when it instituted “QE3” in September 2012. This brings us to . . . VARIETIES OF QUANTITATIVE EASING The Fed’s favorite unconventional weapon has been quantitative easing (QE), a term that encompasses a variety of ways to use the central bank’s balance sheet to improve financial conditions. Since the Fed has deployed this weapon multiple times and in several different ways, we need to spend a little time on it. Since quantitative easing can take many forms, table 9.1 offers a simple two-by-two taxonomy. Quantitative easing operations might alter either the composition of the central bank’s balance sheet (the left-hand column) or the size (the right-hand column). The assets that the central bank purchases to do so can be either government securities (or Treasuries, the top row) or private-sector securities (the bottom row).* And, of course, many specific assets fall under the general term private-sector securities.

.* The QE0 in the lower left cell of table 9.1 refers to several early episodes of quantitative easing—so early, in fact, that no one called them QE at the time. Most prominently, we saw that the Fed began buying commercial paper (CP) in October 2008 in order to breathe life into the moribund CP market. QE0 was clearly aimed at spreads—specifically, at the spread of CP over T-bills. This emergency operation constituted QE because the Fed both changed its balance sheet and increased bank reserves by buying private-sector assets. QE1, the Fed’s massive purchases of Fannie Mae and Freddie Mac bonds and MBS between late November 2008 and March 2010, was a much bigger deal, quantitatively. That’s when the term “quantitative easing,” a Japanese coinage, started to be used in the United States. But what we now call QE1 also included purchases of $300 billion worth of Treasuries (upper right cell).

Like the CP program, the large-scale MBS purchases from 2008 to 2010 had a clear purpose: in this case, to reduce the spreads of MBS over Treasuries. And it worked. QE3 in late 2012 was essentially a repeat of the MBS part of QE1. QUANTITATIVE EASING A central bank normally eases monetary policy by reducing overnight interest rates—in the United States, that’s the federal funds rate. But what happens if the bank cuts its policy interest rate all the way to zero—or virtually to zero, as the Fed did in December 2008—and the economy still needs more stimulus? Does the central bank shutter its doors and take a long vacation? Or does it try something else? Starting with the Bank of Japan in the 1990s, a number of central banks, prominently including the Fed, have resorted to some form of quantitative easing. The name derives from the idea that a standard easing of monetary policy works on price—on the cost of borrowing money.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

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As the economy lost 2.1 million construction jobs during the recession, such an upturn could add several hundred thousand jobs. As a result of increasing consumption, robust business investment, and a delayed housing recovery, the odds are high that the economy’s growth rate will rebound to the 3.0–4.0 percent range by the first half of 2011. In such a scenario, quantitative easing will probably end in June 2011. The Fed’s policy will also force other countries to pursue expansionary monetary policies in order to prevent their own currencies from appreciating excessively. Japan has engaged in currency market intervention and announced its own quantitative easing program to stem the appreciation of the yen. Developing countries in both East Asia and Latin America are engaging in currency intervention that could nurture more domestic monetary growth. The European currency has suffered from investor concerns about the debt servicing problems of peripheral countries such as Greece, Ireland, and Portugal.

Since Japan’s economy remained weak over the ensuing dozen years and politicians more or less consistently demanded greater accommodation, the BOJ’s determination not to be pushed around translated into chronically and inappropriately tight monetary policy. Thus, the BOJ, which pioneered quantitative easing in the early 2000s, never employed those unconventional methods boldly enough to overcome the problem of declining prices. To the contrary, its spokesmen stated on several occasions that the agency had done all it possibly could and that deflation simply could not be defeated through monetary means—a notion eventually belied by the success of the United States, the United Kingdom, and other countries in using quantitative easing to combat intense disinflationary pressures in 2008 and 2009 (and again in late 2010 and 2011). It would be wrong to suggest that the BOJ did not loosen policy in reaction to the crisis.

The US corporate sector is also running a free cash flow surplus exceeding $755 billion. This number is unprecedented in the modern era, and explains why firms are boosting investment on productivity-enhancing technology. The great uncertainties in the US outlook center on public policy. As the unemployment rate remained at 9.6 percent during the fourth quarter of 2010, the Federal Reserve embarked upon a program of quantitative easing. The Fed pledged to purchase $600 billion of government securities in the eight months through June. Federal Reserve Chairman Ben Bernanke said that the policy would help to reduce long-term bond yields and bolster the equity market. Finance ministers in Brazil, China, and other developing countries said that the policy was designed to devalue the dollar. Several Republican economists warned that the policy could be inflationary.


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

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See also OECD Deflation Watch, http://www.oecdobserver.org/news/fullstory.php/aid/4807/Deflation_watch.html (accessed 19 April 2016). 18 Federal Reserve, http://www.federalreserve.gov/monetarypolicy/bst_crisisresponse.htm (accessed 19 April 2016); Bank of England, http://www.bankofengland.co.uk/monetarypolicy/Pages/qe/qe_faqs.aspx (accessed 19 April 2016); Joyce and Spaltro, Quantitative Easing and Bank Lending; ECB, https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html (accessed 19 April 2016). 19 A. Blinder, ‘Quantitative easing: entrance and exit strategies’, Federal Reserve Bank of St. Louis Review, vol. 92, no. 6, November/December, 2010, pp. 465–79. 20 S. T. Fullwiler, ‘An endogenous money perspective on the post-crisis monetary policy debate’, Review of Keynesian Economics, vol. 1, no. 2, summer 2013, pp. 171–94. 21 Ibid. 22 B. S. Bernanke, ‘Japanese monetary policy: a case of self-induced paralysis?’

Rethinking Capitalism: An Introduction Capitalism and its discontents Rethinking economic policy Beyond market failure: towards a new approach Notes 2. The Failure of Austerity: Rethinking Fiscal Policy Introduction ‘Deficits saved the world’ The fiscal retreat and the monetary plunge A balanced budget or a balanced economy? Notes 3. Understanding Money and Macroeconomic Policy Introduction The orthodox view: exogenous money Endogenous money and modern money theory Money and monetary policy Quantitative easing Implications for the euro zone: the re-integration of money and fiscal policy Conclusion Notes 4. The Costs of Short-termism Introduction The literature on short-termism Empirical evidence of short-termism Policy implications Notes 5. Innovative Enterprise and the Theory of the Firm Introduction: what makes capitalism productive? The neoclassical theory of the unproductive firm The Marxian theory of the productive firm The theory of innovative enterprise The integration of theory and history Notes 6.

Source: National Institute of Economic and Social Research, NIESR Monthly Estimates of GDP, 7th October, 2014, London, 2014, p. 1, http://www.niesr.ac.uk/sites/default/files/publications/gdp1014.pdf (accessed 12 April 2016). Underpinning this weak growth pattern has been a dramatic collapse in private sector investment. Investment as a proportion of GDP had already been falling throughout the previous period of growth (see Figure 6). Since 2008 this has occurred despite the unprecedented persistence of near-zero real interest rates, bolstered in most of the major developed economies by successive rounds of ‘quantitative easing’, through which central banks have sought to increase the money supply and stimulate demand. Yet they have barely succeeded, as continuing low inflation rates have revealed. The decline in investment is also related to the marked ‘financialisation’ of the corporate sector. Over the past decade or so, an increasing percentage of corporate profits has been used for share buybacks and dividend payments rather than for reinvestment in productive capacity and innovation.


pages: 268 words: 74,724

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

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SIX Ben Bernanke’s Crony Credit SEVEN What the Supply-Siders and Hillary Clinton Sadly Have in Common EIGHT Why “Senator Warren Buffett” Would Be a Credit-Destroying Investor NINE The Credit Implications of the Fracking Boom TEN Conclusion: Sorry Keynesians and Supply-Siders, Government Is Always a Credit-Shrinking Tax PART TWO: BANKING ELEVEN NetJets Doesn’t Multiply Airplanes, and Banks Don’t Multiply Money and Credit TWELVE Good Businesses Never Run Out of Money, and Neither Do Well-Run Banks THIRTEEN Do We Even Need Banks? FOURTEEN The Housing Boom Was Not a Consequence of “Easy Credit” FIFTEEN Conclusion: Why Washington and Wall Street Are Better Off Living Apart PART THREE: THE FED SIXTEEN Baltimore and the Money Supply Myth SEVENTEEN Quantitative Easing Didn’t Stimulate the Economy, Nor Did It Create a Stock-Market Boom EIGHTEEN The Fed Has a Theory, and It Is 100 Percent Bogus NINETEEN Do We Really Need the Fed? TWENTY End the Fed? For Sure, But Don’t Expect Nirvana TWENTY-ONE Conclusion: The Robot Will Be the Biggest Job Creator in World History Notes Index FOREWORD Rob Arnott AS YOU READ this volume, prepare to be surprised.

But not only is Congress incapable of investing us to prosperity (remember, Congress never “fires” or ceases funding its Brady Hoke and Webvan equivalents), it can only spend what it has taxed or borrowed from the real economy first. The Fed is no different. It can’t create credit as much as it can re-allocate it toward parts of the economy that it deems worthy. The problem is the Fed, like Congress, can’t do this effectively because there’s no market to discipline its failures. This truth will become even clearer in chapter 17, on “quantitative easing.” Some will reply that the Fed can create money out of thin air. While that is true, the creation of money is in no way the creation of credit. The two are entirely different. While the Fed’s ability to control or direct the supply of dollars is vastly overstated, the Fed could drop trillions of dollars from the sky, and no new credit would be created. It would, at best, reduce the amount of credit—real resources—that the dollar can command.

No productive nation will ever lack money supply, simply because production itself is a magnet for money. Just as we don’t worry about where our shoes, socks, and T-shirts come from, it’s fair to say we needn’t worry about money either. So long as money has a legal, redeemable definition (and if it didn’t, markets would come up with a definition), let the markets provide the money supply much as they do so many other goods we desire. CHAPTER SEVENTEEN Quantitative Easing Didn’t Stimulate the Economy, Nor Did It Create a Stock-Market Boom You cannot step into the same river twice. —Heraclitus IN THE FALL OF 2014, the price of oil began to decline with great haste. While a barrel sold for more than $100 as recently as the summer of 2014, the price had fallen to $54 by December. As the Dallas Morning News reported about the oil-patch carnage, “Oil prices are at their lowest level in five years.


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Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

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This net worth has come from the purchases of government bonds through issuing bank notes, and the purchase of government bonds through the creation of central bank reserves through the Quantitative Easing scheme. In effect, this £313 billion is seigniorage which has been earned from the creation of money, but which has only been recognised as a result of the fact that this reform does not require backing assets to be held against the state-issued currency (for the reasons discussed in Appendix III). We now need to complete our changes to the balance sheet of the Bank of England by converting the demand deposits of banks into state-issued currency held at the Bank of England. Box 8.A - Dealing with the bonds purchased through Quantitative Easing Quantitative Easing was a scheme set up in response to the financial crisis. One effect of QE was to boost the broad money supply, or at least negate the contraction in the money supply which arose when banks stopped lending but people continued paying down their debts.

More recently reserves have been injected through Quantitative Easing. How commercial banks acquire central bank reserves Ultimately, commercial banks need to acquire central bank reserves in order to settle net transactions with other banks. These net ‘settlement obligations’ arise when payments by customers of one bank to another are greater than the payments coming in the opposite direction. Banks may obtain reserves in one of three ways: a) From the central bank The central bank retains a monopoly on the production of central bank reserves. Therefore ultimately all central bank reserves initially come from the central bank. The central bank can inject these reserves into the system through a variety of channels, including through open market operations and quantitative easing. Here we will restrict ourselves to cases where the central bank lends reserves directly to commercial banks, which it may do in one of three ways: Long term lending: Before the financial crisis the Bank of England ran what was known as a ‘reserves averaging scheme’.

When the central bank lowers the interest rate in response to recessionary conditions it benefits borrowers at the expense of savers. Pension funds in particular may suffer: lower interest rates increase the net present value of future liabilities, increasing the need for higher current fund contributions. Financial crises may also lead to unorthodox monetary policy (such as Quantitative Easing). Because quantitative easing pushes up the price of bonds it also lowers their yield, again increasing required contributions to pension funds. Furthermore by decreasing the yield on bonds, QE increases the desirability of other assets, pushing up their prices. This can have long run effects. By purchasing assets the central bank may prevent prices from falling, and so ‘set a floor’ under their price, implicitly guaranteeing prices and legitimising prior investment decisions.


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The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

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It focused exclusively on inflation—after all, that was its single mandate—and for a long time it continued to use as an indicator of its monetary stance (whether monetary policy was loose or tight) the rate of growth of the money supply, a holdover from the days when monetarism reigned king. QUANTITATIVE EASING When the Federal Reserve put interest rates down to zero—and still the economy did not recover—it felt it could and should do more. One idea was to purchase long-term bonds, driving down the long-term interest rates and providing more liquidity to the economy. This was called quantitative easing. The ECB was slow to introduce quantitative easing. It did so long after the United States, and even after Japan. Even as it undertook QE, the ECB may not have grasped why quantitative easing had such a limited effect in the United States—and why therefore the benefits would likely be still weaker in Europe. The problem in quantitative easing in the United States from 2009 to 2011 was that the money that was created wasn’t going where it was needed and where the Fed wanted it to go—to increase spending in the United States on goods and services.

Rewriting the Rules of the American Economy. 11 There is no general theory that argues the optimal response to the higher oil price should be that the demand for all nontraded goods should be lowered so that a particular index, the weighted average price, should be unchanged. 12 Indeed, as we have noted elsewhere, the ECB, worried about inflation, actually increased interest rates twice in 2011. 13 See chapter 4 for a discussion of competitive devaluation. 14 See Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963). 15 The rate itself was determined mechanically—the rate of growth of the real economy. 16 Japan began its quantitative easing in earnest in 2011, buying hundreds of billions of dollars’ worth of bonds since then. The United States’ quantitative easing, which was even larger (though not relative to the size of its economy), began in 2008 and eventually entailed buying trillions of dollars’ worth of bonds. The Bank of England’s somewhat smaller program ran from 2009 to 2012. The theory behind QE is discussed at greater length at the end of this chapter. 17 This presumes that the local banks have the capacity to lend.

., 51–57 single currency and, 45–46 economic rents, 226, 280 economics, politics and, 308–18 economic security, 68 economies of scale, 12, 39, 55, 138 economists, poor forecasting by, 307 education, 20, 76, 344 investment in, 40, 69, 137, 186, 211, 217, 251, 255, 300 electricity, 217 electronic currency, 298–99, 389 electronics payment mechanism, 274–76, 283–84 emigration, 4, 68–69 see also migration employment: central banks and, 8, 94, 97 structural reforms and, 257–60 see also unemployment Employment Act (1946), 148 energy subsidies, 197 Enlightenment, 3, 318–19 environment, 41, 257, 260, 323 equality, 225–26 equilibrium, xviii–xix Erasmus program, 45 Estonia, 90, 331, 346 euro, xiv, 325 adjustments impeded by, 13–14 case for, 35–39 creation of, xii, 5–6, 7, 10, 333 creation of institutions required by, 10–11 divergence and, see divergence divorce of, 272–95, 307 economic integration and, 46–47, 268 as entailing fixed exchange rate, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 143, 193, 215–16, 240, 244, 249, 252, 254, 286, 297 as entailing single interest rate, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 and European identification, 38–39 financial instability caused by, 131–32 growth promised by, 235 growth slowed by, 73 hopes for, 34 inequality increased by, xviii interest rates lowered by, 235 internal devaluation of, see internal devaluation literature on, 327–28 as means to end, xix peace and, 38 proponents of, 13 referenda on, 58, 339–40 reforms needed for, xii–xiii, 28–31 risk of, 49–50 weakness of, 224 see also flexible euro Eurobond, 356 euro crisis, xiii, 3, 4, 9 catastrophic consequences of, 11–12 euro-euphoria, 116–17 Europe, 151 free trade area in, 44–45 growth rates in, 63–64, 69, 73–74, 74, 75, 163 military conflicts in, 196 social models of, 21 European Central Bank (ECB), 7, 17, 80, 112–13, 117, 144, 145–73, 274, 313, 362, 368, 380 capture of, 158–59 confidence in, 200–201 corporate bonds bought by, 141 creation of, 8, 85 democratic deficit and, 26, 27 excessive expansion controlled by, 250 flexibility of, 269 funds to Greece cut off by, 59 German challenges to, 117, 164 governance and, 157–63 inequality created by, 154–55 inflation controlled by, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 250, 256, 266 interest rates set by, 85–86, 152, 249, 302, 348 Ireland forced to socialize losses by, 134, 156, 165 new mandate needed by, 256 as political institution, 160–62 political nature of, 153–56 quantitative easing opposed by, 151 quantitative easing undertaken by, 164, 165–66, 170, 171 regulations by, 249, 250 unemployment and, 163 as unrepresentative, 163 European Commission, 17, 58, 161, 313, 332 European Court of Human Rights, 45 European Economic Community (EEC), 6 European Exchange Rate Mechanism (ERM), 30, 335 European Exchange Rate Mechanism II (ERM II), 336 European Free Trade Association, 44 European Free Trade Association Court, 44 European Investment Bank (EIB), 137, 247, 255, 301 European Regional Development Fund, 243 European Stability Mechanism, 23, 246, 357 European Union: budget of, 8, 45, 91 creation of, 4 debt and deficit limits in, 87–88 democratic deficit in, 26–27 economic growth in, 215 GDP of, xiii and lower rates of war, 196 migration in, 90 proposed exit of UK from, 4 stereotypes in, 12 subsidiarity in, 8, 41–42, 263 taxes in, 8, 261 Euro Summit Statement, 373 eurozone: austerity in, see austerity banking union in, see banking union counterfactual in, 235–36 double-dip recessions in, 234–35 Draghi’s speech and, 145 economic integration and, xiv–xx, 23, 39–50, 51–57 as flawed at birth, 7–9 framework for stability of, 244–52 German departure from, 32, 292–93 Greece’s possible exit from, 124 hours worked in, 71–72 lack of fiscal policy in, 152 and move to political integration, xvi, 34, 35, 51–57 Mundell’s work on dangers of, 87 policies of, 15–17 possible breakup of, 29–30 privatization avoided in, 194 saving, 323–26 stagnant GDP in, 12, 65–68, 66, 67 structure of, 8–9 surpluses in, 120–22 theory of, 95–97 unemployment in, 71, 135, 163, 177–78, 181, 331 working-age population of, 70 eurozone, proposed structural reforms for, 239–71 common financial system, see banking union excessive fiscal responsibility, 163 exchange-rate risks, 13, 47, 48, 49–50, 125, 235 exchange rates, 80, 85, 288, 300, 338, 382, 389 of China, 251, 254, 350–51 and competitive devaluation, 105–6 after departure of northern countries, 292–93 of euro, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 215–16, 240, 244, 249, 252, 254, 286, 297 flexible, 50, 248, 349 and full employment, 94 of Germany, 254–55, 351 gold and, 344–45 imports and, 86 interest rates and, 86 quantitative easing’s lowering of, 151 real, 105–6 and single currencies, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 stabilizing, 299–301 and trade deficits, 107, 118 expansionary contractions, 95–96, 208–9 exports, 86, 88, 97–99, 98 disappointing performance of, 103–5 external imbalances, 97–98, 101, 109 externalities, 42–43, 121, 153, 301–2 surpluses as, 253 extremism, xx, 4 Fannie Mae, 91 farmers, US, in deflation, xii Federal Deposit Insurance Corporation (FDIC), 91 Federal Reserve, US, 349 alleged independence of, 157 interest rates lowered by, 150 mandate of, 8, 147, 172 money pumped into economy by, 278 quantitative easing used by, 151, 170 reform of, 146 fiat currency, 148, 275 and taxes, 284 financial markets: lobbyists from, 132 reform of, 214, 228–29 short-sighted, 112–13 financial systems: necessity of, xix real economy of, 149 reform of, 257–58 regulations needed by, xix financial transaction system, 275–76 Finland, 16, 81, 122, 126, 292, 296, 331, 343 growth in, 296–97 growth rate of, 75, 76, 234–35 fire departments, 41 firms, 138, 186–87, 245, 248 fiscal balance: and cutting spending, 196–98 tax revenue and, 190–96 Fiscal Compact, 141, 357 fiscal consolidation, 310 fiscal deficits, see deficits, fiscal fiscal policy, 148, 245, 264 in center of macro-stabilization, 251 countercyclical, 244 in EU, 8 expansionary, 254–55 stabilization of, 250–52 fiscal prudence, 15 fiscal responsibility, 163 flexibility, 262–63, 269 flexible euro, 30–31, 272, 296–305, 307 cooperation needed for, 304–5 food prices, 169 forbearance, 130–31 forecasts, 307 foreclosure proposal, 180 foreign ownership, privatization and, 195 forestry, 81 France, 6, 14, 16, 114, 120, 141, 181–82, 331, 339–40, 343 banks of, 202, 203, 231, 373 corporate income tax in, 189–90 euro creation regretted in, 340 European Constitution referendum of, 58 extreme right in, xi growth in, 247 Freddie Mac, 91 Freefall (Stiglitz), 264, 335 free mobility of labor, xiv, 26, 40, 125, 134–36, 142–44, 242 Friedman, Milton, 151, 152–53, 167, 339 full employment, 94–97, 379 G-20, 121 gas: import of, 230 from Russia, 37, 81, 93 Gates Foundation, 276 GDP-indexed bonds, 267 German bonds, 114, 323 German Council of Economic Experts, 179, 365 Germany, xxi, 14, 30, 65, 108, 114, 141, 181–82, 207, 220, 286, 307, 331, 343, 346, 374 austerity pushed by, 186, 232 banks of, 202, 203, 231–32, 373 costs to taxpayers of, 184 as creditor, 140, 187, 267 debt collection by, 117 debt in, 105 and debt restructuring, 205, 311 in departure from eurozone, 32, 292–93 as dependent on Russian gas, 37 desire to leave eurozone, 314 ECB criticized by, 164 EU economic practices controlled by, 17 euro creation regretted in, 340 exchange rate of, 254–55, 351 failure of, 13, 78–79 flexible exchange of, 304 GDP of, xviii, 92 in Great Depression, 187 growing poverty in, 79 growth of, 78, 106, 247 hours worked per worker in, 72 inequality in, 79, 333 inflation in, 42, 338, 358 internal solidarity of, 334 lack of alternative to euro seen by, 11 migrants to, 320–21, 334–35, 393 minimum wage in, 42, 120, 254 neoliberalism in, 10 and place-based debt, 136 productivity in, 71 programs designed by, 53, 60, 61, 202, 336, 338 reparations paid by, 187 reunification of, 6 rules as important to, 57, 241–42, 262 share of global employment in, 224 shrinking working-age population of, 70, 78–79 and Stability and Growth Pact, 245 and structural reforms, 19–20 “there is no alternative” and, 306, 311–12 trade surplus of, 117, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 “transfer union” rejected by, 22 US loans to, 187 victims blamed by, 9, 15–17, 177–78, 309 wages constrained by, 41, 42–43 wages lowered in, 105, 333 global financial crisis, xi, xiii–xiv, 3, 12, 17, 24, 67, 73, 75, 114, 124, 146, 148, 274, 364, 387 and central bank independence, 157–58 and confidence, 280 and cost of failure of financial institutions, 131 lessons of, 249 monetary policy in, 151 and need for structural reform, 214 originating in US, 65, 68, 79–80, 112, 128, 296, 302 globalization, 51, 321–23 and diminishing share of employment in advanced countries, 224 economic vs. political, xvii failures of, xvii Globalization and Its Discontents (Stig-litz), 234, 335, 369 global savings glut, 257 global secular stagnation, 120 global warming, 229–30, 251, 282, 319 gold, 257, 275, 277, 345 Goldman Sachs, 158, 366 gold standard, 148, 291, 347, 358 in Great Depression, xii, 100 goods: free movement of, 40, 143, 260–61 nontraded, 102, 103, 169, 213, 217, 359 traded, 102, 103, 216 Gordon, Robert, 251 governance, 157–63, 258–59 government spending, trade deficits and, 107–8 gravity principle, 124, 127–28 Great Depression, 42, 67, 105, 148, 149, 168, 313 Friedman on causes of, 151 gold standard in, xii, 100 Great Malaise, 264 Greece, 14, 30, 41, 64, 81, 100, 117, 123, 142, 160, 177, 265–66, 278, 307, 331, 343, 366, 367–68, 374–75, 386 austerity opposed by, 59, 60–62, 69–70, 207–8, 392 balance of payments, 219 banks in, 200–201, 228–29, 231, 270, 276, 367, 368 blaming of, 16, 17 bread in, 218, 230 capital controls in, 390 consumption tax and, 193–94 counterfactual scenario of, 80 current account surplus of, 287–88 and debt restructuring, 205–7 debt-to-GDP ratio of, 231 debt write-offs in, 291 decline in labor costs in, 56, 103 ECB’s cutting of funds to, 59 economic growth in, 215, 247 emigration from, 68–69 fiscal deficits in, 16, 186, 215, 233, 285–86, 289 GDP of, xviii, 183, 309 hours worked per worker in, 72 inequality in, 72 inherited debt in, 134 lack of faith in democracy in, 312–13 living standards in, 216 loans in, 127 loans to, 310 migrants and, 320–21 milk in, 218, 223, 230 new currency in, 291, 300 oligarchs in, 16, 227 output per working-age person in, 70–71 past downturns in, 235–36 pensions in, 16, 78, 188, 197–98, 226 pharmacies in, 218–20 population decline in, 69, 89 possible exit from eurozone of, 124, 197, 273, 274, 275 poverty in, 226, 261, 376 primary surplus of, 187–88, 312 privatization in, 55, 195–96 productivity in, 71, 342 programs imposed on, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 renewable energy in, 193, 229 social capital destroyed in, 78 sovereign spread of, 200 spread in, 332 and structural reforms, 20, 70, 188, 191 tax revenue in, 16, 142, 192, 227, 367–368 tools lacking for recovery of, 246 tourism in, 192, 286 trade deficits in, 81, 194, 216–17, 222, 285–86 unemployment in, xi, 71, 236, 267, 332, 338, 342 urgency in, 214–15 victim-blaming of, 309–11 wages in, 216–17 youth unemployment in, xi, 332 Greek bonds, 116, 126 interest rates on, 4, 114, 181–82, 201–2, 323 restructuring of, 206–7 green investments, 260 Greenspan, Alan, 251, 359, 363 Grexit, see Greece, possible exit from eurozone of grocery stores, 219 gross domestic product (GDP), xvii decline in, 3 measurement of, 341 Growth and Stability Pact, 87 hedge funds, 282, 363 highways, 41 Hitler, Adolf, 338, 358 Hochtief, 367–68 Hoover, Herbert, 18, 95 human capital, 78, 137 human rights, 44–45, 319 Hungary, 46, 331, 338 hysteresis, 270 Iceland, 44, 111, 307, 354–55 banks in, 91 capital controls in, 390 ideology, 308–9, 315–18 imports, 86, 88, 97–99, 98, 107 incentives, 158–59 inclusive capitalism, 317 income, unemployment and, 77 income tax, 45 Independent Commission for the Reform of International Corporate Taxation, 376–377 Indonesia, 113, 230–31, 314, 350, 364, 378 industrial policies, 138–39, 301 and restructuring, 217, 221, 223–25 Industrial Revolution, 3, 224 industry, 89 inequality, 45, 72–73, 333 aggregate demand lowered by, 212 created by central banks, 154 ECB’s creation of, 154–55 economic performance affected by, xvii euro’s increasing of, xviii growth’s lowering of, 212 hurt by collective action, 338 increased by neoliberalism, xviii increase in, 64, 154–55 inequality in, 72, 212 as moral issue, xviii in Spain, 72, 212, 225–26 and tax harmonization, 260–61 and tax system, 191 inflation, 277, 290, 314, 388 in aftermath of tech bubble, 251 bonds and, 161 central banks and, 153, 166–67 consequences of fixation on, 149–50, 151 costs of, 270 and debt monetization, 42 ECB and, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 255, 256, 266 and food prices, 169 in Germany, 42, 338, 358 interest rates and, 43–44 in late 1970s, 168 and natural rate hypothesis, 172–73 political decisions and, 146 inflation targeting, 157, 168–70, 364 information, 335 informational capital, 77 infrastructure, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 inheritance tax, 368 inherited debt, 134 innovation, 138 innovation economy, 317–18 inputs, 217 instability, xix institutions, 93, 247 poorly designed, 163–64 insurance, 355–356 deposit, see deposit insurance mutual, 247 unemployment, 91, 186, 246, 247–48 integration, 322 interest rates, 43–44, 86, 282, 345, 354 in aftermath of tech bubble, 251 ECB’s determination of, 85–86, 152, 249, 302, 348 and employment, 94 euro’s lowering of, 235 Fed’s lowering of, 150 on German bonds, 114 on Greek bonds, 4, 114, 181–82 on Italian bonds, 114 in late 1970s, 168 long-term, 151, 200 negative, 316, 348–49 quantitative easing and, 151, 170 short-term, 249 single, eurozone’s entailing of, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 on Spanish bonds, 114, 199 spread in, 332 stock prices increased by, 264 at zero lower bound, 106 intermediation, 258 internal devaluation, 98–109, 122, 126, 220, 255, 388 supply-side effects of, 99, 103–4 International Commission on the Measurement of Economic Performance and Social Progress, 79, 341 International Labor Organization, 56 International Monetary Fund (IMF), xv, xvii, 10, 17, 18, 55, 61, 65–66, 96, 111, 112–13, 115–16, 119, 154, 234, 289, 309, 316, 337, 349, 350, 370, 371, 381 and Argentine debt, 206 conditions of, 201 creation of, 105 danger of high taxation warnings of, 190 debt reduction pushed by, 95 and debt restructuring, 205, 311 and failure to restore credit, 201 global imbalances discussed by, 252 and Greek debts, 205, 206, 310–11 on Greek surplus, 188 and Indonesian crisis, 230–31, 364 on inequality’s lowering of growth, 212–13 Ireland’s socialization of losses opposed by, 156–57 mistakes admitted by, 262, 312 on New Mediocre, 264 Portuguese bailout of, 178–79 tax measures of, 185 investment, 76–77, 111, 189, 217, 251, 264, 278, 367 confidence and, 94 divergence in, 136–38 in education, 137, 186, 211, 217, 251, 255, 300 infrastructure in, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 lowered by disintermediation, 258 public, 99 real estate, 199 in renewable energy, 229–30 return on, 186, 245 stimulation of, 94 in technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 investor state dispute settlement (ISDS), 393–94 invisible hand, xviii Iraq, refugees from, 320 Iraq War, 36, 37 Ireland, 14, 16, 44, 113, 114–15, 122, 178, 234, 296, 312, 331, 339–40, 343, 362 austerity opposed in, 207 debt of, 196 emigrants from, 68–69 GDP of, 18, 231 growth in, 64, 231, 247, 340 inherited debt in, 134 losses socialized in, 134, 156–57, 165 low debt in, 88 real estate bubble in, 108, 114–15, 126 surplus in, 17, 88 taxes in, 142–43, 376 trade deficits in, 119 unemployment in, 178 irrational exuberance, 14, 114, 116–17, 149, 334, 359 ISIS, 319 Italian bonds, 114, 165, 323 Italy, 6, 14, 16, 120, 125, 331, 343 austerity opposed in, 59 GDP per capita in, 352 growth in, 247 sovereign spread of, 200 Japan, 151, 333, 342 bubble in, 359 debt of, 202 growth in, 78 quantitative easing used by, 151, 359 shrinking working-age population of, 70 Java, unemployment on, 230 jobs gap, 120 Juncker, Jean-Claude, 228 Keynes, John Maynard, 118, 120, 172, 187, 351 convergence policy suggested by, 254 Keynesian economics, 64, 95, 108, 153, 253 King, Mervyn, 390 knowledge, 137, 138–39, 337–38 Kohl, Helmut, 6–7, 337 krona, 287 labor, marginal product of, 356 labor laws, 75 labor markets, 9, 74 friction in, 336 reforms of, 214, 221 labor movement, 26, 40, 125, 134–36, 320 austerity and, 140 capital flows and, 135 see also migration labor rights, 56 Lamers, Karl, 314 Lancaster, Kelvin, 27 land tax, 191 Latin America, 10, 55, 95, 112, 202 lost decade in, 168 Latvia, 331, 346 GDP of, 92 law of diminishing returns, 40 learning by doing, 77 Lehman Brothers, 182 lender of last resort, 85, 362, 368 lending, 280, 380 discriminatory, 283 predatory, 274, 310 lending rates, 278 leverage, 102 Lichtenstein, 44 Lipsey, Richard, 27 liquidity, 201, 264, 278, 354 ECB’s expansion of, 256 lira, 14 Lithuania, 331 living standards, 68–70 loans: contraction of, 126–27, 246 nonperforming, 241 for small and medium-size businesses, 246–47 lobbyists, from financial sector, 132 location, 76 London interbank lending rate (LIBOR), 131, 355 Long-Term Refinancing Operation, 360–361 Lucas, Robert, xi Luxembourg, 6, 94, 142–43, 331, 343 as tax avoidance center, 228, 261 luxury cars, 265 Maastricht Treaty, xiii, 6, 87, 115, 146, 244, 298, 339, 340 macro-prudential regulations, 249 Malta, 331, 340 manufacturing, 89, 223–24 market failures, 48–49, 86, 148, 149, 335 rigidities, 101 tax policy’s correction of, 193 market fundamentalism, see neoliberalism market irrationality, 110, 125–26, 149 markets, limitations of, 10 Meade, James, 27 Medicaid, 91 medical care, 196 Medicare, 90, 91 Mellon, Andrew, 95 Memorandum of Agreement, 233–34 Merkel, Angela, 186 Mexico, 202, 369 bailout of, 113 in NAFTA, xiv Middle East, 321 migrant crisis, 44 migration, 26, 40, 68–69, 90, 125, 320–21, 334–35, 342, 356, 393 unemployment and, 69, 90, 135, 140 see also labor movement military power, 36–37 milk, 218, 223, 230 minimum wage, 42, 120, 254, 255, 351 mining, 257 Mississippi, GDP of, 92 Mitsotakis, Constantine, 377–78 Mitsotakis, Kyriakos, 377–78 Mitterrand, François, 6–7 monetarism, 167–68, 169, 364 monetary policy, 24, 85–86, 148, 264, 325, 345, 364 as allegedly technocratic, 146, 161–62 conservative theory of, 151, 153 in early 1980s US, 168, 210 flexibility of, 244 in global financial crisis, 151 political nature of, 146, 153–54 recent developments in theory of, 166–73 see also interest rates monetary union, see single currencies money laundering, 354 monopolists, privatization and, 194 moral hazard, 202, 203 mortgage rates, 170 mortgages, 302 multinational chains, 219 multinational development banks, 137 multinationals, 127, 223, 376 multipliers, 211–12, 248 balanced-budget, 188–90, 265 Mundell, Robert, 87 mutual insurance, 247 mutualization of debt, 242–43, 263 national development banks, 137–38 natural monopolies, 55 natural rate hypothesis, 172 negative shocks, 248 neoliberalism, xvi, 24–26, 33, 34, 98–99, 109, 257, 265, 332–33, 335, 354 on bubbles, 381 and capital flows, 28 and central bank independence, 162–63 in Germany, 10 inequality increased by, xviii low inflation desired by, 147 recent scholarship against, 24 Netherlands, 6, 44, 292, 331, 339–40, 343 European Constitution referendum of, 58 New Democracy Party, Greek, 61, 185, 377–78 New Mediocre, 264 New World, 148 New Zealand, 364 Nokia, 81, 234, 297 nonaccelerating inflation rate of unemployment (NAIRU), 379–80 nonaccelerating wage rate of unemployment (NAWRU), 379–80 nongovernmental organizations (NGOs), 276 nonperforming loans, 241 nontraded goods sector, 102, 103, 169, 213, 217, 359 North American Free Trade Agreement (NAFTA), xiv North Atlantic Treaty Organization (NATO), 196 Norway, 12, 44, 307 referendum on joining EU, 58 nuclear deterrence, 38 Obama, Barack, 319 oil, import of, 230 oil firms, 36 oil prices, 89, 168, 259, 359 oligarchs: in Greece, 16, 227 in Russia, 280 optimal currency area, 345 output, 70–71, 111 after recessions, 76 Outright Monetary Transactions program, 361 overregulate, 132 Oxfam, 72 panic of 1907, 147 Papandreou, Andreas, 366 Papandreou, George, xiv, 60–61, 184, 185, 220, 221, 226–27, 309, 312, 366, 373 reform of banks suggested by, 229 paradox of thrift, 120 peace, 34 pensions, 9, 16, 78, 177, 188, 197–98, 226, 276, 370 People’s Party, Portugal, 392 periphery, 14, 32, 171, 200, 296, 301, 318 see also specific countries peseta, 14 pharmacies, 218–20 Phishing for Phools (Akerlof and Shiller), 132 physical capital, 77–78 Pinochet, Augusto, 152–53 place-based debt, 134, 242 Pleios, George, 377 Poland, 46, 333, 339 assistance to, 243 in Iraq War, 37 police, 41 political integration, xvi, 34, 35 economic integration vs., 51–57 politics, economics and, 308–18 pollution, 260 populism, xx Portugal, 14, 16, 64, 177, 178, 331, 343, 346 austerity opposed by, 59, 207–8, 315, 332, 392 GDP of, 92 IMF bailout of, 178–79 loans in, 127 poverty in, 261 sovereign spread of, 200 Portuguese bonds, 179 POSCO, 55 pound, 287, 335, 346 poverty, 72 in Greece, 226, 261 in Portugal, 261 in Spain, 261 predatory lending, 274, 310 present discount value, 343 Price of Inequality, The (Stiglitz), 154 prices, 19, 24 adjustment of, 48, 338, 361 price stability, 161 primary deficit, 188, 389 primary surpluses, 187–88 private austerity, 126–27, 241–42 private sector involvement, 113 privatization, 55, 194–96, 369 production costs, 39, 43, 50 production function, 343 productivity, 71, 332, 348 in manufacturing, 223–24 after recessions, 76–77 programs, 17–18 Germany’s design of, 53, 60, 61, 187–88, 205, 336, 338 imposed on Greece, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 of Troika, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 202, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 346, 366, 379, 392 progressive automatic stabilizers, 244 progressive taxes, 248 property rights, 24 property taxes, 192–93, 227 public entities, 195 public goods, 40, 337–38 quantitative easing (QE), 151, 164, 165–66, 170–72, 264, 359, 361, 386 railroads, 55 Reagan, Ronald, 168, 209 real estate bubble, 25, 108, 109, 111, 114–15, 126, 148, 172, 250, 301, 302 cause of, 198 real estate investment, 199 real exchange rate, 105–6, 215–16 recessions, recovery from, 94–95 recovery, 76 reform, 75 theories of, 27–28 regulations, 24, 149, 152, 162, 250, 354, 355–356, 378 and Bush administration, 250–51 common, 241 corporate opposition to, xvi difficulties in, 132–33 of finance, xix forbearance on, 130–31 importance of, 152–53 macro-prudential, 249 in race to bottom, 131–34 Reinhardt, Carmen, 210 renewable energy, 193, 229–30 Republican Party, US, 319 research and development (R&D), 77, 138, 217, 251, 317–18 Ricardo, David, 40, 41 risk, 104, 153, 285 excessive, 250 risk markets, 27 Rogoff, Kenneth, 210 Romania, 46, 331, 338 Royal Bank of Scotland, 355 rules, 57, 241–42, 262, 296 Russia, 36, 264, 296 containment of, 318 economic rents in, 280 gas from, 37, 81, 93, 378 safety nets, 99, 141, 223 Samaras, Antonis, 61, 309, 377 savings, 120 global, 257 savings and loan crisis, 360 Schäuble, Wolfgang, 57, 220, 314, 317 Schengen area, 44 schools, 41, 196 Schröeder, Gerhard, 254 self-regulation, 131, 159 service sector, 224 shadow banking system, 133 shareholder capitalism, 21 Shiller, Rob, 132, 359 shipping taxes, 227, 228 short-termism, 77, 258–59 Silicon Valley, 224 silver, 275, 277 single currencies: conflicts and, 38 as entailing fixed exchange rates, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 external imbalances and, 97–98 and financial crises, 110–18 integration and, 45–46, 50 interest rates and, 8, 86, 87–88, 92, 93, 94 Mundell’s work on, 87 requirements for, 5, 52–53, 88–89, 92–94, 97–98 and similarities among countries, 15 trade integration vs., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, joint-stock company, Kenneth Rogoff, labour market flexibility, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce

It could be a funding problem, in which the US Treasury was unable to raise money on reasonable terms. Or it could result from a plunge in the dollar, leading to inflationary fears. Indeed, quantitative easing could go horribly wrong, as it did in the Weimar Republic. Suddenly, all the newly created money (much of which is sitting idly in the banking system) could wash back into the global economy, driving up prices. Remember also that Western countries have used up a lot of their policy options. In the middle of 2011, interest rates were 1 per cent or below almost across the board. Further fiscal stimulus looked unlikely. And the potential impact of quantitative easing was far from clear. In a speech in October 2010, Mervyn King, the governor of the Bank of England, called for a ‘grand bargain’ between the major players in the world economy.8 ‘The risk is that unless agreement on a common path of adjustment is reached, conflicting policies will result in an undesirably low level of world output, with all countries worse off as a result,’ he said.

Gold is no one else’s liability; you can own it outright. Paper or electronic money is always a claim on someone else, whether a bank or a government. Modern money is debt and debt is money. It is no coincidence that debt levels have exploded in the last forty years, culminating in the credit crisis of 2007 and 2008 from which the world is still recovering. In response to that crisis, new money was created via a tactic called quantitative easing (QE) – central bankers created money to buy government bonds (and other assets). The creation of money to finance government deficits is something that would have horrified the sound-money men of Bryan’s era. But such tactics are hardly a surprise, now that governments and not just farmers have huge debts. The philosopher John Stuart Mill warned in The Principles of Political Economy, published in 1848, that ‘the issuers may have, and in the case of a government paper always have, a direct interest in lowering the value of the currency, because it is the medium in which their own debts are computed’.

So a bit like the porridge of Goldilocks, we want a money supply that is not too hot (commonplace), not too cold (scarce) but ‘just right’. Mankind has tried to find that balance in many different ways. Some politicians and voters have been tempted by money creation in the same way that the French regent was tempted by John Law. Modern economists mostly agree that monetary stimulus can be effective in reviving the economy. The twenty-first-century tactic of quantitative easing is a high-tech version of the same theory. Imagine, however, that you are a creditor or a merchant selling goods. Your debtor or customer offers to pay you back, not in pounds or dollars, but in Monopoly money. You might not regard this as payment at all. The fundamental worry of creditors is that governments can issue as much money as they like. Indeed, the concept is built into the rules of the Monopoly board game.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

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Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, Bretton Woods, BRICs, business climate, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, Flash crash, floating exchange rates, forward guidance, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, invisible hand, jitney, Kenneth Rogoff, labor-force participation, labour mobility, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, Plutocrats, plutocrats, Ponzi scheme, price stability, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, uranium enrichment, Washington Consensus, working-age population, yield curve

Nominal growth equals real growth plus inflation. Since real growth is anemic, the central banks must cause inflation to have any hope of increasing nominal growth and reducing these debt-to-GDP ratios. When policy interest-rate cuts are no longer possible because the rates are effectively zero, quantitative easing, designed in part to import inflation through currency devaluation, is the central bankers’ preferred technique. The Bank of England (BOE) has engaged in four rounds of quantitative easing (QE), beginning in March 2009. Subsequent rounds were launched in October 2011, February 2012, and July 2012. Increased asset purchases have ceased for the time being, but the BOE’s near-zero-interest-rate policy has continued. The BOE is refreshingly candid about the fact that it is targeting nominal rather than real growth, although it hopes that real growth might be a by-product.

