Econamy

Sometime this year, we the American taxpayers may again receive an Economic Stimulus payment. This is a very exciting program.

I'll explain it using the Q and A format:

Q. What is an Economic Stimulus payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is for you to use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn't that stimulating the economy of China ?
A. Shut up.

Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:

If you spend the stimulus money at Wal-Mart, the money will go to China

If you spend it on gasoline, your money will go to the Arabs.

If you purchase a computer, it will go to India .

If you purchase fruit and vegetable's, it will go to Mexico , Honduras and Guatemala .

If you buy a car, it will go to Japan or Korea .

If you purchase useless stuff, it will go to Taiwan .

If you pay your credit cards off, or buy stock, it will go to management bonuses and they will hide it offshore.

Instead, keep the money in America by:

1 spending it at yard sales, or
2 going to ball games, or
3 spending it on prostitutes, or
4 beer or
5 tattoos.

(These are the only American businesses still operating in the US .)

Conclusion:

Go to a ball game with a tattooed prostitute that you met at a yard sale and drink beer all day

Knowledge

A giant ship engine failed. The ship's owners tried many experts, bt none of them could figure how 2 fix it.

Then they brought an old man who had been fixing ships since he was a young.. He carried a large bag of tools with him, & when he arrived, he immediately went 2 work. He inspected engine very carefully.

2 of d ship owners were there, watching this man, hoping he would know what 2 do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something. Instantly, the engine lurched into life. He carefully put his hammer away. The engine was fixed!
A week later, the owners received a bill from the old man for 10,000 dollars.
"What?!"the owners exclaimed. "He hardly did anything!"
So they wrote the old man a note saying, "Please send us an itemized bill."

The man sent a bill that read: Tapping with a hammer: $2 Knowing where 2 tap: $9,998

Moral of story is:Effort is important, but knowing where 2 make an effort makes all the difference

The financial crisis explained in simple terms:

The financial crisis explained in simple terms:

Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Heidi's bar.

Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed.

Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.

However they cannot pay back the debts.

Heidi cannot fulfil her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better,stabilizing in price after dropping by 80 %.

The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation.

Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied against the non-drinkers.

Finally an explanation I understand . . .

The story of financial crisis, from one of the people who predicted it before Lehman brothers collapse

I delayed publishing this on the blog because I thought it was worth submitting it to a newspaper for first publication on the anniversary of the Lehman Brothers collapse. That has occurred: a slightly edited version of this post (for reasons only of length, I hasten to add!) is in today’s Sydney Morning Herald (page 4 of the print version), WA Today, and probably several other newspapers in the Fairfax chain.

You have just come from your annual medical checkup, where your doctor assures you that you are in robust health.

Walking jauntily down the street, you bump into a practitioner of alternative medicine. He takes one look at you and declares “You have a serious tumour! It must be removed or you will die”.

You ignore him as you always have, and continue your merry way down the street. One day later, a stabbing pain suddenly cripples you, and you collapse to the pavement.

In agony, your call your doctor, who initially refuses to send an ambulance because he knows you are well.

When you lapse into a coma and stop talking mid-sentence, your doctor concludes that perhaps something is wrong, and sends an ambulance to take you to hospital.

Initially the doctor waits for you to revive spontaneously, because he still knows there’s nothing really wrong with you. But as your pulse starts to weaken, he reluctantly calls a retired doctor who had experience of a similar inexplicable malady in the distant past.

She prescribes massive doses of tranquilisers, painkillers, vitamins, and oxygen—all substances that had been removed from the medical panoply due to recent advances in medical theory. Reluctantly, your doctor follows his retired colleague’s advice—and miraculously, you start to revive.

After a year of expensive medical treatment, you return to the same robust health you displayed before your inexplicable illness. Triumphant, if somewhat puzzled, your doctor declares you well once more, and releases you from intensive care.

As you stride confidently away from the hospital, you have the misfortune to once again bump into the practitioner of alternative medicine.

“But they haven’t removed the tumour!”, he declares.

…

One shouldn’t have to spell out the details of such an analogy, but in times of widespread denial, one has to:

You are the economy;

The tumour is a massive accumulation of private debt;

Your doctor is Neoclassical Economics, and the retired colleague is a so-called “Keynesian” Economist — who doesn’t know it, since her medical textbooks were poorly written, but he’s actually following another economist called Paul Samuelson, not Keynes (and your doctor’s textbooks are so bad they don’t warrant discussion);

The alternative medicine practitioner follows Hyman Minsky’s “Financial Instability Hypothesis” (which is based on what Keynes actually did say—as well as the wisdom of Joseph Schumpeter and, in whispers, Karl Marx);

The moment you hit the pavement is the beginning of the Subprime Crisis; The collapse of Lehman Brothers is the moment when you slip into a coma; and

The day the doctor takes you off life support and declares all is well … is next month.

The final reason for me being a bear is that I am that practitioner of alternative medicine. Minsky’s “Financial Instability Hypothesis” has been ignored by conventional economists for reasons that are both ideological and delusional. A small band of “Post-Keynesian” economists, of whom I am one, have kept this theory alive.

According to Minsky’s theory:

Capitalist economies can and do periodically experience financial crises (something that believers in the dominant “Neoclassical” approach to economics vehemently denied until reality—in the form of the Global Financial Crisis—slapped them in the face last year);

These financial crises are caused by debt-financed speculation on asset prices, which leads to bubbles in asset prices;

These bubbles must eventually burst, because they add nothing to the economy’s productive capacity while simultaneously increasing the debt-servicing burden the economy faces;

When they burst, asset prices collapse but the debt remains;

The attempts by both borrowers and lenders to reduce leverage reduces aggregate demand, causing a recession;

If the economy survives such a crisis, it can go through the same process again, with another boom driving debt up even higher, followed by yet another crash; but

Ultimately this process has to lead to a level of debt that is so great that another revival becomes impossible since no-one is willing to take on any more debt. Then a Depression ensues.

That is where we were … in 1987. The great tragedy of today is that naïve Neoclassical economists like Alan Greenspan and Ben Bernanke allowed this process to continue for another three or more cycles than would have occurred without their rescues.

In 2008, they did it again—only with methods they would have disparaged a mere year earlier (“Rational Expectations Macroeconomics”, a modern neoclassical fad, preaches that government intervention can’t influence the level of economic activity at all—yet another belief that reality has recently crucified). This time, while the rescue has worked, the recovery they expect afterwards can’t happen—because there’s almost no-one left who will willingly take on any more debt.

This time, there’s no re-leveraging way out. The tumour of debt has to be removed.