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Who should take the hit for the financial crisis? Watch

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    http://www.guardian.co.uk/commentisf...nancial-crisis

    The financial sector?
    The public sector?
    The tax payer?
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    "Policymakers in Britain and the US were confronted with the same dilemmas in the 1930s, and, under the advice of economists like John Maynard Keynes, they were persuaded to implement spending programmes. The spending programmes led to recovery, and recovery helped pay off public debts."

    Nonsense. What really caused recovery was the War and the fact that the Government forcibly drafted millions into the military to serve in it. Whether that's good or not isn't the contention but it's not something that's sustainable or desirable in peacetime.

    http://www.paulvaneeden.com/Sites/pa.../200610133.gif

    Using that graph, it took ten years for Roosevelt's plan to bring the US back to it's GDP of ten years ago.

    Henry Morgenthau 33-39, US Secretary of the Treasury, testifying in May 1939: "We are spending more money than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get jobs. We have never made good on our promises. I say after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot."

    Well, we've already got the huge debt, and that only took us one year. Bring on the ten years of 2.2 million unemployed... and you think Thatcher was bad?

    On the other hand, in the US 1921 depression, where the Government slashed its spending and took a noninterventionist role, this serious recession was corrected within one year. Ten years of protracted misery or one year of general misery? The choice is clear, in my opinion. Unfortunately we've already embarked on one of mankind's most abominable tasks: the reintroduction of Keynesianism into the general political theory of the country.

    The Government cannot "create jobs" because every pound spent by the State is a pound not spent by the private sector, whether it's saved for future reinvestment or whether it's spent immediately. Furthermore, Government job creation is inflationary. It raises wages and therefore prices by raising the supply of labour, as well as by increasing the money supply by a gigantic amount. These jobs are often not jobs that increase the capital base of the economy. For instance, Keynes, who Caroline Lucas seemingly adores, was famous for advocating that if you were to bury money in the ground and allow people to keep what they dug up, that would be effective for "restarting" the economy.

    Secondly, our present Government has an agenda against saving. What they don't realise is that all economic action is based on saving; the hoarding of present profits until the required amount for desired investment is reached. Without saving, the capital structure of the economy will never be geared towards long term production but always immediate employment. This brings nations not to prosperity, but economic ruin. The only way to make a nation more prosperous is to allow the capital stock of the economy to increase so that more goods and services might be offered.

    Oh, and under his reign, shops who sold trousers below the price set by the State were prosecuted, such was their fear of deflation.
    The fault lies in the US Central Bank, the Federal Reserve, in its monopoly on money and the use of that monopoly to direct capital in an unsustainable direction.
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    Baggers basically hits the nail on the head, with the minor pedantic point that it wasn't actually the Second World War which enabled recovery: Robert Higgs (probably the best economic historian alive today) pinpoints what he calls the Great Escape (from depression) after the war ends:

    "With regard to the Great Escape, economists have also reached substantial agreement, but unfortunately they have come to agree on an interpretation that is almost completely wrong.

    It is wrong factually because it places the Great Escape in the early 1940s, around the time the United States became a declared belligerent in World War II, whereas the economy did not return to what we may properly describe as prosperity until after the war. Economists have misconstrued the specious “wartime prosperity” as the real thing, but diverting nearly 40 percent of the total labor force into military-related employment and producing mountains of guns and ammunition do not create genuine, sustainable prosperity, as people would discover if they tried to operate an economy on this basis for more than a brief period. The true Great Escape did not occur until 1946.

    Economists generally recognize, of course, that normal, civilian-oriented prosperity resumed after the war, but their explanations of this resumption generally rest on factual and theoretical mistakes, and they fail to take into account certain factors that were critical to a successful transition from the wartime command-and-control economy to a peacetime market-oriented economy.

    ...In truth, however, this apparent Keynesian “miracle of production,” during which the unemployment rate had been pushed to an all-time low of less than 2 percent, rested not on shrewd fiscal and monetary policy, but on massive military conscription, which had directly pulled more than 10 million men out of the labor force and indirectly induced millions of others to enlist in hopes of avoiding service in the dreaded infantry."

    But the rest of what Bagration says is absolutely spot on.
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    1. The banks who risked our money on SIV's
    2. The US states that gave billions to banks who then put the money in SIV's.
    3. The US government for changing banking laws giving the green light to the financial housing crisis.
    4. The global financial system itself.
    5. Gordon Brown for predicting never ending economic growth in his budgets.
    6. Gordon Brown for selling our Gold for next to nothing.
    7. The government for giving £825 million to India in the form of Foreign Aid, despite the fact they have a space programme and hope to get to the moon my 2012. (okay this did not cause the financial crisis, but this kind of insane public spending does not help)
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    to me, these things:

    - macroeconomists, for not predicting the crisis and for their "study" being too prescriptive and based on faulty assumptions.

    - the politicians, for not realising the economic model was unsustainable.
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    (Original post by rajandkwameali)
    - macroeconomists, for not predicting the crisis and for their "study" being too prescriptive and based on faulty assumptions.
    Untrue. Austrian school macroeconomists were predicting it as early as 2001 (i.e., they were predicting it before it started; they were saying the actions of the Fed under Greenspan would create a new bubble.) Of course, they're dirty verbalists who don't believe that human beings always follow strict mathematical models, so nobody listened to them. Now we're paying the price, lol

    It's not lol, actually. It's serious. I don't want my future to be ****** up because of these idiots (i.e. the State.)
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    the american financial sector.
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    It's true that some economists did predict the recession. But outside of some mainstream economists who gained a reputation for being bearish (such as Nouriel Roubini) or members of non-mainstream economists like the Austrians, few were able to predict it. And this IMO makes economics look really bad as a science/profession! lol.
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    (Original post by rajandkwameali)
    It's true that some economists did predict the recession. But outside of some mainstream economists who gained a reputation for being bearish (such as Nouriel Roubini) or members of non-mainstream economists like the Austrians, few were able to predict it. And this IMO makes economics look really bad as a science/profession! lol.
    Well, it's ironic given the distaste that the Austrians have for the meaningfulness of empirical tests of economic theories, but even if you were a die-hard empiricist I think you'd be forced to admit that based on their predictions/analysis, you should be more likely to believe in Austrian economics now than before the crisis. In Popperian terms, it's one of the few economic theories which has not had its predictions falsified - on the contrary, it comes out with its head held high.
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    Financial institutions across the world are full of high-flying economics graduates and as a group they didn't see this crisis coming, and of those who did very saw it coming so fast and so large. The idea that economics is a reliable science in the sense of it having predictive power isn't easily sustained given what has happened.
 
 
 
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