The European monetary standard prior to Charlemagne was a gold sou, derived from solidus, a Byzantine Roman coin introduced by Emperor Constantine I in A.D. 312. Gold had been supplied to the Roman Empire since ancient times from sources near the Upper Nile and Anatolia. However, Islam’s rise in the seventh century, and losses in Italy to the Byzantine Empire, cut off trade routes between East and West. This resulted in a gold shortage and tight monetary conditions in Charlemagne’s western empire. He engaged in an early form of quantitative easing by switching to a silver standard, since silver was far more plentiful than gold in the West. He also created a single currency, the livre carolinienne, equal to a pound of silver, as a measure of weight and money, and the coin of the realm was the denire, equal to one-twentieth of a sou. With the increased money supply and standardized coinage, along with other reforms, trade and commerce thrived in the Frankish Empire.

Both countries are out on a limb, with printing presses, insufficient gold, no monetary allies, and no Plan B. Japan and the U.K. are part of a global monetary experiment orchestrated by the U.S. Federal Reserve and articulated by former Fed chairman Ben Bernanke in two speeches, one given in Tokyo on October 14, 2012, and one given in London on March 25, 2013. In his 2012 Tokyo speech, Bernanke stated that the United States would continue its loose monetary policy through quantitative easing for the foreseeable future. Trading partners therefore had two choices. They could peg their currencies to the dollar, which would cause inflation—exactly what the GCC was experiencing. Or, according to Bernanke, those trading partners could allow their currencies to appreciate—the desired outcome under his cheap-dollar policy—in which case their exports would suffer. For trading partners that complained that this was a Hobson’s choice between inflation and reduced exports, Bernanke explained that if the Fed did not ease, the result would be even worse for them: a collapsing U.S. economy that would hurt world demand as well as world trade and sink developed and emerging markets into a global depression.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

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air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, Bretton Woods, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy

In the case of the US, Mr Haldane listed $3.8tn in money creation and $0.2tn in ‘collateral swaps’, both from the Federal Reserve. He also listed $2.1tn in ‘guarantees’, $3.7tn in ‘insurance’ and $0.7tn in ‘capital infusions’ (from the TARP), all of which came from the government. The total came to $10.5tn. 43. International Monetary Fund, Fiscal Monitor, April 2012, www.imf.org, Table 7. 44. Quantitative easing was first used by the Bank of Japan in 2001. See http://en.wikipedia.org/wiki/Quantitative_easing. 45. Bank for International Settlements, 83rd Annual Report 2013, Basel, 23 June 2013, http://www.bis.org/publ/arpdf/ar2013e.pdf, Figure VI.3, p. 69. 46. Fiscal data are from the IMF’s World Economic Outlook database, except where otherwise indicated. 47. Data on discretionary fiscal stimulus are taken from IMF, Fiscal Monitor, November 2010, www.imf.org, Box 1.1.

In essence, then, the developed countries’ most important central banks offered free or nearly free money to their banks from 2009 or, in some cases, from slightly earlier than that. It was little surprise that this official largesse to banks, not matched by comparable largesse from banks to their own borrowers – indeed accompanied by foreclosures on a grand scale in some countries – became a source of significant popular resentment. In addition, central banks adopted a wide range of ‘unconventional’ policies, including, notably, the policy known as ‘quantitative easing’ – expansion of the monetary base and central-bank purchases of longer-term assets.44 Such unconventional policies were aimed at financing banks, lowering yields on government bonds, increasing the money supply and easing credit supply. In domestic currency, the balance sheet of the ECB increased roughly threefold between 2007 and mid-2012, before shrinking modestly, while that of the Federal Reserve rose three and a half times and that of the Bank of England more than fourfold between 2007 and early 2013.45 To take the most important example, the US monetary base rose by $2.8tn between August 2008 and November 2013 – a sum equal to 17 per cent of annualized US gross domestic product in the third quarter of 2013.

After the crisis, much of the world found itself with close to zero nominal short rates. At that point, the debates revived. Both monetarists and most adherents of the contemporary orthodoxy argued that monetary policy could still work effectively, either by expanding the quantity of money or lowering the yield on other securities, particularly long-term bonds. One policy, it was thought, would achieve both those outcomes: quantitative easing, by which was meant the expansion of the monetary base. By using newly created central-bank money to buy bonds, the central bank could, it was believed, both expand the money supply and lower yields. Figure 37 shows what happened to US M2, the broadest measure of money the Federal Reserve publishes, after 1980.46 M2 consists of currency held by the public, plus deposit liabilities of financial institutions principally belonging to households.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

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Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, The Great Moderation, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve

Now that the credit bubble has burst and banks and financials have imploded, what is next? We have huge deflationary forces that up until recently were self-reinforcing. These forces were only mitigated by record government interventions with liquidity provisions, interest rate cuts, quantitative easing, and fiscal stimulus. Now we have two enormous forces struggling against each other: one deflationary—the economy and the financial system—and one reflationary—stimulus of various types. We haven’t got a clue how these will play out, and it’s rather difficult balancing them. Quantitative easing, probably the correct course for central banks, is a difficult beast to control if market psychology turns quickly or if the real economy improves faster than expected. Because timely exit strategies will be tricky to implement, it is likely that they will come too early or too late.

However, this also makes alternatives more attractive. I am sure that one of these alternatives will indeed become very important fundamentally, but many will be bubbles. When you mention the end of fiat money, what do you mean? Regarding the end of fiat money, there is understandable concern about that concept. The global response to this crisis is massive reflation. Quantitative easing is now ubiquitous enough to be on CNN Headline News, whereas just two years ago, it was an arcane economics term. Quantitative easing is the budgetization of monetary policy—essentially printing money—and the examination of global central bank balance sheets confirms that it is global in scope and massive in scale. We all know that (1) money is ultimately a confidence trick, so policy credibility is very important; and (2) inflation unequivocally erodes savings and capital in the long term, which is one of the main reasons that price stability became such a focal point the past two decades and one of the standards for judging convergence.

The Experiment started with Greenspan, who preemptively and aggressively cut interest rates to head off the looming recession/depression in 2001-2003. It was a real-time experiment; it had never been done before. From 2003 to 2007, it appeared to have worked as easy money helped fuel another leg to the property and asset boom. I underestimated the potency of easy money when asset deflation emerges, perhaps because there was still another asset to inflate: property (see Figure 2.2). The hyper-experiment today, which includes the use of quantitative easing (QE) and bailouts, is a renewed attempt to prevent a cascade of defaults and preempt a deepening recession and possibly a prolonged depression. Figure 2.2 U.S. Home Prices and S&P 500 Index, 2000-2009 SOURCE: Bloomberg. It is very important, however, not to neglect the role of fiscal policy. The conventional argument is that Greenspan’s monetary policy was too easy, which created conditions for the equity bubble of the mid-to late 1990s and the housing bubble of 2002-2007.


pages: 262 words: 83,548

The End of Growth by Jeff Rubin

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Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, call centre, carbon footprint, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, deglobalization, energy security, eurozone crisis, Exxon Valdez, Fall of the Berlin Wall, fiat currency, flex fuel, full employment, ghettoisation, global supply chain, Hans Island, happiness index / gross national happiness, housing crisis, hydraulic fracturing, illegal immigration, income per capita, Jane Jacobs, labour mobility, McMansion, Monroe Doctrine, moral hazard, new economy, Occupy movement, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, quantitative easing, race to the bottom, reserve currency, Ronald Reagan, South China Sea, sovereign wealth fund, The Chicago School, The Death and Life of Great American Cities, Thomas Malthus, Thorstein Veblen, too big to fail, uranium enrichment, urban planning, urban sprawl, women in the workforce, working poor, Yom Kippur War

Unfortunately, the huge deficits we’ve run up since the last recession are very real bills that will need to be paid. Central banks are running printing presses almost nonstop to kick-start economic growth. In the United States, the Fed calls this tactic “quantitative easing”—a fancy way of saying the Fed is finding ways to pour as much new money into the system as it can. Typically, the Fed sticks to using its control over short-term interest rates to help strengthen the economy. But with those interest rates already at zero, Bernanke and Co. have needed to reach further into their bag of tricks. Under its program of quantitative easing, the Fed is buying longer-term government bonds in an attempt to inject new life into the economy. It works like this: By buying up US Treasury bonds, the Fed is trying to bring down long-term interest rates.

Federal Reserve chairman Alan Greenspan was spurred to hike interest rates by soaring oil prices, which were stirring inflation. Higher interest rates pricked the housing bubble, and the rest of the world was dragged down when the bubble burst. The Fed’s new chairman, Ben Bernanke, appears to be undeterred by the policy failures of his predecessor. His efforts to stimulate economic growth with rock-bottom interest rates and trillion-dollar quantitative easing programs will prove just as unsuccessful as Greenspan’s attempts to keep the economy afloat. Bernanke believes that holding interest rates near zero will encourage Americans to spend money, particularly on new homes. But what’s holding back the housing market isn’t the cost of taking out a mortgage, but a lack of jobs and economic growth. And that has little to do with the Fed’s monetary policy.

A lower rate of return on long-term government bonds, considered a relatively safe haven in times of financial uncertainty, makes other investments more attractive by comparison. Investors typically park huge sums of cash in long-term US bonds in an attempt to ride out a financial storm. By lowering the returns on those bonds, the Fed is trying to steer money into other parts of the financial system where it can do more good for the economy. As part of its quantitative easing program, the Fed also entered the market for mortgage-backed securities. Buying these securities allows the Fed to effectively lower mortgage rates, which reduces borrowing costs for potential homeowners, a move the Fed hopes will help to stimulate the housing market. By engineering a more modest return on government bonds, the Fed is also trying to curb the giant appetite for US dollars among global bond investors.


pages: 701 words: 199,010

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini

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affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bernie Madoff, Black-Scholes formula, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, labour mobility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low skilled workers, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Northern Rock, Occupy movement, oil shock, price stability, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, systematic trading, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

They also announced the second phase of their quantitative easing technique. Instead of just buying mortgage securities, they agreed to begin buying up to $300 billion of longer-term Treasury securities over the next six months. They split up this buying among Treasury securities ranging from a 2-year maturity to a 10-year maturity. This program of buying long-dated securities to try and force their yields down has become known as QE1 (quantitative easing 1). Although it was innovative, it was not only not a new idea, but had already been put into practice by the Japanese between 2001 and 2004. During this period, the Japanese central bank bought long-term Japanese bonds. Some have argued that this policy was successful in stimulating Japan’s output for a period of two and a half years.4 The quantitative easing in the United States continued further when on November 3, 2010, the Fed announced that it would purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.5 This was called QE2 (quantitative easing 2).

This was another example of the Fed using unconventional measures to provide liquidity to the system, since banks were not funding the short-term borrowing needs of U.S. corporations. On November 25, 2008, the Federal Reserve created the Term Asset-Backed Securities Lending Facility (TALF), which allowed the Fed to lend up to $200 billion on a nonrecourse basis to holders of AAA-rated asset-backed securities. Quantitative Easing On November 25, 2008, the Fed announced perhaps its most unusual program of quantitative easing.3 Rather than simply manipulate the short-term Fed Funds rate, the Federal Reserve announced that it would purchase directly mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae. This was the Fed’s second big innovation. With short-term interest rates already basically at zero and the economy still sputtering, the Fed decided to manipulate the long-term market for securities directly.

Some have argued that this policy was successful in stimulating Japan’s output for a period of two and a half years.4 The quantitative easing in the United States continued further when on November 3, 2010, the Fed announced that it would purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.5 This was called QE2 (quantitative easing 2). There have been both critics and supporters of the quantitative easing programs. Ultimately, it is hard to determine whether or not these policies helped stabilize the financial markets since there were so many other factors present. Also, it is impossible to do the counterfactual. That is, what would have happened had the Fed not engaged in these policies? Studies by researchers at the IMF believe that they did contribute to financial market stabilization.6 FIGURE N.3 shows the behavior of key interest rates after the QE1 and QE2 program announcements.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, eurozone crisis, financial innovation, first-past-the-post, full employment, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, Mexican peso crisis / tequila crisis, mortgage debt, new economy, Northern Rock, paper trading, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, Yom Kippur War

While QE can be branded ineffectual, for reasons outlined below, the assertion that the Fed’s QE will push America into another 1970s-like period of ever accelerating prices is ludicrous. Yet truth is not the currency in which the recalcitrant Right trades: terrifying impressions (that can be employed further to boost private appropriation of publically produced wealth) are! Quantitative easing as the most complex form of wishful thinking At the time of writing, the third round of quantitative easing, QE3, was in the air. It is worthwhile taking a look at what it means, because a great number of false accounts circulate whose profound error is particularly instructive regarding the nature of our Crisis. According to the Fed’s own announcement, every month (until further notice) America’s central bank will be buying $40 billion of paper titles backed by mortgages (so-called mortgage backed securities, or MBS).

Vandana Shiva, an Indian physicist and ecologist who directs the Research Foundation on Science, Technology and Ecology, offers a compelling explanation for the food crisis that had erupted in the developing nations just before the Crash of 2008. See Vandana Shiva (2005) Earth Democracy: Justice, sustainability, and peace, Cambridge, MA: South End Press. 5. Quantitative easing is usually referred to as a species of printing money. This is not strictly true. What the Fed is doing is purchasing from banks and other institutions all sorts of paper assets (US government bonds plus private companies’ bonds). It does this by creating overdraft facilities for these institutions, on which they can draw for the purposes of lending to others. But if these institutions do not lend to others (because they cannot find clients willing to borrow), the result is zilch. This is why I say that quantitative easing is an attempt to create money. The Fed’s tragedy is that it is trying to print money but finds it hard to succeed! 6. In Europe, politicians are even terrified of the bankers whose bacon they are still saving, daily, and to the tune of billions per month. 7.

In the United States, the Obama administration, following the Republicans’ victory in the November mid-term elections of 2010, is effectively bamboozled. With the government no longer able to pump-prime the economy with fiscal stimuli, the lonely task of tilting at the slow-burning Crisis has fallen on Ben Bernanke’s Fed. So the Fed, unhappily, is still desperately trying to increase the quantity of money circulating in the American economy by buying hundreds of billions of dollars’ worth of paper assets (quantitative easing is the name of the game).5 Bernanke knows that this is far from an ideal situation, but is left with no choice at a time of stalemate between the White House and Congress. In Europe, the Crisis has set in train centrifugal forces that are tearing the eurozone apart, setting the surplus economies, with Germany at the helm, against the stragglers, whose structural deficits cannot be cured, no matter how much belt-tightening goes on.


pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

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asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Plutocrats, plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, South Sea Bubble, sovereign wealth fund, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, working poor, yield curve

Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.64 prop trading In proprietary trading, banks bet their own money for their own benefit, as opposed to making such trading only on behalf of their clients. It is supposed to be banned by the forthcoming Volcker rule. quantitative easing (QE) An “unconventional” technique used by governments and central banks when interest rates are too low to go down any further, but the need for economic stimulus still exists. QE involves a government buying back its own bonds using money that doesn’t actually exist. It’s like borrowing money from somebody and then paying her back with a piece of paper on which you’ve written the word “Money”—and then, magically, it turns out that the piece of paper with “Money” on it is actually real money. Another way of describing quantitative easing would be if, when you look up your bank balance online, you had the further ability to add to it just by typing numbers on your keyboard.

But these digital ones and zeros measure the value of our labor and define a large part of our being, not just externally in terms of the work we do and where we live and what we own, but in terms of what we think, how we see our interests, with whom we identify, how we define our goals and ambitions, and often, perhaps too often, even what we think of ourselves in our deepest and innermost private being. And yet they’re just ones and zeros. And these ones and zeros are willed into being by governments, which can create more of them just by running a printing press; in fact, thanks to the miracle of quantitative easing, they don’t even need to do that, but instead can merely announce that there is now more electronic money. We’re inclined to think of money as a physical thing, an object, but that’s not really what it is. Modern money is mainly an act of faith—an act of credit, of belief. One of the lessons of the credit crunch was that this credit, this belief, can be vulnerable. A moment came when it wasn’t clear, even to people at the heart of the system—the high priesthood of money itself—that the ones and zeros were worth what they were supposed to be worth.

Although much of the coverage of the stock market focuses on how the price of shares goes up and down, history shows that about half the value of stocks has always come from the dividends they pay. dove A term often used in regard to inflation: an inflation dove is someone who thinks that the economy needs as much stimulus as it can get and that to raise interest rates would be a disaster. Inflation doves love quantitative easing and any other associated loose monetary policy. The opposite of a dove is a hawk. downgrade When a ratings agency lowers its rating on the debt issued by a company or country, that is a downgrade. Ratings agencies do that because they think the bond has grown in risk. A downgrade can have important consequences, because some types of investors, such a municipalities and public pension funds, are by law allowed to invest only in specific grades of debt: if a bond is downgraded, that can mean that some investors have no choice but to sell their bonds.


pages: 151 words: 38,153

With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

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Alfred Russel Wallace, banks create money, Buckminster Fuller, collective bargaining, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, winner-take-all economy

Here are the four most-touted pro-middle-class policies and the reasons why they won’t halt the current decline: Stimulus. Though they quarrel over details, most economists agree that when recession strikes, government should rekindle the economy by adding money to it. Democrats prefer to do this through direct spending, Republicans through tax cuts. The Federal Reserve often plays along by lowering interest rates or printing money through a process called “quantitative easing.” Such fiscal and monetary pump-priming often perks up the economy for a while, but it doesn’t fix the causes of middle-class decline. As we’re seeing nowadays, it’s easy for GDP and corporate profits to grow without more income flowing to the middle class. Job creation. Listen to any politician and you’ll hear bold promises to spur job creation. The underlying premise is that more private sector jobs will save the middle class and that given enough incentives, profit-seeking entrepreneurs will create them.

The International Monetary Fund has argued that other measures might work better.7 With regard to new money creation: from 2001 to 2008 (before the financial crisis), the average yearly increase in what the Federal Reserve calls M2 was $244 billion.8 I use this figure (which is adjusted to 2013 dollars) to calculate the low end of the range in figure 7.1. For the high end I use the average annual change in M2 from 2001 to 2013, which includes several years of “quantitative easing.” That figure, translated into 2013 dollars, is $323 billion. The middle figure is halfway between. Intellectual-Property Protection Intellectual property (IP) rights owned by private corporations include patents, copyrights, and trademarks granted and enforced by the federal government. Such property rights are enormously valuable. A recent study by the Department of Commerce found that IP-intensive industries account for about a third of US GDP.9 This is the reason why our government goes to such great lengths to protect IP, not only within the United States but worldwide.

See Jobs; Unemployment Energy and Commerce Committee, 109 England, textile machinery in, 18 Environmental Defense Fund, 99 Environmental movement, 134–135 Epstein, Joshua, 31–33 Equity leverage, 47–48 European carbon trading system, 99, 104–105 European Union (EU) universal guaranteed income ideas in, 129–130 value added taxes (VATs) and, 140–141 Euthanasia of the rentier, 56 Everyone-gets-a-share capitalism, 3–4, 42, 126 Externalities, 63–64, 98–99 Extracted rent, 43, 45–57 recycled rent compared, 60 Extreme inequality, 33–34 ExxonMobil, 102 F Facebook, 48 Fair market value, 52 Fallacy of composition, 24–25 Family Assistance Plan, 80–81 Federal Reserve on new money creation, 144 quantitative easing, 22 shared market economy and, 83 FedEx, 26 Fee and dividend program, 115 Financial derivatives, global value of, 57 Financial infrastructure. See also Banks; Stocks and bonds as co-owned wealth, 61 rent from, 142–145 Financial leverage, 47–48 Financial Times (Kay), 53 Financial transaction taxes, 143 Fisher, Irving, 91 Ford, Henry, 8, 19 Ford Motor Company, 18 Foreign Affairs, 130–131 Foreign exchange transitions, value of, 57 Foreign manufacturing, 16 Fossil fuels, 115–116 401(k) plans, 123 Foxconn, 25 Fractional reserve banking, 54, 90 Friedman, Milton, 80–81, 85–87, 91, 119 Fuller, Buckminster, 66 Future scenarios, 135–136 G Galbraith, John Kenneth, 34, 80 Gates, Bill, 48–49, 84 General Motors, jobs at, 23 George, Henry, 4, 51, 66 Germany, 19, 37–38 GI Bill, 16 Glass-Steagall Act of 1933, 54–55 Globalization, 17 Global Warming Solutions, 117 God Bless You, Mr.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

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accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, Plutocrats, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

It was clear that currencies had played an important role in the development of the crisis and in the ability of governments to withstand the squalls of the financial storm. The ease with which credit could be issued with paper money has already been observed. More paradoxically, the paper money which had been responsible in large part for the explosive increase in credit was now seen to provide the solution. It was in this period that the phrase ‘quantitative easing’ first entered into everyday speech, at least in the newspapers. If anything symbolized the power of the government to conjure money out of thin air it was quantitative easing. Quantitative easing (QE) was said to be ‘an ugly name for a simple idea’. Central banks ‘buy long-term government bonds with newly printed money’.56 The theory was that this purchase of government debt, by which the central bank was effectively printing money and lending it to its own government, would keep bond prices high.

In his own words, very simply put, ‘A greater Quantity [of money] employs more People than a lesser Quantity.’13 Another central component of Law’s thinking was that more economic activity would lead to an export surplus. This latter conclusion has not been endorsed by modern economists, but Law’s suggestion that the level of output, or ‘trade’ in his terminology, was related to the quantity of money is an idea which has been persistently espoused by later economists. Indeed, the modern advocates of ‘quantitative easing’, whereby a central bank prints more money to sustain economic activity, are the intellectual descendants of John Law. Unlike most gamblers, and even most monetary theorists, Law, by a series of improbable circumstances, managed to put his theories into practice on a national stage. He spent much of his late thirties and early forties travelling around the ‘principal cities of Italy’, where he continued ‘his speculations, playing at all sorts of games, betting, and engaging in the public funds and banks’.

Tim Geithner was Obama’s Treasury Secretary, and coincidentally an alumnus of the same small elite New England university attended by Hank Paulson, Dartmouth College. A slick and committed public servant, he had earned plaudits from Britain’s Alistair Darling, who found him ‘unpretentious and easy going’, with a ‘quiet style’ which ‘belied a steely determination’.59 He and most of the other leading figures in both the United States and the West generally were committed to printing and spending large sums of money to avert recession. Such policies as quantitative easing and the running of enormous budget deficits could be applied only in a world which had been totally removed from the constraints imposed by a gold standard. Central bankers like Bernanke remained committed to providing liquidity and supporting bond prices by means of printing more money. Some drastic spending cuts did occur in some countries in Europe such as Greece, Ireland and Portugal.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

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airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, moral hazard, mortgage debt, paradox of thrift, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

To be fair, the Fed has moved to some extent on the first bullet point above: under the deeply confusing name of “quantitative easing,” it has bought both longer-term government debt and mortgage-backed securities. But there has been no hint of Rooseveltian resolve to do whatever is necessary: rather than being aggressive and experimental, the Fed has tiptoed up to quantitative easing, doing it now and then when the economy looks especially weak, but quickly ending its efforts whenever the news picks up a bit. Why has the Fed been so timid, given that its chairman’s own writings suggest that it should be doing much more? One answer may be that it has been intimidated by political pressure: Republicans in Congress went wild over quantitative easing, accusing Bernanke of “debasing the dollar”; Rick Perry, the governor of Texas, famously warned that something “ugly” might happen to Bernanke if he visited the Lone Star State.

Meanwhile, actual investors seemed not at all worried: interest rates on long-term U.S. bonds were low by historical standards as Bowles and Simpson spoke, and proceeded to fall to record lows over the course of 2011. Three other points are worth mentioning. First, in early 2011 alarmists had a favorite excuse for the apparent contradiction between their dire warnings of imminent catastrophe and the persistence of low interest rates: the Federal Reserve, they claimed, was keeping rates artificially low by buying debt under its program of “quantitative easing.” Rates would spike, they said, when that program ended in June. They didn’t. Second, the preachers of imminent debt crisis claimed vindication in August 2011, when Standard & Poor’s, the rating agency, downgraded the U.S. government, taking away its AAA status. There were many pronouncements to the effect that “the market has spoken.” But it wasn’t the market that had spoken; it was just a rating agency—an agency that, like its peers, had given AAA ratings to many financial instruments that eventually turned into toxic waste.

The sad irony is that back in 2000 Bernanke criticized the Bank of Japan for essentially having the same attitude, of being unwilling to “try anything that isn’t absolutely guaranteed to work.” Whatever the reasons for the Fed’s passivity, the point I want to make right now is that all the possible actions Professor Bernanke suggested for a time like this, but which Chairman Bernanke has not, in fact, tried, remain available. Joseph Gagnon, a former Fed official now at the Peterson Institute for International Economics, has laid out a specific plan for much more aggressive quantitative easing; the Fed should move ahead with that plan or something like it right away. It should also commit to modestly higher inflation, say, 4 percent over the next five years—or, alternatively, set a target for the dollar value of GDP that would imply a similar rate of inflation. And it should stand ready to do more if this proves insufficient. Would such aggressive Fed actions work? Not necessarily, but as Bernanke himself used to argue, the point is to try, and keep on trying if the first round proves inadequate.


pages: 233 words: 66,446

Bitcoin: The Future of Money? by Dominic Frisby

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3D printing, altcoin, bank run, banking crisis, banks create money, barriers to entry, bitcoin, blockchain, capital controls, Chelsea Manning, cloud computing, computer age, cryptocurrency, disintermediation, ethereum blockchain, fiat currency, friendly fire, game design, Isaac Newton, Julian Assange, litecoin, M-Pesa, mobile money, money: store of value / unit of account / medium of exchange, Occupy movement, Peter Thiel, Ponzi scheme, prediction markets, price stability, quantitative easing, railway mania, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Skype, slashdot, smart contracts, Snapchat, Stephen Hawking, Steve Jobs, Ted Nelson, too big to fail, transaction costs, Turing complete, War on Poverty, web application, WikiLeaks

Government borrows money through the bond markets. The third is by actually creating money – printing it and creating it by other means such as quantitative easing. The fourth is by manipulating money – inflation. We have just seen how insidious this is. Let’s be idealistic for a moment and imagine that Bitcoin and other independent monies become the globally preferred means to make and receive payment. I do not see this as at all likely in the short term. But in the longer term, I do – and the implications are enormous. In a flash, the ability for a government to fund itself through the manipulation of money disappears. You can’t obfuscate bitcoin supply – inflation is transparent. You can’t ‘quantitatively ease’ bitcoins. Governments – without a very aggressive and potentially impractical bitcoin confiscation scheme – will struggle to use your bitcoins to bail themselves out.

It was a ‘global financial tsunami’; we were ‘on the brink’ and ‘staring into the abyss’.1 Capitulating stock markets, bankruptcies, bank runs – events came thick and fast and, at first, nobody seemed to know quite what to do. Then, under immense pressure from the world of finance, governments and central banks reacted dramatically. They created money and credit on a scale unprecedented in human history. Banks were bailed out, interest rates were slashed to levels never seen before and the process of creating money electronically known as quantitative easing was begun. The result? The financial system was saved. Central bankers were hailed as heroes. The idea spread that governments and central banks really can operate an economy. Even those who would normally oppose such interventions seemed to think the right thing had been done. A few dissenters argued that the few were being bailed out at the expense of the many, that enormous problems in the financial system were simply being deferred when they needed to be faced, and that these problems would only come back on a far greater scale.

In issuing the mortgage (for which they took the deeds of the house as collateral), the lending bank created money, which was then paid to me. The funds didn’t come from investors or from the deposits of others. The money did not previously exist. Thus modern electronic money – dollars, pounds and euros – is created through lending. Of course, governments create money through such processes as quantitative easing, but, even so, most money is lent into existence. This power to ‘create’ money through lending is what has made the worlds of banking and finance so large, powerful and rich. Modern money could thus be defined as ‘electronic debt-based fiat currency’. Research by UK think tank Positive Money shows that since 1989, money creation has been growing by 11.5% per annum. Compounded over time, the entire money stock doubles every six years and three months.


pages: 372 words: 107,587

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

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3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, invisible hand, Isaac Newton, Kenneth Rogoff, late fees, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, post-oil, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, working poor

Austrian-School and post-Keynesian economists have contributed a basic insight to the discussion: Once a credit bubble has inflated, the eventual correction (which entails destruction of credit and assets) is of greater magnitude than government’s ability to spend. The cycle must sooner or later play itself out. There may be a few more arrows in the quiver of economic policy makers: central bankers could try to drive down the value of domestic currencies to stimulate exports; the Fed could also engage in more quantitative easing. But these measures will sooner or later merely undermine currencies (we will return to this point in Chapter 6). Further, the way the Fed at first employed quantitative easing in 2009 was minimally productive. In effect, QE1 (as it has been called) amounted to adding about a trillion dollars to banks’ balance sheets, with the assumption that banks would then use this money as a basis for making loans.29 The “multiplier effect” (in which banks make loans in amounts many times the size of deposits) should theoretically have resulted in the creation of roughly $9 trillion within the economy.

However, some argue that limits to government debt (due to snowballing interest payments) need not be a hard constraint — especially for a large nation, like the US, that controls its own currency.16 The United States government is constitutionally empowered to create money, including creating money to pay the interest on its debts. Or, the government could in effect loan the money to itself via its central bank, which would then rebate interest payments back to the Treasury (this is in fact what the Treasury and Fed are doing with Quantitative Easing 2, discussed below).17 The most obvious complication that might arise is this: If at some point general confidence that external US government debt (i.e., money owed to private borrowers or other nations) will be repaid with debt of equal “value” were deeply and widely shaken, potential buyers of that debt might decide to keep their money under the metaphorical mattress (using it to buy factories or oilfields instead), even if doing so posed its own set of problems.

Documents released by the Fed on December 1, 2010 showed that more than $9 trillion in total had been supplied to Wall Street firms, commercial banks, foreign banks, and corporations, with Citigroup, Morgan Stanley, and Merrill Lynch borrowing sums that cumulatively totaled over $6 trillion. The collateral for these loans was undisclosed but widely thought to be stocks, CDSs, CDOs, and other securities of dubious value.27 In one of its most significant and controversial programs, known as “quantitative easing,” the Fed twice expanded its balance sheet substantially, first by buying mortgage-backed securities from banks, then by purchasing outstanding Federal government debt (bonds and Treasury certificates) to support the Treasury debt market and help keep interest rates down on consumer loans. The Fed essentially created money on the spot for this purpose (though no money was literally “printed”).


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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accounting loophole / creative accounting, Airbnb, Ben Bernanke: helicopter money, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, winner-take-all economy, Wolfgang Streeck

By comparison with the 1970s, when it was the coincidence of inflation and unemployment that left economists clueless, now it is very cheap money coexisting with deflationary pressures, raising the spectre of ‘debt deflation’ and of a collapse of a pyramid of accumulated debt by far exceeding in size that of 2008. How much of a mystery the present phase of the long crisis of contemporary capitalism presents to its would-be management24 is nowhere more visible than in the practice of ‘quantitative easing’, adopted, under different names, by the leading central banks of the capitalist world. Since 2008, central banks have been buying up financial assets of diverse kinds, handing out new cash, produced out of thin air, to private financial firms. In return they receive titles to future income streams from debtors of all sorts, turning private debt into public assets, or better: into assets of public institutions with the privilege unilaterally to determine an economy’s money supply.

Right now, the balance sheets of the largest central banks have increased in the past seven years from around eight to more than twenty trillion dollars (see Figure 4.3, p. 127), not yet counting the gigantic asset buying programme started by the European Central Bank in 2014. In the process, central banks, in their dual roles as public authorities and guardians of the health of private financial firms, have become the most important, and indeed effectively the only, players in economic policy, with governments under strict austerity orders and excluded from monetary policymaking. Although quantitative easing has completely failed to counter the deflationary pressures in an economy like Japan – where it has been relied upon for a decade or more on a huge scale – it is steadfastly pursued for lack of alternatives, and nobody knows what would happen if cash-production by debt-purchasing was ended. Meanwhile in Europe, banks sell their no-longer-secure securities, including government papers, to the European Central Bank, either letting the cash they get in return sit with it on deposit, even if they have to pay negative interest on it, or they lend it to cash-strapped governments in countries where central banks are not allowed to finance governments directly, collecting interest from them at a rate above what they could earn in the private credit market.

Meanwhile in Europe, banks sell their no-longer-secure securities, including government papers, to the European Central Bank, either letting the cash they get in return sit with it on deposit, even if they have to pay negative interest on it, or they lend it to cash-strapped governments in countries where central banks are not allowed to finance governments directly, collecting interest from them at a rate above what they could earn in the private credit market. To this extent, quantitative easing at least serves to rescue, if nothing else, the financial sector.25 Decoupling Democracy As the crisis sequence took its course, the post-war shotgun marriage between capitalism and democracy came to an end.26 Again this was a slow, gradual development. There was no putsch:27 elections continue to take place, opposition leaders are not sent to prison, and opinions can still by and large be freely expressed in the media, both old and new.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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accounting loophole / creative accounting, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, land reform, late capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond

A sell-off of Treasuries by other purchasers would have been predicted, amid a massive run on the dollar. That nothing like this occurred, and that the Treasury’s endorsement of quantitative easing initially elicited little critical comment, was a strong measure of the recognition on the part of global capital—and of the other capitalist states—of the central role of the American state in keeping the system going. The ultimate aim of quantitative easing was to try to get the banks to lend so as to stimulate the economy at a time when, despite continued high unemployment, the balance of Congressional forces was shifting against any further fiscal stimulus. Quantitative easing essentially involved an audacious printing of US dollars, and thus relied on the willingness of foreign investors and central banks to continue to hold dollars; it served as the strongest reminder to date of the special ongoing attractiveness of the dollar.

A lower dollar devalued their holdings of US assets, undermined the relative competitiveness of their economies, and—as excess dollars found their way abroad—aggravated inflationary pressures. But given these states’ structural positions within global capitalism, and their economic ambitions, they saw no option but to continue to hold and even increase their dollar holdings. Although there was no little handwringing at home and abroad about the potentially inflationary effects of quantitative easing, inflation was not a problem in the US, especially given the continuing weakness of American labor, and this was reinforced by high unemployment. As for Europe, although quantitative easing did provide additional liquidity for European banks, inflation was also not a serious problem there. This was because European governments had already been forced to move so far in the direction of austerity by the toll financial markets had exacted on the bond sales that many of them needed to cover fiscal deficits following the bailouts of their banks and decline in tax revenue.

For the lessons the Fed drew for this exercise based on its earlier “stress tests,” see Beverley Hirtle, Til Schuermann, and Kevin Stiroh, “Macroprudential Supervision of Financial Institutions: Lessons from the SCAP,” Federal Reserve of New York Staff Reports, no. 409, November 2009. 88 The aim of quantitative easing was less to control medium- and long-term market rates, although this was how the program was sold to the public, than to stabilize market valuations of securities and sustain interbank markets. Thus, while QE1 in November 2008 involved the purchase of both Treasury bonds and GSE securities ($300 billion and $200 billion respectively), the essence of the project was the socialization of bank losses and risk. The QE2 purchase of Treasury bond securities ($600 billion) two years later had the similar effect of increasing private banks’ reserve holdings, but with bank balance sheets now significantly improved, the Fed was now able to manipulate the interest it paid on the reserves that the banks held with it. See Alan S. Blinder, “Quantitative Easing: Entrance and Exit Strategies,” Federal Reserve Bank of St.


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How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy by Mehrsa Baradaran

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access to a mobile phone, affirmative action, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, cashless society, credit crunch, David Graeber, disintermediation, diversification, failed state, fiat currency, financial innovation, financial intermediation, Goldman Sachs: Vampire Squid, housing crisis, income inequality, Internet Archive, invisible hand, Kickstarter, M-Pesa, McMansion, microcredit, mobile money, moral hazard, mortgage debt, new economy, Own Your Own Home, payday loans, peer-to-peer lending, price discrimination, profit maximization, profit motive, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, the built environment, the payments system, too big to fail, trade route, transaction costs, unbanked and underbanked, underbanked, union organizing, white flight, working poor

Banks use this reserve to operate and meet the withdrawal needs of their customers, while the Federal Reserve uses this reserve to achieve its own policy goals of either expanding or contracting the money supply. Increasing the reserve requirement (forcing banks to hold on to more money) contracts the money available to lend and decreasing the reserve requirement increases it. Finally, the Federal Reserve has recently engaged in a controversial strategy called quantitative easing (QE) to get a slow economy moving when the above measures have failed to increase lending. Quantitative easing entails the Fed’s purchase of a large quantity of securities in the open market to pump even more money into the banks—hence “quantitative easing.” Under QE, the Fed purchases U.S. Treasury notes and mortgage-backed securities using newly created electronic cash, which increases bank reserves. In theory, this provides banks with more money to lend so they will lower interest rates and make more loans. In 2008, the Federal Reserve bought over $1.25 trillion in mortgage-backed securities from banks on the theory that the banks would use this money to lend.

This occurs both directly, through influencing the loan rates charged by banks, but also indirectly through the overall effect of monetary policy on economic activity in the economy.” McLeay, Radia, and Thomas, “Money Creation,” 16. 14. See Peter Conti-Brown, The Structures of the Federal Reserve Independence (Princeton, NJ: Princeton University Press, 2015). 15. See Kimberly Amadeo, “What is Quantitative Easing: How the Federal Reserve Created Massive Amounts of Money,” About News, October 14, 2014, accessed March 13, 2015, useconomy.about.com/od/glossary/g/Quantitative-Easing.htm; “What is Quantitative Easing?,” Economist, January 14, 2014, accessed March 13, 2015, www.economist.com/blogs/economist-explains/2014/01/economist-explains-7. 16. “No one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.” Bob Ivry, Bradley Keoun, and Phil Kuntz, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” Bloomberg, November 27, 2011, accessed March 13, 2015, www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html.

Because the central bank controls the supply of currency, the cost of credit circulating through the economy at any given moment is largely a policy decision made by the government’s central bank. Our central bank in the United States, the Federal Reserve, uses four levers to shape the economy and control monetary supply: (1) the federal fund rate, (2) the discount rate, (3) reserve requirements, and (4) “quantitative easing.” The central bank uses all of these measures, which are only possible with the help of the banking system, to influence the economy.14 The federal fund rate is the rate at which banks lend to each other, which influences the interest rate for all lending. Given the state of the economy and the Fed’s policy goals, it sets a target interest rate that it believes will be optimal. To reach this rate, the Federal Open Market Committee (FOMC) buys or sells government securities from or to banks depending on whether it wants to increase or decrease the economy’s money supply.


pages: 128 words: 35,958

Getting Back to Full Employment: A Better Bargain for Working People by Dean Baker, Jared Bernstein

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, collective bargaining, declining real wages, full employment, George Akerlof, income inequality, inflation targeting, minimum wage unemployment, new economy, price stability, quantitative easing, Report Card for America’s Infrastructure, rising living standards, War on Poverty

The Fed can get around this limitation with unconventional monetary policy, which is why it has been buying up large amounts of long-term bonds in its policy of “quantitative easing,” hoping to directly lower long-term interest rates. This is a second-best solution. The effects of buying up large amounts of government bonds and mortgage-backed securities are not well understood or predictable. The process of unwinding this policy as the Fed sells off these assets is also not entirely predictable or without risk. Given the costs of a sustained period of unemployment, the Fed’s policy is certainly worth the risk, but it would be better if conventional monetary policy could be more effective. (Conventional monetary policy would also raise fewer political objections of the sort that have limited the use of quantitative easing). The obvious way to give monetary policy more power would be to have a higher initial inflation rate.

And it would have prevented the world from recognizing that the economics profession was wrong, since its estimate of the structural rate of unemployment would otherwise never have been tested.[14] As the unemployment rate falls in the years ahead we will face similar controversies. Indeed, prominent voices in the profession claim that the unemployment rates we are now seeing are consistent with the structural rate of unemployment in the economy.[15] From this perspective, efforts by the Fed to boost the economy with low interest rates and quantitative easing, or by Congress to use spending and tax cuts to increase demand, are foolhardy, since they will primarily have the effect of raising the inflation rate while having little impact on output and employment. Their argument is that the downturn represents a fundamental shift in the economy. In their view, the bursting of the housing bubble left a huge pool of workers with capabilities in construction and manufacturing; when the economy recovers we are not likely to see as much employment in these sectors as before, and so millions of former construction and manufacturing workers will be structurally unemployed.[16] While this is a minority view in the profession, as evidenced in part by the fact that the Fed’s Open Market Committee has overwhelmingly supported expansionary policy, more moderate voices have argued that the NAIRU is considerably higher than it was before the downturn.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money: store of value / unit of account / medium of exchange, mortgage debt, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Wave and Pay, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

Since the collapse of Lehman Brothers in September 2008, the world’s major central banks have been plowing vast quantities of money into the banking system. The U.S. Federal Reserve has made commitments totaling some $29 trillion, lending $7 trillion to banks during the course of one single fraught week. The Bank of England has spent around £325 billion on quantitative easing alone—a figure that could yet rise to £600 billion—while the U.K. government has committed a total of £1.162 trillion to bank rescues. The European Central Bank has made low-interest loans directly to banks worth at least €1.1 trillion. These measures are not addressing the crisis alone. In April 2013, the Bank of Japan embarked on a quantitative easing program worth some $1.3 trillion, designed to end more than a decade of deflation. The social costs of the crisis, too, have been devastating. These are the costs both of the crisis itself and importantly of the policies used by governments and central banks to alleviate its effects on those very institutions that caused it.

More recently, however, the bankers did not oppose the significant levels of money creation ($13 trillion of debt to rescue bad loans and other obligations) that went into the bailout and the quantitative easing (QE) program. QE began in March 2009, when the U.S. Federal Reserve bought $1,750 billion of government bonds and mortgage-related and agency securities, and the Bank of England purchased £200 billion ($308 billion) of (mostly) government debt. Despite this, and several subsequent episodes of QE, deflation, not inflation, still appears to be the prevailing concern. Technically, quantitative easing consists of temporary bond purchases, but there is a view, increasingly predominant, that these purchases will turn out to be forever.57 This would be helicopter money,58 or what is otherwise known as direct (or overt) monetary financing.59 Monetary theory is at the heart of this idea.

Gold was worth less than $30 an ounce until the 1930s and less than $40 until 1970. Gold’s price broke the $1,000 an ounce barrier in 2009, reaching a little more than $1,700 by early 2012. To sympathizers of Menger, this rise provides all the evidence necessary for the declining purchasing power of money once it is untethered from gold. Central banks would never have been able to pursue policies like quantitative easing, for example, if the supply of money was fixed to the supply of a reliable commodity, such as gold. Moreover, money would be worth considerably more as a result. To others, who sympathize with Keynes’s famous description of gold as a “barbarous relic,” linking the supply of money to a commodity with a finite supply spells disaster because it stifles the supply of investment that the economy needs.


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

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Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, Bretton Woods, capital controls, clean water, collateralized debt obligation, credit crunch, David Ricardo: comparative advantage, debt deflation, deindustrialization, delayed gratification, disintermediation, diversification, fiat currency, financial independence, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global supply chain, happiness index / gross national happiness, hydraulic fracturing, informal economy, invisible hand, Jane Jacobs, land tenure, Lao Tzu, liquidity trap, lump of labour, McMansion, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, new economy, oil shale / tar sands, Own Your Own Home, peak oil, phenotype, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail

Here is a typical pro-inflation argument by Dean Baker of the Center for Economic and Policy Research: If it is politically impossible to increase the deficit, then monetary policy provides a second potential tool for boosting demand. The Federal Reserve Board can go beyond its quantitative easing program to a policy of explicitly targeting a moderate rate of inflation (e.g., 3–4 percent) thereby making the real rate of interest negative. This would also have the benefit of reducing the huge burden of mortgage debt facing tens of millions of homeowners as a result of the collapse of the housing bubble.22 The problem is, in a deflationary environment when banks aren’t lending, how can the Fed create inflation? This is the biggest problem with the inflation solution in a situation of overleveraging and overcapacity. Quantitative easing exchanges a highly liquid asset (base money, reserves) for less liquid assets (e.g., various financial derivatives), but that won’t cause price or wage inflation if the new money doesn’t reach people who will spend it.23 Even if the Fed monetized all debt, public and private, the essential problem would remain.

We can still envision a new airport, but we can no longer build it. The magic talisman by which the pronouncement “An airport shall be built here” crystallizes into material reality has lost its power. Human hands, minds, and machinery retain all their capacities, yet we can no longer do what we once could do. The only thing that has changed is our perceptions. We can therefore see the bailouts, quantitative easing, and the other financial measures to save the economy as further exercises in perception management, but on a deeper, less conscious level. Because what is money, anyway? Money is merely a social agreement, a story that assigns meaning and roles. The classical definition of money—a medium of exchange, a store of value, a unit of account—describes what money does, but not what it is. Physically, it is now next to nothing.

If a bank’s margin reserves are insufficient to meet requirements, it simply borrows the necessary cash from the Fed or the money markets. If there is a system-wide insufficiency of reserves, then the Fed expands the monetary base through open-market operations. That is why M0 growth typically lags behind M1 and M2 by many months—the opposite of what one would expect from the multiplier effect if we lived in a fractional reserve system (see Keen, “The Roving Cavaliers of Credit”). That is also why recent “quantitative easing” by the Fed and other central banks has done little to increase the money supply. 5. This in fact happened many times; during the Great Depression it happened in nearly every country. Holders of currency demanded gold from banks and ultimately central banks, which eventually said no. In the United States in the 1930s it actually became illegal under Roosevelt’s Executive Order 6102 to hold more than a small amount of gold.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

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bank run, banks create money, British Empire, capital controls, Carmen Reinhart, central bank independence, currency peg, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Long Term Capital Management, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Y2K

Naturally, the dependence of the price structure and of large parts of the economy on a steady flow of money at low interest rates had become so considerable that the next attempt to return to and sustain “normal” rates and a slower pace of money growth initiated another downturn and now even kicked off a severe financial crisis. This was the so-called subprime crisis that commenced in the summer of 2007. Not surprisingly, the U.S. Federal Reserve did go again one step further, now adopting practically zero policy rates and conducting aggressive debt monetization, labeled “quantitative easing,” a policy in which it was followed by the Bank of England. But again, Japan had preceded everybody by a few years, having conducted zero-rate policies and quantitative easing from 2001 to 2006. When Japan had done so, the policy had again been unprecedented and appeared extreme to financial market commentators. The policy establishment began to follow Japanese developments with increasing trepidation, frustration, and even anger. After all, the Japanese used the twentieth century’s newfound policy equipment of money printing and deficit spending, the all-purpose policy tools that allegedly promised an end to any recession.

Nevertheless, statistics may give us an indication: Industrial production in the United States is about 12 times larger today than it was at the beginning of the Great Depression.2 However, the amount of currency in circulation (notes and coins) is more than 200 times larger today (end of 2010).3 The stock of money in the statistical definition of M1 is about 65 times larger and in the M2 definition about 150 times larger.4 By the end of 2010, the Federal Reserve was on its second round of quantitative easing, which meant that the monetary base and bank reserves were more than 330 times larger than in October 1929.5 Total net debt as a percent of GDP—which stood at about 150 percent when Nixon took the dollar off gold—reached a record high of 370 percent in the third quarter of 2009. At the time of the 1929 stock market crash, this ratio stood at less than 200 percent and was thus half of what it is today.6 It is part of the inherent logic of the present system that policy makers must do everything to avoid a rise in interest rates, as such a rise would reveal the true availability of savings, which naturally is much more limited than what artificially lowered interest rates have consistently projected.

The ECB felt compelled to buy Greek, Portuguese, and Irish government bonds in particular as investors sold these securities heavily out of fear of sovereign insolvency. The reason for the central bank’s intervention was to avoid a spreading of the sovereign debt crisis to other and bigger members of the monetary union, none of which are fiscally sound. In the United States, where the government is running record budget deficits, the central bank has, with its second round of so-called quantitative easing, become the biggest marginal buyer of U.S. government bonds and will soon be the largest holder. The central bankers make every effort to portray these market interventions as only temporary. They are supposed to appear as creative stimulus measures or as short-term maneuvers that guarantee stability and liquidity. In fact, our analysis has shown that these policies are the inevitable next steps in the deterioration of the paper money system and that we should expect them to be continued and indeed expanded.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

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Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business process, butterfly effect, call centre, capital controls, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kevin Kelly, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, payday loans, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, wages for housework, women in the workforce

What we did with money in the run-up to 2008 was to massively expand its volume: the global money supply rose from $25 trillion to $70 trillion in the seven years before the crash – incomparably faster than growth in the real economy. When money expands at this rate, it is a sign that we think the future is going to be spectacularly richer than the present. The crisis was simply a feedback signal from the future: we were wrong. All the global elite could do once the crisis exploded was put more chips on the roulette table. Finding them, to the tune of $12 trillion in quantitative easing, was no problem since they themselves were the cashiers at the casino. But they had to spread their bets more evenly for a while, and become less reckless.12 That, effectively, is what the policy of the world has been since 2008. You print so much money that the cost of borrowing it for banks becomes zero, or even negative. When real interest rates turn negative, savers – who can only keep their money safe by buying government bonds – are effectively forced to forgo any income from their savings.

It was Treasury Secretary Larry Summers who, in 1999, through the repeal of Glass-Steagall, opened the banking system to the attentions of those adept at exotic, opaque and offshore forms of finance. Fiat money, then, contributed to the crisis by creating wave after wave of false signals from the future: the Fed will always save us, shares are not risky and banks can make high profits out of low-risk business. Nothing demonstrates the continuity between pre- and post-crisis policy better than quantitative easing (QE). In 2009, having wavered before the enormity of the task, Bernanke – together with his UK counterpart Mervyn King, governor of the Bank of England – started the presses rolling. In November 2008 China had already begun printing money in the more direct form of ‘soft’ bank loans from the state-owned banks to businesses (i.e. loans that nobody expected to be repaid). Now the Fed would print $4 trillion over the next four years – buying up the stressed debts of state-backed mortgage lenders, then government bonds, then mortgage debt, to the tune of $80 billion a month.

Interest rates35 Kondratieff measured his waves using interest rates, and for the post-1945 period there is no clearer metric than this one: the average interest rates banks charge to companies and individuals in the USA. Interest rates rose gradually during the long boom, spiked in the early 1980s – when high interest rates were used to wipe out swathes of the old industries – and have gradually declined, flatlining at the end of the graph because of quantitative easing. Kondratieff’s colleagues, who’d seen this exact pattern in all the previous cycles, would have concluded: ‘Comrade, that’s a long wave.’ 3. Commodity prices: nickel However, Kondratieff also tracked the prices of basic commodities, such as coal and iron. This graph tracks the price of a modern equivalent, nickel – a key component of stainless steel – over fifty-seven years. I think it would have knocked Kondratieff off his chair.


pages: 391 words: 97,018

Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy by Daniel Gross

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, BRICs, British Empire, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, Frederick Winslow Taylor, high net worth, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop, illegal immigration, index fund, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, Zipcar

In 2009 and 2010, through fees and interest, TALF generated $721 million in profits for the Fed, which didn’t pay out a dime in guarantees.4 These efforts were short-term emergency interventions to unclog the nation’s—and the world’s—financial plumbing. Other interventions were made to keep interest rates low and to jolt the economy back into life. After the financial panic passed, the Federal Reserve continued to add new assets to its balance sheet, creating new money to buy $1 trillion in mortgage-backed securities in 2009, in the first round of what came to be known as “quantitative easing” (QE). In late 2010 and early 2011, in a second round of quantitative easing, the Fed bought $600 billion in Treasury securities. But the overall balance sheet didn’t expand by anywhere near $1.6 trillion as a result of QE1 and QE2, thanks to the slow-motion erosion of crisis-era facilities and loans. Each week, as people made payments on mortgages and refinanced and sold homes, the mortgage-backed securities portfolio shrank.

Having spent a week getting acquainted with the depopulating, self-doubting country, I gulped hard. But Nishimura’s takeaway was an optimistic one. In the 1990s Japanese policymakers deliberated and delayed before embarking on a regime of interest rate cuts, stimulus measures, an expansion of bank deposit insurance, a partial nationalization of failed institutions, bank capital injections, a zero-interest-rate policy, quantitative easing, and still more stimulus. The United States, he said, had essentially undertaken the same response, with one significant difference: speed. It took the United States just eighteen months to conduct the aggressive fiscal and monetary actions that Japan waited twelve years to carry out. Whereas Japan’s first major stimulus came seven quarters after its commercial real estate bubble peaked, the U.S. policymaking apparatus responded to the downturn much more quickly.

In 2010 and 2011 the consumer was more like a weightlifter who has strengthened his legs and core and has learned how to use them. As a result the vicious debt circle of 2008 and 2009 was increasingly replaced by a virtuous circle in 2010 and 2011. Higher demand—led by global growth, rising government expenditures, and a recovering private sector—spurred job creation starting in February 2010. And this process gained steam even as the effects of policy and public spending withered. The Federal Reserve’s quantitative easing helped keep interest rates low in 2010 and 2011, but petered out in the second half of 2011. The stimulus and government assistance, so vital to averting a Great Depression in 2008 and 2009, began to wane in 2010. Meanwhile states and cities were acting as brakes on growth by cutting spending and employment. In what’s been dubbed “the conservative recovery,” the private sector persistently added jobs even as the public sector just as persistently cut them.

Unhappy Union by The Economist, La Guardia, Anton, Peet, John

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bank run, banking crisis, Berlin Wall, Bretton Woods, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, Flash crash, illegal immigration, labour market flexibility, labour mobility, market fundamentalism, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

The mood of foreboding grew darker still on May 6th 2010, the day of a strange “flash-crash” on Wall Street, in which the Dow Jones Industrial Average collapsed by about 1,000 points before recovering within minutes, perhaps because of a technical glitch. The ECB’s governing council, in Lisbon that day for its monthly meeting, faced a momentous decision: should it start buying sovereign bonds to stop the panic? The Federal Reserve and the Bank of England had been doing so under their policy of quantitative easing to bring down long-term borrowing costs. But the ECB had not gone so far, wary of the prohibition against anything resembling “monetary financing”, that is, printing money to finance public debt. After the official meeting, Trichet told journalists that the subject of bond-buying had not been discussed. Later on over an informal dinner, however, the council had reached a tentative agreement to start selectively buying the bonds of vulnerable countries.4 The next day, as leaders gathered in Brussels for a euro-zone-only summit, ostensibly to endorse the bail-out of Greece, many participants seemed unaware that they would be called upon to do something much bigger: set up a safety net for the whole euro zone.

The ECB had its own twin fears, both of them German. They were called “Bundesbank” and “Karlsruhe”. The inflation-busting tradition of the Bundesbank meant that the ECB would rather flirt with deflation than let prices rise too high in Germany, or upset German savers by more aggressive lowering of interest rates. It never dared engage in the aggressive loosening of monetary policy, known as “quantitative easing” (involving the purchase of government bonds and other assets), long pursued by the US Federal Reserve and the Bank of England. Excessively low inflation, overly tight monetary policy and a high exchange rate made it even harder for the periphery to adjust relative to Germany. The Bundesbank openly opposed any resort to bond-buying to hold down borrowing costs. And the ECB soon ran up against the even greater intransigence of the German constitutional court, which ruled that Draghi’s policy of outright monetary transactions (OMT), the one true firewall that had arrested the financial blaze, was illegal (though it offered a stay of execution by passing the case on to the European Court of Justice).

And given that its supervisory role already raises questions about its political independence, not least because bank failures have an impact on national treasuries, the ECB should get out of the entanglement of the troika. For now, the ECB must have the courage to loosen monetary policy more aggressively, despite German complaints that savings are being undermined, to avert the threat of deflation. A dose of American-style quantitative easing may be in order. Once again, though, it would be easier if the ECB had Eurobonds to buy instead of having to pick and choose which country’s debt to buy and which to exclude. Narrow the democratic deficit The integration of the euro zone, the intrusion of European bodies into national economic policymaking and the growing popular disenchantment with the European project require the democratic deficit to be addressed more urgently than ever.


pages: 401 words: 112,784

Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

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Affordable Care Act / Obamacare, British Empire, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, mortgage debt, new economy, Northern Rock, obamacare, oil shock, Plutocrats, plutocrats, price stability, quantitative easing, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

Analysis of official data by the Centre for Research on Socio-Cultural Change at Manchester University for the Guardian; Aditya Chakrabortty, ‘London's economic boom leaves rest of Britain behind’, Guardian, 23 October 2013, at: www.theguardian.com/business/2013/oct/23/london-south-east-economic-boom 23. Claire Jones and Chris Giles, ‘King warns over surge in asset prices’, Financial Times, 13 February 2013, at: www.ft.com/cms/s/0/756c4840–75ff–11e2–9891–00144feabdc0.html#axzz2jt3EgRGf For a fuller explanation and analysis of quantitative easing, see M. Joyce, M. Tong and R. Woods, ‘The United Kingdom's quantitative easing policy: Design, operation and impact’, Bank of England Quarterly Bulletin, 51:3 (2011), pp. 200–12. 24. For a comparison of Chamberlain's and Osborne's rhetoric, see Duncan Weldon, 'UK recession: Have we heard it all before?’, Guardian, 25 July 2013, at: www.guardian.co.uk/commentisfree/2012/jul/25/uk-recession-george-osborne-neville-chamberlain 25.

But a few years on, and to the extent that variable recoveries allow it, both Britain and the US are heading back towards business as usual. The basic model has not been reformed. In the UK, new analysis of official data shows that the proportion of bank lending going to productive businesses is actually lower than it was before the bust.22 Meanwhile, orthodox voices such as Sir Mervyn King, former Bank of England governor, openly worry that a recovery pumped by so-called quantitative easing – the policy of printing money to pour into financial assets – could even inflate a fresh bubble.23 If that is right, another bust could become conceivable sooner than anyone would like to imagine. But even if the recovery is sustained, it is built on the same old foundations. Both British and American societies will live with the consequences, as the effects of the Great Recession – which might soon be forgotten in more prosperous neighbourhoods – dog poor communities into the indefinite future.

Just as with taxes and spending, macroeconomic choices over interest rates and so on will create winners and losers, and the balance of political power between them will bear upon the direction of policy.5 But monetary policy in the Great Recession has been nothing like as controversial as during the Depression: this time reflationists have carried the day with relative ease in Britain and America, if not continental Europe. Although it is worth noting in passing that ‘quantitative easing’ has disproportionately boosted the value of assets held by the rich,6 even this unprecedented aspect of the monetary stance has not proven especially divisive. It thus makes sense for us to concentrate on the fiscal side, and most especially social expenditure and redistribution. In tracing public opinion on these things, we will concern ourselves not with particular policies or plans (which inevitably evolve over time, and on which many voters will typically have no view), but rather with support for the broad underlying principles of providing for the poor and pooling risk – principles as pertinent today as they were in the hard times of the 1930s.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

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Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bernie Madoff, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, Flash crash, floating exchange rates, frictionless, frictionless market, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, Long Term Capital Management, moral hazard, mortgage debt, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, too big to fail, trickle-down economics, value at risk, yield curve

There are some inflationary pressures not even the most vigorous action by the Federal Reserve can just wipe out‌—‌China’s rapid growth and consequent demand for raw materials, for example. You can’t expect Ben Bernanke, chairman of the Fed, to be able to do anything about that. On the other hand, the Fed’s response to the rapidly declining value of the dollar has been to assist that decline in every way possible. I pointed out in chapter 1 that the Fed has allowed its balance sheet to inflate by some $2,000 billion, largely as a result of quantitative easing (to use the technical term) or printing money (to use the descriptive one). This ‘easing’ has taken place at a time when the Fed has already forced down short-term interest rates as low as they can possibly go, lower than they’ve been for generations.9 It has come at a time when long-term interest rates are as low as they’ve been since Japanese bombs were falling on Pearl Harbor.10 In addition, it’s come at a time when the threat of deflation (an admittedly serious possibility) has long, long retreated.

I was more certain of some of the potential costs. One cost is the risk of being perceived as embarking on the slippery slope of debt monetization [i.e. printing money to support government borrowing]. We know that once a central bank is perceived as targeting government debt yields at a time of persistent budget deficits, concern about debt monetization quickly arises. I realized that two other central banks were engaging in quantitative easing—the Bank of Japan and, most notably, our friends at the Bank of England. But the Bank of England is offsetting an announced fiscal policy tightening that out-Thatchers Thatcher. This is not the case here. Here we suffer from fiscal incontinence and regulatory misfeasance. If this were to change, I might advocate for accommodation. But that is not yet happening. And I worry that by providing monetary accommodation, we are reducing the odds that fiscal discipline will be brought to bear.11 Fisher puts his finger on precisely the right issue.

Cotton prices are also exceptionally volatile.29 The same has been true of cocoa futures.30 By good fortune, none of these flash crashes have yet caused much damage, but poorly maintained levees didn’t do much harm to New Orleans until 2005. The mortgage market looked to be working fine, until it came close to destroying the international financial system. In 2010 we were fortunate that the flash crash happened when the markets were still being buoyed up by ultra-low interest rates, by quantitative easing, by massive fiscal stimulus, and by a broad sense of returning security in the financial markets. Those props (disastrous as they’re proving in the longer run) were enough to stop the meltdown. But just suppose the next crash happens when another major financial institution is on the brink. When nerves are shredded. When panic is only half a rumor away. Under these circumstances, a flash crash could easily precipitate failure on a Lehman-like scale.

Global Financial Crisis by Noah Berlatsky

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accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

Issue Bonds and Print Money First, EU (rather than exclusively national) bonds can be created. These will effectively give Europe a fiscal capacity that is, for all intents and purposes, equivalent to that of the U.S. Treasury. Second, given the deflation problem, the European Central Bank can now follow the Bank of England and the Swiss National Bank by entering the next tier of quantitative easing, expanding its balance sheet and starting to buy those crisp new EU bonds in the primary market. (Quantitative easing, which is simply a generic way of referring to all the recent attempts to boost money supply when interest rates fall close to zero, becomes in this particular case a euphemism for “printing money,” with the unusual characteristic that this time, inflation is exactly what we are looking for. And if we don’t get it, well, as Paul Krugman wrote in a 97 The Global Financial Crisis Eastern Europe Is Going Backward The view in the East is that the onset of the world economic crisis has suddenly reversed globalization.

Europe, Hugh claims, has been in denial about the extent of the crisis and must act swiftly if the European Union is to survive. As you read, consider the following questions: 1. According to Edward Hugh, what might Spanish unemployment rise to in 2010? 2. Which two Eastern European nations face the current worst-case economic scenarios in Europe, according to Hugh? 3. According to Hugh, in the current economic situation, for what is “quantitative easing” a euphemism? A s [Russian novelist] Leo Tolstoy might put it, all of Europe’s economies are feeling pretty unhappy right now, but each is unhappy in its own unique way. Nowhere have the Edward Hugh, “The Center Cannot Hold,” Foreign Policy, March 1, 2009. Copyright © 2008 Foreign Policy. All rights reserved. Reproduced by permission. 92 Effects of the Global Financial Crisis on Wealthier Nations effects of the crisis been felt more acutely than in the “peripheral” countries on Europe’s southern, northwestern and eastern edges.

The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance) by Feng Gu

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Affordable Care Act / Obamacare, barriers to entry, business process, Claude Shannon: information theory, Clayton Christensen, conceptual framework, corporate governance, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, double entry bookkeeping, Exxon Valdez, financial innovation, fixed income, hydraulic fracturing, index fund, inventory management, Joseph Schumpeter, knowledge economy, moral hazard, new economy, obamacare, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, race to the bottom, risk/return, Robert Shiller, Robert Shiller, shareholder value, Steve Jobs, The Great Moderation, value at risk

We then statistically relate for each year, over the past 60 years, the market values (the product of stock price and the number of shares outstanding) of all US public companies with the required data to their recent respective earnings and book value (see the Appendix for a more formal discussion of this analysis). Market values (capitalization) of companies reflect, of course, multiple sources of information, such as interest rates, industry conditions (e.g., depressed real estate in the financial crisis), and monetary policy (the Fed’s “quantitative easing”), in addition to The Widening Chasm between Financial Information and Stock Prices 33 companies’ earnings and book values. Accordingly, our statistical methodology (a regression analysis) enables us to answer the following question: Of all the information items reflected in companies’ market values (stock prices), how much is attributed to corporate earnings and book values? This is the message of Figure 3.1: roughly 80 to 90 percent in the 1950s and 1960s versus 50 percent today.

Pretty good for a back-of-the-envelope forecast, even compared with the 17 54 MATTER OF FACT financial analysts following Exxon—all experts on Exxon and the oil and gas industry—which had in January 2012 a mean (consensus) full-year earnings estimate of $46.27 billion, overshooting actual earnings by 3.1 percent. Surprise—you are in the same league as the experts. One can devise, of course, more sophisticated models to predict earnings than the above: last-year’s earnings plus average growth. Taking into account expected events—like the termination of the Fed’s “quantitative easing,” leading to higher interest rates, or an impending corporate acquisition—will likely improve the accuracy of the forecast. But our aim in this chapter is not to devise the best earnings prediction model, but rather, to focus on the ability or usefulness of reported earnings to predict those in the future. Our test is designed for this specific purpose.7 Back to our task of assessing reported earnings’ usefulness over time.

Even a far larger disaster, British Petroleum’s (BP) 2010 oil spill in the Gulf of Mexico, costing the company tens of billions of dollars, didn’t dethrone BP from its membership in the group of major international oil companies. The current (2016) oil glut and price drops may prove more consequential to oil companies. 7. As an aside, any prediction model that incorporates other predictions (like the expected rising interest rates post quantitative easing) is subject to additional inaccuracies from the errors of those predictions. So our prediction, based solely on adjusted reported earnings, may perform quite well compared with “more sophisticated” ones. See, for example, Joseph Gerakos and Robert Gramacy, Regression-Based Earnings Forecasts, working paper (Chicago: University of Chicago, 2013). 8. An alternative, often used by researchers, is to compute the “root mean-squared error,” which is computed by squaring the errors, averaging them, and taking the square root of the average, which also abstracts from the error sign. 9.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, moral hazard, mortgage debt, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, Richard Feynman, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

No one thanks the person who exposes the bezzle. Traditional monetary policy involved setting interest rates and supplying or reducing liquidity in the banking system through ‘open market operations’ – trading in the government’s own debt. The more recent policy, known as ‘quantitative easing’, involves the central bank buying assets from the financial sector – not just banks, and not necessarily only government securities. Though this policy enjoyed little success in stimulating the Japanese economy when it was first tried there in the 1990s, quantitative easing has been extensively adopted since 2009 by the Federal Reserve Board and the Bank of England. The balance sheet of the Federal Reserve System totalled just under $900 billion in 2007: by 2014 this figure had risen fivefold to almost $4.5 trillion.7 The Bank of England’s balance sheet has been multiplied by ten, from £39 billion to £399 billion.8 While British government debt of around £1.4 trillion is the highest it has ever been, the Bank of England itself is by far the largest holder of this debt.

But such information asymmetry is a benefit rather than a problem: if the British government knows it is not going to default on debt when the bond market believes otherwise, a state that can issue as much short-term debt (money) as it likes can use the misapprehension to refinance its debt on favourable terms, buying back its own long-term debt for subsequent reissue. The policy has been followed during quantitative easing, but at the wrong time, for the wrong reasons and with the wrong consequences. Far from being abnormally high in anticipation of a possible default, long-term interest rates in developed economies are at historically unprecedented lows. The governments of Britain, France, Germany and the USA can today borrow for decades ahead at low or even negative real interest rates. But instead of issuing such debt, Britain and the USA have been buying it back in exceptional quantities in order to sustain asset prices and help recapitalise the banking system.

Gerald 242 Countrywide Financial 150, 152, 293 Craig, James 26 credit cards companies 27, 210 debt 54 origin of 185–6 profitability 113 credit default swaps 41, 60, 61, 64, 73, 100, 101, 119, 120, 121, 139, 152, 153, 223 credit expansion 54, 98 Crédit Lyonnais 33 credit ratings 21, 101, 248 credit risk 42, 75, 177, 192 Crédit Suisse First Boston 167, 292 credit-scoring 84, 87, 290, 291 Crosby, James 125 crowd-funding 81 D Dad’s Army (television series) 12 Dahinden, Vincent 124 Daschle, Tom 230 debit cards 186 debt reduction 241 debt securities 101, 107 debt-to-value ratio 149 democracy 4, 52, 308 deposit channel 25–6, 147–8, 173–94 activities of 188–94, 189, 192 directed by retail banks 291 household wealth 173–80, 175, 179 the payment system 181–8 ring-fencing 194, 287 simplification needed 213 deposit insurance 25, 121 deposit protection schemes 135 Derbyshire Building Society 90 deregulation 13, 28, 31, 149–50, 151, 246–7, 292 derivative contracts 191, 192, 323n11 derivatives market 2, 19, 35, 38, 110 portfolios 98 regulation 57, 234 securities 2, 15, 17, 41, 71, 131 Detroit, Michigan 254 Deutsche Bank 33, 104, 136–8, 166, 169, 191–2, 192, 193, 200, 219, 222, 266, 282, 286, 303, 323n11 Diamond, Bob 34, 35, 261, 267, 295, 300 Dickens, Charles: Martin Chuzzlewit 201 Dimon, Jamie 14–15, 35, 231 Dirks, Ray 228 Disney, Walt 70, 71 diversification 21, 27, 28, 29, 32, 33, 45, 95–9, 153 ‘alternative assets’ 98 building societies 151 buying all available stocks 99 coin-tossing game 96 correlation 96, 97–8 Exchange Traded Funds 99 hedge funds 98–9 passive funds 99 diversification divorce 74 DLJ 313n15 Dodd-Frank regulatory regime 236–7, 271 Doerr, John 167 dollar devaluation (1971) 14, 36 Donoghue, Mrs 283 dot.com boom 40 Draghi, Mario 42, 139 Dreamworks 21 Drexel Burnham Lambert 46 drug use 22 ‘Dutch book’ 68, 116 E eBay 187 economic policy 240–69 the British dilemma 262–9 consumer protection 259–62 financial markets and economic policy 248–52 Maestro 240–48 pensions and inter-generational equity 252–9 Economist, The 115 ‘Edge, the’ 114–18, 288 Edinburgh Britain’s second financial centre 11, 263 investment trusts in 26 Edison, Thomas 196 education 253, 259 efficient market hypothesis (EMH) 69–70, 99 Einstein, Albert 129 El Paso oil business 117–18, 232 electricity 245–6, 278 eligible counterparty 282–3 Elizabeth II, Queen 161 Emanuel, Rahm 301 embezzlement 127 emerging markets 39, 42 Emerson, Ralph Waldo: The Conduct of Life 181 emperor’s guard’s new clothes, the 309–10 empire, decline of 13 Enron 123, 124, 126, 127, 158, 176–7, 197, 246, 317n5 Equitas 107 Equity Funding 228 equity markets 23, 85, 168–9, 249, 288 Ericsson 108 Espirito Santo 271 Eurodollar market 13, 20, 120, 121 European Central Bank 42, 98, 138, 139, 183, 243, 244 European Commission 184, 289 European Monetary System 184 European Parliament 184, 328n6 European Union (EU) 194, 220, 226, 228, 273, 287 Eurostat 250 Eurozone 158, 183, 243, 250 creation of 129 crisis 41–2, 139, 301 indebtedness in 184 exchange rates fixed 18 flexible 18 forward 73 Exchange Traded Funds (ETFs) 99 synthetic 99 exchange-traded funds 280 Exchequer Partnerships 158, 159 extended family 78 Exxon Mobil 96, 101, 120, 134, 161, 163, 164, 189, 196 F Facebook 81, 162–3, 166, 167, 185, 196 ‘fair value’ 125–6, 191 fallacy of composition 89 Fama, Eugene 69 family support 79 Fannie Mae 75, 91, 135, 152, 230, 317–18n5 Farkas, Lee 152, 293 FBI 131 febezzle (‘functionally equivalent bezzle’) 127, 128, 132, 136, 176, 177, 190 Federal Deposit Insurance Corporation (FDIC) 25, 135, 247 Federal Reserve Bank of Kansas City symposium (Jackson Hole, Wyoming, 2005) 56–7, 58, 73, 79, 102, 181, 236, 256, 280 Federal Reserve Bank of New York 57, 183, 232, 242, 243 Federal Reserve Board 5, 41, 56, 57, 58, 134, 183, 231, 240, 243, 245, 247 Federal Reserve System 13, 40, 90, 98, 150, 183, 245 Federated Department Stores 204 fee structures 204 Ferguson, Charles 236 Feynman, Richard P. 276, 327n3 Fidelity 109, 199, 200, 213 finance sector a bias to action 203–8 control of risk 6, 7 economic significance 6 excess in the industry 6 export contribution 265 greedy individualism 24 growth of 1–2, 33 heavy criticism of 233 as just another business 5 labour force 263 lack of sanction application 7 lobbying 230, 302, 306 major role in politics 4 management of household financial affairs 6 matching of borrowers and lenders 6, 7 past and current attitudes in 23–4 payments system 6, 7, 25, 281 profitability 132–40, 134 qualitative assessment 265 recurrent crises 35, 307 regarded as having unique status 4–5 remuneration 54, 112 role of 143 search 144 sense of personal entitlement 24, 300 share in GDP 264–5 skills 15 stewardship 144 structural reform 7 taxation 266–7 work incentives 7 workers in finance 6–7, 125 finance theory 5 Finance Watch 328n6 financial advisers 197, 199, 291 Financial Conduct Authority 230, 237, 261 Financial Products Group 293 financial sector, regulation of see regulation Financial Services Authority 243, 247, 303 Financial Services Compensation Scheme 260 Financial Times 68, 115 financialisation 4–7, 36, 45, 72, 163, 165, 172, 259 and complexity 276, 278 conflation of roles of agent and trader 198 and the conglomeration 133 direct impact of 176 effect on corporate behaviour 78 and emergence of large asset management companies 200 emphasis on monetary policy 241 in Germany 169 and hedge funds 289 and housing 149 national and international 39 and risk 55 and secondary markets 170 and social security 255 Summers supports 57 transition from agency to trading 84 two main componenents of 16 Fink, Larry 200 First Boston 200 First Data Corporation 186 First World War 221 fiscal arbitrage 122, 123, 223 FISIM (financial services indirectly measured) 264 Fitch rating agency 313n6 Fitzgerald, Scott: The Great Gatsby 17, 297 FitzPatrick, Sean 156, 293–4 Five Star Movement 306 fixed commissions 29 fixed interest, currency and commodities (FICC) 22, 107, 110, 111, 118, 125, 160, 191, 194, 288 fixed-interest securities 190, 193 Flaubert, Gustave: Sentimental Education 80 Florida land boom (1920s) 201 Forbes magazine 204, 231 Ford, Henry 45, 70, 71 foreign exchange transactions speculators in 18–19 value of 2 Fortune magazine 23 ‘four horsemen’ 167, 168 Fox, Justin 70 fractional reserve banking 88 France corporatism 303–4 defeat of Sarkozy 248, 249 downgraded bonds 248, 249, 250 housing 149, 174 ‘trente glorieuses’ 36 Frankfurt financial centre 26 Freddie Mac 75, 135 free market 18, 59, 238, 247, 302 Frick, Henry Clay 44 Friedman, Milton 60, 63 Free to Choose 56 front running 28 FrontNational 306 Frost, Robert: ‘Provide, Provide’ 252 FT Alphaville 16 Fuld, Dick 24, 32, 72–3, 75, 231, 293 full employment 241 fund managers 66, 86, 108, 115, 206, 209, 212 future of finance 297–308 futures 19 G G8 and G20 economic summits 220 Galbraith, J.K. 127, 201 Galton, Francis xi gambling 130–31, 289 close regulation of 71, 72 Lloyd’s coffee house 71–2 lottery 65, 66, 68, 72 Gates, Bill 174, 268 Gaussian copula 22 GEC 48, 51 GEICO 107 Geithner, Timothy 57–8, 73, 75–6, 92, 104, 183, 230, 232, 239, 276, 306, 307 Geithner doctrine 271 Gemeinschaft 17, 61, 255 General Electric 46, 196 General Motors 45, 49 general share price indexes 98 Generali 27 Generally Accepted Accounting Principles (GAAP) 193 Gensler, Gary 288 Germany corporatism 303, 304 ‘economic miracle’ 36 housing 149, 174 indebtedness to 183–4 Landesbanken 169 Mittelstand 52, 168, 169, 170, 171, 172 role of Bundesbank 243 social market economy 219 state pensions 253 Gesellschaft 17, 61, 255 Gingrich, Newt 230 Glass-Steagall Act (1933) 25, 28, 33 Glaxo 96 global financial crisis (2007–9) and bank assets 91 bankers’ cognitive dissonance 102 begins in the USA 41 causes of 194, 220, 271 collapse of asset-backed securities market 21 collapse of sub-prime mortgages 109 costs of 285 and derivative contracts 192 and diversification 32 emergency measures 285–6 Gaussian copula 22 and liquidity 188, 278, 286 misallocation of housing finance 148 most culpable figures 293 unprecedented public intervention 41 the worst financial crisis since the Great Depression 15 globalisation 13 of capital flows 176, 180 of financial markets 17 and income inequality 53–4 pressure on regulatory structures 14 ‘gnomes of Zurich’ 18 gold standard 13, 18, 36, 181, 241 Golden Dawn 306 Goldman Sachs 1, 14, 31, 55, 57, 59, 63, 104–5, 114, 115, 117, 118, 120, 135, 143, 158, 160, 164, 232, 233, 250, 258, 266, 282, 283, 284, 288, 294, 300, 306 Code of Business and Ethics 118 Goldsmith, Oliver: The Deserted Village 49 goodwill 31, 258–9 Goodwin, Fred 14, 34, 149, 156, 169, 231, 293 Google 80, 83, 162, 167, 196 Gould, Jay 44 government assets and liabilities 000 government bonds 17, 42, 86, 155, 178, 208, 222, 290 government debt 128, 178, 190, 203, 245, 250, 251 government spending 253 Graham, Ben 176 Grasso, Dick 49 Great Depression 12, 15, 25, 36, 57, 218, 221, 225, 258, 308 ‘Great Moderation, the’ 40, 57, 104 Greece accounting manipulation 158, 250 adoption of a common currency 41 government debt 42, 128 refinancing of Greek credit 42 Greenspan, Alan 57, 63, 104, 119, 181, 245, 276 and Ayn Rand 79, 240 and ‘Black Monday’ 242 chairman of the Federal Reserve Board 56, 58, 181, 240–41, 242 and Fed priorities 247–8 and the Markowitz model 68–9 and mortgage defaults 97 and risk 73 testimony to Congress 67–8, 240 ‘Greenspan doctrine’ 56, 60, 67, 68, 71, 87, 101, 249 ‘Greenspan put, the’ 242, 249 Grillo, Bepep 306 Grimaldis of Monaco 123 gross domestic product (GDP) 251, 256, 264–5, 265, 266 gross national income (GNI) 265–6 gross value added (GVA) 265 group insurance 76–7 Grubman, Jack 293 H Haldane, Andrew 139, 264 Halifax Building Society 31, 32, 140, 164, 258–9 becomes a public company 124 competition for the ‘talent’ 193–4 ‘the Edge’ established in wholesale financial markets 114 and fixed-interest securities 190, 193 Group Treasury 106, 107, 111, 129 origins 106 rescued by the British government 124 response to changing times (1990s) 129 takes over the Bank of Scotland 124, 125 the world’s largest mortgage lender 106 worthless windfall shares 127–8 Hamamatsu Photonics 168 Hambrecht & Quist 167 Hambros Bank 158 Hanson 45, 46–7 ‘hard’ commodities 17 Harding, David 111–12, 124 Hartlepool nuclear power station, northeast England 158 Harvard University 5, 14–15 Harvey-Jones, Sir John 51 Hawkins, Sir Henry 61, 64, 116 Hayek, Friedrich 225 HBoS 32, 91, 124, 125, 135 healthcare 77, 78, 79, 253, 257–8 hedge fund managers 23, 99, 109, 282 Hedge Fund Research 323n9 hedge funds 27, 98–9, 110, 191, 194, 284, 289, 323n9 hedge fund centre, Mayfair, London 263 Helyar, John 46, 164 Henderson, David 58 ‘hidden champions’ 168 high-frequency trading 2, 111, 280, 305 Hill, Lord 322n14 Hope, Bob 160 Hornby, Andy 14 horse-racing 72, 116 House of Commons library 115 House of Lords 283 House of Morgan 25, 35 Household International 34–5 housing 148–54, 290 causes of crisis in housing finance 153 collapse of thrifts 150 equity release 54 house prices (US) 41, 43, 174, 259 houses as physical assets 146–7 low-cost 79 mortgage defaults 97 owner-occupied housing stock 53, 149, 151 specialist lenders 150 HSBC 1, 24, 34–5, 286, 328n22 Hubler, ‘Howie’ 130 Hurricane Katrina (2005) 79, 256 I Ibsen, Henrik: An Enemy of the People 285 Iceland: bank and compensation scheme collapse 260 ICI 45, 46–8, 51, 78 Iksil, Bruno 35, 130 ‘I’ll be gone, you’ll be gone’ culture 125, 128, 129, 131, 133, 152, 156, 204, 273 imperialism 13, 218 income distribution 52–4, 53 Independent Commission on Banking 139, 287 India, economic growth in 53 inflation 36, 54, 178, 241–2, 258 information asymmetry 60, 74, 76, 251, 317n2 information technology 18, 19–20, 31, 168, 185 infrastructure, property and 154–60 initial public offering (IPO) 113 Inside Job (film) 236 insurance companies 16, 27, 29, 120, 197, 199, 208, 213, 264 Intel 29, 167 interest rates and inflation 241, 242 long-term 251 intergenerational accounting 258 intermediation 80–105 bad intermediaries 81–2 competition 271 direct/indirect 82, 83 and diversification 96 facilitating 7 and the internet 81 leverage 100–105 managed 83, 201, 212–13 the role of the middleman 80–99 total costs of 207 transparent 83, 84, 201–2, 203 International Financial Reporting Standards (IFRS) 193 International Labour Organization (ILO) 263 International Monetary Fund (IMF) 13–14, 38, 39, 56, 58, 139, 220, 302 international reply coupons 131 International Swaps and Derivatives Association (ISDA) 61, 119, 193 internet 182, 183, 185 connectedness 81, 83 and intermediation 81 Interstate Commerce Commission 233, 237 investment banking FICC trading 107 global expansion of American banks 33 investment trusts 26, 27 relationships 16 within commercial banks 22 investment banks boutique 205 ‘dark pools’ 29 economists in 248–9 legal partnerships 30 modern objectives 197 and rating agencies 249 and search 197 investment channel 26, 148, 174, 175, 195–213 a bias to action 203–8 fails to meet the needs of businesses and households 213 investable assets 202–3, 203 the role of the asset manager 208–13 simplification needed 213 and sovereign wealth funds 253 stewardship 195–203, 203 investment companies 26, 27, 96, 177, 197, 199, 200, 201, 202 investment funds closed-end (managed) 212 open-ended (transparent) 212 Investor B 108 investors allocation of risk 57, 60, 73 and credit ratings 21 foreign 39 institutional 23, 28, 46 large 98 and leverage 101 long-term 94 losses of 43 private 28 property 99 retail 66 small 30, 99 sophisticated 23 Ireland bank workers’ strike (1970) 182 collapse of banking system (2008) 42, 138, 182 Isaacson, Walter 71 Ishmael, Stacy-Marie 16 Israel defence forces 171 high-technology start-up sector 117 It’s a Wonderful Life (film) 12–13 ITT 45 J Japan credit expansion 98 economic growth 36, 39 imagined competitive threat from 221 and quantitative easing 245 speculative bubble (late 1980s) 38–9, 280 jobbers 25, 28, 29–30 Jobs, Steve 70, 71, 162, 196 Johnson, Simon 302 Jordan Marsh department store 46, 90 J.P. Morgan 14, 25, 35, 113, 120, 123–4, 130, 134, 191, 192, 193, 197, 200, 286, 294–5 J.P. Morgan Chase 231 junk bonds 46, 292 jurisdictional arbitrage 122–3, 223 ‘just culture’ 238 K Kahn, Alfred 238 Kahneman, Daniel 66 Kaupthing bank 294 Kay, John Obliquity 48 The Long and the Short of it 208 The Truth about Markets 240 Keating, Charles 292 Kerviel, Jérôme 50, 130 ‘ketchup economics’ 5, 15, 57, 69, 80 Keynes, John Maynard 67, 87, 110, 226, 307 The General Theory of Employment, Interest and Money 65, 297 Keynesianism 241 Kinder Morgan 117–18, 232 Knight, Frank 67 ‘known unknowns’ 67 Kohn, Don 56–7, 58, 73, 101 Kuznets, Simon 263 L Lagos, Nigeria: scammers in cyber cafés 118 Landesbanken 33, 169 large companies 160–64 Latin American states, default of (1980s) 37 Lazard family 217 Lazard Frères 205 Lazards 134 Leeds United FC 21 Leeson, Nick 130 Legal & General 200 Legg Mason 109 Lehman Brothers 24, 32, 34, 43, 75, 91, 121, 122, 135, 231, 277, 280–81, 293 ‘lender of the last resort’ 90, 244, 275 leverage 100–105, 282 central to modern financial crises 104 debt element of risk 101 defined 100 and derivative contracts 191 equity element of risk 101 forms of 101 and a high return on equity 137–8 ‘out of the money option’ 102, 103 and property transactions 155, 156 refinancing established companies 166 and shareholder value 211 tailgating strategy 102, 103, 104 the ‘winner’s curse’ 103, 104 Levin, Sen.


pages: 193 words: 11,060

Ethics in Investment Banking by John N. Reynolds, Edmund Newell

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accounting loophole / creative accounting, banking crisis, capital controls, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, index fund, invisible hand, margin call, moral hazard, Nick Leeson, Northern Rock, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail

Calculated as the discount rate that makes the net present value of all future cash flows zero Investment banking: providing specialist investment banking services, including capital markets activities and M&A advice, to large clients (corporations and institutional investors) Glossary xi Investment banking adviser: see Adviser Islamic banking: banking structured to comply with Shariah (Islamic) law Junior debt: debt that is subordinated or has a lower priority than other debt Junk bond: see High yield bond Lenders: providers of debt finance Leverage: debt Leveraged acquisition: acquisition of a company using high levels of debt to finance the acquisition LIBOR: London Inter-Bank Offered Rate, the rate at which banks borrow from other banks Liquidity: capital required to enable trading in capital markets M&A: mergers and acquisitions; typically the major advisory department in an investment bank Market abuse: activities that undermine efficient markets and are proscribed under legislation Market capitalism: a system of free trade in which prices are set by supply and demand (and not by the Government) Market maker: a market participant who offers prices at which it will buy and sell securities Mis-selling: inaccurately describing securities (or other products) that are being sold Moral hazard: the risk that an action will result in another party behaving recklessly Moral relativism: the concept that morals and ethics are not absolute, and can vary between individuals Multi-notch downgrade: a significant downgrade in rating or recommendation (by a rating agency) Natural law: the concept that there is a universal moral code Net assets: calculated as total assets minus total liabilities Net present value (NPV): sum of a series of cash inflows and outflows discounted by the return that could have been earned on them had they been invested today NYSE: New York Stock Exchange Operating profit: calculated as revenue from operations minus costs from operations P:E: ratio used to value a company where P (Price) is share price and E (Earnings) is earnings per share Price tension: an increase in sales price of an asset, securities or a business resulting from a competitive situation in an auction xii Glossary Principal: equity investor in a transaction Principal investment: proprietary investment Private equity: equity investment in a private company Private equity fund: investment funds that invest in private companies Proprietary investment: an investment bank’s investment of its own capital in a transaction or in securities Qualifying instruments: securities covered by legislation Qualifying markets: capital markets covered by legislation Quantitative easing: Government putting money into the banking system to increase reserves Regulation: legal governance framework imposed by legislation Restructuring: investment banking advice on the financial restructuring of a company unable to meet its (financial) liabilities Returns: profits Rights-based ethics: ethical values based on the rights of an individual, or an organisation SEC: the Securities and Exchange Commission, a US regulatory authority Sarbanes–Oxley: the US “Company Accounting Reform and Investor Protection Act” Senior debt: debt that takes priority over all other debt and that must be paid back first in the event of a bankruptcy Shariah finance: financing structured in accordance with Shariah or Islamic law Sovereign debt: debt issued by a Government Speculation: investment that resembles gambling; alternatively, very short-term investment without seeking to gain management control Socially responsible investing (SRI): an approach to investment that aims to reflect and/or promote ethical principles Spread: the difference between the purchase (bid) and selling (offer) price of a security Subordinated debt: see Junior debt Syndicate: group of banks or investment banks participating in a securities issue Syndication: the process of a group of banks or investment banks selling a securities issue Takeover Panel: UK authority overseeing acquisitions of UK public companies Too big to fail: the concept that some companies or sectors are too large for the Government to allow them to become insolvent Glossary xiii Unauthorised trading: trading on behalf of an investment bank or other investor without proper authorisation Universal bank: an integrated bank Utilitarian: ethical values based on the end result of actions, also referred to as consequentialist Volcker Rule: part of the Dodd–Frank Act, restricting the proprietary investment activities of deposit-taking institutions Write-off: reduction in the value of an investment or loan Zakat: charitable giving, one of the five pillars of Islam This page intentionally left blank 1 Introduction: Learning from Failure There has been significant criticism of the ethics of the investment banking sector following the financial crisis.

At times during the financial crisis, even reducing interest rates to zero or near zero did not reduce the cost of borrowing in the way intended. LIBOR – the cost of money being loaned between banks – in normal market conditions trades closely in line with central bank base rates. During the financial crisis this gap widened dramatically, for example to 4–5 percentage points above base rates. LIBOR only reduced as Governments actively intervened to reduce rates through measures such as Quantitative Easing (QE). This involves a Government putting money into the banking system to increase reserves by buying financial instruments, typically Government bonds. Governments have historically been in a position, when they wish, for example as an implied result of a democratic mandate, to determine how industrial and commercial sectors should operate. For a Government to find that in order to govern it is reliant on the financial stability of an unstable sector is politically problematic.

., 78 “people-based” activity, 67 P:E ratio, 27 performance, 8–10 personal abuse, 159 personal account investments, 128, 156 personal account trading, 128 personal conflicts of interest, 45 pitching, 102, 159 Plato, 37 practical issues, 110–15 competitors, relationships with, 113 equity research, 113–15 pitching, 111 sell-side advisers, 111–13 pre-IPO financing, 110 prescriptive regulations, 31, 145 price tension, 79, 113 primary market, 103 prime-brokerage, 2 principal investment, 15, 28 private equity, 2–3, 12, 110 private trading, 94 Project Merlin, 133, 141 promises, 100–1 proprietary investment, 29 proprietary trading, 15, 25, 66, 150, 155 Prudential Regulation Authority (PRA), 26 public ownership, bonus pools in, 136–9 “pump and dump” strategy, 86 qualifying instruments, 70, 87 qualifying markets, 70, 82 quality-adjusted life year (QALY), 36 Quantitative Easing (QE), 23 Queen Elizabeth II, 42 Qu’ran, 54 rated debt, 77 rates attrition, 132 discount, 27 interest, 60 market, 117 tax, 140 rating agencies, 76 Rawls, John, 35, 136 recognised exchanges, 71 Regal Petroleum, 84 regulations banking, 16 compliance with, 28 external, 19, 31 light-touch, 4 prescriptive, 31, 145 regulatory changes and, 18–20 securities, 114 self, and impact on legislation, 19 regulatory compliance, 18 religion, business ethics in, 51–62 Buddhism, 56 Christianity, 52–4 Governments, 59 Hinduism, 56–7 interest payments, 59–60 Islam, 54–5 Judaism, 56 lending, 59–60 thresholds, 60 usury, 59–60 remuneration, 132–9 bonus pools in public ownership and, 136–9 claiming credit, 134 ethical issues with, 142–3 internal review process, managing, 134 1 Timothy 6:10, 135–6 Index research, 156 resources, abuse of, 127–8 restricted creditors, 120 restructuring of fees, 121–2 financial, 119–20 syndication and, 118–22 retail banks, 16 returns, 28, 156 Revised Code of Ethics, 47 right livelihood, 57 rights-based ethics, 66–8 rights vs. duties advisory vs. trading/capital markets, 73 conflict between, reconciling, 68–70 duty-based ethics, 66–8 off-market trading, ethical standards to, 71–2 on-market trading, ethical standards in, 70–1 opposing views of, 63–74 reconciling conflict between, 68–70 rights-based ethics, 66–8 Roman Catholic Church, 52 Royal Dutch Shell, 85 Sarbanes–Oxley Act, 20 Schwarzman, Stephen, 20 scope of ethical issues, 7–8 secondary market, 103 sector exclusions for investment banking, 58–9 securities investment grade, 76 issuing, 103–5 overvalued, 155 Securities and Exchange Commission (SEC), 7, 16 Goldman Sachs, charges against, 78 rating agencies, review by, 77 short-selling, review of, 96–7 securities insider dealing, 70 securities mis-selling, 77–9 securities regulations, 114 self-regulation, 19 sell recommendation, 115 177 sell-side advisers, 107, 111–13 Senate Permanent Subcommittee on Investigations, 46 senior debt, 118 sexist entertainment, 159 shareholders, 27–9 shares, deferred, 133 Shariah finance, 55 short-selling, 94–7, 154–5 Smith, Adam, 14, 35–6 social cohesion, 53 socially responsible investment (SRI), 56 Société Générale, 44, 80 solidarity, 53 Soros, George, 17 South Sea Bubble, 90 sovereign debt, 17 speculation, 91–4, 155 in financial crisis, 93 traditional views of, 91–3 speculative casino capitalism, 16, 91 spread, 21 stabilisation, 89 stock allocation, 94–7 stockholders, 41–2 stocks, dotcom, 17 Strange, Susan, 43 strategic issues with business ethics, 30–1 syndication, 119 and restructuring, 118–22 systemic risk, 24–5 Takeover Panel, 109 Talmud, 56 taxes, 139–41 tax optimisation, 158 tax rates, 140 tax structuring, 140 Terra Firma Capital Partners, 79, 112 Theory of Moral Sentiments, The (Smith), 14 3iG FCI Practitioners’ Report, 51 thresholds, 60 1 Timothy 6:10, 135–6 178 Index too big to fail concept, 21–7 ethical duties, and implicit Government guarantee, 22–3 ethical implications of, 26–7 in government, 22–3 insolvency, systemic risk and, 24–5 legislative change, 25–6 Lehman, failure of, 23 systemic risk, 24–5 toxic financial products, 5 trading abusive, 93 emissions, 14 insider, 12 market, 41 normal market, 71 off-market, 71–83, 90, 155 on-market, 70–1 personal account, 128 private, 94 proprietary, 15, 25, 66, 150, 155 unauthorised, 7 “trash and cash” strategy, 86 Travellers, 19 Treasury Select Committee, 26 Trinity Church, 53 Trouble with Markets, The (Bootle), 4 trust, 40, 53 trusted adviser, 108–9, 125 truth, 101–5 bait and switch, 102–3 misleading vs. lying, 101 securities, issuing, 103–5 2 and 20 fee, 13 UBS Investment Bank, 9 unauthorised trading, 7, 80–1, 155 unethical behaviour, 68 UK Alternative Investment Market, 89 UK Business Growth Fund, 133 UK Code of Practice, 141 UK Independent Banking Commission, 4, 22 United Methodist Church, 54, 59 United Methodist Investment Strategy Statement, 59 US Federal Reserve, 24, 25 US Financial Crisis Inquiry Commission, 4 US Open, 126 US Senate Permanent Subcommittee on Investigations, 64, 73 US Treasury Department, 132 universal banks, 2, 21, 28, 67 untoward movement, 85 usury, 59–60 utilitarian, 84 utilitarian ethics, 49, 84, 139 values, 9, 46, 119–21, 148 Vedanta, 57 victimless crime, 82 virtue ethics, 37–8, 43–4 virtues, 9, 34 virtuous behaviours, 37 Vishnu, 57 Volcker, Paul, 25 Volcker Rule, 2, 25 voting shareholders, 29 Wall Street, 12, 19, 53 Wall Street Journal, 20 Wealth of Nations, The (Smith), 14 Wesley, John, 53 Wharf, Canary, 18 Williams, Rowan, 53 Wimbledon, 127 WorldCom, 12, 17, 20, 76 write-off, 80 zakat, 55 zero-sum games, 118–22


pages: 249 words: 66,383

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again by Atif Mian, Amir Sufi

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Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, Ben Bernanke: helicopter money, Carmen Reinhart, collapse of Lehman Brothers, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, liquidity trap, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, mortgage debt, paradox of thrift, quantitative easing, Robert Shiller, Robert Shiller, school choice, shareholder value, the payments system, the scientific method, tulip mania, young professional

There was the $150 billion Term Auction Facility (TAF); $50 billion in swap lines for foreign central banks; the $200 billion Term Securities Lending Facility (TSLF); the $20 billion Primary Dealer Credit Facility (PDCF); the $700 billion Commercial Paper Funding Facility (CPFF); and the $1 trillion Term Asset-Backed Securities Loan Facility (TALF).11 The largest and longest-lasting program introduced by the Fed was the Large-Scale Asset Purchase (LSAP) program. Also known as “quantitative easing,” it involves the Fed buying long-term assets that include agency debt, mortgage-backed securities, and long-term treasuries from banks. It has been enormous by any standard. By the middle of 2013, these Fed purchases had increased the size of its balance sheet from around $800 billion in 2007 to a whopping $3.3 trillion. The financial crisis in the fall of 2008 had an added complication because banks were funding themselves with very short-term financing instruments that weren’t deposits.

Once again, the natural forces of the economy move against inflation and toward deflation during a severe economic downturn. Monetary policy fights an uphill battle. Are central banks willing to act irresponsibly enough to win? The evidence suggests no. The European Central Bank has been conservative in its approach, as has the Bank of England. The Federal Reserve has pushed the envelope with aggressive quantitative easing and conditional guidance language in its statements. But as former chair of the Council of Economic Advisers Christina Romer put it, “The truth is that even these moves were pretty small steps . . . the key fact remains that the Fed has been unwilling to do a regime shift. And because of that, monetary policy has not been able to play a decisive role in generating recovery.”14 Relying on monetary policy to generate inflation through expectations may work beautifully in macroeconomic models.

See lowest 20 percent Porter, David, 110 Posner, Eric, 203n44 precautionary savings, 194n5 Preston, Steve, 136 Primary Dealer Credit Facility (PDCF), 125 principal write-downs, 147 private debt. See household debt private-label securitization (PLS), 97–98, 105; appearance of safety in, 98–101, 115, 170; credit-rating scores and, 103–4; originator misrepresentation in, 101–5, 198n13; servicers of, 137–39, 145–46. See also securitization market quantitative easing, 125 Racionero, Maria, 206n9 real business cycle theory, 194n2. See also fundamentals view reallocation, 55, 59; exporting effect in, 66–67; flexible wages and, 58, 59 recessions, 1–13; animal spirits view of, 10; banking crises in, 7–9, 192n20; bank-lending view of, 10–11, 31–35, 59, 127–34, 177; bank reserves in, 155–57; collapse in housing prices in, 12–13, 17–30; debt and bubbles in, 106–16, 149, 169–70; fundamentals view of, 9–10, 47–49, 52–53, 59, 194n2; government stimulus spending in, 162–65, 205n19; household debt and spending patterns in, 3–9, 44–45, 192n20; inflation in, 153–62; levered-losses framework of, 46–59, 134, 170; risk sharing and, 168–87.


pages: 31 words: 7,670

Why America Must Not Follow Europe by Daniel Hannan

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Affordable Care Act / Obamacare, obamacare, quantitative easing, Ronald Reagan, stakhanovite, Upton Sinclair

In the same period, the U.S. share of world GDP has remained, and is forecast to remain, fairly steady at around 26 percent. At the same time, Europe has become accustomed to a high level of structural unemployment. Indeed, if we exclude the United Kingdom, the EU failed to produce a single net private-sector job between 1980 and 1992. Only now, as the U.S. applies a European-style economic strategy based on fiscal stimulus, nationalization, bailouts, quantitative easing, and the regulation of private-sector remuneration, has the rate of unemployment in the U.S. leaped to European levels. For the past 40 years, Europeans have fallen further and further behind Americans in their standard of living. Some EU leaders privately recognize that the U.S. economy is more dynamic than their own, and they occasionally issue staccato statements to the effect that they really ought to do something about it.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

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accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, invisible hand, iterative process, John von Neumann, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, open economy, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave

A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data available eISBN 9781780322209 CONTENTS Tables, figures and boxes Preface to the second edition Preface to the first edition 1 Predicting the ‘unpredictable’ 2 No more Mr Nice Guy Part 1 Foundations: the logical flaws in the key concepts of conventional economics 3 The calculus of hedonism 4 Size does matter 5 The price of everything and the value of nothing 6 To each according to his contribution Part 2 Complexities: issues omitted from standard courses that should be part of an education in economics 7 The holy war over capital 8 There is madness in their method 9 Let’s do the Time Warp again 10 Why they didn’t see it coming 11 The price is not right 12 Misunderstanding the Great Depression and the Great Recession Part 3 Alternatives: different ways to think about economics 13 Why I did see ‘It’ coming 14 A monetary model of capitalism 15 Why stock markets crash 16 Don’t shoot me, I’m only the piano 17 Nothing to lose but their minds 18 There are alternatives Bibliography Index TABLES, FIGURES AND BOXES Tables 2.1 Anticipations of the housing crisis and recession 3.1 ‘Utils’ and change in utils from consuming bananas 3.2 Utils arising from the consumption of two commodities 3.3 The commodities in Sippel’s ‘Revealed Preference’ experiment 4.1 Demand schedule for a hypothetical monopoly 4.2 Costs for a hypothetical monopoly 4.3 Sales and costs determine the level of output that maximizes profit 4.4 Cost and revenue for a ‘perfectly competitive’ industry identical in scale to hypothetical monopoly 5.1 Input and output data for a hypothetical firm 5.2 Cost drawings for the survey by Eiteman and Guthrie 5.3 Empirical research on the nature of cost curves 7.1 Sraffa’s hypothetical subsistence economy 7.2 Production with a surplus 7.3 Relationship between maximum and actual rate of profit and the wage share of surplus 7.4 The impact of the rate of profit on the measurement of capital 10.1 Anderson’s ranking of sciences 12.1 The alleged Money Multiplier process 13.1 A hypothetical example of the impact of decelerating debt on aggregate demand 13.2 The actual impact of decelerating debt on aggregate demand 14.1 A pure credit economy with paper money 14.2 The dynamics of a pure credit economy with no growth 14.3 Net incomes 14.4 A growing pure credit economy with electronic money 15.1 Von Neumann’s procedure for working out a numerical value for utility 15.2 The Allais ‘Paradox’ 15.3 The Allais ‘Paradox’ Part 2 16.1 The solvability of mathematical models 17.1 Marx’s unadjusted value creation table, with the rate of profit dependent upon the variable-to-constant ratio in each sector 17.2 Marx’s profit distribution table, with the rate of profit now uniform across sectors 17.3 Steedman’s hypothetical economy 17.4 Steedman’s physical table in Marx’s value terms 17.5 Steedman’s prices table in Marx’s terms 17.6 Profit rate and prices calculated directly from output/wage data 17.7 Marx’s example where the use-value of machinery exceeds its depreciation Figures 2.1 US inflation and unemployment from 1955 2.2 Bernanke doubles base money in five months 2.3 Private debt peaked at 1.7 times the 1930 level in 2009 3.1 Rising total utils and falling marginal utils from consuming one commodity 3.2 Total utils from the consumption of two commodities; 3.3 Total ‘utils’ represented as a ‘utility hill’ 3.4 The contours of the ‘utility hill’ 3.5 Indifference curves: the contours of the ‘utility hill’ shown in two dimensions 3.6 A rational consumer’s indifference map 3.7 Indifference curves, the budget constraint, and consumption 3.8 Deriving the demand curve 3.9 Upward-sloping demand curve 3.10 Separating out the substitution effect from the income effect 3.11 Engel curves show how spending patterns change with increases in income 3.12 A valid market demand curve 3.13 Straight-line Engel ‘curves’ 3.14 Economic theory cannot rule out the possibility that a market demand curve may have a shape like this, rather than a smooth, downward-sloping curve 4.1 Leijonhufvud’s ‘Totems’ of the Econ tribe 4.2 Stigler’s proof that the horizontal firm demand curve is a fallacy 4.3 Profit maximization for a monopolist: marginal cost equals marginal revenue, while price exceeds marginal cost 4.4 Profit maximization for a perfectly competitive firm: marginal cost equals marginal revenue, which also equals price 4.5 A supply curve can be derived for a competitive firm, but not for a monopoly 4.6 A competitive industry produces a higher output at a lower cost than a monopoly 4.7 The standard ‘supply and demand’ explanation for price determination is valid only in perfect competition 4.8 Double the size, double the costs, but four times the output 4.9 Predictions of the models and results at the market level 4.10 Output behavior of three randomly selected firms 4.11 Profit outcomes for three randomly selected firms 4.12 Output levels for between 1- and 100-firm industries 5.1 Product per additional worker falls as the number of workers hired rises 5.2 Swap the axes to graph labor input against quantity 5.3 Multiply labor input by the wage to convert Y-axis into monetary terms, and add the sales revenue 5.4 Maximum profit occurs where the gap between total cost and total revenue is at a maximum 5.5 Deriving marginal cost from total cost 5.6 The whole caboodle: average and marginal costs, and marginal revenue 5.7 The upward-sloping supply curve is derived by aggregating the marginal cost curves of numerous competitive firms 5.8 Economic theory doesn’t work if Sraffa is right 5.9 Multiple demand curves with a broad definition of an industry 5.10 A farmer who behaved as economists advise would forgo the output shown in the gap between the two curves 5.11 Capacity utilization over time in the USA 5.12 Capacity utilization and employment move together 5.13 Costs determine price and demand determines quantity 5.14 A graphical representation of Sraffa’s (1926) preferred model of the normal firm 5.15 The economic theory of income distribution argues that the wage equals the marginal product of labor 5.16 Economics has no explanation of wage determination or anything else with constant returns 5.17 Varian’s drawing of cost curves in his ‘advanced’ microeconomics textbook 6.1 The demand for labor curve is the marginal revenue product of labor 6.2 The individual’s income–leisure trade-off determines how many hours of labor he supplies 6.3 An upward-sloping individual labor supply curve 6.4 Supply and demand determine the equilibrium wage in the labor market 6.5 Minimum wage laws cause unemployment 6.6 Demand management policies can’t shift the supply of or demand for labor 6.7 Indifference curves that result in less work as the wage rises 6.8 Labor supply falls as the wage rises 6.9 An individual labor supply curve derived from extreme and midrange wage levels 6.10 An unstable labor market stabilized by minimum wage legislation 6.11 Interdependence of labor supply and demand via the income distributional effects of wage changes 7.1 The standard economic ‘circular flow’ diagram 7.2 The rate of profit equals the marginal product of capital 7.3 Supply and demand determine the rate of profit 7.4 The wage/profit frontier measured using the standard commodity 9.1 Standard neoclassical comparative statics 9.2 The time path of one variable in the Lorenz model 9.3 Structure behind the chaos 9.4 Sensitive dependence on initial conditions 9.5 Unstable equilibria 9.6 Cycles in employment and income shares 9.7 A closed loop in employment and wages share of output 9.8 Phillips’s functional flow block diagram model of the economy 9.9 The component of Phillips’s Figure 12 including the role of expectations in price setting 9.10 Phillips’s hand drawing of the output–price-change relationship 9.11 A modern flow-chart simulation program generating cycles, not equilibrium 9.12 Phillips’s empirically derived unemployment–money-wage-change relation 10.1 Hicks’s model of Keynes 10.2 Derivation of the downward-sloping IS curve 10.3 Derivation of the upward-sloping LM curve 10.4 ‘Reconciling’ Keynes with ‘the Classics’ 10.5 Unemployment–inflation data in the USA, 1960–70 10.6 Unemployment–inflation data in the USA, 1950–72 10.7 Unemployment–inflation data in the USA, 1960–80 10.8 The hog cycle 11.1 Supply and demand in the market for money 11.2 The capital market line 11.3 Investor preferences and the investment opportunity cloud 11.4 Multiple investors (with identical expectations) 11.5 Flattening the IOC 11.6 How the EMH imagines that investors behave 11.7 How speculators actually behave 12.1 Inflation and base money in the 1920s 12.2 Inflation and base money in the post-war period 12.3 Bernanke’s massive injection of base money in QE1 12.4 Change in M0 and unemployment, 1920–40 12.5 Change in M1 and unemployment, 1920–40 12.6 Change in M0 and M1, 1920–40 12.7 M0–M1 correlation during the Roaring Twenties 12.8 M0–M1 correlation during the Great Depression 12.9 Bernanke’s ‘quantitative easing’ in historical perspective 12.10 The volume of base money in Bernanke’s ‘quantitative easing’ in historical perspective 12.11 Change in M1 and inflation before and during the Great Recession 12.12 The money supply goes haywire 12.13 Lindsey, Orphanides, Rasche 2005, p. 213 12.14 The empirical ‘Money Multiplier’, 1920–40 12.15 The empirical ‘Money Multiplier’, 1960–2012 12.16 The disconnect between private and fiat money during the Great Recession 13.1 Goodwin’s growth cycle model 13.2 My 1995 Minsky model 13.3 The vortex of debt in my 1995 Minsky model 13.4 Cyclical stability with a counter-cyclical government sector 13.5 Australia’s private debt-to-GDP ratio, 1975–2005 13.6 US private debt to GDP, 1955–2005 13.7 Aggregate demand in the USA, 1965–2015 13.8 US private debt 13.9 The change in debt collapses as the Great Recession begins 13.10 The Dow Jones nosedives 13.11 The correlation of debt-financed demand and unemployment 13.12 The housing bubble bursts 13.13 The Credit Impulse and change in employment 13.14 Correlation of Credit Impulse and change in employment and GDP 13.15 Relatively constant growth in debt 13.16 The biggest collapse in the Credit Impulse ever recorded 13.17 Growing level of debt-financed demand as debt grew faster than GDP 13.18 The two great debt bubbles 13.19 Change in nominal GDP growth then and now 13.20 Real GDP growth then and now 13.21 Inflation then and now 13.22 Unemployment then and now 13.23 Nominal private debt then and now 13.24 Real debt then and now 13.25 Debt to GDP then and now 13.26 Real debt growth then and now 13.27 The collapse of debt-financed demand then and now 13.28 Debt by sector – business debt then, household debt now 13.29 The Credit Impulse then and now 13.30 Debt-financed demand and unemployment, 1920–40 13.31 Debt-financed demand and unemployment, 1990–2011 13.32 Credit Impulse and change in unemployment, 1920–40 13.33 Credit Impulse and change in unemployment, 1990–2010 13.34 The Credit Impulse leads change in unemployment 14.1 The neoclassical model of exchange as barter 14.2 The nature of exchange in the real world 14.3 A nineteenth-century private banknote 14.4 Bank accounts 14.5 A credit crunch causes a fall in deposits and a rise in reserves in the bank’s vault 14.6 A bank bailout’s impact on loans 14.7 A bank bailout’s impact on incomes 14.8 A bank bailout’s impact on bank income 14.9 Bank income grows if debt grows more rapidly 14.10 Unemployment is better with a debtor bailout 14.11 Loans grow more with a debtor bailout 14.12 Profits do better with a debtor bailout 14.13 Bank income does better with a bank bailout 14.14 Modeling the Great Moderation and the Great Recession – inflation, unemployment and debt 14.15 The Great Moderation and the Great Recession – actual inflation, unemployment and debt 14.16 Modeling the Great Moderation and the Great Recession – output 14.17 Income distribution – workers pay for the debt 14.18 Actual income distribution matches the model 14.19 Debt and GDP in the model 14.20 Debt and GDP during the Great Depression 15.1 Lemming population as a constant subject to exogenous shocks 15.2 Lemming population as a variable with unstable dynamics 17.1 A graphical representation of Marx’s dialectics Boxes 10.1 The Taylor Rule 13.1 Definitions of unemployment PREFACE TO THE SECOND EDITION Debunking Economics was far from the first book to argue that neoclassical economics was fundamentally unsound.

Ben Bernanke, as Federal Reserve chairman, literally doubled the level of government-created money in the US economy in five months, when the previous doubling had taken thirteen years. A long decay in the ratio of government-created money to the level of economic activity, from 15 percent of GDP in 1945 to a low of 5 percent in 1980, and 6 percent when the crisis began, was eliminated in less than a year as Bernanke’s ‘Quantitative Easing 1’ saw the ratio rocket back to 15 percent by 2010. 2.2 Bernanke doubles base money in five months The tenor of these times is well captured in Hank Paulson’s On the Brink: ‘We need to buy hundreds of billions of assets,’ I said. I knew better than to utter the word trillion. That would have caused cardiac arrest. ‘We need an announcement tonight to calm the market, and legislation next week,’ I said.

It was better to blame the Fed for not administering its M0 medicine properly, than to admit that the financial system’s proclivity to create too much debt causes capitalism’s periodic breakdowns. 12.2 Inflation and base money in the post-war period It is therefore a delicious if socially painful irony that the only other time that the pop-gun fired and a depression-like event did follow was when the chairman of the Federal Reserve was one Ben S. Bernanke. Bernanke began as chairman on 1 February 2006, and between October 2007 and July 2008, the change in M0 was an inflation-adjusted minus 3 percent – one percent lower than its steepest rate of decline in 1930–33. The rate of change of M0 had trended down in nominal terms ever since 2002, when the Greenspan Fed had embarked on some quantitative easing to stimulate the economy during the recession of 2001. Then, M0 growth had turned from minus 2 percent nominal (and minus 6 percent real) at the end of 2000 to plus 11 percent nominal (and 8 percent real) by July 2001. From there it fell steadily to 1 percent nominal – and minus 3 percent real – by the start of 2008. 12.3 Bernanke’s massive injection of base money in QE1 Whatever way you look at it, this makes a mockery of the conclusion to Bernanke’s fawning speech at Milton Friedman’s ninetieth birthday party in November 2002: ‘Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve.


pages: 388 words: 125,472

The Establishment: And How They Get Away With It by Owen Jones

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anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, don't be evil, Edward Snowden, Etonian, eurozone crisis, falling living standards, Francis Fukuyama: the end of history, full employment, glass ceiling, hiring and firing, housing crisis, inflation targeting, investor state dispute settlement, James Dyson, laissez-faire capitalism, market fundamentalism, Monroe Doctrine, Mont Pelerin Society, moral hazard, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, open borders, Plutocrats, plutocrats, profit motive, quantitative easing, race to the bottom, rent control, road to serfdom, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, stakhanovite, statistical model, The Wealth of Nations by Adam Smith, transfer pricing, union organizing, unpaid internship, Washington Consensus, Winter of Discontent

But one side effect of this was to allow banks to make more profit by lending at higher rates. Money was pumped into the financial sector by another means, too: quantitative easing. QE is not, as it is sometimes described, the printing of money, because it does not involve the physical production of notes. Instead, the Bank of England creates electronic money and then uses it to buy up government bonds. Financial institutions can then sell the bonds, adding money to their balance sheets. By 2013 the Bank of England had used quantitative easing to pump an eye-watering £375 billion into the financial system. QE proved a phenomenal subsidy for the rich – especially those with financial assets. Whilst the Bank estimated that the poorest tenth of Britain’s population each lost £779 because of quantitative easing, the richest 10 per cent enjoyed a £322,000 jump in the value of their assets.12 A study by the British macroeconomist Chris Martin found that though QE ‘produced a limited but temporary gain for the financial sector … it has been of no help to the wider business community or individuals and families struggling against inflation and unemployment’.13 Back in the 1970s, when the trade unions were wrongly scapegoated for Britain’s economic troubles, they faced exceptionally punitive measures.

Earl Aaron Reitan, The Thatcher Revolution: Margaret Thatcher, John Major, Tony Blair and the Transformation of Modern Britain (London, 2002), p. 86. 9. Ibid., pp. 587–9. 10. Ewald Engelen et al., After the Great Complacence: Financial Crisis and the Politics of Reform (Oxford, 2011), p. 147. 11. http://www.nao.org.uk/highlights/taxpayer-support-for-uk-banks-faqs. 12. http://blogs.spectator.co.uk/coffeehouse/2012/08/qe-the-ultimate-subsidy-for-the-rich. 13. http://www.bath.ac.uk/news/2012/10/09/quantitative-easing. 14. James Meadway, Why we Need a New Macroeconomic Strategy (London, 2013), pp. 10–12. 15. http://blogs.spectator.co.uk/coffeehouse/2013/11/the-tories-have-piled-on-more-debt-than-labour. 16. Prem Sikka, ‘Five Tips for George Osborne on Banking Reform’, The Guardian, 26 November 2013. 17. Ian Lyall, The Street-Smart Trader: An Insider’s Guide to the City (Kindle, 2011), p. 69. 18. http://www.prweek.com/article/1161511/brunswick-tightens-grip-ftse-100-clients. 19.

Investment: A History by Norton Reamer, Jesse Downing

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Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, Brownian motion, buttonwood tree, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, moral hazard, mortgage debt, Network effects, new economy, Nick Leeson, Own Your Own Home, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

Previously a Princeton economics professor and expert on the Great Depression, Bernanke had not only studied but also written extensively on policy issues related to the Great Depression and certain subsequent significant economic cycle disturbances such as the Japanese real estate collapse in the early 1990s that resulted in the so-called lost decade that followed in the Japanese economy.39 Bernanke, like Benjamin Strong, also turned out to be a willing and even courageous innovator in methods to advance monetary liquidity even after interest rates had been pushed to their “zerobound.” His approach of flooding the financial system with liquidity by undertaking several rounds of quantitative easing and by deciding to include mortgage-backed securities instead of just US Treasuries in open market operations received no shortage of bad press from a variety of politicians and commentators. And yet, slowly but surely, the credit markets were set back in motion, consumers experienced wealth effects from reflating asset prices, and firms that had access found themselves with inexpensive capital for investment projects and eventually had the confidence to use it when the smoke began to clear. 218 Investment: A History the fiscal response In terms of fiscal policy, the financial crisis triggered several important and substantial steps by way of fiscal stimulus from the Treasury.

Morgan (largest US savings and loan) September 29, 2008: Congress rejects bailout October 3, 2008: Wachovia Bank sold to Wells Fargo Congress passes TARP (451 pages) November 4, 2008: Obama elected US president November 23, 2008: The Fed, Treasury, and FDIC bail out Citigroup December 11, 2008: Bernie Madoff arrested December 19, 2008: TARP loans to GM and Chrysler January 2009: The Fed, Treasury, and FDIC bail out Bank of America February 17, 2009: $787 billion Economic Stimulus Act signed March 2009: QE1 (first Fed quantitative easing) April 30, 2009: Chrysler files for bankruptcy June 2009: Great Recession ends July 21, 2010: Dodd-Frank Reform Act signed November 2010: QE2 November 18, 2010: GM emerges from bankruptcy with IPO September 2012: QE3 c h a p t er se v en The Emergence of Investment Theory IT IS STAMPED ACROSS THE NEWSPAPER. It is mentioned in short sound bites among radio broadcasts. It is discussed at length in the nightly news.

Institutional Investor. August 1992, 75–101. Rathbone, Dominic. Economic Rationalism and Rural Society in ThirdCentury A.D. Egypt: The Heroninos Archive and the Appianus Estate. Cambridge: Cambridge University Press, 1991. Reinhart, Carmen M., and Kenneth S. Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2011. Ricketts, Lowell R. “Quantitative Easing Explained.” Liber8 Economic Information Newsletter (Federal Reserve Bank of St. Louis), April 2011. http://research.stlouisfed.org/pageone-economics/uploads/newsletter /2011/201104_ClassroomEdition.pdf. Rinehart, Jim. “U.S. Timberland Post-Recession: Is It the Same Asset?” R&A Investment Forestry. Last modified April 2010. http://investmentforestry .com/resources/1%20-%20Post-Recession%20Timberland.pdf. 406 Investment: A History Riu, Manuel.


pages: 515 words: 132,295

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

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3D printing, accounting loophole / creative accounting, additive manufacturing, Airbnb, algorithmic trading, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, interest rate derivative, interest rate swap, Internet of things, invisible hand, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, knowledge economy, labor-force participation, labour mobility, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund

As long as the markets could be genetically modified by the Fed, the economy would look healthier than it actually was. Many experts have argued that an environment like what we’ve seen since 2008, in which borrowing costs are as low as they’ve ever been, is the perfect time to build bridges, fund new basic science research, or revamp public schools. Yet thanks to congressional gridlock, it didn’t happen. The Federal Reserve alone was able to act to support the economy, with lower rates and quantitative easing (which is essentially pumping money into the economy in the hopes of boosting asset prices and consumption). But one of the many fascinating and downright disturbing things about the current boom in shareholder activism is that it was actually enabled by monetary policies that were supposed to help the little guy. Following the financial crisis, the Fed cut interest rates to historic lows and carried out a massive bond and mortgage-backed securities buying program.

The money stays in the financial sector, in other words, instead of being invested in the real economy that we live in. The Fed had hoped that rising asset prices would lead to growing consumer confidence, which would spur business investment in the real economy, boost the demand for labor, and eventually get that virtuous cycle of job creation started. But it didn’t work that way. While quantitative easing has helped lift the job market somewhat at the lower end of the socioeconomic spectrum (one big reason that companies like Walmart have raised their wages by a dollar or two per hour), it has done almost nothing for the middle class. There are two reasons why. The first is that, as I’ve explained above, companies didn’t take advantage of low borrowing rates in order to invest in Main Street; they did it to buy back stock and enrich corporate leaders and investors.

It was a shift that was due to several things: the creation of a commodity index fund by Goldman Sachs in 1991, which allowed raw materials to become securities that could be bought and sold by investors; the deregulation of commodities markets in 2000, which poured gasoline on that process; the financial crisis of 2008, which scared everyone out of stocks and drove investors into “safety” bets like raw materials; and the beginning of the Federal Reserve’s quantitative easing program the following year, a $4.5 trillion money dump that was meant to help Main Street but ended up giving Wall Street a lot of easy money to burn. Much of that money ended up in commodities markets, dramatically boosting the prices of those commodities—the raw materials that people depend on to heat their homes, fill up their gas tanks, and feed their families. For many people around the world, this made something as basic as eating literally unaffordable.


pages: 350 words: 109,220

In FED We Trust: Ben Bernanke's War on the Great Panic by David Wessel

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Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, Black Swan, central bank independence, credit crunch, Credit Default Swap, crony capitalism, debt deflation, Fall of the Berlin Wall, financial innovation, financial intermediation, full employment, George Akerlof, housing crisis, inflation targeting, London Interbank Offered Rate, Long Term Capital Management, market bubble, moral hazard, mortgage debt, new economy, Northern Rock, price stability, quantitative easing, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, savings glut, Socratic dialogue, too big to fail

“Credit spreads” — the difference between yields on safe government debt and riskier corporate debt — “are much wider and credit markets more dysfunctional in the United States than they were during the Japanese experiment with quantitative easing,” Bernanke said. Bernanke wanted to continue to bypass the banking system and lend directly in markets — mortgages, commercial paper, student loans — where usually high interest rates indicated the supply of credit was inadequate to meet the demand. To distinguish the Fed’s approach from the Bank of Japan’s, he wanted to call it something other than “quantitative easing.” He and the other Musketeers bandied about alternatives. Warsh offered “qualitative easing,” but that didn’t fly. In the end, they embraced “credit easing,” a phrase Bernanke introduced into the jargon of monetary policy in his first major speech following the December FOMC meeting.

Instead of lending that is targeted at any particular market, the dissenting presidents wanted the Fed to simply use U.S. Treasury bonds to put reserves into the system and let the money flow to where it was needed. It was an approach similar to one developed during the previous decade in Japan. To resuscitate the economy and fight deflation, the Bank of Japan had first dropped interest rates to zero and then, with mixed results, increased the supply of reserves. This policy, called “quantitative easing” — because it emphasized the quantity rather than the price (interest rates) of money — suited the ideology of several Fed presidents. The Fed would control how much money was in the financial system but wouldn’t influence where it went and for what it was used — that would be up to the markets. It also gave the presidents a say: they wanted a vote on how much credit the Fed was pumping into the economy.


pages: 357 words: 99,684

Why It's Still Kicking Off Everywhere: The New Global Revolutions by Paul Mason

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back-to-the-land, balance sheet recession, bank run, banking crisis, Berlin Wall, capital controls, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency manipulation / currency intervention, currency peg, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, Francis Fukuyama: the end of history, full employment, ghettoisation, illegal immigration, informal economy, land tenure, low skilled workers, means of production, megacity, Mohammed Bouazizi, Naomi Klein, Network effects, New Journalism, Occupy movement, price stability, quantitative easing, race to the bottom, rising living standards, short selling, Slavoj Žižek, Stewart Brand, strikebreaker, union organizing, We are the 99%, Whole Earth Catalog, WikiLeaks, Winter of Discontent, women in the workforce, working poor, working-age population, young professional

When the global recovery got under way in 2010, the poor were hit by price rises, occurring in the first place because, since 2000, all global recoveries have sparked commodity price inflation; and secondly, because the USA had decided to unleash inflation onto the developing world. As the effects of Obama’s stimulus faded, in November 2010 Ben Bernanke began a second round of money printing—$600 billions’ worth—known as ‘Quantitative Easing II’. QEII, it was recognized even at the design stage, would not increase demand directly in America. By reducing the value of the dollar, and the attractiveness of dollar investments, it would create an international ‘wall of money’ flowing out of the USA towards its emerging rivals: Russia, Brazil, India and other dynamos of the global south. Those countries’ currencies would have to rise against the dollar, or they would have to tolerate rampant inflation, or both.

I. 46 Len-len 193–96, 209 Liberal Democrats 43–44, 46 liberalizers 31 Libya 25, 31, 119; National Transitional Council 178 Life and Fate (Grossman) 129 Lilico, Andrew 121 link-shorteners 75 Linux 139–40 @littlemisswilde 41–42, 44, 45, 135–36, 138 living conditions, urban slums 196–99 London: anti-capitalist demonstrations 33; arrests 61–62; Day X, 24 November 2010 41–42, 46–48; the Dubstep Rebellion 48–52; Fortnum & Mason 60–61; HM Revenue and Customs building 51; Hyde Park 60; Millbank riot 42–44; Millbank Tower 43; Museum Tavern 1; National Gallery teach-in 53, 53–54; Oxford Circus 60; Palladium Theatre 51; Parliament Square 49, 51, 52–53; Piccadilly Circus 58; police–student confrontation 50–51; Regent Street 58; Ritz Hotel 60; Tate Modern 53; trade-union demonstration, March 2011 57–61; Trafalgar Square 47; Victoria Street 50; Victorinox 59 London School of Oriental and African Studies, occupation of 44–46 López, Fernando 166–67, 170 Lopez, Gina 200–2 Lopez Inc. 200–2 Loubere, Leo 174 Loukanikos (riot dog) 94, 96 L’Ouverture, Toussaint 149 LulzSec 151 McIntyre, Jody 51 McPherson, James 182 Madison, Wisconsin revolt 184–87 Madrid 33 Mahalla uprising, 2008 10, 71 Maher, Ahmed 83 Mahfouz, Asmaa, @AsmaaMahfouz 11, 177 Mahmoud (Zamalek Sporting Club ultra) 16–17 Makati, Manila 204–6 malnutrition 9 Mandelson, Peter 17, 26, 114 Manila 33; Estero de Paco 200–2; Estero de San Miguel 196–99; Makati 204–6; waterways 200–2 manipulated consciousness 29–30 Manufacturing Consent (Chomsky and Herman) 28–29 Mao Tse Tung 46 Marxism 141–45 Marx, Karl 46, 141–45, 174, 187, 188–89, 190, 192 Masai with a mobile, the 133–34 Masoud, Tarek 27 Masry Shebin El-Kom textile factory 22–23 mass culture 29–30 Matrix, The (film) 29 Meadows, Alfie 51 media, the 28–29 @mehri912 34 Meltdown (Mason) 31–32 memes 75, 150–52, 152 Merkel, Angela 96, 98, 99, 112 Michas, Takis 103 Middle East: balance of power 178; Facebook usage 135; failure of specialist to understand 25–27 Milburn, Alan 114 Miliband, Ed 58, 60, 188 Millbank riot 42–44 Millennium Challenge 2002 82–83 Miller, Henry 128 misery 209 mobile telephony 75–76, 133–34 modernism 28 mortgage-backed securities 106–8 Moses, Jonathan 48 Mousavi, Mir-Hossein 33–34 movement without a name 66 Mubarak, Alaa 17–18 Mubarak, Gamal 8, 10, 17–18, 26 Mubarak, Hosni 9, 10, 14, 15, 18–19, 19–20, 26, 31 Murdoch, Rupert 31, 106, 148–49 Muslim Brotherhood 21, 177 NAFTA 166–67 Napoleon III 172, 191 Nasser, Gamal Abdel 19 National Gallery teach-in 53, 53–54 nationalism 124 Native Americans 162, 163 Negri, Toni 42 Netanyahu, Binyamin 180 network animals 147 networked individualism 130, 130–33, 141 networked protests 81–82, 85 networked revolution, the 79–85; erosion of power relations 80–81; informal hierarchies 83; networked protests 81–82; network relationships 81; swarm tactics 82–83 network effect, the 2, 74–75, 77; erosion of power relations 80–81; strength 83; usefulness 84 network relationships 81 Nevins, Allan 182 New Journalism 3 News Corporation 148—49 News of the World 49; phone hacking scandal 61, 148–49 New Unrest, social roots of 65–66, 85; demographics of revolt 66–73; information tools 75–76; the networked revolution 79–85; organizational format 77–78; technology and 74–79; the urban poor 70–72 New York Times 170 1984 (Orwell) 30, 129 Nomadic Hive Manifesto, The 53–54 @norashalaby 13 North Africa: demographics of revolt 66; students and the urban poor 71 Obama, Barack 72, 116–18, 120, 122, 162, 167, 170, 180, 183, 187 OccupiedLondon blog 88–89 Occupy Wall Street movement, the 139, 144, 187, 210 Office for National Statistics 115 Ogden-Nussbaum, Anna, @eponymousthing 184 Oklahoma 153, 153–56 Oldouz84 36, 37 Olives, Monchet 202–4 online popularity 75 On the Jewish Question (Marx) 143 Open Source software 139–40 Operation Cast Lead 33 organizational format, changing forms of 77–78 Organisation of Labour, The (Blanc) 187 organized labour 71–72, 143 Ortiz, Roseangel 161 Orwell, George 30, 129, 208, 210 Owen, Robert 142 Palafox, Felino 204–5 Palamiotou, Anna 97 Palestine 25, 121, 179, 180 Palin, Sarah 181, 182 PAME (Greek trade union) 90 Papaconstantinou, George 91, 97 Papandreou, George 88, 96 Papayiannidis, Antonis 103 Paris 39; 1968 riots 46; revolution of 1848 171, 172 Paris Commune, the 1, 72–73, 84, 132 PASOK 89, 91, 98, 99 Paulson, Hank 110 Petrache, Ruben 203–4 Philippines: Calauan, Laguna Province 202–4; Estero de Paco, Manila 200–2; Estero de San Miguel, Manila 196–99, 205–6, 206–9; Gapan City 193–96; Makati, Manila 204–6; New People’s Army 203 Philippines Housing Development Corporation 198 philosophy 29 phone hacking scandal 61, 148–49 Picasso, Pablo 127, 128, 132 Pimco 170 Poland 172 police car protester (USA) 4 Policy Exchange think tank 55 political mainstream, youth disengagement from 89–90 popular culture 65, 176 Porter, Brett 154, 155, 156 Port Huron Statement, the 129–30, 145 Portugal 92, 112, 188 postmodernism 28 poverty 121–22, 210, 211 Powell, Walter 77 power, refusal to engage with 3 power relations, erosion of 80–81 Procter & Gamble 23 propaganda of the deed 62 property 48 property bubble collapse 106–8 protectionism 124 protest, changing forms of 54–57 pro-Western dictators, support for 31 Prussia 191 Puente 165 Putnam, Robert 134 Quantitative Easing II 120–23 radicalization 33, 37, 47–48 radical journalists 149 Ramírez, Leticia 165 Real Estate Tax Authority Workers (Egypt) 19 Really Free School, the 1–2 @rebeldog_ath 96 reciprocity 77 Reed Elsevier 146 Reider, Dimi 179 Research and Destroy group 38–39 revolt, demographics of 66, 66–73 revolutionary wave 65 revolution, definition 79–80 revolutions: 1848 171–73, 173–75, 191, 192; 1917 173; 1968 173; 1989 173 Reynalds, Jeremy 159–60, 162–63 rice crops 195 Riches, Jessica, @littlemisswilde 41–42, 44, 45, 135–36, 138 Rimbaud, Arthur 132 River Warriors 201 Roads to Freedom (Sartre) 129 Road to Wigan Pier, The (Orwell) 208 Romer, Christina 117 Roosevelt, Franklin D. 169–70 Rove, Karl 30–31, 32 Rowan, Rory 54 Said, Edward 26–27 Said, Khaled 11, 148 @Sandmonkey 13 Sandra (Joy Junction resident) 160 Santa Cruz, University of California 37–39 Sarkozy, Nicolas 91–92, 98 @sarrahsworld 11–12, 14, 135 Sartre, Jean-Paul 129 Saudi Arabia 121 savings, and investment 107 Savio, Mario 4 SB1070 (USA) 164, 165–66, 166–67 self-esteem, and consumption 80–81 self-interest 111 self-reliance 68 self, the, social networks impact on 136–38 Sennett, Richard 68, 80–81, 131 Sentimental Education (Flaubert) 171 el-Shaar, Mahmoud 22 Shafiq, Mohammed 20–22 Shalit, Gilad 179 shared community 84 Sharp, Gene 83 Sharpton, Al 184 Shirky, Clay 138, 139, 140, 146 Sinclair, Cameron 199, 208 Sioras, Dr Ilias 90–91 Situationist movement 46–47 Situationist Taliban 1 slum-dwellers 68; numbers 198 social capital 134 social democracy 145 social housing 199 Socialist International 19–20 social justice 177, 191, 192, 209, 210 social media 7, 74–75, 77; collective mental arena 137; lack of control 37; power of 34–35; role of 56; and the spread of ideas 151 social micro-history 173 social networks 77, 82; impact of 147; impact on activism 138–41; and the self 136–38 social-republicanism 187 solidaristic slum, the 207 Solidarity 42 ‘Solidarity Forever’ (song) 42 Soviet Union 28 Spain 66, 104, 105, 188 Spanish Civil War 209–10 species-being 143 @spitzenprodukte (art activist) 1 spontaneous horizontalists 44–46 spontaneous replication 55 Starbucks Kids 79 Steinbeck, John 153, 155, 159, 163, 164, 169 Stephenson, Paul 52 Stiglitz, Joseph 118 Strategy Guide (Sharp) 83 Strauss-Kahn, Dominique 188 strongman threat, the 177–78 student occupations 37–39, 44–46, 53, 53–54 students: economic attack on 38; expectations 67–68; population 70 Sudan 25 Suez Canal Port Authority 19 Supreme Council of the Armed Forces (SCAF) (Egypt) 18, 20 surveillance 148 swarm tactics 82–83 swine flu epidemic 9 Switzerland 123 syndicalism 175–76 synthesis, lack of 57 Syria 25 tactics 54–57 Tahrir Square, Cairo 6, 69, 89, 139; chants 191, 211; Day of Rage, 28 May 15–17; demonstration, 25 January 10–14; numbers 13; Twitter feeds 13; volunteer medics 20–22 Taine, Hippolyte 73 Tantawi, General 19 Tarnac Nine, the 189 Tea Party, the 117–18, 124–25, 180–81 tear gas 93–94, 100–1 technology 65, 66, 74–79, 85, 133–36, 138–39; and the 1848 revolutions 173–74 Tehran, Twitter Revolution 34–37 teleology 131, 152 Tent City jail, Arizona 164–67 Territorial Support Group 50 Thatcher, Margaret 106 @3arabawy 10, 22, 71 Third Way, the 31 Time magazine 36 Tim (human rights activist) 1–2 Tim (Joy Junction resident) 160 Tocqueville, Alexis de 192 totalitarianism 147–48 toxic debt 110–11 trade wars 122, 124–25 transnational culture 69 Transparency International 119 Trichet, Jean-Claude 112 Truman Show, The (film) 29 trust 57 Tunisia: Army 178; economic growth 119; inflation 121; organized workforce 72; revolution 10, 11, 25–26; unemployment 119 Turkle, Sherry 136 Twitpic 75 Twitter and tweets 3, 74, 137–38; #wiunion 184, 185; @Ghonim 13; @mehri912 34; @norashalaby 13; @rebeldog_ath 96; @Sandmonkey 13; Egyptian revolution 13, 14; importance of 135–36; Iranian revolution and 33–37; Madison, Wisconsin revolt 184; news dissemination 75; real-time organization 75; reciprocity 77; user numbers 135; virtual meetings 45 Twitter Revolution, Iran 33–37, 78, 178 Ukraine 177–78 UK Uncut 54–57, 58, 61 ultra-social relations 138 unemployment: America 159–63; Egypt 119; Spain 105; Tunisia 119; youth 66, 105, 119–20 UN-Habitat 199 Unison 57 United Nations, The Challenge of Slums 198–99 United States of America: agriculture 154–56; Albuquerque 159, 159–63; Arizona 164–67, 183; armed struggle 181–83; Bakersfield, California 168–70; budget cuts 156, 161, 167, 170; California 168–70; campus revolts, 1964 4; Canadian River 159; cattle prices 156; collapse of bipartisan politics 116–19; culture wars 179, 180–84; current-account deficit 107; debt 118; deportations 166; devaluation 123; Dodd–Frank Act 167; the Dust Bowl 154–55; economic decline 183–84; economic growth 170; Federal budget 156, 161; fiscal management 183; fiscal stimulus 117–18; fruit pickers 169; hamburger trade 156; healthcare bill 180, 183; homeless children 160; homelessness 159–63; Indiana 116–17, 125; Interstate 40 157, 170; job market 161; Joy Junction, Albuquerque 159–63; Madison, Wisconsin revolt 184–87; minimum wage workers 158; the Mogollon Rim 163; motels 157–58, 162–63; the New Deal 169–70; Oklahoma 153, 153–56; Phoenix, Arizona 164–67; police car protester 4; political breakdown, 1850s 182–83; property bubble 106–8; Quantitative Easing II 120–23; radical blogosphere 184; the religious right 118; repossessions 168; Route 66 157–59; San Joaquin valley 169; SB1070 164, 165–66, 166–67; State Department 178; states’ rights 183; student occupation movement 37–39; the Tea Party 117–18, 124–25, 180–81, 186; Tent City jail, Arizona 164–67; Tucson, Arizona 182; undocumented migrants 164–67; unemployment 159–63; wages 108; war spending 162; welfare benefits 162, 170 Unite Union 55 university fees 44, 47, 50, 54 urban poor 70–72 urban slums 191; Calauan, Laguna Province 202–4; clearance policies 198–99; education levels 207; Estero de Paco, Manila 200–2; Estero de San Miguel, Manila 196–99, 205–6, 206–9; Gapan City, Philippines 193–96; improvement policies 199, 205–6; internet access 207; labour force 208; living conditions 196–99; Moqattam, Cairo 6–10; population numbers 198 Vail, Theodore 74 Vanderboegh, Mike 181 Van Riper, Lieutenant General Paul 82 Venizelos, Evangelos 97–98 Vietnam War 129 virtual meetings 45 virtual societies 134 Vodafone 54–55 Vradis, Antonis 87–89 wages 108, 112 Walker, Scott 184 Walorski, Jackie 116–17 Walt, Stephen M. 26 war, threat of 178 Warwick University, Economics Conference 67–68 Washington Times 35 Wasim (Masry Shebin El-Kom delegate) 23 water supplies 194 wave creation 78 wealth, monopolization of 108 We Are Social 148 Weeks, Lin, @weeks89 184 Wellman, Barry 130 Wertheim, Margaret 136 White House, the 92 ‘Why the Tunisian revolution won’t spread’ (Walt) 26 WikiLeaks 140 Wikipedia 46, 140 wikis 140–41 #wiunion 184, 185 Wobblies 176 Women’s liberation 132 Woods, Alan 33 Woollard, Edward 43 working class 68, 71–72, 79–80, 145; culture 72; revolutions, 1848 172–73 World of Yesterday, The (Zweig) 128 World Trade Organization 122 Yemen 25, 119, 121 youth 68; alienation 62; British 41–42, 44, 53–54; culture 70; disconnected 190; disengagement from political mainstream 89–90; radicalization 33, 37, 47–48; unemployment 66, 119–20 YouTube 75; Egyptian revolution on 11, 14, 15; Iranian revolution on 34, 35 Zamalek Sporting Club, ultras 16–17 Zapatistas 1 Zekry, Musa 5–6, 7, 23–24 Zola, Emil 191 Zweig, Stefan 128, 132–33, 152, 176 Copyright This revised and updated second edition first published by Verso 2013 First published by Verso 2012 © Paul Mason 2012, 2013 All rights reserved The moral rights of the author have been asserted Verso UK: 6 Meard Street, London W1F 0EG US: 20 Jay Street, Suite 1010, Brooklyn, NY 11201 www.versobooks.com Verso is the imprint of New Left Books ISBN: 978-1-781-68245-6 (e-book) British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress Typeset in Fournier by MJ Gavan, Truro, Cornwall Printed by ScandBook AB, Sweden

I. 46 Len-len 193–96, 209 Liberal Democrats 43–44, 46 liberalizers 31 Libya 25, 31, 119; National Transitional Council 178 Life and Fate (Grossman) 129 Lilico, Andrew 121 link-shorteners 75 Linux 139–40 @littlemisswilde 41–42, 44, 45, 135–36, 138 living conditions, urban slums 196–99 London: anti-capitalist demonstrations 33; arrests 61–62; Day X, 24 November 2010 41–42, 46–48; the Dubstep Rebellion 48–52; Fortnum & Mason 60–61; HM Revenue and Customs building 51; Hyde Park 60; Millbank riot 42–44; Millbank Tower 43; Museum Tavern 1; National Gallery teach-in 53, 53–54; Oxford Circus 60; Palladium Theatre 51; Parliament Square 49, 51, 52–53; Piccadilly Circus 58; police–student confrontation 50–51; Regent Street 58; Ritz Hotel 60; Tate Modern 53; trade-union demonstration, March 2011 57–61; Trafalgar Square 47; Victoria Street 50; Victorinox 59 London School of Oriental and African Studies, occupation of 44–46 López, Fernando 166–67, 170 Lopez, Gina 200–2 Lopez Inc. 200–2 Loubere, Leo 174 Loukanikos (riot dog) 94, 96 L’Ouverture, Toussaint 149 LulzSec 151 McIntyre, Jody 51 McPherson, James 182 Madison, Wisconsin revolt 184–87 Madrid 33 Mahalla uprising, 2008 10, 71 Maher, Ahmed 83 Mahfouz, Asmaa, @AsmaaMahfouz 11, 177 Mahmoud (Zamalek Sporting Club ultra) 16–17 Makati, Manila 204–6 malnutrition 9 Mandelson, Peter 17, 26, 114 Manila 33; Estero de Paco 200–2; Estero de San Miguel 196–99; Makati 204–6; waterways 200–2 manipulated consciousness 29–30 Manufacturing Consent (Chomsky and Herman) 28–29 Mao Tse Tung 46 Marxism 141–45 Marx, Karl 46, 141–45, 174, 187, 188–89, 190, 192 Masai with a mobile, the 133–34 Masoud, Tarek 27 Masry Shebin El-Kom textile factory 22–23 mass culture 29–30 Matrix, The (film) 29 Meadows, Alfie 51 media, the 28–29 @mehri912 34 Meltdown (Mason) 31–32 memes 75, 150–52, 152 Merkel, Angela 96, 98, 99, 112 Michas, Takis 103 Middle East: balance of power 178; Facebook usage 135; failure of specialist to understand 25–27 Milburn, Alan 114 Miliband, Ed 58, 60, 188 Millbank riot 42–44 Millennium Challenge 2002 82–83 Miller, Henry 128 misery 209 mobile telephony 75–76, 133–34 modernism 28 mortgage-backed securities 106–8 Moses, Jonathan 48 Mousavi, Mir-Hossein 33–34 movement without a name 66 Mubarak, Alaa 17–18 Mubarak, Gamal 8, 10, 17–18, 26 Mubarak, Hosni 9, 10, 14, 15, 18–19, 19–20, 26, 31 Murdoch, Rupert 31, 106, 148–49 Muslim Brotherhood 21, 177 NAFTA 166–67 Napoleon III 172, 191 Nasser, Gamal Abdel 19 National Gallery teach-in 53, 53–54 nationalism 124 Native Americans 162, 163 Negri, Toni 42 Netanyahu, Binyamin 180 network animals 147 networked individualism 130, 130–33, 141 networked protests 81–82, 85 networked revolution, the 79–85; erosion of power relations 80–81; informal hierarchies 83; networked protests 81–82; network relationships 81; swarm tactics 82–83 network effect, the 2, 74–75, 77; erosion of power relations 80–81; strength 83; usefulness 84 network relationships 81 Nevins, Allan 182 New Journalism 3 News Corporation 148—49 News of the World 49; phone hacking scandal 61, 148–49 New Unrest, social roots of 65–66, 85; demographics of revolt 66–73; information tools 75–76; the networked revolution 79–85; organizational format 77–78; technology and 74–79; the urban poor 70–72 New York Times 170 1984 (Orwell) 30, 129 Nomadic Hive Manifesto, The 53–54 @norashalaby 13 North Africa: demographics of revolt 66; students and the urban poor 71 Obama, Barack 72, 116–18, 120, 122, 162, 167, 170, 180, 183, 187 OccupiedLondon blog 88–89 Occupy Wall Street movement, the 139, 144, 187, 210 Office for National Statistics 115 Ogden-Nussbaum, Anna, @eponymousthing 184 Oklahoma 153, 153–56 Oldouz84 36, 37 Olives, Monchet 202–4 online popularity 75 On the Jewish Question (Marx) 143 Open Source software 139–40 Operation Cast Lead 33 organizational format, changing forms of 77–78 Organisation of Labour, The (Blanc) 187 organized labour 71–72, 143 Ortiz, Roseangel 161 Orwell, George 30, 129, 208, 210 Owen, Robert 142 Palafox, Felino 204–5 Palamiotou, Anna 97 Palestine 25, 121, 179, 180 Palin, Sarah 181, 182 PAME (Greek trade union) 90 Papaconstantinou, George 91, 97 Papandreou, George 88, 96 Papayiannidis, Antonis 103 Paris 39; 1968 riots 46; revolution of 1848 171, 172 Paris Commune, the 1, 72–73, 84, 132 PASOK 89, 91, 98, 99 Paulson, Hank 110 Petrache, Ruben 203–4 Philippines: Calauan, Laguna Province 202–4; Estero de Paco, Manila 200–2; Estero de San Miguel, Manila 196–99, 205–6, 206–9; Gapan City 193–96; Makati, Manila 204–6; New People’s Army 203 Philippines Housing Development Corporation 198 philosophy 29 phone hacking scandal 61, 148–49 Picasso, Pablo 127, 128, 132 Pimco 170 Poland 172 police car protester (USA) 4 Policy Exchange think tank 55 political mainstream, youth disengagement from 89–90 popular culture 65, 176 Porter, Brett 154, 155, 156 Port Huron Statement, the 129–30, 145 Portugal 92, 112, 188 postmodernism 28 poverty 121–22, 210, 211 Powell, Walter 77 power, refusal to engage with 3 power relations, erosion of 80–81 Procter & Gamble 23 propaganda of the deed 62 property 48 property bubble collapse 106–8 protectionism 124 protest, changing forms of 54–57 pro-Western dictators, support for 31 Prussia 191 Puente 165 Putnam, Robert 134 Quantitative Easing II 120–23 radicalization 33, 37, 47–48 radical journalists 149 Ramírez, Leticia 165 Real Estate Tax Authority Workers (Egypt) 19 Really Free School, the 1–2 @rebeldog_ath 96 reciprocity 77 Reed Elsevier 146 Reider, Dimi 179 Research and Destroy group 38–39 revolt, demographics of 66, 66–73 revolutionary wave 65 revolution, definition 79–80 revolutions: 1848 171–73, 173–75, 191, 192; 1917 173; 1968 173; 1989 173 Reynalds, Jeremy 159–60, 162–63 rice crops 195 Riches, Jessica, @littlemisswilde 41–42, 44, 45, 135–36, 138 Rimbaud, Arthur 132 River Warriors 201 Roads to Freedom (Sartre) 129 Road to Wigan Pier, The (Orwell) 208 Romer, Christina 117 Roosevelt, Franklin D. 169–70 Rove, Karl 30–31, 32 Rowan, Rory 54 Said, Edward 26–27 Said, Khaled 11, 148 @Sandmonkey 13 Sandra (Joy Junction resident) 160 Santa Cruz, University of California 37–39 Sarkozy, Nicolas 91–92, 98 @sarrahsworld 11–12, 14, 135 Sartre, Jean-Paul 129 Saudi Arabia 121 savings, and investment 107 Savio, Mario 4 SB1070 (USA) 164, 165–66, 166–67 self-esteem, and consumption 80–81 self-interest 111 self-reliance 68 self, the, social networks impact on 136–38 Sennett, Richard 68, 80–81, 131 Sentimental Education (Flaubert) 171 el-Shaar, Mahmoud 22 Shafiq, Mohammed 20–22 Shalit, Gilad 179 shared community 84 Sharp, Gene 83 Sharpton, Al 184 Shirky, Clay 138, 139, 140, 146 Sinclair, Cameron 199, 208 Sioras, Dr Ilias 90–91 Situationist movement 46–47 Situationist Taliban 1 slum-dwellers 68; numbers 198 social capital 134 social democracy 145 social housing 199 Socialist International 19–20 social justice 177, 191, 192, 209, 210 social media 7, 74–75, 77; collective mental arena 137; lack of control 37; power of 34–35; role of 56; and the spread of ideas 151 social micro-history 173 social networks 77, 82; impact of 147; impact on activism 138–41; and the self 136–38 social-republicanism 187 solidaristic slum, the 207 Solidarity 42 ‘Solidarity Forever’ (song) 42 Soviet Union 28 Spain 66, 104, 105, 188 Spanish Civil War 209–10 species-being 143 @spitzenprodukte (art activist) 1 spontaneous horizontalists 44–46 spontaneous replication 55 Starbucks Kids 79 Steinbeck, John 153, 155, 159, 163, 164, 169 Stephenson, Paul 52 Stiglitz, Joseph 118 Strategy Guide (Sharp) 83 Strauss-Kahn, Dominique 188 strongman threat, the 177–78 student occupations 37–39, 44–46, 53, 53–54 students: economic attack on 38; expectations 67–68; population 70 Sudan 25 Suez Canal Port Authority 19 Supreme Council of the Armed Forces (SCAF) (Egypt) 18, 20 surveillance 148 swarm tactics 82–83 swine flu epidemic 9 Switzerland 123 syndicalism 175–76 synthesis, lack of 57 Syria 25 tactics 54–57 Tahrir Square, Cairo 6, 69, 89, 139; chants 191, 211; Day of Rage, 28 May 15–17; demonstration, 25 January 10–14; numbers 13; Twitter feeds 13; volunteer medics 20–22 Taine, Hippolyte 73 Tantawi, General 19 Tarnac Nine, the 189 Tea Party, the 117–18, 124–25, 180–81 tear gas 93–94, 100–1 technology 65, 66, 74–79, 85, 133–36, 138–39; and the 1848 revolutions 173–74 Tehran, Twitter Revolution 34–37 teleology 131, 152 Tent City jail, Arizona 164–67 Territorial Support Group 50 Thatcher, Margaret 106 @3arabawy 10, 22, 71 Third Way, the 31 Time magazine 36 Tim (human rights activist) 1–2 Tim (Joy Junction resident) 160 Tocqueville, Alexis de 192 totalitarianism 147–48 toxic debt 110–11 trade wars 122, 124–25 transnational culture 69 Transparency International 119 Trichet, Jean-Claude 112 Truman Show, The (film) 29 trust 57 Tunisia: Army 178; economic growth 119; inflation 121; organized workforce 72; revolution 10, 11, 25–26; unemployment 119 Turkle, Sherry 136 Twitpic 75 Twitter and tweets 3, 74, 137–38; #wiunion 184, 185; @Ghonim 13; @mehri912 34; @norashalaby 13; @rebeldog_ath 96; @Sandmonkey 13; Egyptian revolution 13, 14; importance of 135–36; Iranian revolution and 33–37; Madison, Wisconsin revolt 184; news dissemination 75; real-time organization 75; reciprocity 77; user numbers 135; virtual meetings 45 Twitter Revolution, Iran 33–37, 78, 178 Ukraine 177–78 UK Uncut 54–57, 58, 61 ultra-social relations 138 unemployment: America 159–63; Egypt 119; Spain 105; Tunisia 119; youth 66, 105, 119–20 UN-Habitat 199 Unison 57 United Nations, The Challenge of Slums 198–99 United States of America: agriculture 154–56; Albuquerque 159, 159–63; Arizona 164–67, 183; armed struggle 181–83; Bakersfield, California 168–70; budget cuts 156, 161, 167, 170; California 168–70; campus revolts, 1964 4; Canadian River 159; cattle prices 156; collapse of bipartisan politics 116–19; culture wars 179, 180–84; current-account deficit 107; debt 118; deportations 166; devaluation 123; Dodd–Frank Act 167; the Dust Bowl 154–55; economic decline 183–84; economic growth 170; Federal budget 156, 161; fiscal management 183; fiscal stimulus 117–18; fruit pickers 169; hamburger trade 156; healthcare bill 180, 183; homeless children 160; homelessness 159–63; Indiana 116–17, 125; Interstate 40 157, 170; job market 161; Joy Junction, Albuquerque 159–63; Madison, Wisconsin revolt 184–87; minimum wage workers 158; the Mogollon Rim 163; motels 157–58, 162–63; the New Deal 169–70; Oklahoma 153, 153–56; Phoenix, Arizona 164–67; police car protester 4; political breakdown, 1850s 182–83; property bubble 106–8; Quantitative Easing II 120–23; radical blogosphere 184; the religious right 118; repossessions 168; Route 66 157–59; San Joaquin valley 169; SB1070 164, 165–66, 166–67; State Department 178; states’ rights 183; student occupation movement 37–39; the Tea Party 117–18, 124–25, 180–81, 186; Tent City jail, Arizona 164–67; Tucson, Arizona 182; undocumented migrants 164–67; unemployment 159–63; wages 108; war spending 162; welfare benefits 162, 170 Unite Union 55 university fees 44, 47, 50, 54 urban poor 70–72 urban slums 191; Calauan, Laguna Province 202–4; clearance policies 198–99; education levels 207; Estero de Paco, Manila 200–2; Estero de San Miguel, Manila 196–99, 205–6, 206–9; Gapan City, Philippines 193–96; improvement policies 199, 205–6; internet access 207; labour force 208; living conditions 196–99; Moqattam, Cairo 6–10; population numbers 198 Vail, Theodore 74 Vanderboegh, Mike 181 Van Riper, Lieutenant General Paul 82 Venizelos, Evangelos 97–98 Vietnam War 129 virtual meetings 45 virtual societies 134 Vodafone 54–55 Vradis, Antonis 87–89 wages 108, 112 Walker, Scott 184 Walorski, Jackie 116–17 Walt, Stephen M. 26 war, threat of 178 Warwick University, Economics Conference 67–68 Washington Times 35 Wasim (Masry Shebin El-Kom delegate) 23 water supplies 194 wave creation 78 wealth, monopolization of 108 We Are Social 148 Weeks, Lin, @weeks89 184 Wellman, Barry 130 Wertheim, Margaret 136 White House, the 92 ‘Why the Tunisian revolution won’t spread’ (Walt) 26 WikiLeaks 140 Wikipedia 46, 140 wikis 140–41 #wiunion 184, 185 Wobblies 176 Women’s liberation 132 Woods, Alan 33 Woollard, Edward 43 working class 68, 71–72, 79–80, 145; culture 72; revolutions, 1848 172–73 World of Yesterday, The (Zweig) 128 World Trade Organization 122 Yemen 25, 119, 121 youth 68; alienation 62; British 41–42, 44, 53–54; culture 70; disconnected 190; disengagement from political mainstream 89–90; radicalization 33, 37, 47–48; unemployment 66, 119–20 YouTube 75; Egyptian revolution on 11, 14, 15; Iranian revolution on 34, 35 Zamalek Sporting Club, ultras 16–17 Zapatistas 1 Zekry, Musa 5–6, 7, 23–24 Zola, Emil 191 Zweig, Stefan 128, 132–33, 152, 176 Copyright This revised and updated second edition first published by Verso 2013 First published by Verso 2012 © Paul Mason 2012, 2013 All rights reserved The moral rights of the author have been asserted Verso UK: 6 Meard Street, London W1F 0EG US: 20 Jay Street, Suite 1010, Brooklyn, NY 11201 www.versobooks.com Verso is the imprint of New Left Books ISBN: 978-1-781-68245-6 (e-book) British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress Typeset in Fournier by MJ Gavan, Truro, Cornwall Printed by ScandBook AB, Sweden


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Austerity: The History of a Dangerous Idea by Mark Blyth

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus

Once these bonds lost value, European banks increasingly found themselves shut out of US wholesale funding markets at the same time that US money markets began dumping their short-term debt. What happened in the United States in 2008, a general “liquidity crunch,” gathered pace in Europe in 2010 and 2011. It was only averted by the LTROs of the ECB in late 2011 and early 2012. This unorthodox policy of quasi-quantitative easing offered only temporary respite. Paul De Grauwe called it “giving cheap money to trembling banks with all the problems this entails.”68 The results were that within two months of the first LTRO by the ECB, sovereign bond yields were rising again, and the banks those sovereigns were responsible for now had even more sovereign debt on their balance sheets—a fact not lost on investors now worrying about Spain and Italy.

Hume’s claims do not echo today’s—today’s claims are direct replicas of Hume’s. For debt being politically easier than taxes, look no further than Northern European criticisms of the budget policies of Greece and Italy.20 For government debt crowding out other investments, see the plethora of criticisms of the Obama stimulus.21 For debt driving up prices and compromising the ability of the state to cushion further shocks, see the voluminous criticisms of quantitative easing and fears that a spike in US interest rates will cause exactly that.22 For the fear of foreigners owning the United States, simply google “China owns USA.” The search returns 25 million hits even though the statement is simply not true—foreigners hold less than one-third of outstanding US debt.23 Despite this broadside of familiar critiques, we must remember that Hume predicted the end of Great Britain due to excessive debt issuance just at the moment that Great Britain was about to dominate the world for a century.

It was the longest equity bull market in history, and it spread out from the United States to boost stock markets all over the world. The smart cash that was being made in those equity markets looked around for a hedge and found real estate, which began its own global bubble phase in 1997 and ran until the crisis hit in 2006. The final bubble occurred in commodities, which rose sharply in 2005 and 2006, long before anyone had heard the words “quantitative easing,” and which burst quickly since these were comparatively tiny markets, too small to sustain such volumes of liquidity all hunting either safety or yield. The popping of these interlinked bubbles combined with losses in the subprime sector of the mortgage derivatives market to trigger the current crisis. A picture again is useful. In figure 7.1 we see these three asset bubbles (Dow Jones Stocks, S&P’s Case-Schiller Index of Housing, and gold/oil prices) scaled against time.


pages: 317 words: 100,414

Superforecasting: The Art and Science of Prediction by Philip Tetlock, Dan Gardner

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Affordable Care Act / Obamacare, Any sufficiently advanced technology is indistinguishable from magic, availability heuristic, Black Swan, butterfly effect, cloud computing, cuban missile crisis, Daniel Kahneman / Amos Tversky, desegregation, Edward Lorenz: Chaos theory, forward guidance, Freestyle chess, fundamental attribution error, germ theory of disease, hindsight bias, index fund, Jane Jacobs, Jeff Bezos, Mikhail Gorbachev, Mohammed Bouazizi, Nash equilibrium, Nate Silver, obamacare, pattern recognition, performance metric, place-making, placebo effect, prediction markets, quantitative easing, random walk, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Silicon Valley, Skype, statistical model, stem cell, Steve Ballmer, Steve Jobs, Steven Pinker, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Watson beat the top human players on Jeopardy!

Signed by a long list of economists and commentators, including the Harvard economic historian Niall Ferguson and Amity Shlaes of the Council on Foreign Relations, the letter calls on the Federal Reserve to stop its policy of large-scale asset purchases known as “quantitative easing” because it “risk[s] currency debasement and inflation.” The advice was ignored and quantitative easing continued. But in the years that followed, the US dollar wasn’t debased and inflation didn’t rise. The investor and commentator Barry Ritholtz wrote in 2013 that the signatories had been proved “terribly wrong.”5 Many others agreed. But there was an obvious response: “Wait. It hasn’t happened yet. But it will.” Ritholtz and the critics might argue that in the context of the 2010 debate, the letter writers expected currency debasement and inflation in the next two or three years if quantitative easing went ahead. Perhaps—but that is not what they wrote. The letter says nothing about the time frame.


pages: 326 words: 103,170

The Seventh Sense: Power, Fortune, and Survival in the Age of Networks by Joshua Cooper Ramo

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Airbnb, Albert Einstein, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, British Empire, cloud computing, crowdsourcing, Danny Hillis, defense in depth, Deng Xiaoping, Edward Snowden, Fall of the Berlin Wall, Firefox, Google Chrome, income inequality, Isaac Newton, Jeff Bezos, job automation, market bubble, Menlo Park, natural language processing, Network effects, Norbert Wiener, Oculus Rift, packet switching, Paul Graham, price stability, quantitative easing, RAND corporation, recommendation engine, Republic of Letters, Richard Feynman, Richard Feynman, road to serfdom, Sand Hill Road, secular stagnation, self-driving car, Silicon Valley, Skype, Snapchat, social web, sovereign wealth fund, Steve Jobs, Steve Wozniak, Stewart Brand, Stuxnet, superintelligent machines, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, too big to fail, Vernor Vinge, zero day

“The extent and continuing increase in income inequality in the United States greatly concern me,” Bernanke’s successor Janet Yellen remarked in 2015, after seven years of quantitative easing policy. “The past several decades have seen the most sustained rise in income inequality since the nineteenth century.” Even with more money floating around, there was, paradoxically (at least using traditional thinking), less demand. But that wasn’t the whole story. Networks were also working insidiously on the supply side of the equation. Remember that markets always set prices by balancing supply and demand. On a hot day when more people want lemonade, the kids on the beach selling it can charge more than on a rainy day. In the years after 2008, much of the cheap credit of “quantitative easing” was used to fund projects that massively increased supply. More oil rigs were built. A whole fracking industry was financed on cheap credit.

Bernanke’s reaction to the 2008 financial crisis—and the path of most of his fellow central bankers around the world—was what you would have expected, then: to avoid that fatal financial distress by flooding the system with money. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression,” he reflected in 2009. The U.S. monetary base grew fivefold, from $800 billion to $4 trillion, as a program known as “quantitative easing” pressed money into circulation. But something unusual and unnerving became apparent after a few years. Despite massively increasing money supply, prices remained largely the same. Consumption remained stagnant. Usually the injection of tremendous amounts of money into the system creates demand, it builds pressure for inflation: Suddenly everyone has money and wants to spend it. “Inflation is always and everywhere a monetary phenomenon,” the Nobel Prize–winning economist Milton Friedman famously said.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

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airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Edward Glaeser, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Washington Consensus, white flight

When the Fed’s Ben Bernanke, an expert on the Depression, injected hundreds of billions of dollars of liquidity into the economy in 2008–9, Lucas applauded the action.9 President Obama’s initial fiscal stimulus package of 2009 also received widespread support (including from Lucas), even if viewed as a desperate, last-resort measure.‡ Beyond these measures, and once the financial panic subsided, the new classical models suggested restraint and caution and not much else. The Fed’s policies of quantitative easing—its monetary expansion—had to be withdrawn quickly; otherwise, it soon would lead to inflation. Economists trained on these models kept warning about the dangers of inflation and urged the Fed to tighten its policy, even though unemployment remained high, the economy performed below par, and—notably—inflation refused to appear. They argued against continued fiscal stimulus to lift aggregate demand and employment, since such measures would only crowd out private consumption and investment.

., 101n pressure groups, 187 price ceilings, 28 price controls, 28–29, 94–97, 150, 185 price elasticities, 14, 180–81 price fixing, 179 prices: in bubbles, 152–58 business cycles and, 125–26, 129, 132 consumers and, 119, 129 in efficient-markets hypothesis, 157 minimum wages relative to, 143 Princeton University, Woodrow Wilson School at, 30 principal-agent models, 155 Principle of Comparative Advantage, 52–55, 59–60, 139, 170 prison cell upgrades, 192, 194 prisoners’ dilemma, 14–15, 20, 21, 61–62, 187, 200 privatization, 98, 161, 162 production functions, 119, 122 productivity, 120–21, 122–25, 141 Progresa, 4, 105–6 property rights, 87, 88, 98, 205 Prospera, 4, 105 “Protection and Real Wages” (Stolper and Samuelson), 58n, 140n public spending: business cycles and, 128–29, 131–32 economic growth and, 76–78, 114 quantitative easing, 135 Rajan, Raghu, 154 randomized controlled trials (RCTs), 202–4, 205 randomized field experiments, 105–7, 173, 202–5 rational bubbles, 154 rational choice, 33n rational expectations, 132 rationality postulate, 202–3 rationing, 64–65, 69, 95 Reagan, Ronald W., 49 real business cycle (RBC) models, 101n reasoning, rule-based vs. case-based forms of, 72 Recession, Great, 115, 134–35, 152–59, 184 recessions: fiscal stimulus and, 74–75, 128, 130, 131–37, 149, 150, 171 inflation and (stagflation), 130–31 reform fatigue, 88 regulation, 143, 155, 158–59, 160–61, 165–66, 208–9 Reinhart, Carmen, 76–78 relativity, general, 113 rents, 119, 120, 149, 150 revenue sharing, 124 reverse causal inference, 115 Ricard, Samuel, 196 Ricardo, David, 52–53, 139, 196 risk, 110, 141, 165 Great Recession and, 153–54, 155, 158, 159 Robinson, James, 206 Rodrik, Dani, 35n Rogoff, Kenneth, 76–78 Rubinstein, Ariel, 20 rule of law, 205 Russia, 166 Rustichini, Aldo, 71n Ryan, Stephen, 107 sales tax, 180–81 Samuelson, Paul, 31, 51–52, 53, 58n, 125, 140n Sandel, Michael, 189, 191–92, 194 Sargent, Tom, 131–32, 134 UC graduation speech and, 147–48 savings: globalization and, 165, 166 in Great Recession, 153 investment and, 129–30, 165–67 scale economies, 108, 122 Schelling, Thomas, 33, 42, 62 Schultz, Theodore W., 75n Schumacher, E.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

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banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, joint-stock company, Joseph Schumpeter, labor-force participation, labour market flexibility, liquidity trap, London Interbank Offered Rate, lump of labour, market bubble, market clearing, Martin Wolf, means of production, mobile money, moral hazard, mortgage debt, mortgage tax deduction, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra

States with weak public finances lose debt market access and veer toward default (with Greece being the poster boy this time around). Meanwhile, regulatory capital rules—as well as risk aversion to the real economy and lack of loan demand by shell-shocked enterprises and households—have stuffed bank balance sheets with sovereign bonds. Central bank balance sheets are whole multiples of pre-crisis levels due to bad asset purchases and “quantitative easing”—central banks creating money to buy debt securities. Scene Ten The finance crisis seems contained, and states and banks hope for a return to something resembling pre-crisis conditions or recovery while they continue to patch over difficulties ad hoc (e.g., Greece, Ireland, US house prices). Recovery in the real economy and meaningful reductions in unemployment remain elusive. Markets swing wildly from hope (risk-on) to fear (risk-off) on political or corporate-earnings news.

., 139 Finance-driven economy, 1, 72 anti-capitalism, 2 capitalism, 1 chronic debt crisis, 22 corporate America, 20 current movie artificial bank earnings, 7 asset prices, 6 banking implosions, 6 borrowers and investors connection, 10 borrowing demand, 7 catastrophic financial bubble, 10 civilization, 10 corporatism, 9 democratic crony capitalism, 9 Dodd-Frank act, 8 economic growth and social stability, 10 financial repression, 9 Glass-Steagall Act, 8 human ingenuity, 10 interbank funding markets, 6 low interest rates and easy money, 6 market collapse, 10 money market, 6 overexuberence, 6 overinvestment and speculation, 6 pre-crisis conditions, 8 printing money, 7 private capital, 7 167 168 Index Finance-driven economy (continued) profitability, 7 quantitative easing, 8 recovery, 8 regulation, 8 regulatory capital rules, 8 resources and tools, 9 shell-shocked enterprises and households, 8 end of employment, 21–22 financial leverage magic and poison CEO class, 14–15 consumer debt, 15–16 disconnection problem, 11–12 market bargain, 10 real economy, 10 wealth financialization, 13–14 working capital, 11 global financial crisis, 2 Great Moderation, 16–18 Great Panic, 18–19 household sector agony, 19–20 investor class, 22 Marx, Karl asset bubble, 5 cash nexus, 4 dot-com bubble, 5 economic revolution, 3 First World War, 4 free markets, 3 French Revolution, 3 globalization, 3 Great Depression, 5 liberalism, 3 normalcy, 4 overproduction and speculation, 3 Wall Street, 4, 5 revolutionary socialism, 2 sovereign debt, 8, 22 Finance reconstruction, 142 bank bashing, 146 “bankers”, 142 business model, challenges, 145 Citigroup, 145 cyclical businesses, 143 government management, 142 legitimacy bonus culture, 148–150 privileged opportunity, longestablished bank, 146 short-term share-price manipulation, 148 state and legal systems, 147 stock price, 147 mark-to-market price, 144 “producers”, 143 profession, definition, 163 prudence, 145, 161–163 root-and-branch transformation, 145 talent pool, 144 “the race for talent”, 143 trust cash management, 160 Financial Market Meltdown, 159 FSA, 159 hackneyed term, 159 information asymmetry, 159 non-bank financial service provider, 161 oversold/up-sold products, 159 utility Anglo-Saxon-type banking systems, 156 big data tools, 158 bills-of-exchange market, 150 branch and payment services, 157 clearinghouse creation, 158 core banking, 154 economic value transmission, 150 exchange of claims, 151 fee-income growth, 155 fiat money system, 151 financial intermediation, 150 financial transactions, 157 flexible contractor/subcontractor relationship, 158 information technology, 156 “liquidity premium”, 152 multidivisional/M-form organization, 153 non-interest income, 155 old-media companies, 157 Index overhead value analysis, 154 “privileged opportunity”, 152 quill pen–era practice, 158 sheer utility value, 155 silos, product business, 153 transaction accounts, 152 venture capital industry, 142 “War for Talent”, 143 Financial crises, 23 affordable housing, 24 banking “transmission” mechanism, 43 Basel III process, 50–51 basel process, 27–28 consumer banking(see Consumer banking) Dodd-Frank, 49–50 domestic banking system, 38 European Union, 51–53 FDIC, 40 finance-driven economy’s leverage machine, 43 Financial Market Meltdown, 25 GDP, 38 Government Policy and Central Banks, market meltdown(see Regulation process) government policy failure, 45 “government-sponsored” public companies, 24 Great Depression, 44 GSEs, 24 legal missteps, 47–48 New Deal, 43 panic-stricken markets, 40 political missteps, 45–47 Ponzi scheme, 42 postwar financial order, 25–27 printing money, 38 private profits and socialized losses, 40 private-sector demand, 43 public-sector demand, 42 quantitative approach, 25 TARP, 39 too-big-to-fail institutions, 41 Triple A bonds, 41 US Federal Reserve System, 38 Financial liberalization, 89 Financial Market Meltdown, 25, 61, 89, 109, 159 Financial repression, 9, 78, 111 Financial Services Authority (FSA), 60, 159 Food and Drug Administration (FDA), 69 Fordism, 68 Free-market capitalism, 89 Free markets, 3 French Revolution, 3 Front-end trading systems, 107 FSA.See Financial Services Authority G GDP, 11 “Giro” payments systems, 151 Global imbalance, 96 Globalization, 3 Global whirlwinds, 93 Asia, finance movement cultural differences, 110–111 Financial Market Meltdown, 109 Interest Equalization Tax, 109 language, law, and business culture, 109 primacy, 109 austerity(see Austerity) British Empire, 30 Chimerica, 97 China and United States cross-Pacific economy, 97 foreign interference and aggression, 98 headline growth rates, 97 repression revolution and series, 97–98 Second World War, 98 Smoot-Hawley Tariff, 98 surpluse trade, 97 sustainable development, 98 Chinese ascendancy, 113 clearing and settlement bottleneck, 106–107 Dynastic China, 112 169 Download from Wow!


pages: 318 words: 77,223

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian

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Airbnb, balance sheet recession, bank run, barriers to entry, Bretton Woods, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve

In June 2014 it made history by doing what no central bank has done outside a major financial crisis—that is, pushed the rate on bank deposits to a negative level. In January 2015, the central bank went even further, committing to large-scale purchases of market securities that would expand its balance sheet by 1 trillion euros. In what The Wall Street Journal loudly proclaimed on its January 23 front page was a “new era” (Figure 4), the ECB had embarked on a large and relatively open-ended quantitative easing (QE). It reaffirmed the use of the asset channel as a means of countering deflationary expectations and low growth. And to stress its seriousness, President Draghi indicated in the ECB press conference that the central bank stood ready to buy bonds at negative yields (yes, negative), and it did. This was quite a statement from a central bank known historically for its reluctance to venture even an inch away from orthodoxy; and for an institution whose decision-making Governing Council has to strike difficult political compromises while retaining the support of the famously conservative Germans.5 Throughout all this, markets have rejoiced at the continuing engagement of central banks, institutions that became investors’ best friends.

As such, the political statement would end up being disappointing, expensive, and short-lived, in addition to potentially harming more promising initiatives in the future. On the other hand, should these conditions be met, the BRICS could end up providing a catalyst for revamping multilateralism in a manner that promotes global economic cooperation and prosperity. CHAPTER 15 THE MIGRATION AND MORPHING OF FINANCIAL RISKS “Quantitative easing has been a bold and innovative experiment. Its outcomes were always uncertain, and some may have been unfortunate. But central banks have been right to do what they did.” —FINANCIAL TIMES Issue 7: With systemic risks migrating from banks to nonbanks, and morphing in the process, regulators are again challenged to get ahead of future problems. Undoubtedly, the banking system in advanced economies is now safer—a lot safer.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

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accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, new economy, New Urbanism, Occupy movement, peak oil, phenotype, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, short selling, Silicon Valley, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

When money commodities are represented by numbers, this introduces a serious and potentially misleading paradox into the monetary system. Whereas gold and silver are relatively scarce and of constant supply, the representation of money as numbers allows the quantity of money available to expand without any technical limit. We thus see the Federal Reserve in our time adding trillions of dollars to the economy at the drop of a hat through tactics like quantitative easing. There seems no limit to such possibilities except that imposed by state policies and regulation. When the metallic basis of global moneys was totally abandoned in the 1970s, we indeed found ourselves in a potentially limitless world of money creation and accumulation. Furthermore, the rise of moneys of account and even more importantly of credit moneys (beginning with the simple use of IOUs) places a great deal of money creation in the hands of individuals and the banks rather than in the hands of state institutions.

This is so only because the money form is now unchained from any physical limitations such as those imposed by the money commodities (the metallic moneys like gold and silver that originally gave physical representation to the immateriality of social labour and which are largely fixed in terms of their global supply). State-issued fiat moneys can be created without limit. The expansion of the contemporary money supply is now accomplished by some mix of private activity and state action (via the state–finance nexus as constituted by treasury departments and central banks). When the US Federal Reserve engages in quantitative easing it simply creates as much liquidity and money as it wants at the drop of a hat. Adding a few zeros to the quantity of money in circulation is no problem. The danger, of course, is that the result will be a crisis of inflation. This is not occurring because the Federal Reserve is largely refilling a hole left in the banking system when trust between the private banks broke down and interbank lending, which was leveraged into massive money creation within the banking system, broke down in 2008.

283 Maddison, Angus 227 Maghreb 174 Malcolm X 291 Maldives 260 Malthus, Thomas 229–30, 232–3, 244, 246, 251 Manchester 149, 159 Manhattan Institute 143 Mansion House, London 201 manufacturing 104, 239 Mao Zedong 291 maquilas 129, 174 Marcuse, Herbert 204, 289 market cornering 53 market economy 198, 205, 276 marketisation 243 Marshall Plan 153 Martin, Randy 194 Marx, Karl 106, 118, 122, 142, 207, 211 and alienation 125, 126, 213 in the British Museum library 4 on capital 220 conception of wealth 214 on the credit system 239 and deskilling 119 on equal rights 64 and falling profits 107 and fetishism 4 on freedom 207, 208, 213 and greed 33 ‘industrial reserve army’ 79–80 and isolation of workers 125 labour theory of value 109 and monetary system reforms 36 monopoly power and competition 135 reality and appearance 4, 5 as a revolutionary humanist 221 and social reproduction 182 and socialist utopian literature 184 and technological innovation 103 and theorists of the political left 54 and the ‘totally developed individual’ 126–7 and world crises xiii; Capital 57, 79–80, 81, 82, 119, 129, 132, 269, 286, 291–2 The Economic and Philosophic Manuscripts of 1844 269, 286 Grundrisse 97, 212–13 Theories of Surplus Value 1 Marxism contradiction between productive forces and social relations 269 ‘death of Marxism’ xii; ecologically sensitive 263 and humanism 284, 286, 287 ‘profit squeeze’ theory of crisis formation 65 traditional Marxist conception of socialism/ communism 91 Marxists 65, 109 MasterCard Priceless 275 Mau Mau movement 291 Melbourne 141 merchants 67 and industrial capital 179 price-gouging customers 54 and producers 74–5 Mercosur 159 Mexican migrants 115, 175, 195–6 Mexico 123, 129, 174 Mexico City riots (1968) x microcredit 194, 198 microfinance 186, 194, 198, 211 Microsoft 131 Middle East 124, 230 Milanovic, Branko 170 military, the capacities and powers 4 dominance 110 and technology 93, 95 ‘military-industrial complex’ 157 mind-brain duality 70 mining 94, 113, 123, 148, 239, 257 MIT (Massachusetts Institute of Technology) 292 Mitchell, David: Cloud Atlas 264 Mitchell, Timothy 122 Modern Times (film) 103 Mondragon 180 monetarism xi monetary wealth and incomes, inequalities in (1920s) x 1071 monetisation 44, 55, 60, 61, 62, 115, 192–3, 198, 235, 243, 250, 253, 261, 262 money abandonment of metallic basis of global moneys 30, 37, 109 circulation of 15, 25, 30–31, 35 coinage 15, 27, 29, 30 commodification of 57 commodity moneys 27–31 creation of 30, 51, 173, 233, 238–9, 240 credit moneys 28, 30, 31, 152 cyber moneys 36, 109–10 electronic moneys 27, 29, 35, 36, 100 and exchange value 28, 35, 38 fiat 8, 27, 30, 40, 109, 233 gap between money and the value it represents 27 global monetary system 46–7 love of money as a possession 34 measures value 25, 28 a moneyless economy 36 oxidisation of 35 paper 15, 27, 29, 30, 31, 37, 40, 45 power of 25, 36, 59, 60, 62, 65–66, 131–6, 245, 266 quasi-money 35 relation between money and value 27, 35 represented as numbers 29–30 and social labour 25, 27, 31, 42, 55, 88, 243 and the state 45–6, 51, 173 storage of value 25, 26, 35 the US dollar 46–7 use value 28 money capital 28, 32, 59, 74, 142, 147, 158, 177, 178 money laundering 54, 109 ‘money of account’ 27–8, 30 monopolisation 53, 145 monopoly, monopolies 77 and competition 131–45, 218, 295 corporate 123 monetary system 45, 46, 48, 51 monopoly power 45, 46, 51, 93, 117, 120, 132, 133–4, 136, 137, 139, 141, 142–3 monopoly pricing 72, 132 natural 118, 132 of state over legitimate use of force and violence 42, 44, 45, 51, 88, 155, 173 see also prices, monopoly monopsony 131 Monsanto 123 Montreal Protocol 254, 259 ‘moral restraints’ 229, 233 mortgages 19, 21, 28, 32, 54, 67, 82, 239 multiculturalism 166 Mumbai 155, 159 Murdoch, Rupert xi Myrdal, Gunnar 150 N NAFTA 159 name branding 31, 139 nano-trading 243 Nation of Islam 291 national debt 45, 226, 227 National Health Service 115 National Labor Relations Board 120 National Security Administration 136 nationalisation 50 nationalism 7, 8, 44, 289 natural resources 58, 59, 123, 240, 241, 244, 246, 251 nature 56 alienation from 263 capital’s conception of 252 capital’s relation to 246–63 commodification of 59 domination of 247, 272 Heidegger on 59, 250 Polanyi on 58 power over 198 process-thing duality 73 and technology 92, 97, 99, 102 Nazis 151 neoclassical economists 109 neocolonialism 143, 201 neoliberal era 128 neoliberal ethic 277 neoliberalisation x, 48 neoliberalism xiii, 68, 72, 128, 134, 136, 176, 191, 234, 281 capitalism 266 consensus 23 counter-revolution 82, 129, 159, 165 political programme 199 politics 57 privatisation 235 remedies xi Nevada, housing in 77 ‘new economy’ (1990s) 144 New York City 141, 150 creativity 245 domestic labour in 196 income inequality 164 rental markets 22 social reproduction 195 Newton, Isaac 70 NGOs (non-governmental organisations) 189, 210, 284, 286, 287 Nike 31 Nkrumah, Kwame 291 ‘non-coincidence of interests’ 25 Nordic countries 165 North America deindustrialisation in 234 food grain exports 148 indigenous population and property rights 39 women in labour force 230 ‘not in my back yard’ politics 20 nuclear weapons 101 Nyere, Julius 291 O Obama, Barack 167 occupational safety and health 72 Occupy movement 280, 292 Ohlin Foundation 143 oil cartel 252 companies 77, 131 ‘Seven Sisters’ 131 embargo (1973) 124 ‘peak oil’ 251–2, 260 resources 123, 240, 257 oligarchy, oligarchs 34, 143, 165, 221, 223, 242, 245, 264, 286, 292 oligopoly 131, 136, 138 Olympic Games 237–8 oppositional movements 14, 162, 266–7 oppression 193, 266, 288, 297 Orwell, George 213 Nineteen Eighty-Four 202 overaccumulation 154 overheating 228 Owen, Robert 18, 184 Oxfam xi, 169–70 P Paine, Tom: Rights of Man 285 Paris 160 riots (1968) x patents 139, 245, 251 paternalism 165, 209 patriarchy 7 Paulson, Hank 47 pauperisation 104 Peabody, George 18 peasantry ix, 7, 107, 117, 174, 190, 193 revolts 202 pensions 134, 165, 230 rights 58, 67–8, 84, 134 people of colour: disposable populations 111 Pereire, Emile 239 pesticides 255, 258 pharmaceuticals 95, 121, 123, 136, 139 Philanthropic Colonialism 211 philanthropy 18, 128, 189, 190, 210–11, 245, 285 Philippines 115, 196 Picasso, Pablo 140–41, 187, 240 Pinochet, Augusto x Pittsburgh 150, 159, 258 planned obsolescence 74 plutocracy xi, xii, 91, 170, 173, 177, 180 Poland 152 Polanyi, Karl 56, 58, 60, 205–7, 210, 261 The Great Transformation 56–7 police 134 brutality 266 capacities and powers 43 powers xiii, 43, 52 repression 264, 280 surveillance and violence 264 violence 266, 280 police-state 203, 220 political economy xiv, 54, 58, 89, 97, 179–80, 182, 201, 206–9 liberal 204, 206, 209 political parties, incapable of mounting opposition to the power of capital xii political representation 183 pollutants 8, 246, 255 pollution 43, 57, 59, 60, 150, 250, 254, 255, 258 Pontecorvo, Gillo 288 Ponzi schemes 21, 53, 54, 243 population ageing 223, 230 disposable 108, 111, 231, 264 growth 107–8, 229, 230–31, 242, 246 Malthus’s principle 229–30 Portugal 161 post-structuralism xiii potlatch system 33 pounds sterling 46 poverty 229 anti-poverty organisations 286–7 and bourgeois reformism 167 and capital 176 chronic 286 eradication of 211 escape from 170 feminisation of 114 grants 107 and industrialisation 123 and population expansion 229 and unemployment 170, 176 US political movement denies assistance to the poor 292–3 and wealth 146, 168, 177, 218, 219, 243 world xi, 170 power accumulation of 33, 35 of capital xii, 36 class 55, 61, 88, 89, 97, 99, 110, 134, 135, 221, 279 computer 105 and currencies 46 economic 142, 143, 144 global 34, 170 the house as a sign of 15–16 of labour see under labour; of merchants 75 military 143 and money 25, 33, 36, 49, 59, 60, 62, 63, 65–6, 245, 266 monopoly see monopoly power; oligarchic 292 political 62, 143, 144, 162, 171, 219, 292 purchasing 105, 107 social 33, 35, 55, 62, 64, 294 state 42–5, 47–52, 72, 142, 155–9, 164, 209, 295 predation, predators 53, 54, 61, 67, 77, 84, 101, 109, 111, 133, 162, 198, 212, 254–5 price fixing 53, 118, 132 price gouging 132 Price, Richard 226, 227, 229 prices discount 133 equilibrium in 118 extortionate 84 food 244, 251 housing 21, 32, 77 land 77, 78, 150 low 132 market 31, 32 and marketplace anarchy 118 monopoly 31, 72, 139, 141 oil 251, 252 property 77, 78, 141, 150 supermarket 6 and value 31, 55–6 private equity firms 101, 162 private equity funds 22, 162 private property and the commons 41, 50, 57 and eradication of usufructuary rights 41 and individual appropriation 38 and monopoly power 134–5, 137 social bond between human rights and private property 39–40 and the state 47, 50, 58, 59, 146, 210 private property rights 38–42, 44, 58, 204, 252 and collective management 50 conferring the right to trade away that which is owned 39 decentralised 44 exclusionary permanent ownership rights 39 and externality effects 44 held in perpetuity 40 intellectual property rights 41 microenterprises endowed with 211 modification or abolition of the regime 14 and nature 250 over commodities and money 38 and state power 40–41, 42–3 underpinning home ownership 49 usufructuary rights 39 privatisation 23, 24, 48, 59, 60, 61, 84, 185, 235, 250, 253, 261, 262, 266 product lines 92, 107, 219, 236 production bourgeois 1 falling value of 107 immaterial 242 increase in volume and variety of 121 organised 2 and realisation 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 regional crises 151 workers’ dispossession of own means of 172 productivity 71, 91, 92, 93, 117, 118, 121, 125, 126, 132, 172, 173, 184, 185, 188, 220, 239 products, compared with commodities 25–6 profitability 92, 94, 98, 102, 103, 104, 106, 112, 116, 118, 125, 147, 184, 191–2, 240, 252, 253, 256, 257 profit(s) banking 54 as capital’s aim 92, 96, 232 and capital’s struggle against labour 64, 65 and competition 93 entrepreneurs 24, 104 falling 81, 107, 244 from commodity sales 71 and money capital 28 monopoly 93 rate of 79, 92 reinvestment in expansion 72 root of 63 spending of 15 and wage rates 172 proletarianisation 191 partial 175, 190, 191 ‘property bubble’ 21 property market boom (1920s) 239 growth of 50 property market crashes 1928 x, 21 1973 21 2008 21–2, 54, 241 property rights 39, 41, 93, 135 see also intellectual property rights; private property property values 78, 85, 234 ‘prosumers’ 237 Proudhon, Pierre-Joseph 183 Prozac 248 public goods 38 public utilities 23, 60, 118, 132 Q quantitative easing 30, 233 R R&D ix race 68, 116, 165, 166, 291 racial minorities 168 racialisation 7, 8, 62, 68 racism 8 Rand, Ayn 200 raw materials 16, 17, 148, 149, 154 Reagan, Ronald x, 72 Speech at Westminster 201 Reagan revolution 165–166 realisation, and production 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 reality contradiction between reality and appearance 4–6 social 27 Reclus, Elisée 140 regional development 151 regional volatility 154 Reich, Robert 123, 188 religion 7 religious affiliation 68 religious hatreds and discriminations 8 religious minorities 168 remittances 175 rent seeking 132–3, 142 rentiers 76, 77, 78, 89, 150, 179, 180, 241, 244, 251, 260, 261, 276 rents xii, 16–19, 22, 32, 54, 67, 77, 78, 84, 123, 179, 241 monopoly 93, 135, 141, 187, 251 repression 271, 280 autocratic 130 militarised 264 police-state 203 violent 269, 280, 297 wage 158, 274 Republican Party (US) 145, 280 Republicans (US) 167, 206 res nullius doctrine 40 research and development 94, 96, 187 ‘resource curse’ 123 resource scarcity 77 revolution, Fanon’s view of 288 revolutionary movements 202, 276 Ricardo, David 122, 244, 251 right, the ideological and political assault on the left xii; response to universal alienation 281 ‘rights of man’ 40, 59, 213 Rio de Janeiro 84 risk 17, 141, 162, 219, 240 robbery 53, 57, 60, 63, 72 robotisation 103, 119, 188, 295 Rodney, Walter 291 romantic movement 261 Roosevelt, Theodore 131, 135 Four Freedoms 201 Rousseau, Jean-Jacques 213, 214 Ruhr, Germany 150 rural landscapes 160–61 Russia 154 a BRIC country 170, 228 collapse of (1989) 165 financial crisis (1998) 154, 232 indebtedness 152 local famine 124 oligarchs take natural resource wealth 165 S ‘S’ curve 225, 230–31 Saint-Simon, Claude de Rouvroy, comte de 183 sales 28, 31, 187, 236 San Francisco 150 Santiago, Chile: street battles (2006–) 185 Sao Paulo, Brazil 129, 195 savings the house as a form of saving 19, 22, 58 loss of 20, 58 private 36 protecting the value of 20 Savings and Loan Crisis (USA from 1986) 18 savings accounts 5, 6 Scandinavia 18, 85, 165 scarcity 37, 77, 200, 208, 240, 246, 260, 273 Schumpeter, Joseph 98, 276 science, and technology 95 Seattle 196 Second Empire Paris 197 Second World War x, 161, 234 Securities and Exchange Commission 120, 195 security xiii, 16, 121, 122, 165, 205, 206 economic 36, 153 food 253, 294, 296 job 273 national 157 Sen, Amartya 208–11, 281 Development as Freedom 208–9 senior citizens 168 Seoul 84 serfdom 62, 209 sexual hatreds and discriminations 8 Shanghai 153, 160 share-cropping 62 Sheffield 148, 149, 159, 258 Shenzhen, China 77 Silicon Valley 16, 143, 144, 150 silver 27–31, 33, 37, 57, 233, 238 Simon, Julian 246 Singapore 48, 123, 150, 184, 187, 203 slavery 62, 202, 206, 209, 213, 268 slums ix, 16, 175 Smith, Adam 98, 125–6, 157, 185, 201, 204 ‘invisible hand’ 141–2 The Wealth of Nations 118, 132 Smith, Neil 248 social distinction 68, 166 social inequality 34, 110, 111, 130, 171, 177, 180, 220, 223, 266 social justice 200, 266, 268, 276 social labour 53, 73, 295 alienated 64, 66, 88 and common wealth 53 creation of use values through 36 expansion of total output 232 household and communal work 296 immateriality of 37, 233 and money 25, 27, 31, 42, 55, 88, 243 productivity 239 and profit 104 and value 26, 27, 29, 104, 106, 107, 109 weakening regulatory role of 109, 110 social media 99, 136, 236–7, 278–9 social movements 162–3 social reproduction 80, 127, 182–98, 218, 219, 220, 276 social security 36, 165 social services 68 social struggles 156, 159, 165, 168 social value 26, 27, 32, 33, 55, 172, 179, 241, 244, 268, 270 socialism 215 democratic xii; ‘gas and water’ 183 socialism/communism 91, 269 socialist revolution 67 socialist totalitarianism 205 society capitalist 15, 34, 81, 243, 259 civil 92, 122, 156, 185, 189, 252 civilised 161, 167 complex 26 demolition of 56 and freedom 205–6, 210, 212 hope for a better society 218 industrial 205 information 238 market 204 post-colonial 203 pre-capitalist 55 primitive 57 radical transformation of 290 status position in 186 theocratic 62 women in 113 work-based 273 world 204 soil erosion 257 South Africa 84–5, 152, 169 apartheid 169, 202, 203 South Asia labour 108 population growth 230 software programmers and developers 115, 116 South Korea 123, 148, 150, 153 South-East Asia 107–8 crisis (1997–8) 154, 232, 241 sovereign debt crises 37 Soviet Bloc, ex-, labour in 107 Soviet Union 196, 202 see also Russia Spain xi, 51, 161 housing market crash (2007–9) 82–3 spatio-temporal fixes 151–2, 153, 154, 162 spectacle 237–8, 242, 278 speculative bubbles and busts 178 stagnation xii, 136, 161–2, 169 Stalin, Joseph 70 standard of life 23, 175 starvation 56, 124, 246, 249, 260, 265 state, the aim of 156–7 brutality 266, 280 and capital accumulation 48 and civil society 156 curbing the powers of capital as private property 47 evolution of the capitalist state 42 and externality effects 44 guardian of private property and of individual rights 42 and home ownership 49–50 interstate system 156, 157 interventionism 193, 205 legitimate use of violence 42, 44, 45, 51, 88, 155, 173 loss of state sovereignty xii; and money 1, 45–6, 51, 173 ‘nightwatchman’ role 42, 50 powers of 42–5, 47–52, 57–8, 65, 72, 142, 155–9, 209, 295 and private property 47, 50, 58, 59, 146, 210 provision of collective and public goods 42–3 a security and surveillance state xiii; social democratic states 85 war aims 44 state benefits 165 state regulatory agencies 101 state-finance nexus 44–5, 46–7, 142–3, 156, 233 state-private property nexus 88–9 steam engine, invention of the 3 steel industry 120, 121, 148, 188 steel production 73–4 Stiglitz, Joseph 132–4 stock market crash (1929) x Stockholm, protests in (2013) 171, 243 strikes 65, 103, 124 sub-prime mortgage crisis 50 suburbanisation 253 supply and demand 31, 33, 56, 106 supply chain 124 supply-side remedies xi supply-side theories 82, 176 surplus value 28, 40, 63, 73, 79–83, 172, 239 surveillance xiii, 94, 121, 122, 201, 220, 264, 280, 292 Sweden 166, 167 protests in (2013) 129, 293 Sweezy, Paul 136 swindlers, swindling 45, 53, 57, 239 ‘symbolic analysts’ 188 Syntagma Square, Athens 266, 280 T Tahrir Square, Cairo 266 Taipei, Taiwan 153 Taiwan 123, 150, 153 Taksim Square, Istanbul 266, 280 Tanzania 291 tariffs 137 taxation 40, 43, 47, 67, 84, 93–4, 106, 133, 150, 155, 157, 167, 168, 172, 190 Taylor, Frederick 119, 126 Taylorism 103 Tea Party faction 205, 280, 281, 292 technological evolution 95–6, 97, 101–2, 109 technological imperatives 98–101 technological innovation 94–5 technology changes involving different branches of state apparatus 93–4 communicative technologies 278–9 and competition 92–3 constraints inhibiting deployment 101 culture of 227, 271 definition 92, 248 and devaluation of commodities 234 environmental 248 generic technologies 94 hardware 92, 101 humanising 271 information 100, 147, 158, 177 military 93, 95 monetary 109 and nature 92, 97, 99, 102 organisational forms 92, 99, 101 and productivity 71 relation to nature 92 research and development 94 and science 95 software 92, 99, 101 a specialist field of business 94 and unemployment 80, 103 work and labour control 102–11 telephone companies 54, 67, 84, 278 Tennessee 148 Teresa, Mother 284 Thatcher, Margaret (later Baroness) x, 72, 214, 259 Thatcherism 165 theft 53, 60, 61, 63 Thelluson, Peter 226, 227 think tanks 143 ‘Third Italy’ 143 Third World debt crisis 240 Toffler, Alvin 237 tolls 137 Tönnies, Ferdinand 122, 125 tourism ix, 16, 140, 141, 187, 236 medical 139 toxic waste disposal 249–50, 257 trade networks 24 trade unions xii, 116, 148, 168, 176, 184, 274, 280 trade wars 154 transportation 23, 99, 132, 147–8, 150, 296 Treasury Departments 46, 156 TRIPS agreement 242 tropical rainforest 253 ‘trust-busting’ 131 trusts 135 Turin, Italy 150 Turkey 107, 123, 174, 232, 280, 293 Tuscany, Italy 150 Tutu, Archbishop Desmond 284 Twitter 236 U unemployment 37, 104, 258, 273 benefits 176 deliberately created 65, 174 high xii, 10, 176 insurance 175 and labour reserves 175, 231 and labour-saving technologies 173 long-term 108, 129 permanent 111 echnologically induced 80, 103, 173, 274 uneven geographical developments 178, 296 advanced and underserved regional economies 149–50 and anti-capitalist movements 162 asset bubbles 243 and capital’s reinvention of itself 147, 161 macroeconomic processes of 159 masking the true nature of capital 159–60 and technological forms 219 volatility in 244 United Fruit 136 United Kingdom income inequality in 169; see also Britain United Nations (UN) 285 United States aim of Tea Party faction 280 banking 158 Bill of Rights 284 Britain lends to (nineteenth century) 153 capital in (1990s) 154 Constitution 284 consumption level 194 global reserve currency 45–6 growth 232 hostility towards state interventions 167 House of Representatives 206 human rights abuses 202 imperial power 46 indebtedness of students in 194 Indian reservations 249 interstate highway system 239 jobless recoveries after recession 172–3 liberty and freedom rhetoric 200–201, 202 Midwest ‘rust belt’ 151 military expenditures 46 property market crashes x, 21–2, 50, 54, 58, 82–3 racial issues 166 Savings and Loan Crisis (from 1986) 18 social mobility 196 social reproduction 196–7 solidly capitalist 166 steel industry 120 ‘symbolic analysts’ 188 ‘trust-busting’ 131 unemployment 108 wealth distribution 167 welfare system 176 universal suffrage 183 urbanisation 151, 189, 228, 232, 239, 247, 254, 255, 261 Ure, Andrew 119 US Congress 47 US dollar 15, 30, 45–6 US Executive Branch 47 US Federal Reserve xi, 6, 30, 37, 46, 47, 49, 132, 143, 233 monetary policy 170–71 US Housing Act (1949) 18 US Treasury 47, 142, 240 use values collectively managed pool of 36 commodification of 243 commodities 15, 26, 35 common wealth 53 creation through social labour 36 and entrepreneurs 23–4 and exchange values 15, 35, 42, 44, 50, 60, 65, 88 and housing 14–19, 21–2, 23, 67 and human labour 26 infinitely varied 15 of infrastructural provision 78 loss of 58 marketisation of 243 monetisation of 243 of money 28 privatised and commodified 23 provision of 111 and revolt of the mass of the people 60 social demand for 81 usufructuary rights 39, 41, 59 usury 49, 53, 186, 194 utopianism 18, 35, 42, 51, 66, 119, 132, 183, 184, 204, 206–10, 269, 281, 282 V value(s) commodity 24, 25 failure to produce 40 housing 19, 20, 22 net 19 production and realisation of 82 production of 239 property 21 relation between money and value 27, 35 savings 20 storing 25, 26, 35 see also asset values; exchange values; social value; use values value added 79, 83 Veblen, Thorstein: Theory of the Leisure Class 274 Venezuela 123, 201 Vietnam, labour in 108 Vietnam War 290 violence 53, 57, 72, 204–5, 286 against children 193 against social movements 266 against women 193 colonial 289–90, 291 and contemporary capitalism 8 culture of 271 of dispossession 58, 59 in a dystopian world 264 and humanism 286, 289, 291 of the liberation struggle 290 militarised 292 as the only option 290–91 political 280 in pursuit of liberty and freedom 201 racialised 291 state’s legitimate use of 42, 44, 45, 51, 88, 155, 173 of technology 271 and wage labour 207 virtual ecological transfer 256 Volcker, Paul 37 W wages 103 basic social wage 103 falling 80, 82 for housework 115, 192–3 low xii, 114, 116, 186, 188 lower bound to wage levels 175 non-payment of 72 and profits 172 reduction in 81, 103, 104, 135, 168, 172, 176, 178 rising 178 and unskilled labour 114 wage demands 150, 274 wage levels pushed up by labour 65 wage rates 103, 116, 172, 173 wage repression 158–9 weekly 71 see also income Wall Street criticised by a congressional committee 239–40 illegalities practised by 72, 77 and Lebed 195 new information-processing technologies 100 Wall Street Crash (1929) x, 47 Wall-E (film) 271 Walmart xii, 75, 84, 103, 131 war on terror 280 wars 8, 60, 229 currency 154 defined 44 monetisation of state war-making activities 44–5 privatisation of war making 235 resource 154, 260 and state aims 44 state financing of 32, 44, 48 and technology 93 trade 154 world 154 water privatisation 235 wave theory 70 wave-particle duality 70 wealth accumulation of 33, 34, 35, 157, 205 creation of 132–3, 142, 214 disparities of 164–81 distribution of 34, 167 extraction from non-productive activities 32 global 34 the house as a sign of 15–16 levelling up of per capita wealth 171 and poverty 146, 168, 177, 218, 219, 243 redistribution of 9, 234, 235 social 35, 53, 66, 157, 164, 210, 251, 265, 266, 268 taking it from others 132–3 see also common wealth weather futures 60 Weber, Max 122, 125 Weimar Republic 30 welfare state 165, 190, 191, 208 Wells Fargo 61 West Germany 153, 154, 161 Whitehead, Alfred North 97 Wilson, Woodrow 201 Wolf, Martin 304n2 Wollstonecraft, Mary: A Vindication of the Rights of Woman 285 women career versus family obligations 1–2 disposable populations 111 exploitation of 193 housework versus wage labour 114–15 oppression against 193 social struggle 168 trading of 62 violence against 193 in the workforce 108, 114, 115, 127, 174, 230 women’s rights 202, 218 workers’ rights 202 working classes and capital 80 consumer power 81 crushing organisation 81 education 183, 184 gentrified working-class neighbourhoods ix; housing 160 living conditions 292 wage repression and consumption 158–9 working hours 72, 104–5, 182, 272–5, 279 World Bank 16, 24, 100, 186, 245 World Trade Organization 138, 242 WPA programmes (1930s) 151 Wright, Frank Lloyd: Falling Water 16 Wriston, Walter 240 Y YouTube 236 Yugoslavia, former 174 Z Zola, Émile 7


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

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Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, capital asset pricing model, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, moral hazard, mortgage tax deduction, naked short selling, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional

Mainly relegated to jewelry (about 70% of annual demand), gold’s value is mainly set by its utility as a commodity. Upon the occasional lapses when faith in government obligations has waned, especially in the context of inflation, its value was partially restored, because citizens saw it as an alternative to fiat currency. However, it held up well through much of the 2008 panic, but its strength then was correlated with fears of debasement when monetary authorities discussed quantitative easing or injected reserves. The thesis that gold should decline in price when deflation occurs is contradicted by the history The Rise and Fall of Hard Money 69 of the metal having roughly doubled its purchasing power in the early 1930s. Silver was once the preeminent form of specie, but for a century its value relative to gold has remained depressed. The advent of goldbacked ETFs portends a permanent threat to silver, because divisibility is now possible, which might enable broad usage of a 100 percent backed gold currency.

Those who rooted for the deflationist camp looked to the depression years and saw a consumer heavily laden with debt and a highly leveraged banking system wherein over half of its loans relate to real estate.6 They saw interest rates at generational lows already, with the Fed discount rate near zero by year-end 2008. With loan demand sated and a need for banks and consumers to deleverage, they saw any Fed action to inject reserves into the monetary system as “pushing on a string,” to use the phrase invented by the monetarist Friedman in his analysis of the Great Depression. From within the Fed in the days that the policy of quantitative easing became official, Philadelphia Federal Reserve Bank President Plosser alerted us that “(recent economic statistics) prompted some commentators to suggest that the United States is facing a threat of sustained deflation, as we did in the Great Depression or as Japan faced for a decade. I do not believe this is a serious threat … (but) the Fed must credibly commit to preventing sustained deflation from becoming widely anticipated, just as it must prevent sustained inflation from becoming widely anticipated.”7 All this is well and good.

By early 2009 the Fed would target 2 to 3 percent inflation, explicitly stating it would intervene in the open market to buy Treasuries, hoping that recipients of federal spending would deposit freshly printed funds at banks, stimulating lending. These more aggressive moments of market intervention would epitomize the gearing up of the printing press technology to which Bernanke refers. It might lead to nominal growth in the economy, but it remains to be seen if real growth or wealth creation would ensue. However, in the momentous meeting in which quantitative easing was ratified, FOMC members thought that this extraordinary measure could be undone. Meeting notes declare: “as economic activity recovered and financial conditions normalized, the use of certain policy tools would need to be scaled back, the size of the balance sheet and level of excess reserves would need to be reduced, and the Committee’s policy framework would return to focus on the level of the federal funds rate.”


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

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3D printing, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labor-force participation, Malacca Straits, Mark Zuckerberg, market bubble, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Peter Thiel, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

It’s not often that one sees central bankers on the ramparts, but Yellen’s promise overlooked the role the Fed itself was playing in turbocharging the rise of billionaires worldwide. The rise in inequality had been particularly dramatic for measures of wealth rather than income, and the Fed had been instrumental in fueling wealth on Wall Street not Main Street. To boost growth following the global financial crisis of 2008, the Fed pumped record amounts of money into the U.S. economy through multiple rounds of “quantitative easing,” which involved buying bonds on the public markets. The hope was that this infusion of capital would promote a strong recovery and job growth. Instead, the United States experienced its weakest recovery of the postwar era, coupled with an unprecedented period of financial speculation. Much of the Fed’s easy money was diverted into purchases of stocks, luxury homes, and other financial assets, as well as into financial engineering (like share buybacks) designed to further increase the price of those assets.

When other central banks matched the Fed’s easy money policies, they helped to feed the growing wealth gap in their own countries, too. In a 2014 study of 46 major countries, the research arm of the bank Credit Suisse found that before 2007, wealth inequality was on the rise in only 12 of those countries; after 2007, that number more than doubled to 35, from China and India to Britain and Italy.1 The easy money experiments began in 2008, and by the time quantitative easing ended in 2014, the richest 1 percent of the world’s population had increased its share of global wealth from 44 to 48 percent of the total, which had risen to $263 trillion. A 2014 study by the Pew Research Center found that “the wealth gap between America’s high income group and everyone else has reached record levels since the Great Recession of 2007–2009,” with wealth rising for upper-income families and stagnating for the middle- and lower-income groups.2 The high-income families were 3.4 times wealthier than middle-income families in 1983, and while that gap widened gradually over the next quarter century to 4.5 times wealthier in 2007, it widened rapidly to 6.6 times wealthier in 2013.

This is another form of state meddling—interfering to fix the price of a currency is like interfering to fix any other price in the market, which often punishes such attempts. It’s particularly difficult for a country to devalue its way to prosperity if every other country is trying the same trick. After the crisis of 2008, so many nations tried to improve their competitive position by devaluing their currencies that none managed to gain any lasting advantage. The central banks of the United States, Japan, Britain, and the Eurozone took turns pursuing “quantitative easing” policies that effectively amount to printing more money, in part as a way to devalue their currencies, but each achieved at best a brief gain in export share versus the others. Markets can punish these attempts to manage currency values in many ways. The most important is that if a country has borrowed heavily in dollars or euros or some other foreign currency, then devaluing its own currency by, say, 30 percent is going to raise its payments on those foreign loans by an equal margin.


pages: 410 words: 114,005

Black Box Thinking: Why Most People Never Learn From Their Mistakes--But Some Do by Matthew Syed

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Alfred Russel Wallace, Arthur Eddington, Atul Gawande, Black Swan, British Empire, call centre, Captain Sullenberger Hudson, Checklist Manifesto, cognitive bias, cognitive dissonance, conceptual framework, corporate governance, credit crunch, deliberate practice, double helix, epigenetics, fear of failure, fundamental attribution error, Henri Poincaré, hindsight bias, Isaac Newton, iterative process, James Dyson, James Hargreaves, James Watt: steam engine, Joseph Schumpeter, Lean Startup, meta analysis, meta-analysis, minimum viable product, quantitative easing, randomized controlled trial, Silicon Valley, six sigma, spinning jenny, Steve Jobs, the scientific method, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Toyota Production System, Wall-E, Yom Kippur War

Tony is a rational and strong-minded guy, but I don’t think he would be able to admit that Iraq was a mistake. It would be too devastating, even for him.” III In November 2010, a group of renowned economists, high-profile intellectuals, and business leaders wrote an open letter to Ben Bernanke, then chairman of the Federal Reserve.7 The bank had just announced its second tranche of so-called quantitative easing. They proposed to purchase bonds with newly printed money, introducing, over time, an additional $600 billion into the U.S. economy. The signatories were worried about this policy. In fact, they thought it might prove disastrous. In the letter, which was published in the Wall Street Journal, they argued that the plan was not “necessary or advisable under current circumstances” and that it would not “achieve the Fed’s objective of promoting employment.”

Boskin, the former chairman of the president’s Council of Economic Advisers; Seth Klarman, the billionaire founder of the Baupost Group, an investment company; John Taylor, professor of economics at Stanford University; Paul Singer, the billionaire founder of Elliott Management Corporation; and Niall Ferguson, the renowned professor of history at Harvard University. Perhaps their greatest concern was over inflation, the fear that printing money would lead to runaway price increases. This is a worry often associated with economists within the “monetarist” school of policymaking. The signatories warned that quantitative easing would risk “currency debasement and inflation” and “distort financial markets.” The letter, which was also published as a full-page ad in the New York Times, made headlines around the world. The fears were well expressed, well argued, and the prediction of trouble ahead for the U.S. economy caused a minor tremor in financial markets. But what actually happened? Did the prediction turn out to be accurate?

(Probe, Alert, Challenge, Emergency), 30 Page, Larry, 199 parole, 118–19 Patient Safety Alerts, 49, 50, 51 Pavlov, Ivan, 109 perception, 6, 24–25, 28–29, 30 perfectionism, 16–17, 140–41 perseverance, 262–65 Phillips, Charles, 278 pilot schemes, 290–91 Pixar, 207–10 Plato, 278 Poincaré, Henri, 201, 202 politics/politicians, 141, 283, 284 blame and, 234 Iraq War and, 73–74, 90–94 Popper, Karl, 41, 43–44, 103, 235, 267, 277, 280, 288 Portal, Nicholas, 171 practical knowledge, 212 practice environments, 32–33, 45–46 pre-closed loop behavior, 140 pre-mortems, 291 problem phase of innovation, 195–96, 195–200 professionalism, 12 progress, 7–8 Pronovost, Peter J., 10, 52–53, 103–5, 106–7 prospective hindsight, 291–92 Pruchnicki, Shawn, 26, 31 pseudoscience, 42–44 psychotherapy, 43–44, 46–47, 288–89 Putnam, Hilary, 282 Pythagoras, 278 quantitative easing, 94–96 radio, wind-up, 195 radiologists, 47–48 radiology, 65–66 random allocation, 156n randomized control trials (RCTs), 154–59, 285, 291 African aid efficacy and, 175–78 Capital One and, 185–86 criminal justice system programs, lack of RCTs for, 158 employment policy and, 187 Google and, 184–85 marginal gains theory and, 175, 176–77 medicine and, 157–58 morality of, 177 of Scared Straight Program efficacy, 160, 162–64 real-time data, 26 Reason, James, 17, 58–59 “Reasonable Choice of Disaster, The” (Lanir), 221 religion, 111–12, 281–82 Renquist, William, 84 resources, 11, 31–32 Ries, Eric, 142–43, 189 Rivera, Juan, 64–65, 70–71, 82–83, 116, 120 Robinson, Alan, 179 Roosevelt, Eleanor, 25 Rosberg, Nico, 183, 184 Royal Aeronautical Society, 26 Royal Navy, 56 Rush, Dr.


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

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Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Nate Silver, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

I knew I wouldn’t have that luxury for long. As I prepared to leave the New York Fed, it was hard to fathom how much we had done since the crisis began, and how much the financial world had changed. The Fed had overseen an aggressive easing of monetary policy, reducing our target interest rate from 5.25 percent in September 2007 to as close as it can go to zero in December 2008. Ben had also launched a “quantitative easing” program, buying bonds to provide further monetary stimulus for the economy. We had expanded the Fed’s balance sheet from $870 billion to $2.2 trillion with our new credit and liquidity programs, extending our lending far beyond the U.S. commercial banking system, financing a broad range of collateral for a broad array of nonbanks. We were lending hundreds of billions of dollars to the financial system every day, supporting the tri-party repo market and backstopping the commercial paper market, while the Treasury was guaranteeing money market funds.

But the financial system is the conduit between the Fed and the economy, and the financial system was broken. In an epic financial crisis that followed a major credit boom, easy money had much less power. Interest rates were already effectively zero; most banks had little ability and even less desire to lend; businesses had little desire to borrow; and consumers already had too much debt. As central bankers say, it felt like the Fed was pushing on a string. It had begun the first round of quantitative easing, or QE1, buying GSE mortgage bonds to help reduce the cost and increase the availability of mortgages. This was an innovative way to do monetary stimulus at a time when short-term rates were as low as they could go; the Fed would later expand the program to Treasuries to try to drive down long-term rates more generally. It was helpful at a time when the economy was still struggling, but it would not be enough on its own.

The playbook for monetary and fiscal policy is fairly simple. You want to be as expansive as possible, providing substantial stimulus for the economy for as long as necessary. After a major shock that depresses demand and creates a risk of deflation, central bankers should ease monetary policy, aggressively lowering interest rates. Once the overnight rate approaches zero, they should find new ways to stay on the accelerator, as Ben did through quantitative easing. They need to signal that they’ll eventually hit the brakes, and that they’ll remain vigilant about inflation going forward, but the threat of future inflation is much less worrisome than the threat of imminent deflation and depression. Loose monetary policy can have limited power in a crisis, because low interest rates don’t help that much when borrowers don’t want to borrow and lenders don’t want to lend, but as the central bankers of the 1930s demonstrated, tight monetary policy can be disastrous.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

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asset-backed security, backtesting, banking crisis, barriers to entry, Bernie Madoff, Black-Scholes formula, British Empire, Claude Shannon: information theory, cloud computing, collateralized debt obligation, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, family office, financial independence, fixed income, Flash crash, hindsight bias, implied volatility, index fund, James Dyson, Long Term Capital Management, margin call, market bubble, market fundamentalism, merger arbitrage, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, quantitative easing, quantitative trading / quantitative finance, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

Currently, we have a situation where there is a broad global deleveraging, which is negative for growth. Debtor countries that can print money will behave differently from those that can’t. Countries that can’t print money will experience classic deflationary depressions. Those that can print money, such as the United States, can alleviate the deflation and depression pressures by printing money. However, the effectiveness of quantitative easing will be limited because the owners of the bonds that are purchased by the Fed will use the money to buy something similar; they are not going to use it to buy a house or a car. In addition, fiscal stimulus will be very limited because of the reality of the political situation. So it is unlikely that we will have effective monetary policy or effective fiscal policy. That means we will be dependent on income growth, and income growth will be slow—maybe about 2 percent per year—because income growth is usually dependent on debt growth to finance buying, and I don’t expect any significant private credit growth.

The market will remain “locked” limit down until the futures price reaches the cash market price. The episode Ramsey is referring to represents the longest string of consecutive limit down days that has ever occurred in any futures market. 4John Murphy, Technical Analysis of the Futures Markets (New York: New York Institute of Finance, 1986). 5Strong economic conditions are bearish for bonds because they lead to higher interest rates. 6QE2 was the Fed’s second round of quantitative easing (buying longer-duration treasuries and other securities to lower longer-term rates) that began in November 2010 and ended in June 2011. 7In a Turkish lira/dollar chart, a new low in the lira would show up as a new high—that is, it would take more lira to buy each dollar. 8Ramsey is referring to the chart. So a relative low would represent a point of relative lira strength—that is a point at which it took less lira to buy one dollar than in prior or succeeding days.

I watch various economic statistics, including more esoteric data such as weekly rail car loadings. When the data points to a slowdown, I might reduce my exposure. If I am concerned enough, I may even move to almost all cash. This attention to economic indicators helped me in 2002 and in 2008. Although in 2010, the same cautionary approach cut my profits. I sold a number of stocks on the notion that the economy was in trouble, and then the Fed initiated QE2 [that is, a second phase of quantitative easing], and stocks took off. I was up 13.3 percent net in 2010, but I would have been up a lot more if I hadn’t liquidated in response to my concerns about the economy. I have no regrets, though, because I’d rather miss an opportunity than lose money. During the long bear market in 2000 to 2002, did you have low exposure the whole time? I had very low exposure, and I was very patient. How low?


pages: 302 words: 86,614

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian

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Asian financial crisis, asset allocation, asset-backed security, backtesting, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, interest rate derivative, Isaac Newton, Long Term Capital Management, Mark Zuckerberg, merger arbitrage, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading

While the holdings of each portfolio would mirror those of the other Paulson funds, the investments would be denominated in gold as opposed to dollars, allowing for investors to benefit from both the expected rise in value of the portfolio as well as the expected rise in the value of gold versus the dollar over time. Investors that opted for the gold share class earned any dollar returns, plus any incremental returns in the appreciation of gold versus the dollar. In 2009, Paulson and his credit team were closely monitoring government actions to stimulate the economy and aid the recovery. When the Fed adopted quantitative easing as a tool for monetary stimulus Paulson became concerned about the potential for future inflation and dollar depreciation. Quantitative easing historically had not been used in the United States and was a very unorthodox monetary tool, but the United States had entered into a financial crisis that was deeper than any since the Great Depression. And it required innovative and unusual thinking in order to stem the crisis and return the country to recovery. “Due to our concerns about the dollar, we started to look for another currency in which to denominate our investments,” says Paulson.


pages: 375 words: 105,067

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

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asset allocation, Bernie Madoff, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, London Whale, Mark Zuckerberg, mortgage debt, oil shock, payday loans, pension reform, Ponzi scheme, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

Her recipe for success combined explaining economics with simple, easy to understand advice, while holding government officials’ feet to the fire when necessary. She offered counsel on household budgets and college savings, and both scolded and advised presidents. She eschewed what she called “bafflegab,” the sorts of terms people who like to sound smart use even though they obscure the facts. (If you are looking for a modern day example of bafflegab, think of the currently popular term “quantitative easing.” Porter probably would have referred to it as “printing money.”*) “Why can’t [my] economists talk straight like Sylvia,” President Lyndon Johnson once said in exasperation. Porter was not without critics. “Economics by eye-dropper,” carped one anonymous New York University professor to Time, decrying her simplification of complex topics. Yet if Porter hadn’t come up with the basic personal finance formula, it’s likely someone else would have eventually done so.

You can lose half your wealth,” he said to the knowing laughter of the crowd. When the floor opened for audience participation, I realized women are asking the same questions I hear at almost every financial seminar I attended, either in person or via webinar, the seminars where the vast majority of attendees are almost always male. “How would you recommend the average investor prepare for the end of quantitative easing?” asked one. Another inquired how asset allocation fit in with risk management since pretty much all categories of investment had fallen significantly during the 2008 economic crash. About the only thing female-specific about this session is that the vast majority of the attendees and all of those asking questions were women. A few weeks before the Citi breakfast, I met with Linda Descano, who I admit I liked immediately.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, labour market flexibility, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, means of production, Menlo Park, moral hazard, moveable type in China, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Plutocrats, plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, We are the 99%, Wolfgang Streeck

It was against this background that President Obama declared late in 2013 that the basic bargain at the heart of the American economy had frayed, as increasing inequality combined with declining upward mobility posed a fundamental threat to the American dream, to Americans’ way of life and to what the US stood for around the globe.213 Inequality has been further increased by the measures adopted by central bankers to address the aftermath of the financial crisis. Asked in 2012 by the UK’s parliamentary Treasury Select Committee to highlight the redistributional impact of its asset-purchasing programme – so-called quantitative easing – the Bank of England explained: ‘By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5 per cent of households holding 40 per cent of these assets.’ The Bank emphasised its belief that without its asset purchases, most people in the United Kingdom would have been worse off because economic growth would have been lower, unemployment would have been higher and many more companies would have gone out of business.

The Bank emphasised its belief that without its asset purchases, most people in the United Kingdom would have been worse off because economic growth would have been lower, unemployment would have been higher and many more companies would have gone out of business. That would have had a significant detrimental impact on savers and pensioners, along with every other group in society. A rise in inequality should obviously be seen in that light. Yet there is no escaping the fact that the rich have been the biggest beneficiaries. In the words of Marc Faber, an influential Asia-based investment strategist, quantitative easing funnels money to the ‘Mayfair economy’ of the well-to-do and ‘boosts the prices of Warhols’.214 In continental Europe, the increase in inequality is less pronounced. Yet there is angst in the eurozone about inequality and imbalances between countries. As we saw in the previous chapter, northern Europeans resent a monetary union that has permitted southern Europe to engage in what they see as fiscally profligate behaviour, while southern Europeans and the Irish are required to submit to extreme austerity programmes that exacerbate their sovereign debt problems and keep living standards depressed.


pages: 397 words: 109,631

Mindware: Tools for Smart Thinking by Richard E. Nisbett

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affirmative action, Albert Einstein, availability heuristic, big-box store, Cass Sunstein, choice architecture, cognitive dissonance, correlation coefficient, correlation does not imply causation, cosmological constant, Daniel Kahneman / Amos Tversky, dark matter, endowment effect, experimental subject, feminist movement, fundamental attribution error, glass ceiling, Henri Poincaré, Isaac Newton, job satisfaction, lake wobegon effect, libertarian paternalism, loss aversion, low skilled workers, Menlo Park, meta analysis, meta-analysis, quantitative easing, Richard Thaler, Ronald Reagan, Socratic dialogue, Steve Jobs, Steven Levy, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, William of Occam, Zipcar

This applies to the newly founded Bamboozl.com, so it’s going to have great success. Bamboozl goes bust, but I’m going to be able to come up with any number of reasons for its failure. Management was not as talented as I had thought. The competition moved much faster than could have been predicted. I believe that announcement of a cutback of “quantitative easing” by the Federal Reserve will result in fear in the equity markets, causing a drop in stock values. The Fed announces a slowdown of quantitative easing and the markets go up. Because of … you name it. Jennifer, disorganized in her private life, would never make a good newspaper editor, a job that requires meeting deadlines and simultaneously juggling information obtained from Internet sources, assigning tasks to copy editors, and so on. Lo and behold, she turns out to be an excellent editor.


pages: 323 words: 90,868

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

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3D printing, Airbnb, American energy revolution, autonomous vehicles, Bakken shale, barriers to entry, Bernie Sanders, BRICs, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, gig economy, global supply chain, global value chain, hydraulic fracturing, income inequality, indoor plumbing, industrial robot, interchangeable parts, Internet of things, inventory management, invisible hand, Jacquard loom, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low skilled workers, lump of labour, Lyft, manufacturing employment, means of production, new economy, performance metric, pets.com, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, TaskRabbit, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, transaction costs, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, very high income, working-age population

When the music stopped playing, the world stood on the brink of the worst economic calamity since the 1930s. And the crisis introduced a new vulnerability into the system: as central banks worked to buoy demand, they slashed their interest rates to zero or, in some cases, to negative rates. Central banks are not entirely without options once rates fall so low. They can keep cutting, a bit, or they can print money to buy assets such as government bonds (a stimulative procedure known as quantitative easing). But these options are limited in a number of ways: as interest rates become increasingly negative, for instance, households have an incentive to shift more of their savings to cash – to keep their money in shoeboxes or safe-deposit boxes, where negative rates do not apply. Central banks themselves are also wary of acting aggressively in using these ‘unconventional’ policy tools: they worry about risks known and unknown.

Ray labour abundance as good problem bargaining power cognitive but repetitive collective bargaining and demographic issues discrimination and exclusion global growth of workforce and immigration liberalization in 1970s/80s ‘lump of labour’ fallacy occupational licences organized and proximity reallocation to growing industries retraining and skill acquisition and scarcity and social value work as a positive good see also employment Labour Party, British land scarcity Latvia Le Pen, Jean-Marie Le Pen, Marine legal profession Lehman Brothers collapse (2008) Lepore, Jill liberalization, economic (from 1970s) Linkner, Josh, The Road to Reinvention London Lucas, Robert Lyft maker-taker distinction Malthus, Reverend Thomas Manchester Mandel, Michael Mankiw, Gregory marketing and public relations Marshall, Alfred Marx, Karl Mason, Paul, Postcapitalism (2015) McAfee, Andrew medicine and healthcare ‘mercantilist’ world Mercedes Benz Mexico Microsoft mineral industries minimum wage Mokyr, Joel Monroe, President James MOOCs (‘massive open online courses’) Moore, Gordon mortality rates Mosaic (web browser) music, digital nation states big communities of affinity inequality between as loci of redistribution and social capital nationalist and separatist movements Netherlands Netscape New York City Newsweek NIMBYism Nordic and Scandinavian economies North Carolina North Dakota Obama, Barack oil markets O’Neill, Jim Oracle Orbán, Viktor outsourcing Peretti, Jonah Peterson Institute for International Economics pets.com Philadelphia Centennial Fair (1876) Philippines Phoenix, Arizona Piketty, Thomas, Capital in the Twenty-First Century (2013) Poland political institutions politics fractionalization in Europe future/emerging narratives geopolitical forces human wealth narrative left-wing looming upheaval/conflict Marxism nationalist and separatist movements past unrest and conflict polarization in USA radicalism and extremism realignment revolutionary right-wing rise of populist outsiders and scarcity social membership battles Poor Laws, British print media advertising revenue productivity agricultural artisanal goods and services Baumol’s Cost Disease and cities and dematerialization and digital revolution and employment trilemma and financial crisis (2008) and Henry Ford growth data in higher education of highly skilled few and industrial revolution minimum wage impact paradox of in service sector and specialization and wage rates see also factors of production professional, technical or managerial work and education levels and emerging economies the highly skilled few and industrial revolution and ‘offshoring’ professional associations skilled cities professional associations profits Progressive Policy Institute property values proximity public spending Putnam, Robert Quakebot quantitative easing Race Against the Machine, Brynjolfsson and McAfee (2011) railways Raleigh, North Carolina Reagan, Ronald redistribution and geopolitical forces during liberal era methods of nation state as locus of as a necessity as politically hard and societal openness wealth as human rent, economic Republican Party, US ‘reshoring’ phenomenon Resseger, Matthew retail sector retirement age Ricardo, David rich people and maker-taker distinction wild contingency of wealth Robinson, James robots Rodrik, Dani Romney, Mitt rule of law Russia San Francisco San Jose Sanders, Bernie sanitation SAP Saudi Arabia savings glut, global ‘Say’s Law’ Scalia, Antonin Scandinavian and Nordic economies scarcity and labour political effects of Schleicher, David Schwartz, Anna scientists Scotland Sears Second World War secular stagnation global spread of possible solutions shale deposits sharing economies Silicon Valley Singapore skilled workers and education levels and falling wages the highly skilled few and industrial revolution ‘knowledge-intensive’ goods and services reshoring phenomenon technological deskilling see also professional, technical or managerial work Slack (chat service) Slate (web publication) smartphone culture Smith, Adam social capital and American Constitution baseball metaphor and cities ‘deepening’ definition/nature of and dematerialization and developing economies and erosion of institutions of firms and companies and good government and housing wealth and immigration and income distribution during industrial revolution and liberalization and nation-states productive application of and rich-poor nation gap and Adam Smith and start-ups social class conflict middle classes and NIMBYism social conditioning of labour force working classes social democratic model social reform social wealth and social membership software ‘enterprise software’ products supply-chain management Solow, Robert Somalia South Korea Soviet Union, dissolution of (1991) specialization Star Trek state, role of steam power Subramanian, Arvind suburbanization Sweden Syriza party Taiwan TaskRabbit taxation telegraphy Tesla, Nikola Thatcher, Margaret ‘tiger’ economies of South-East Asia Time Warner Toyota trade China as ‘mega-trader’ ‘comparative advantage’ theory and dematerialization global supply chains liberalization shaping of by digital revolution Adam Smith on trade unions transhumanism transport technology self-driving cars Trump, Donald Twitter Uber UK Independence Party United States of America (USA) 2016 Presidential election campaign average income Bureau of Labour Statistics (BLS) Constitution deindustrialization education in employment in ethno-nationalist diversity of financial crisis (2008) housing costs in housing wealth in individualism in industrialization in inequality in Jim Crow segregation labour scarcity in Young America liberalization in minimum wage in political polarization in post-crisis profit rates productivity boom of 1990s real wage data rising debt levels secular stagnation in shale revolution in social capital in and social wealth surpasses Britain as leading nation wage subsidies in university education advanced degrees downward mobility of graduates MOOCs (‘massive open online courses’) and productivity see also education urbanization utopias, post-work Victoria, Queen video-gamers Virginia, US state Volvo Vox wages basic income policy Baumol’s Cost Disease cheap labour and employment growth and dot.com boom and financial crisis (2008) and flexibility and Henry Ford government subsidies and housing costs and immigration and industrial revolution low-pay as check on automation minimum wage and productivity the ‘reservation wage’ as rising in China rising in emerging economies and scarcity in service sector and skill-upgrading approach stagnation of and supply of graduates Wandsworth Washington D.C.


pages: 320 words: 86,372

Mythology of Work: How Capitalism Persists Despite Itself by Peter Fleming

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1960s counterculture, anti-work, call centre, clockwatching, corporate social responsibility, David Graeber, Etonian, future of work, Goldman Sachs: Vampire Squid, illegal immigration, late capitalism, Mark Zuckerberg, market bubble, market fundamentalism, means of production, neoliberal agenda, Parkinson's law, post-industrial society, profit maximization, profit motive, quantitative easing, Results Only Work Environment, shareholder value, The Chicago School, transaction costs, working poor

Lazzarato explains this in relation to the 2010 Bush–Obama law that extends the tax cuts to those making more than $250,000. The income bracket represents only 5% of the population … in exchange for peanuts for the unemployed, the rich received $315 billion over two years. To have an idea of the handout, one should remember that the US government investment in the economy came to $800 billion in 2008. (Lazzarato, 2012: 119–20) The current policy of quantitative easing (the governmental allocation of money for big business) fulfils a similar purpose that is perhaps even more striking in its ‘trickle up’ characteristics. Here the capitalist state is directly fostering conditions that make work a permanently present problem that merits our practical attention: (a) we now have to pay for the resources that the collective tax pool used to take care of, and (b) our work is no longer about making a living but about avoiding social catastrophe.

capitalism ref1, ref2, ref3, ref4 General Motors plant (Michigan) ref1 Goffee, R. ref1 Goldman Sachs ref1 The Good Soldier Svejk (Hasek) ref1 Gordon, D. ref1 Gorz, A. ref1, ref2 Graeber, D. ref1 Groundhog Day (Ramis) ref1 Guattari, F. ref1, ref2, ref3 on criticism/criticality ref1 and de-subjectification ref1 language ref1, ref2 Gujarat NRE ref1 Gulf of Mexico oil spill (2010) ref1 Hamper, B. ref1 Hanlon, G. ref1 Hardt, M. ref1 Hart, A. ref1 Harvard Business Review (HBR) ref1 Harvey, D. ref1, ref2 Hayek, F. ref1, ref2, ref3 health and safety ref1, ref2 ‘Help to Buy’ support scheme ref1 Hirschhorn, N. ref1 Hodgkinson, T. ref1 holiday policy ref1 Houellebecq, Michel ref1, ref2, ref3 human capital ref1, ref2, ref3, ref4, ref5, ref6, ref7 human relations movement ref1 Human Resource Management (HRM) ref1, ref2, ref3, ref4, ref5, ref6 humour ref1 ‘I, Job’ function ref1, ref2, ref3, ref4, ref5, ref6 and biopower ref1, ref2 and death drive ref1, ref2 as escape into work ref1 and illness ref1, ref2, ref3 resisting ref1, ref2, ref3, ref4, ref5, ref6 see also escape; totality refusal see also work, as all-encompassing; working hours illegal immigrants, deportations ref1 illness ref1, ref2 collective ref1, ref2 see also Social Patients’ Collective as desirable experience ref1, ref2, ref3, ref4 of managers ref1, ref2 and productive power ref1, ref2 as weapon against capitalism ref1 ‘immersion room’ exercise ref1, ref2, ref3, ref4 imperceptibility ref1 see also invisibility incentivization ref1 indexation process ref1, ref2, ref3, ref4, ref5 informality and authoritarianism ref1, ref2 see also deformalization insecurity ref1 Institute of Leadership and Management (ILM) ref1, ref2, ref3 invisibility ref1, ref2 ‘Invisible Committee’ ref1, ref2 Italian autonomist thought ref1, ref2 Jameson, F. ref1 Jones, G. ref1 Junjie, Li ref1 Kamp, A. ref1 Kein Mensch ist illegal ref1 Kellaway, L. ref1 Key Performance Indicators (KPIs) ref1 Keynes, J.M. ref1, ref2 Khrushchev, Nikita ref1, ref2 Kim, Jonathan ref1 King, Stephen ref1 ‘Kitchen Debate’ ref1 Kramer, M. ref1, ref2 labour unions ref1 dissolution of ref1, ref2 language, evolution of ref1 Larkin, P. ref1 Latour, B. ref1, ref2 Laval, C. ref1, ref2 Lazzarato, M. ref1, ref2 leaders backgrounds ref1 remuneration and bonuses ref1, ref2, ref3, ref4, ref5 see also managers Lefebvre, H. ref1 Leidner, R. ref1 Lewin, D. ref1 liberation management ref1, ref2, ref3, ref4, ref5 life itself, enlisting ref1, ref2, ref3, ref4, ref5 lines of flight ref1, ref2 Lordon, F. ref1, ref2, ref3 Lucas, R. ref1, ref2 Lukács, G. ref1 Lynch, R. ref1 McChesney, R. ref1 McGregor, D. ref1 management ref1, ref2 and class function ref1, ref2 as co-ordination ref1 and inducement of willing obedience ref1, ref2 information deficit ref1 and power ref1, ref2 self-justification rituals ref1 as transferable skill ref1, ref2 managerialism ref1, ref2, ref3, ref4, ref5, ref6, ref7 and abandonment ideology ref1, ref2, ref3, ref4, ref5 and boundary management ref1 and conflict-seeking behaviour ref1 division between managers and managed ref1, ref2 general principles of ref1 and leadership ref1 profligate management function ref1 refusing ref1 and securitization ref1 as self-referential abstraction ref1 managers as abandonment enablers ref1, ref2 and deformalization ref1 and engagement of workers ref1, ref2 lack of practical experience ref1 overwork ref1, ref2 see also leaders Marcuse, H. ref1 Market Basket supermarket chain ref1 Marx, K. ref1, ref2, ref3, ref4, ref5, ref6 Maslow, A. ref1 Matten, D. ref1 meat consumption ref1 Meek, J. ref1 Meyerson, D. ref1 Michelli, J. ref1 Miller, W.I. ref1 Mitchell, David ref1 mobile technology ref1, ref2, ref3, ref4, ref5, ref6, ref7 Modafinil ref1, ref2 Monaghan, A. ref1 money ref1, ref2 see also accumulation Mooney, G. ref1 Moore, A.E. ref1 Moore, Michael ref1, ref2 music industry ref1 Naidoo, Kumi ref1 NASA ref1 Natali, Vincenzo ref1 Negri, A. ref1, ref2 neoliberal capitalism ref1, ref2, ref3, ref4, ref5, ref6, ref7 and bureaucracy ref1 and ideal worker ref1, ref2 and non-work time ref1, ref2 and paranoia ref1, ref2 resisting ref1, ref2 see also post-labour strategy and threat of abandonment ref1, ref2 and truth telling ref1, ref2, ref3 neoliberalism ref1, ref2, ref3, ref4, ref5, ref6 and class relations ref1, ref2, ref3 and disciplinary power ref1 and human-capital theory ref1 and impossibility ref1, ref2, ref3, ref4, ref5, ref6 and micro-fascism ref1 and reign of technocrats ref1 role of state ref1 and truth telling ref1, ref2 and worker engagement ref1, ref2, ref3 Nestlé ref1 New Public Management ref1, ref2 New Zealand, and capitalist deregulation ref1 New Zealand Oil and Gas (NZOG) ref1 Newman, Maurice ref1 Nietzsche, Friedrich ref1, ref2 Nixon, Richard ref1, ref2 Nyhan, B. ref1 obsession ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8 Onionhead program ref1 overcoding ref1, ref2, ref3, ref4, ref5, ref6, ref7 The Pain Journal (Flanagan) ref1, ref2, ref3 paranoia ref1, ref2, ref3, ref4 overwork/paranoia complex ref1, ref2 Paris Commune ref1, ref2 Parkinson’s Law ref1 Parnet, C. ref1 Parsons, T. ref1 Peep Show (TV comedy) ref1 pensions ref1, ref2 personnel management ref1 see also Human Resource Management Peters, T. ref1 Philip Morris ref1 Pike River Coal mine (New Zealand) ref1 Pollack, Sydney ref1 Pook, L. ref1 Porter, M. ref1, ref2 post-labour strategy, recommendations ref1 postmodernism ref1, ref2, ref3 power ref1, ref2, ref3, ref4, ref5 and truth telling ref1 Prasad, M. ref1 Price, S. ref1 private companies, transferring to public hands ref1 privatization ref1, ref2, ref3, ref4, ref5, ref6, ref7 profit maximization ref1, ref2, ref3, ref4, ref5 quantitative easing ref1 Rand, Ayn ref1 rationalization ref1, ref2, ref3 Reifler, J. ref1 reserve army of the unemployed ref1 Ressler, C. ref1 results-only work environment (ROWE) ref1, ref2, ref3 Rimbaud, A. ref1 Rio+20 Earth Summit (2012) ref1 ‘riot grrrl’ bands ref1 rituals of truth and reconciliation ref1 Roberts, J. ref1 Roger Award ref1 Roger and Me (Moore) ref1 Rosenblatt, R. ref1 Ross, A. ref1, ref2 Ross, K. ref1 Rudd, Kevin ref1 ruling class fear of work-free world ref1, ref2 and paranoia ref1, ref2 Sade, Marquis de ref1 Sallaz, J. ref1 Saurashtra Fuels ref1 Scarry, E. ref1 Securicor (G4S) ref1 Segarra, Carmen ref1 self-abnegation ref1 self-employment ref1 self-management ref1, ref2, ref3, ref4, ref5 self-preservation ref1, ref2, ref3, ref4 self-sufficiency ref1, ref2, ref3 shareholder capitalism ref1, ref2, ref3, ref4 shift work ref1, ref2 see also working hours Shragai, N. ref1 sleep and circadian rhythms ref1 as form of resistance ref1 working in ref1, ref2, ref3 smart drugs ref1, ref2 Smith, Roger ref1 smoking and addiction ref1 dangers of ref1, ref2 scientific research ref1 sociability ref1, ref2 ‘the social’ ref1, ref2 social factory ref1, ref2, ref3, ref4, ref5, ref6, ref7 and structure of work ref1 social media ref1 Social Mobility and Child Poverty Commission ref1 Social Patients’ Collective (SPK) ref1, ref2, ref3 social surplus (commons) ref1, ref2, ref3 socialism ref1, ref2, ref3, ref4 Sontag, S. ref1 Spicer, A. ref1 stakeholder management ref1, ref2 Starbucks ref1 state, theory of ref1 subcontracting ref1, ref2, ref3 subsidization ref1, ref2, ref3, ref4, ref5, ref6, ref7 suicide as act of refusal ref1 Freud’s definition ref1 work-related ref1, ref2, ref3, ref4, ref5 surplus labour ref1, ref2 surplus living wage ref1 ‘tagged’ employees ref1 ‘tagged’ prisoner ref1 Tally, Richard ref1 taxation ref1, ref2, ref3 Taylor, F.W. ref1 Taylor, S. ref1 Taylorism ref1 technological progress, and emancipation from labour ref1 Thatcher, Margaret ref1 Thatcherism ref1 They Shoot Horses Don’t They?


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

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3D printing, Airbnb, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business process, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, crowdsourcing, cryptocurrency, disintermediation, diversified portfolio, Elon Musk, Erik Brynjolfsson, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, loss aversion, Lyft, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, TaskRabbit, trade route, transportation-network company, Turing test, Uber and Lyft, Uber for X, unpaid internship, Y Combinator, young professional, Zipcar

The Federal Reserve’s primary function is to protect the wealthy—those who are holding cash—by preventing the inflation that would make that cash less valuable. During hard times, a compassionate central bank can choose instead to pump more money into the economy—but it really has only two ways to accomplish that. It can lend money to banks at the lowest interest rate possible—even zero—or it can buy the banks’ stashes of bonds (what’s known as “quantitative easing”). But for this money to reach the real economy, the banks still have to lend it to people and businesses. Nothing is forcing them to do that part, and in a low-interest environment, their profit margins on lending are squeezed anyway. Most banks would rather invest the money in more leveraged financial instruments or buy the stock of existing companies. Moreover, given the slow-growth economy, many banks refuse to take money from the Fed, loath to take on credit that they know they’ll have to pay back.

., 26 Ostrom, Elinor, 216 Pacific Lumber Company, 117 Palmer, Amanda, 38–39, 199 PandoDaily, 197–98 Pandora, 34, 218 Parker, Sean, 191–92 PayPal, 140–41 paywalls, 37–38 peer-to-peer economy/marketplaces, 16–17, 18 alternative corporate models for fostering, 93–97 Bandcamp and, 29–30 central currency as means of shutting down, 128–29 digital transaction networks and, 141 distribution of ability to create and exchange value by, 29–30 eBay and, 29 Known business model versus Blackboard’s in fostering, 95–97 obsolescence of, as effect of corporations, 70–71, 73 Sidecar business model versus Uber’s in fostering, 93–94 pensions, 170–71 Perez, Carlota, 98, 99 personhood, of corporations, 72, 73–74 Amazon and, 90 artificial intelligence and, 91 perspective painting, 235 Piketty, Thomas, 53–54, 131 Pitbull, 36 Pius X, Pope, 228–29, 230 platform cooperatives, 220–23 platform monopolies, 82–93, 101 acceleration in extraction of value and opportunity from economy and, 92–93 Amazon (publishing industry) and, 87–90 becoming entire environment and, 87 creative destruction and, 83–87 distributive alternatives to, 93–97 Uber (transportation industry) and, 85–87 Plum Organics, 119 Poole, Steven, 201 populists, 99–100 positive reinforcement, 28 Pound Foolish (Olen), 170 power-law distribution, 26–29, 30 precious metals currencies, 128 present shock, 6 price gouging, 86 privatization, 114–16 Proctor & Gamble, 107–8 productivity gains corporations failure to capitalize on, 77 great decoupling and, 53 income disparity and, 53–54 sharing of, with employees, 60–62 Prosper Marketplace, 203, 204 publishing industry, 87–89 Publix Super Markets, 117–18 quantitative easing, 137 Quirky, 199 Reagan, Ronald, 64 Real Pickles, 205–6 Renaissance, 45, 71, 230, 235–37 repatriation of jobs, 80 retirement savings plans, 170–75 fees and commissions charged for, 173–74 financial services industry and, 171–73, 175 401(k) plans and, 171–74 individual retirement accounts (IRAs), 171 pension accounts and, 170–71 performance of, 173–75 retrieval, 71–72, 73 return on assets (ROA), 76–77 Rifkin, Jeremy, 62 Roaring Twenties, 99 robotic ad-viewing programs, 37 Rolling Jubilee, 153 Rosenberg, Dan, 205–6 Rothschild, Lynn Forester de, 111 Ryan, Paul, 138 Ryan, William F., 63 Santa Barbara Missions, 156 scarcity, 62 Scholz, Trebor, 50, 223 Schor, Juliet, 58 Schumpeter, Joseph, 83, 84, 85 Second Machine Age, The (Brynjolfsson & McAfee), 23 secrecy, 106–7 seed-sharing networks, 217 self-help cooperatives, 159 Series A round of investment, 188–89 shareholder.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

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Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, California gold rush, Carmen Reinhart, central bank independence, conceptual framework, corporate governance, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, payday loans, Plutocrats, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

Initially other nations were content to wait for the U.S. response, but now I see nations like China, Russia and Germany increasingly willing to act on their own. The trend in the amount of global trade priced in dollars has been going down for decades. This brings us today to the key question, which is what is the U.S. plan? Fed Chairman Bernanke wakes up every morning and tries to trash the dollar with quantitative easing, zero interest rates and swaps lines with the central banks. But it has not been working. The Fed has never taken it to the next step and asked what happens when quantitative easing does not work.15 Americans face a decision as we approach an inevitability: One day the other nations such as China and the EU will want an equal share of the global monetary franchise that has belonged solely to the United States since WWII. As Nouriel Rubini said in his book Crisis Economics,16 Adam Smith and other economists spent their time focused on why markets work, not why they falter.


pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

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Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, full employment, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, land reform, land tenure, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, means of production, megacity, Mikhail Gorbachev, new economy, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, transatlantic slave trade, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, World Values Survey

‘Because the United States’ issuance of dollars is out of control and international commodity prices are continuing to rise,’ declared the Chinese Commerce Minister Chen Deming in October 2010, ‘China is being attacked by imported inflation.’31 The United States is engaged in ‘uncontrolled’ and ‘irresponsible’ money printing, according to Xia Bin, an economic adviser to the People’s Bank of China: ‘As long as the world exercises no restraint in issuing global currencies such as the dollar … then the occurrence of another crisis is inevitable.’32 Quantitative easing (purchases of Treasury securities by the Federal Reserve) was a form of ‘financial protectionism’, declared Su Jingxiang, a researcher with the China Institute of Contemporary International Relations.33 In November 2010 the Dagong credit rating agency downgraded the US to A+ from AA, with a negative outlook. Chinese anxieties are understandable. The prices of all but a few commodities have surged upward since the trough of the crisis.* Nor is it surprising that China’s official holdings of US Treasuries were apparently reduced by around 10 per cent between July 2009 and June 2010.34 Even with the price of an ounce of gold at an unprecedented $1,400, the Chinese began to buy it in 2010 as a time-honoured hedge against inflation.

As for the work ethic, that was spread to the East not by the sword but by the word – above all, by the major improvement in public health and education achieved from the mid-twentieth century onwards. It is in this light that we should understand the rise of China in our time. Despite the oft-stated Chinese preference for a ‘quiet rise’, some commentators already detect the first signs of Huntington’s civilizational clash. In late 2010 the resumption of quantitative easing by the Federal Reserve appeared to spark a currency war between the US and China. If ‘the Chinese don’t take actions’ to end the manipulation of their currency, President Obama declared in New York in September of that year, ‘we have other means of protecting U.S. interests’.43 The Chinese Premier Wen Jiabao was not slow to respond: ‘Do not work to pressure us on the renminbi rate … Many of our exporting companies would have to close down, migrant workers would have to return to their villages.


pages: 379 words: 114,807

The Land Grabbers: The New Fight Over Who Owns the Earth by Fred Pearce

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Asian financial crisis, banking crisis, big-box store, blood diamonds, British Empire, Cape to Cairo, carbon footprint, clean water, credit crunch, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy security, farmers can use mobile phones to check market prices, index fund, Jeff Bezos, land reform, land tenure, Mahatma Gandhi, market fundamentalism, megacity, Mohammed Bouazizi, Nikolai Kondratiev, offshore financial centre, out of africa, quantitative easing, race to the bottom, Ronald Reagan, smart cities, structural adjustment programs, too big to fail, urban planning, urban sprawl, WikiLeaks

They switched to commodities and began pushing up prices “so that what was a trickle in late 2006 becomes a flood from early 2007.” As the prices of shares, real estate, and other former wealth generators fell during the credit crunch of 2008, the prices of commodities index funds continued to rise, as investors poured in. This accelerated as governments in the United States and Europe tried to save the world banking system by pumping in new money—quantitative easing. Much of this new money, we now know, went straight into commodities. In 2003, there had been $13 billion in agricultural commodity funds. But by 2008, many commentators put the figure at over $300 billion. In his Senate testimony that year, Michael Masters reported that financial speculators accounted for two-thirds of the futures market, and they were crashing the system. Lou Munden, whose Munden Project analyzes complex market systems, says “price booms are a symptom of an excess of capital.

Through late 2010 and 2011 prices soared once again. Heat waves and fires across Russia’s grain belt cut the wheat harvest by 40 percent. Rain and tornadoes put wheat crops in jeopardy in the U.S. and Canadian prairies, and La Niña messed with the harvests in Argentina and Brazil. But a bad situation was again made worse by rampant speculation. After federal reserve chairman Ben Bernanke pumped another $600 billion of “quantitative easing” into the U.S. economy in November 2010, Barclays Capital said speculators were pushing record amounts into index funds, in the hope of tapping more profits as prices rose. Investment in commodity index funds in the United States alone was reported at above $400 billion. The bubble inflated. Back in the real world, by mid-2011, wheat was up 98 percent from the previous May, beef 32 percent, sugar 48 percent, cocoa 80 percent, cooking oils 53 percent, and rice 33 percent.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, means of production, Mikhail Gorbachev, millennium bug, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Washington Consensus, working poor, éminence grise

Goldman needed to turn itself into a bank to gain access to the Federal Reserve’s discount window and secure vital liquidity, received $5 billion of otherwise valueless credit default swaps owed to it by AIG because the latter was bailed out, received billions of dollars from the TARP and sold $21 billion of bonds to raise funds guaranteed by the US government. Similarly, if the British government had not bailed out RBS and Lloyds, Barclays would surely have fallen too; and the government guarantees in the interbank markets, along with £200 billion of quantitative easing, have been central to its ongoing viability. Yet the bankers don’t get it. They really believe that they deserve their astonishing pay packages. It is part of their DNA, the culmination of decades in which big finance has made the rules, created its own mores and bent regulation and politics to its will. The financial plutocrats take over the state Big finance had – and still has – the politicians in its pockets.

., 156–7 Oxbridge/top university entry, 293–4, 306 Oxford University, 261 Page, Scott, 204 Paine, Tom, 347 Pareto, Vilfredo, 201–2 Paribas, 152, 187 Parkinson, Lance-Bombardier Ben, 13 participation, political, 35, 86, 96, 99 Paulson, Henry, 177 Paulson, John, 103, 167–8 pay of executives and bankers, 3–4, 5, 6–7, 22, 66–7, 138, 387; bonuses, 6, 25–6, 41, 174–5, 176, 179, 208, 242, 249, 388; high levels/rises of, 6–7, 13, 25, 82–3, 94, 172–6, 216, 296, 387, 393; Peter Mandelson on, 24; post-crash/bail-outs, 176, 216; in private equity houses, 248; remuneration committees, 6, 82, 83, 176; shared capitalism and, 66, 93; spurious justifications for, 42, 78, 82–3, 94, 176, 216 pension, state, 81, 372, 373 pension funds, 240, 242 Pettis, Michael, 379–80 pharmaceutical industry, 219, 255, 263, 265, 267–8 Phelps, Edmund, 275 philanthropy and charitable giving, 13, 25, 280 Philippines, 168 Philippon, Thomas, 172–3 Philips Electronics, Royal, 256 Pimco, 177 piracy, 101–2 Plato, 39, 44 Player, Gary, 76 pluralist state/society, x, 35, 99, 113, 233, 331, 350, 394 Poland, 67, 254 political parties, 13–14, 340, 341, 345, 390; see also under entries for individual parties political system, British: see also democracy; centralised constitution, 14–15, 35, 217, 334; coalitions as a good thing, 345–6; decline of class-based politics, 341; devolving of power to Cardiff and Edinburgh, 15, 334; expenses scandal, 3, 14, 217, 313, 341; history of (to late nineteenth-century), 124–30; lack of departmental coordination, 335, 336, 337; long-term policy making and, 217; monarchy and, 15, 312, 336; politicians’ lack of experience outside politics, 338; required reforms of, 344–8; select committee system, 339–40; settlement (of 1689), 125; sovereignty and, 223, 346, 347, 378; urgent need for reform, 35, 36–7, 218, 344; voter-politician disengagement, 217–18, 310, 311, 313–14, 340 Pommerehne, Werner, 60 population levels, world, 36 Portsmouth Football Club, 352 Portugal, 108, 109, 121, 377 poverty, 278–9; child development and, 288–90; circumstantial causes of, 26, 283–4; Conservative Party and, 279; ‘deserving’/’undeserving’ poor, 276, 277–8, 280, 284, 297, 301; Enlightenment views on, 53, 55–6; need for asset ownership, 301–3, 304; political left and, 78–83; the poor viewed as a race apart, 285–7; as relative not absolute, 55, 84; Adam Smith on, 55, 84; structure of market economy and, 78–9, 83; view that the poor deserve to be poor, 25, 52–3, 80, 83, 281, 285–8, 297, 301, 387; worldwide, 383, 384 Power2010 website, 340–1 PR companies and media, 322, 323 Press Complaints Commission (PCC), 325, 327, 331–2, 348 preventative medicine, 371 Price, Lance, 328, 340 Price, Mark, 93 Prince, Chuck, 184 printing press, 109, 110–11 prisoners, early release of, 11 private-equity firms, 6, 28–9, 158, 172, 177, 179, 205, 244–9, 374 Procter & Gamble, 167, 255 productive entrepreneurship, 6, 22–3, 28, 29–30, 33, 61–2, 63, 78, 84, 136, 298; in British history (to 1850), 28, 124, 126–7, 129; due desert/fairness and, 102–3, 105–6, 112, 223, 272, 393; general-purpose technologies (GPTs) and, 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384 property market: baby boomer generation and, 372–3; Barker Review, 185; boom in, 5, 143, 161, 183–4, 185–7, 221; bust (1989-91), 161, 163; buy-to-let market, 186; commercial property, 7, 356, 359, 363; demutualisation of building societies, 156, 186; deregulation (1971) and, 161; Japanese crunch (1989-92) and, 361–2; need for tax on profits from home ownership, 308–9, 373–4; property as national obsession, 187; residential mortgages, 7, 183–4, 186, 356, 359, 363; securitised loans based mortgages, 171, 186, 188; shadow banking system and, 171, 172; ‘subprime’ mortgages, 64, 152, 161, 186, 203 proportionality, 4, 24, 26, 35, 38, 39–40, 44–6, 51, 84, 218; see also desert, due, concept of; contributory/discretionary benefits and, 63; diplomacy/ international relations and, 385–6; job seeker’s allowance as transgression of, 81; left wing politics and, 80; luck and, 73–7, 273; policy responses to crash and, 215–16; poverty relief systems and, 80–1; profit and, 40, 388; types of entrepreneurship and, 61–2, 63 protectionism, 36, 358, 376–7, 378, 379, 382, 386 Prussia, 128 Public Accounts Committee, 340 Purnell, James, 338 quantitative easing, 176 Quayle, Dan, 177 race, disadvantage and, 290 railways, 9, 28, 105, 109–10, 126 Rand, Ayn, 145, 234 Rawls, John, 57, 58, 63, 73, 78 Reagan, Ronald, 135, 163 recession, xi, 3, 8, 9, 138, 153, 210, 223, 335; of 1979-81 period, 161; efficacy of fiscal policy, 367–8; VAT decrease (2009) and, 366–7 reciprocity, 43, 45, 82, 86, 90, 143, 271, 304, 382; see also desert, due, concept of; proportionality Reckitt Benckiser, 82–3 Regional Development Agencies, 21 regulation: see also Bank of England; Financial Services Authority (FSA); Bank of International Settlements (BIS), 169, 182; Basel system, 158, 160, 163, 169, 170–1, 196, 385; big as beautiful in global banking, 201–2; Big Bang (1986), 90, 162; by-passing of, 137, 187; capital requirements/ratios, 162–3, 170–1, 208; dismantling of post-war system, 149, 158, 159–63; economists’ doubts over deregulation, 163; example of China, 160; failure to prevent crash, 154, 197, 198–9; Glass-Steagall abolition (1999), 170, 202–3; light-touch, 5, 32, 138, 151, 162, 198–9; New Deal rules (1930s), 159, 162; in pharmaceutical industry, 267–8; as pro-business tool, 268–70; proposed Financial Policy Committee, 208; required reforms of, 267, 269–70, 376, 377, 384, 392; reserve requirements scrapped (1979), 208; task of banking authorities, 157; Top Runner programme in Japan, 269 Reinhart, Carmen, 214, 356 Repo 105 technique, 181 Reshef, Ariell, 172–3 Reuters, 322, 331 riches and wealth, 11–13, 272–3, 283–4, 387–8; see also pay of executives and bankers; the rich as deserving of their wealth, 25–6, 52, 278, 296–7 Rickards, James, 194 risk, 149, 158, 165, 298–302, 352–3; credit default swaps and, 151, 152, 166–8, 170, 171, 175, 176, 191, 203, 207; derivatives and see derivatives; distinction between uncertainty and, 189–90, 191, 192–3, 196–7; employment insurance concept, 298–9, 301, 374; management, 165, 170, 171, 189, 191–2, 193–4, 195–6, 202, 203, 210, 354; securitisation and, 32, 147, 165, 169, 171, 186, 188, 196; structured investment vehicles and, 151, 165, 169, 171, 188; value at risk (VaR), 171, 192, 195, 196 Risley, Todd, 289 Ritchie, Andrew, 103 Ritter, Scott, 329 Robinson, Sir Gerry, 295 Rogoff, Ken, 214, 356 rogue states, 36 Rolling Stones, 247 Rolls-Royce, 219, 231 Rome, classical, 45, 74, 108, 116 Roosevelt, Franklin D., 133, 300 Rothermere, Viscount, 327 Rousseau, Jean-Jacques, 56, 58, 112 Rousseau, Peter, 256 Rowling, J.K., 64, 65 Rowthorn, Robert, 292, 363 Royal Bank of Scotland (RBS), 25, 150, 152, 157, 173, 181, 199, 251, 259; collapse of, 7, 137, 150, 158, 175–6, 202, 203, 204; Sir Fred Goodwin and, 7, 150, 176, 340 Rubin, Robert, 174, 177, 183 rule of law, x, 4, 220, 235 Russell, Bertrand, 189 Russia, 127, 134–5, 169, 201, 354–5, 385; fall of communism, 135, 140; oligarchs, 30, 65, 135 Rwandan genocide, 71 Ryanair, 233 sailing ships, three-masted, 108 Sandbrook, Dominic, 22 Sands, Peter (CEO of Standard Chartered Bank), 26 Sarkozy, Nicolas, 51, 377 Sassoon, Sir James, 178 Scholes, Myron, 169, 191, 193 Schumpeter, Joseph, 62, 67, 111 science and technology: capitalist dynamism and, 27–8, 31, 112–13; digitalisation, 34, 231, 320, 349, 350; the Enlightenment and, 31, 108–9, 112–13, 116–17, 121, 126–7; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; increased pace of advance, 228–9, 253, 297; nanotechnology, 232; New Labour improvements, 21; new opportunities and, 33–4, 228–9, 231–3; new technologies, 232, 233, 240; universities and, 261–5 Scotland, devolving of power to, 15, 334 Scott, James, 114–15 Scott Bader, 93 Scott Trust, 327 Second World War, 134, 313 Securities and Exchanges Commission, 151, 167–8 securitisation, 32, 147, 165, 169, 171, 186, 187, 196 self-determination, 85–6 self-employment, 86 self-interest, 59, 60, 78 Sen, Amartya, 51, 232, 275 service sector, 8, 291, 341, 355 shadow banking system, 148, 153, 157–8, 170, 171, 172, 187 Shakespeare, William, 39, 274, 351 shareholders, 156, 197, 216–17, 240–4, 250 Sher, George, 46, 50, 51 Sherman Act (USA, 1890), 133 Sherraden, Michael, 301 Shiller, Robert, 43, 298, 299 Shimer, Robert, 299 Shleifer, Andrei, 62, 63, 92 short selling, 103 Sicilian mafia, 101, 105 Simon, Herbert, 222 Simpson, George, 142–3 single mothers, 17, 53, 287 sixth form education, 306 Sky (broadcasting company), 30, 318, 330, 389 Skype, 253 Slim, Carlos, 30 Sloan School of Management, 195 Slumdog Millionaire, 283 Smith, Adam, 55, 84, 104, 112, 121, 122, 126, 145–6 Smith, John, 148 Snoddy, Ray, 322 Snow, John, 177 social capital, 88–9, 92 social class, 78, 130, 230, 304, 343, 388; childcare and, 278, 288–90; continued importance of, 271, 283–96; decline of class-based politics, 341; education and, 13, 17, 223, 264–5, 272–3, 274, 276, 292–5, 304, 308; historical development of, 56–8, 109, 115–16, 122, 123–5, 127–8, 199; New Labour and, 271, 277–9; working-class opinion, 16, 143 social investment, 10, 19, 20–1, 279, 280–1 social polarisation, 9–16, 34–5, 223, 271–4, 282–5, 286–97, 342; Conservative reforms (1979-97) and, 275–6; New Labour and, 277–9; private education and, 13, 223, 264–5, 272–3, 276, 283–4, 293–5, 304; required reforms for reduction of, 297–309 social security benefits, 277, 278, 299–301, 328; contributory, 63, 81, 283; flexicurity social system, 299–301, 304, 374; to immigrants, 81–2, 282, 283, 284; job seeker’s allowance, 81, 281, 298, 301; New Labour and ‘undeserving’ claimants, 143, 277–8; non-contributory, 63, 79, 81, 82; targeting of/two-tier system, 277, 281 socialism, 22, 32, 38, 75, 138, 144, 145, 394 Soham murder case, 10, 339 Solomon Brothers, 173 Sony, 254–5 Soros, George, 166 Sorrell, Martin, 349 Soskice, David, 342–3 South Korea, 168, 358–9 South Sea Bubble, 125–6 Spain, 123–4, 207, 358–9, 371, 377 Spamann, Holger, 198 special purpose vehicles, 181 Spitzer, Matthew, 60 sport, cheating in, 23 stakeholder capitalism, x, 148–9 Standard Oil, 130–1, 132 state, British: anti-statism, 20, 22, 233–4, 235, 311; big finance’s penetration of, 176, 178–80; ‘choice architecture’ and, 238, 252; desired level of involvement, 234–5; domination of by media, 14, 16, 221, 338, 339, 343; facilitation of fairness, ix–x, 391–2, 394–5; investment in knowledge, 28, 31, 40, 220, 235, 261, 265; need for government as employer of last resort, 300; need for hybrid financial system, 244, 249–52; need for intervention in markets, 219–22, 229–30, 235–9, 252, 392; need for reshaping of, 34; pluralism, x, 35, 99, 113, 233, 331, 350, 394; public ownership, 32, 240; target-setting in, 91–2; threats to civil liberty and, 340 steam engine, 110, 126 Steinmueller, W.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

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3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

In some countries, notably Portugal and Ireland, companies’ total debts are dangerously high too; in many countries, including Britain and Italy, many business loans have gone sour.66 Both local banks in those countries and the foreign banks that lent to them, notably French and German ones, are also often in trouble. Weak spending in post-bubble economies in turn has knock-on effects for countries that export a lot to them, not least Germany. So the way to promote a rapid recovery is to accelerate this balance-sheet repair. One way is to try to make households feel wealthier by inflating the prices of their assets, such as shares, bonds and property. That is the purpose of quantitative easing (QE), whereby the US Federal Reserve and the Bank of England have “printed” money to buy assets, mostly government bonds. But while QE may have limited the downturn in Britain, it did not spark a recovery – and relying too much on overzealous monetary policy risks reviving the bubble economy rather than encouraging a shift to more sustainable and balanced growth. If investors think asset prices are only temporarily inflated and so don’t feel any wealthier, QE isn’t much of a stimulus to growth.

Fortunately, thanks to collective efforts by governments and central banks, the post-Lehman collapse of the global economy was arrested. Both the British economy and house prices stabilised in the latter half of 2009. Britain narrowly escaped Ireland’s fate. It also avoided a eurozone-style doom loop. UK banks owned few British government bonds. More importantly, the Bank of England stood ready to act as lender of last resort to the government and was already buying large amounts of government bonds through its quantitative easing (QE) programme from 2009 on. Thus a run on UK government bonds was never likely – and could have been checked in any case. Unfortunately, Britain’s banking crisis continues to hold the economy back. The narrow debate about whether the government sells its stakes in Lloyds and Royal Bank of Scotland at a profit or a loss misses the wider point. They and other British banks have imposed – and continue to impose – a massively larger cost on everyone.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

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accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, high net worth, income inequality, investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, means of production, moral hazard, mortgage debt, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Plutocrats, plutocrats, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, Winter of Discontent, working poor, Yom Kippur War

Ireland’s economy – one of the hardest hit – contracted by 7.5% in 2009.133 The bailouts amount to a massive transfer of debts from the private to the public sector – and a subsidy for the rentiers: bankers’ debt became sovereign or national debt. Governments raided the public purse to lend money at rock-bottom rates of interest to banks, which then used it to lend back at higher interest, through buying government bonds paying 4% or 5% or consumer credit paying 12–18%.134 Governments took toxic assets off banks and insured them, and created money to buy other financial assets from them (‘quantitative easing’). The banks used the opportunity to ‘deleverage’, that is, pay off debts and build up reserves, while of course keeping themselves in the manner to which they were accustomed as regards pay and bonuses. They failed to increase their already low level of lending for productive investment by businesses. Meanwhile, aggregate demand was depressed by austerity policies, rising unemployment and people cutting back on spending to pay off their debts.

But it has been innocent bystanders, the 99%, but especially those on low to middling incomes, who have been told that ‘we’ must reduce ‘our debt’ and tighten our belts. Not only have real wages dropped but public sector cuts have led to job losses, particularly affecting women, while benefits for the unemployed, the disabled and people on low incomes have been drastically cut. Austerity for the masses and ultra-cheap bailout loans and quantitative easing for the banks mean another massive dollop of unearned income for the rentiers. As Adair Turner – again, a more candid member of the financial establishment – put it: British citizens will be burdened for many years with either higher taxes or cuts in public services – because of an economic crisis whose origins lay in the financial system, a crisis cooked up in trading rooms where not just a few but many people earned annual bonuses equal to a lifetime’s earnings of some of those now suffering the consequences.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

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algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, buy low sell high, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, mortgage debt, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, systematic trading, technology bubble, time value of money, total factor productivity, transaction costs, value at risk, Vanguard fund, yield curve, zero-coupon bond

Therefore, macro investors monitor central banks, trying to predict their next move. Is the central bank about to raise interest rates or lower them? If the central bank is about to lower rates, how large will the rate cut be: 25 basis points (bps), 50 bps, or more? Will the central bank signal a hawkish or dovish stance that will change the market’s expectations about future rate changes? Will it implement unconventional monetary policies, such as lending facilities or quantitative easing (i.e., buying long-term bonds) or increase the strength of such programs (e.g., buying more bonds per month or “tapering” such a purchase program)? To answer these questions, macro traders seek to understand each central bank’s objectives and policy constraints and to analyze the same economic data as the central bank. Central bank objectives differ across countries. In the United States, the Federal Reserve has a “dual mandate” of price stability and maximum employment.

See also leveraged buyout (LBO) investors private investments in public equity (PIPEs), 291, 313 production function, 192 profitability: measures of, 101; quality investing and, 100, 101–2, 104 profits and losses (P&L): mark to market, 78; time horizon for observing, 33t, 34–35 profit sources, from trading strategies, 39–46, 40f proportional transaction costs, 65 “pump and dump” schemes, 107–8, 123 purchasing power parity (PPP), 182–83; trading based on, 197, 197n put-call parity, 236, 236n2 put options, 235–36; demand pressure for, 46, 240; implied volatilities of, 239. See also options qualified institutional buyers (QIBs), 270 quality at a reasonable price (QARP) investing, 100, 104, 140 quality investing, ix, 16, 100–104; Ainslie on, 108–9; value investing combined with, 16, 100, 103–5, 139–40 quant event of 2007, xii–xiii, 144, 145–49, 146f quantitative easing, 189 quantitative equity investing, viii, 10–11, 88, 133–35; advantages and disadvantages of, 133–34; Ainslie on incorporation of approaches from, 11, 110; Asness on, 162–64; types of, 134–35, 134t. See also fundamental quantitative investing; high-frequency trading; statistical arbitrage quantitative global macro investing, 185 random walk hypothesis, 173 RAROC (risk-adjusted return on capital), 31–32 reactive risk management.


pages: 515 words: 126,820

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World by Don Tapscott, Alex Tapscott

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Airbnb, altcoin, asset-backed security, autonomous vehicles, barriers to entry, bitcoin, blockchain, Bretton Woods, business process, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, Credit Default Swap, crowdsourcing, cryptocurrency, disintermediation, distributed ledger, Donald Trump, double entry bookkeeping, Edward Snowden, Elon Musk, Erik Brynjolfsson, ethereum blockchain, failed state, fiat currency, financial innovation, Firefox, first square of the chessboard, first square of the chessboard / second half of the chessboard, future of work, Galaxy Zoo, George Gilder, glass ceiling, Google bus, Hernando de Soto, income inequality, informal economy, interest rate swap, Internet of things, Jeff Bezos, jimmy wales, Kickstarter, knowledge worker, Kodak vs Instagram, Lean Startup, litecoin, Lyft, M-Pesa, Mark Zuckerberg, Marshall McLuhan, means of production, microcredit, mobile money, Network effects, new economy, Oculus Rift, pattern recognition, peer-to-peer lending, performance metric, Peter Thiel, planetary scale, Ponzi scheme, prediction markets, price mechanism, Productivity paradox, quantitative easing, ransomware, Ray Kurzweil, renewable energy credits, rent-seeking, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, seigniorage, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, smart grid, social graph, social software, Stephen Hawking, Steve Jobs, Steve Wozniak, Stewart Brand, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, The Wisdom of Crowds, transaction costs, Turing complete, Turing test, Uber and Lyft, unbanked and underbanked, underbanked, unorthodox policies, X Prize, Y2K, Zipcar

In a 2013 survey, over 44 percent of bitcoin users professed to be “libertarian or anarcho-capitalists who favor elimination of the state.”11 Libertarians of all stripes tend to support bitcoin. It’s decentralized and free from government control. It’s anonymous and difficult to tax. It resembles gold in its scarcity, and libertarians favor the gold standard. It’s a pure market, driven by supply and demand rather than quantitative easing. Not surprising, the first 2016 presidential candidate to endorse bitcoin for campaign payment was Rand Paul. The libertarian bent has given opponents of digital currencies fodder for dismissing blockchain technologies outright. Jim Edwards, founding editor of Business Insider UK, wrote of the libertarian paradise he called Bitcoinistan, a country like Somalia “with as little government interference as possible, in a market free of burdensome laws and taxes.”

Because digital currencies challenge the role of central banks in an economy, we might expect central bankers to oppose blockchain technology. However, over the years, these bankers have shown a willingness to innovate. The Fed pioneered electronic clearing of funds by championing the Automated Clearing House (ACH) system when all checks were settled and cleared manually. Like central banks elsewhere, the Fed has savored experimentation. It has embraced unorthodox and untested policies, most famously (or infamously) the quantitative easing program in the wake of the 2008 financial crisis, when it used newly minted money to buy financial assets such as government bonds at an unprecedented scale. Not surprisingly, central bankers have been forward thinking in understanding blockchain technology’s importance to their respective economies. There are two reasons for this leadership. First, this technology represents a powerful new tool for improving financial services, potentially disrupting many financial institutions and enhancing the performance of central banks in the global economy.


pages: 251 words: 63,630

The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World by Shaun Rein

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business climate, credit crunch, Deng Xiaoping, Donald Trump, facts on the ground, glass ceiling, high net worth, illegal immigration, income per capita, indoor plumbing, job-hopping, Maui Hawaii, price stability, quantitative easing, Silicon Valley, Skype, South China Sea, Steve Jobs, thinkpad, trade route, trickle-down economics, upwardly mobile, urban planning, women in the workforce, young professional

Homeowners were putting off buying new furniture, and in all his decades doing business, he had never seen American consumer confidence so low. It is an understatement to say he was angry at the calls of U.S. government officials (like New York Senator Chuck Schumer) for China to let its currency appreciate, or that he was frustrated with Federal Reserve chief Ben Bernanke’s decision to increase the money supply through quantitative easing. These wrongheaded policies, he said, just caused more investors to flee the greenback and switch their investment portfolios to commodities or foreign markets, where there were greater possibilities to receive higher returns, and which further increased Bob’s input prices. He did not see commodity prices stabilizing in the near future until the greenback regained its strength and the debt situation in the eurozone stabilized.


pages: 135 words: 49,109

Hand to Mouth: Living in Bootstrap America by Linda Tirado

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payday loans, Plutocrats, plutocrats, quantitative easing, telemarketer, unpaid internship

So that’s why I encourage everyone to vote for my guys. But I’m not about to judge a poor person who couldn’t give a shit about any of it. That person hasn’t been given a whole lot of proof that her vote will matter anyway; voting hasn’t resulted in policy shifts toward a more equitable distribution of government services. Our schools are still worse, our roads less maintained, our police less friendly. And we simply don’t give a fuck about quantitative easing or who might manage the prime index, because we do not have money and so those concerns are entirely irrelevant to us. Poor people have gotten the message loud and clear: The powers that be are not concerned about us. Meanwhile, wealthier people get all exercised about a poor person dropping a cigarette butt on a city sidewalk, as if this is proof that poor people just don’t care. Let’s take that theory a step further.


pages: 172 words: 54,066

The End of Loser Liberalism: Making Markets Progressive by Dean Baker

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Asian financial crisis, banking crisis, Bernie Sanders, collateralized debt obligation, collective bargaining, corporate governance, currency manipulation / currency intervention, Doha Development Round, financial innovation, full employment, Home mortgage interest deduction, income inequality, inflation targeting, invisible hand, manufacturing employment, market clearing, market fundamentalism, medical residency, patent troll, pets.com, pirate software, price stability, quantitative easing, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Silicon Valley, too big to fail, transaction costs

It had not pushed the federal funds rate below 3.0 percent since the early 1960s, so the 1.0 percent rate was truly extraordinary. For practical purposes, the federal funds rate was pretty much at its lower bound, since the marginal impact of going all the way down to zero from 1.0 percent is likely to be minimal. The European Central Bank has never lowered its overnight rate below 1.0 percent in the post-2007 downturn even though it engaged in quantitative easing and other extraordinary measures to boost the economy. The Fed’s response to the 2001 downturn belies the notion that the recession was short and mild. Though that may have been the case officially, and the unemployment rate did not rise strongly, the consequences for the economy and especially the labor market were severe. One aspect of the weak recovery is the pattern followed by the trade deficit.

Power Systems: Conversations on Global Democratic Uprisings and the New Challenges to U.S. Empire by Noam Chomsky, David Barsamian

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affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Chelsea Manning, collective bargaining, colonial rule, corporate personhood, David Brooks, discovery of DNA, double helix, failed state, Howard Zinn, hydraulic fracturing, income inequality, inflation targeting, Julian Assange, land reform, Martin Wolf, Mohammed Bouazizi, Naomi Klein, new economy, obamacare, Occupy movement, oil shale / tar sands, pattern recognition, quantitative easing, Ralph Nader, Ralph Waldo Emerson, single-payer health, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, Tobin tax, union organizing, Upton Sinclair, uranium enrichment, WikiLeaks

Federal Reserve, at least in principle, has a dual mandate: one of them is to control inflation, the other is to maintain employment. They don’t really do it, but that’s the mandate. The European Central Bank has only one objective, to control inflation. It’s a bankers’ bank, nothing to do with the population. They have an inflation target of 2 percent, and you’re not allowed to threaten that.1 In fact, there is no threat of inflation in Europe. But they insist on not carrying out any stimulus or anything like quantitative easing or other measures that might increase growth. The effect is that the weaker countries in the European Union are never going to be able to get out of their debt under these policies. In fact, debt levels are getting worse. As you cut down growth, you cut down the possibility of debt repayment. Hence they sink deeper into misery. Under ECB policies, Greece and Spain, in particular, are being punished and driven down.


pages: 322 words: 77,341

I.O.U.: Why Everyone Owes Everyone and No One Can Pay by John Lanchester

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asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black-Scholes formula, Celtic Tiger, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, George Akerlof, greed is good, hindsight bias, housing crisis, Hyman Minsky, interest rate swap, invisible hand, Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, laissez-faire capitalism, liquidity trap, Long Term Capital Management, loss aversion, Martin Wolf, mortgage debt, mortgage tax deduction, mutually assured destruction, new economy, Nick Leeson, Northern Rock, Own Your Own Home, Ponzi scheme, quantitative easing, reserve currency, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South Sea Bubble, statistical model, The Great Moderation, the payments system, too big to fail, tulip mania, value at risk

“Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” In their book Animal Spirits, George Akerlof and Robert Shiller appropriated the term to apply to the whole area of emotion and confidence in economics, and it’s in that spirit that I’m using the term here. *This is an oversimplification, because, as the current crisis has shown, central banks can also print money and do so via a number of mechanisms such as the new favorite, “quantitative easing.” This is essentially buying its own debt instruments without issuing anything to back it up; it’s not literally the same thing as printing money but it’s as good as. It is a measure that’s resorted to when interest rates have been cut so much or so fast that there’s nowhere else to go with them. All this is a response to a desperate crisis and is a sign that all normal measures have failed.


pages: 192 words: 72,822

Freedom Without Borders by Hoyt L. Barber

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accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, banking crisis, diversification, El Camino Real, estate planning, fiat currency, financial independence, fixed income, high net worth, illegal immigration, interest rate swap, obamacare, offshore financial centre, passive income, quantitative easing, reserve currency, road to serfdom, too big to fail

From that moment forward, the government and the Fed stepped up countermeasures, believing we were heading for a slowdown and that, if the “great recession” continued, we might find ourselves in the “greatest depression” ever. At least that was their justification for declaring that they were going to stimulate the economy again through a massive increase in the money supply, billed “QE2” for “Quantitative Easing II.” In other words, this meant churning the printing presses and producing fiat money backed by nothing of real value, only the good faith and credit of the country, which is quickly vaporizing. They landed on the figure $600 billion, which would be dispersed in 2010–2011 at the rate of $75 billion a month for eight months—or until June 2011. But they did leave themselves some leeway, as their commitment is open ended.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

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accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, Mont Pelerin Society, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, oil shock, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

The larger concern by far is what would have happened had government not taken the actions it did. Blinder and Zandi may well have understated the consequences. Given the federal government’s future guarantees, the costs in higher federal budget deficits will be substantial. Moreover, economic growth will likely continue to be slow. Nevertheless, TARP, the fiscal stimulus, and the Federal Reserve’s aggressive loans and guarantees, known as quantitative easing, it should be reemphasized, did stop the collapse and shorten the recession. The Keynesian response did work. By 2009, Wall Street was back and operating, and the recession was declared ended by the summer of that year, having formally started in late 2007. As 2010 came to a close, the question was whether the lesson of government stimulus was learned well enough. Business lending remained weak, consumer spending did not revive strongly, and the number of new jobs created was not nearly what was needed to absorb a growing workforce.

Boone, 4.1, 13.1, 13.2, 13.3, 13.4, 15.1 piggy-back loans Pirie, Robert Plaza Accord (1985), 11.1, 15.1 Polanyi, Michael polychlorinated biphenyls (PCBs) Popper, Karl, 2.1, 15.1 Posner, Richard Posner, Victor Potoma, Peter pounds sterling, 15.1, 15.2, 15.3, 15.4, 15.5 poverty, itr.1, prl.1, prl.2, prl.3, 1.1, 2.1, 2.2, 2.3, 3.1, 3.2, 3.3, 7.1, 7.2, 7.3, 7.4, 8.1, 10.1, 11.1 prepayments, mortgage prepay swaps Preston, Lewis price controls, 2.1, 2.2, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 9.1, 9.2, 14.1, 19.1 price-earnings (P-E) multiples, 1.1, 1.2, 4.1, 4.2, 12.1, 16.1, 17.1 price levels, prl.1, 1.1, 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 3.3, 3.4, 6.1, 6.2, 6.3, 6.4, 8.1, 8.2, 8.3, 9.1, 9.2, 9.3, 9.4, 10.1, 11.1, 11.2, 12.1, 14.1, 14.2, 14.3, 14.4, 14.5, 16.1, 19.1 prime lending rate, 6.1, 9.1, 11.1 Primerica, 16.1, 16.2, 16.3 Prince, Chuck, 17.1, 17.2, 19.1, 19.2, 19.3, 19.4, 19.5 Principles of Economics (Marshall), 2.1 Principles of Scientific Management, The (Taylor), 12.1 product development, 2.1, 4.1, 12.1, 12.2, 12.3, 12.4, 12.5, 12.6, 12.7, 12.8, 12.9, 13.1, 16.1, 19.1 “Production Trends in the United States” (Burns) productivity, 2.1, 2.2, 8.1, 9.1, 9.2, 11.1, 12.1, 13.1, 14.1, 17.1, 19.1 profits, x, 1.1, 1.2, 2.1, 2.2, 3.1, 3.2, 4.1, 4.2, 4.3, 5.1, 5.2, 5.3, 5.4, 5.5, 8.1, 8.2, 8.3, 12.1, 14.1, 15.1, 15.2, 15.3, 15.4, 17.1, 17.2, 17.3, 17.4, 18.1, 18.2, 18.3, 18.4, 19.1, 19.2, 19.3, 19.4, 19.5 Proposition 1, prl.1, 7.1, 10.1 Proposition 4 Proposition 13, 9.1, 9.2, 10.1 Proxmire, William Prudential Insurance, 16.1, 16.2 “puts,” 244 quantitative easing “quants” (analytical models), 15.1, 15.2, 15.3, 15.4, 15.5, 18.1 Quantum Fund, 15.1, 15.2 quarterly earnings, 12.1, 16.1 Quattrone, Frank, 17.1, 17.2, 17.3, 17.4 railroads, prl.1, 1.1, 1.2, 2.1, 3.1, 5.1, 8.1, 9.1 Raines, Franklin, 18.1, 19.1 Rand, Ayn, prl.1, 2.1, 3.1, 3.2, 14.1, 14.2 Ranieri, Lewis, 18.1, 18.2, 18.3, 19.1, 19.2 RCA, 8.1, 8.2, 12.1, 12.2 Reagan, Jack, 7.1, 7.2, 7.3 Reagan, Nancy, 7.1, 7.2, 7.3, 7.4 Reagan, Ronald, 6.1, 7.1, 7.2; anticommunism of, prl.1, 7.3, 7.4, 7.5, 7.6, 7.7; background of, prl.1, 7.8, 7.9, 7.10, 8.1; as conservative, prl.1, prl.2, 7.11, 7.12; as Democrat, 7.13, 7.14, 7.15, 7.16, 7.17, 7.18; deregulation supported by, 11.1, 12.1, 12.2, 14.1, 16.1, 16.2, 18.1; economic policies of, 5.1, 6.2, 6.3, 7.19, 7.20, 7.21, 8.2, 8.3, 8.4, 8.5, 8.6, 9.1, 10.1, 10.2, 11.2, 11.3, 11.4, 13.1, 13.2, 14.2, 14.3, 14.4, 14.5, 14.6, 14.7; “evil empire” speech of, 7.22; as FBI informant, 7.23; Friedman’s influence on, 7.24, 7.25, 7.26; as GE spokesman, 7.27, 11.5, 12.3; as governor of California, prl.1, 7.28, 7.29, 7.30, 7.31, 10.3, 10.4; gubernatorial campaign of (1966), 3.1, 7.32, 7.33; individualism supported by, 7.34, 7.35; marriages of, 7.36, 7.37, 7.38; memoirs of, 7.39, 7.40, 7.41, 7.42, 7.43, 7.44; Nixon compared with, 7.45, 7.46, 7.47, 7.48; personality of, prl.1, 7.49, 7.50, 7.51; as political leader, prl.1, prl.2, 7.52, 7.53, 11.6, 11.7; as president, 3.2, 7.54, 11.8, 11.9; presidential campaign of (1976), 7.55; presidential campaign of (1980), 7.56, 11.10; religious convictions of, 7.57, 7.58, 7.59, 7.60, 7.61, 7.62; as Republican, 7.63, 7.64, 7.65, 11.11; as SAG president, 7.66, 7.67; The Speech (“A Time for Choosing”) delivered by, 7.68, 11.12; speeches by, 7.69, 7.70, 11.13; tax policies of, ix–x, 2.1, 7.71, 7.72, 7.73, 7.74, 7.75, 7.76, 7.77, 10.5, 11.14, 11.15, 11.16, 11.17, 14.8; as television host, 7.78, 7.79; Uhler and, prl.1, 7.80, 7.81; welfare programs opposed by, 7.82, 7.83, 7.84, 7.85, 7.86; working class support for, 7.87, 7.88, 7.89, 7.90, 7.91 real estate, 1.1, 1.2, 3.1, 4.1, 5.1, 6.1, 6.2, 6.3, 6.4, 6.5, 9.1, 11.1, 12.1, 12.2, 12.3, 13.1, 14.1, 14.2, 15.1, 15.2, 15.3, 16.1, 16.2, 18.1 real estate investment trusts (REITs), 6.1, 15.1, 16.1 recessions, 1.1, 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 3.3, 3.4, 4.1, 4.2, 6.1, 6.2, 6.3, 6.4, 6.5, 8.1, 9.1, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 13.1, 13.2, 14.1, 14.2, 15.1, 15.2, 15.3, 15.4, 15.5, 16.1, 16.2, 17.1, 18.1, 18.2, 18.3, 18.4, 19.1, 19.2, 19.3, 19.4 Recovery Ahead!


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

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affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial independence, financial innovation, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, labour market flexibility, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, merger arbitrage, Mikhail Gorbachev, Milgram experiment, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Naomi Klein, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, pets.com, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, Richard Thaler, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond

The Fed resorted to a tried and tested solution, cutting interest rates from 5.25 percent to 0.00 percent. An alphabet soup of facilities was hastily assembled, desperately pumping money into the economy—PCF (primary credit facility); TAF (term auction facility); TSLP (term securities lending facility); and PDCF (primary dealer credit facility). Ultimately, the Fed resorted to printing money, known as quantitative easing. Wanting to hug the Fed chairman, Jim Cramer thought that Bernanke “got it.” Bernanke once boasted that dropping money from a helicopter would stop such a crisis. Central banks assumed that price falls reflected a temporary shortage of cash and confidence. Elizabeth Warren, chair of the Troubled Asset Relief Program (TARP), Oversight Panel Report, questioned the approach: One key assumption...is [US Treasury’s] belief that...the decline in asset values...is in large part the product of temporary liquidity constraints...it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth.6 Figure 22.1 shows how falling prices affect values of assets financed with debt.

See also mortgages Prince, Chuck, 201, 315, 319, 329 princes of industry, 54 Principal Finance Group, 154 prisons, 158 private banks, 73 private equity, 155, 164 failures, 162-163 infrastructure, 158 public sector services, 161 returns, 162 Private Equity Council, 167 Private Equity Growth Capital Council, 167 private equity managers, compensation, 314 privatization of government-owned banks, 66 to pay off government debt, 158 Proctor & Gamble, 56 Product Disclosure Statements, 219 productivity General Electric (GE), 60 improvements in the 1960s, 47 miracle of 1996, 41 Profit from Property, 96 profits, 20, 231 General Electric (GE), 61 insurance, 121 property rights, protection of, 41 prosperity in Ireland, 83 trading, 352 protection of property rights, 41 rackets, 73, 282-285 Protégé Partners, 261 Proust, Marcel, 335 Prudential Insurance Company, 134 Ptolemaic systems, 129 Ptolemy, 129 public private partnerships (PPP), 158 public sector services, 161 Publishers Weekly, 97 Pudd’nhead Wilson, 123. See also Mark Twain purchases by bankers, 322-323 pure plays, 60, 139 put options, 120, 209 Pynchon, Thomas, 352 pyramid schemes, 34 Q Qantas, 156, 162 Qing dynasty, 84 Qishan, Wang, 346 QSPEs (qualified special purpose entities), 288 quantification of risk, 130 quantitative easing, 340 equity market neutral, 254 funds, 242 Quantos, 211 Quantum Fund, 240 quantum theory, 126 quasi-currency, 24. See also currency Quayle, Dan, 95 Queen, 157 Queen Elizabeth, 278 R Rabbit Is Rich, 363 Racketeer Influenced and Corrupt Organizations (RICO) Act, 150 Radaker, Byron, 134 Rain Man, 153, 166 rainbows, 211 Raines, Sylvain, 309 Rains, Claude, 77 Rajaratnam, Raj, 244 Ralphie’s Funds, 191, 204 Ramones, The, 79 RAND Corporation, 35 Rand, Ayn, 294, 296 random walks, 118 rands, 21 Range Rover, 346 Ranieri, Lewis, 170 Rapid American, 143 Rappaport, Alfred, 124 Raskob, John, 97 Ratergate (2008), 285 ratings agencies, 141 bonds, 282-285 CDOs, 285 credit, 282 Rational Man, 119 Rattner, Steven, 274 Raynes, Sylvain R., 196 re-re-securitizations, 191 re-securitizations, 191 Reagan, Ronald, 65-66, 97, 101, 298, 364 real estate, 179-182 adjusted rate mortgages (ARMs), 183-184 reals, 21 recessions, 350 recovery, 359-360 rates, 171 recruitment of finance candidates, 310 recycling in Japan, 39 Red Force, 264 Redline, 186 Reed, John, 71, 75 reflexivity, 327 Regnault, Jules, 118 regulations, 81 banks, 65-67 Basel 1, 74 Basel 2, 200 central banks, 279-281 self-regulating markets, 102 synthetic securitization, 176 regulators preparation for financial crises, 264-278 understanding of securitization, 282 regulatory arbitrage, 75 Reid, Harry, 299 relative value funds arb (arbitrage) market inefficiencies, 242 religious prohibitions on usuries, 32 remote risk of loss, 220 renminbi, 21 rentiers, 33 repackaging corporate debt, 173 repos (repurchase agreements), 288 reserves banking, 32 gold, 30 resources, financial news, 89-99 restructures, corporations, 57 retirement, 20, 46, 48 Japan, 49-50 pension plans, 50 self-funded savings, 180 returns benchmarking, 123 on capital, 57 hedge funds, 243-244 private equity, 162 Revco drug stores, 150 Reykjavík, Iceland, 275 as a financial center, 84 Reynolds, Glenn, 283 Reynolds/Tube, 58 Rhodesia.


pages: 829 words: 229,566

This Changes Everything: Capitalism vs. The Climate by Naomi Klein

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1960s counterculture, battle of ideas, Berlin Wall, big-box store, bilateral investment treaty, British Empire, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, Climategate, cognitive dissonance, colonial rule, Community Supported Agriculture, complexity theory, crony capitalism, decarbonisation, deindustrialization, dematerialisation, Donald Trump, Downton Abbey, energy security, energy transition, equal pay for equal work, Exxon Valdez, failed state, Fall of the Berlin Wall, feminist movement, financial deregulation, food miles, Food sovereignty, global supply chain, hydraulic fracturing, ice-free Arctic, immigration reform, income per capita, Internet Archive, invention of the steam engine, invisible hand, Isaac Newton, James Watt: steam engine, market fundamentalism, moral hazard, Naomi Klein, new economy, Nixon shock, Occupy movement, offshore financial centre, oil shale / tar sands, open borders, patent troll, planetary scale, post-oil, profit motive, quantitative easing, race to the bottom, Ralph Waldo Emerson, Rana Plaza, Ronald Reagan, smart grid, special economic zone, Stephen Hawking, Stewart Brand, structural adjustment programs, Ted Kaczynski, the scientific method, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade, transatlantic slave trade, trickle-down economics, Upton Sinclair, uranium enrichment, urban planning, urban sprawl, wages for housework, walkable city, Washington Consensus, Whole Earth Catalog, WikiLeaks

All over Southern Europe, environmental policies and regulations have been clawed back, most tragically in Spain, which, facing fierce austerity pressure, drastically cut subsidies for renewables projects, sending solar projects and wind farms spiraling toward default and closure. The U.K. under David Cameron has also cut supports for renewable energy. So if we accept that governments are broke, and they’re not likely to introduce “quantitative easing” (aka printing money) for the climate system as they have for the banks, where is the money supposed to come from? Since we have only a few short years to dramatically lower our emissions, the only rational way forward is to fully embrace the principle already well established in Western law: the polluter pays. The fossil fuel companies have known for decades that their core product was warming the planet, and yet they have not only failed to adapt to that reality, they have actively blocked progress at every turn.

., rights of nature ordinance in, 444 place, love of, in Blockadia movement, 337–66 planetary exodus, 288–89 planned obsolescence, 91 planning, long-range, see long-range planning Point Carbon, 225 Point Hope, Alaska, 375 Poland, 75, 144, 200, 225 polar bears, 435 Policy Implications of Greenhouse Warming, 282 Polis, Jared, 314 politicians, responsibility evaded by, 12, 119 politics, elite control over, 18, 119 polluter pays principle, 110–19, 202–3 pollution regulations, 39 polychlorinated biphenyls (PCBs), 203, 429 polycyclic aromatic hydrocarbons (PAHs), 426 Pooley, Eric, 207, 208 Pope, Alexander, 446 Pope, Carl, 237, 356, 357n population, 14, 114n populism, 117 postindustrialized nations, 79, 132, 177, 387, 460 poverty, 7, 19, 61, 85, 110, 115, 119, 134–36, 157, 177, 343, 455, 458 consumption and, 91 in developing world, 40, 55, 88n, 179–82, 409, 416, 418 extractive industries and, 181–82, 416 lack of protection and, 49 renewable energy and, 391, 399 Powder River Basin, coal mines in, 320, 323, 343–44, 395 power, corporate, 25 Power Past Coal, 349 power plants, coal-fired, see coal-fired power plants precautionary principle, 335–36 Premier Gold Mines, 382 Presidential Oil Spill Commission, 330 President’s Science Advisory Committee, climate change report of, 261 price controls, 125 PricewaterhouseCoopers, 15 Princeton Environmental Institute, 113 Princeton University, Carbon Mitigation Initiative of, 113–14 Prince William Sound, impact of Exxon Valdez oil spill in, 337–39, 426 privatization, 8, 9, 39, 72 diminished services under, 128 of disaster response, 51–52 of former Soviet economies, 19 and infrastructure investments, 108–9 as license to steal, 154 of public sphere, 19–20 reversals of, 39, 95, 96–103 Prize, The (Yergin), 311 Proceedings of the National Academy of Sciences, 79, 217, 328n “proof of harmlessness,” 271, 272 propane, 328 Prosperity Without Growth (Jackson), 93 protectionism, 64–65, 84 Public Accountability Initiative, 216 Public Citizen, 80, 213 Global Trade Watch of, 359–60 public health systems, 10, 109 public infrastructure, 19, 20 public sector, 95 crumbling institutions, 158 green energy and, 97–103, 406–7 and infrastructure investments, 108–9 spending cuts in, 19, 72, 110 public services, zero-carbon, 19–20 public transit, 7, 40, 92, 93, 108, 121, 124, 126, 127 in Brazil, 157 cheap, 91 in France, 109 in wartime, 16–17 public works, 39 Pungesti, Romania, anti-fracking movement in, 298–99, 303, 347, 404 quantitative easing, 110 Quebec: anti-fracking movement in, 303–4, 313, 348, 358–59 fracking moratorium in, 71 opposition movements in, 9, 464 Queensland, 27, 301 racism: environmental, 205, 429 sacrifice zones and, 310–11, 314 railways, 91, 108, 122, 133 coal transport by, 234, 362, 389, 397 high-speed, 126 oil transport by, 311–12, 325, 332, 333 Rainforest Action Network, 197, 296, 356 “Rainforest Chernobyl,” 309, 378 Rakotomanga, Cressant, 221–22 Rand, Ayn, 44 Rasch, Phil, 264 rationing, wartime, 115–16 Raytheon, 9 Read, Joe, 53n Reagan, Ronald, 39, 117, 203–5, 229 real estate: disaster infrastructure and, 51 in wake of Superstorm Sandy, 9, 235n re-communalization, 96–103 Red Cloud, Henry, 24, 393–97 Red Cloud Renewable Energy Center, 396 REDD-Monitor, 223 RedGE, 78 Red Hook, Brooklyn, 105n, 405 Reilly, John, 11 reinsurance, 9, 234 religion, and dominion over nature, 41, 74, 177 re-municipalization, 96–103 renewable energy, 16, 18, 67, 90, 93, 127, 131, 218, 253, 283 Asia and, 349–50 buy-local programs for, 77 cheap natural gas as undercutting, 128–29 community ownership of, 398–99 Gates’ dismissal of, 236–37 in Germany, 97–98, 130–31 incentives for, 138–39 investment in, see green technology, investment in major oil companies and, 111–12 maturing technology for, 213–14 misleading cautions on, 199–200, 394–95 noncorporate providers of, 131 100 percent, 101, 102, 137, 214–15 private sector and, 100–101 public ownership and, 97–103 public sector and, 97–103, 406–7 public value of, extractive projects vs., 400 in Spain, 110 transition to, 89, 97–103, 115, 214–15, 364 and variability of natural systems, 394–95 as viable alternative to fossil fuels, 349, 398, 399, 400–401, 403, 413–18 WTO’s slowing of, 71–72 reparations, 414–15 see also climate debt REPOWERBalcombe, 403–4 Republican party, 35, 118, 125, 141, 204 climate change denial and, 34, 36, 46, 407 Republic Windows and Doors, 123n resilience, 419, 442 Resisting Environmental Destruction on Indigenous Lands (REDOIL), 375–76 resources, depletion of, 450 Responsible Endowments Coalition, 401 Reyes, Oscar, 224 Richmond, Calif., 321, 402 right wing: as barrier to progress, 31–63, 75, 124 on climate change as left-wing plot, 31, 32, 156, 411 Rignot, Eric, 14 Rio Earth Summit of 1992, 55, 76, 77, 83, 85, 150, 200, 293, 363 Risky Business project, 49 Roberts, David, 364–65 Robertsbridge Group, 249n Robertson, Julian, 208 Robock, Alan, 264, 270, 273–74 Rockaways, 103–6 Rodríguez, Heriberto, 222 Rogers, Jim, 196 Romania: fracking in, 298–99, 303, 344 government repression of environmental protest in, 298–99, 303 Romm, Joe, 54 Roosevelt, Franklin Delano, 121 Roosevelt, Theodore, 211 Rosebud Sioux, 375 Rothschild, Richard, 31, 34 rotifers, BP oil spill and, 432 Rousseff, Dilma, 179 Rowe, Stan, 444 Royal Canadian Mounted Police, 299 Royal Society, 152, 266 Chicheley Hall geoengineering conference of, 256–61, 263–67, 280–81, 284–85, 451 royalties, on oil, gas, and coal extraction, 112–13 Roy, Arundhati, 291 Ruffalo, Mark, 317 Russia: Greenpeace activists arrested by, 300 oil and gas companies in, 178–79 see also Soviet Union Sacramento, Calif., 99 sacrifice zones, 172–73, 310–15 Safe Drinking Water Act, 328 Safety and Environmental Enforcement Bureau, U.S., 332 Sahel, 270, 274, 275–76 Sainsbury, 116 St.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

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Affordable Care Act / Obamacare, bank run, banking crisis, Bernie Madoff, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, moral hazard, obamacare, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve

The Federal Reserve, the primary perpetrator of the misinvestment/overinvestment, now has more power, not less. Freddie and Fannie (along with their clone the Federal Housing Administration [FHA]) still dominate the housing finance market and are still politically controlled. Regulations have been increased. Government spending and government debt have expanded rapidly. The Federal Reserve is “printing” money (through quantitative easing, or QE2), laying the foundation for the next bubble (misinvestment/overinvestment). Unless the United States changes direction, we face severe financial problems in 20 to 25 years. The deficits in social security and Medicare, unfunded government pension liabilities, annual operating deficits, demographic issues, and a failed K–12 educational system will lead to a much lower real standard of living.


pages: 369 words: 98,776

The God Species: Saving the Planet in the Age of Humans by Mark Lynas

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back-to-the-land, Berlin Wall, carbon footprint, clean water, Climategate, Climatic Research Unit, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic transition, Haber-Bosch Process, ice-free Arctic, invention of the steam engine, James Watt: steam engine, megacity, meta analysis, meta-analysis, moral hazard, Negawatt, New Urbanism, oil shale / tar sands, out of africa, peak oil, planetary scale, quantitative easing, race to the bottom, Ronald Reagan, special drawing rights, Stewart Brand, University of East Anglia

As the Economist recently pointed out, a single market in energy makes more sense than a single market in almost anything else.76 This is estimated to cost one trillion euros over the next decade, however. The only thing holding back progress is finding the cash. Money, however, is not a limited resource in the same sense as energy. Finance we can create, if we are clever enough. Jasper Sky, a colleague at Oxford University’s Environmental Change Institute, suggests creating new funds with a novel twist on the traditional tactic used by recession-hit governments of “quantitative easing” (QE). QE normally means that a central bank buys government bonds from investors, in effect creating new cash, which is then available to banks to encourage them to lend more and thereby increase economic activity. Sky suggests that a central bank could buy specially issued bonds from a Green Investment Bank, which would then use its funds to support new clean technology deployment at a large scale, from offshore wind to nuclear to supergrids.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

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Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population, World Values Survey

Major financial institutions (e.g., the UK’s Royal Bank of Scotland) and industrial firms (e.g., GM and Chrysler in the US) were bailed out with public money. Central banks brought interest rates down to historical lows – for example, the Bank of England cut its interest rate to the lowest level since its foundation in 1694. When they could not cut their interest rates any more, they engaged in what is known as quantitative easing (QE) – basically, the central bank creating money out of thin air and releasing it into the economy, mainly by buying government bonds. Soon, however, free-market orthodoxy came back with a vengeance. May 2010 was the turning point. The election of the Conservative-led coalition government in the UK and the imposition of the Eurozone bail-out programme for Greece in that month signalled the comeback of the old balanced budget doctrine.


pages: 209 words: 89,619

The Precariat: The New Dangerous Class by Guy Standing

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8-hour work day, banking crisis, barriers to entry, Bertrand Russell: In Praise of Idleness, call centre, Cass Sunstein, centre right, collective bargaining, corporate governance, crony capitalism, deindustrialization, deskilling, fear of failure, full employment, hiring and firing, Honoré de Balzac, housing crisis, illegal immigration, immigration reform, income inequality, labour market flexibility, labour mobility, land reform, libertarian paternalism, low skilled workers, lump of labour, marginal employment, Mark Zuckerberg, means of production, mini-job, moral hazard, Naomi Klein, nudge unit, pensions crisis, placebo effect, post-industrial society, precariat, presumed consent, quantitative easing, remote working, rent-seeking, Richard Thaler, rising living standards, Ronald Coase, Ronald Reagan, science of happiness, shareholder value, Silicon Valley, The Market for Lemons, The Nature of the Firm, The Spirit Level, Tobin tax, transaction costs, universal basic income, unpaid internship, winner-take-all economy, working poor, working-age population, young professional

The attack began with moves to commercialise, privatise and contract out services. Temporary contracts and part-time employment with inferior wages and benefits crept in. Then governments moved against the sector as a whole. Public pensions were declared ‘unaffordable’ and ‘unfair’; governments used comparisons with the private economy to justify cutting public wages. It did not help that fiscal stimulus packages, quantitative easing and subsidies created bulging public deficits. That was not the fault of the public sector, but it became an easy target for budget cuts. Insecure private sectors looked on without solidarity. Financial markets too insisted on public spending cuts as evidence that governments were on ‘the right track’. This is driving the erosion of the public salariat. Globally, the public sector is being turned into a zone of the precariat.


pages: 329 words: 95,309

Digital Bank: Strategies for Launching or Becoming a Digital Bank by Chris Skinner

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algorithmic trading, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, augmented reality, bank run, Basel III, bitcoin, business intelligence, business process, business process outsourcing, call centre, cashless society, clean water, cloud computing, corporate social responsibility, credit crunch, crowdsourcing, cryptocurrency, demand response, disintermediation, don't be evil, en.wikipedia.org, fault tolerance, fiat currency, financial innovation, Google Glasses, high net worth, informal economy, Infrastructure as a Service, Internet of things, Jeff Bezos, Kevin Kelly, Kickstarter, M-Pesa, margin call, mass affluent, mobile money, Mohammed Bouazizi, new economy, Northern Rock, Occupy movement, platform as a service, Ponzi scheme, prediction markets, pre–internet, quantitative easing, ransomware, reserve currency, RFID, Satoshi Nakamoto, Silicon Valley, smart cities, software as a service, Steve Jobs, strong AI, Stuxnet, trade route, unbanked and underbanked, underbanked, upwardly mobile, We are the 99%, web application, Y2K

In Brazil (real / cruzeiro), Iran (rial / toman) and other countries, they just rename the currency officially or unofficially when it becomes less valuable. The same thing can be practised for a currency that becomes more valuable. But finite currency levels undermine monetary control of days of old, as central banks won’t be able to issue more currency to ease economic issues, such as the Quantitative Easing of Europe and America in recent times. Well, if there’s no central issuing authority to issue more or less money for monetary control, then that’s the real issue. So you can’t address the issues in economies with money, but I would argue ordinary fiat currencies are actually less of a benefit to societies and economies if those currencies can be manipulated. We know corruption in all forms at all levels in all countries is rife.


pages: 357 words: 95,986

Inventing the Future: Postcapitalism and a World Without Work by Nick Srnicek, Alex Williams

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3D printing, additive manufacturing, air freight, algorithmic trading, anti-work, back-to-the-land, banking crisis, battle of ideas, blockchain, Bretton Woods, call centre, capital controls, carbon footprint, Cass Sunstein, centre right, collective bargaining, crowdsourcing, cryptocurrency, David Graeber, decarbonisation, deindustrialization, deskilling, Doha Development Round, Elon Musk, Erik Brynjolfsson, Ferguson, Missouri, financial independence, food miles, Francis Fukuyama: the end of history, full employment, future of work, gender pay gap, housing crisis, income inequality, industrial robot, informal economy, intermodal, Internet Archive, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, late capitalism, low skilled workers, manufacturing employment, market design, Martin Wolf, means of production, minimum wage unemployment, Mont Pelerin Society, neoliberal agenda, New Urbanism, Occupy movement, oil shale / tar sands, oil shock, patent troll, pattern recognition, post scarcity, postnationalism / post nation state, precariat, price stability, profit motive, quantitative easing, reshoring, Richard Florida, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Slavoj Žižek, social web, stakhanovite, Steve Jobs, surplus humans, the built environment, The Chicago School, Tyler Cowen: Great Stagnation, universal basic income, wages for housework, We are the 99%, women in the workforce, working