Juggling Dynamite

As stocks and junky debt rebound on the dream that central banks can buy enough of them to single-handily keep markets defying economic math and levitating speculative longs indefinitely…this clip offers some big picture.  The question is do workers, cash flow and the real economy matter any more?  Will this time be different?  Place your bets.

“​The world is facing another depression as the COVID-19 pandemic is set to weigh heavily on global economic activity, according to economist David Rosenberg.

If we call ’08 and ’09, the ‘Great Recession’, this is 10 times worse at any level. How is this just a plain little recession?” Rosenberg said.

“Depression is something that happens every century but the definition is that this will cause a secular shift in attitudes in terms of how we live, how we work and how we travel, and the approach toward debt and spending. This is going to be a long-lasting impact here.”  Here is a direct video link.

Thanks to Tim for recommending that I read Sapiens:  A Brief History of Humankind (2015) by Yuval Noah Harari.  It’s worth the time.

The cover note gives a good taste:  “Fire gave us power.  Gossip helped us cooperate.  Agriculture made us hungry for more.  Mythology maintained law and order.  Money gave us something we can really trust.  Contradictions created culture. Science made us deadly.  This is the thrilling account of our extraordinary history–from insignificant apes to rulers of the world.”

The last few chapters review the history of trade, capitalism, corporations, finance and central banks, and remind us of the deafening rhyme of recent events to past episodes.  The story of the Mississipi Company chartered, in 1717 in France, to colonize the lower Mississipi Valley in America, is one example.  The Mississipi Company founders promised riches and the wealthy piled in followed by the bourgeoisie.  The stock was initially priced at 500 livres and by December 1719 was trading at 10,000.  Euphoria spread.  People took out loans to buy the shares.  Then, early speculators decided to take profits and sell.  What happened next reminds of recent events.  Here’s a segment (page 361):

“When other investors saw the price going down, they also wanted to get out quick.  The stock prices plummeted further, setting off an avalanche.  In order to stabilise prices, the central bank of France–at the direction of the governor, John Law–bought up Mississippi shares, but it could not do so forever.  Eventually, it ran out of money.  When this happened, the controller general of finances, the same John Law, authorised the printing of more money in order to buy additional shares.  This placed the entire French financial system inside the bubble.  And not even this financial wizardry could save the day.  The price of Mississippi shares dropped from 10,000 back to 1,000 livres, and then collapsed completely, and the shares lost every sou of their worth.  By now, the central bank and the royal treasury owned a huge amount of worthless stock and had no money.  The big speculators emerged largely unscathed–they had sold in time.  Small investors lost everything, and many committed suicide.”

Sad, but common. We’ve been amply warned of how monetary madness ends…

Another illuminating presentation on the balance sheet recession now sweeping the world. When economies run out of able and willing borrowers, monetary policy is largely ineffective.

The Other Half of Macroeconomics and the Fate of Globalization, December 2018 speech by economist Richard Koo.  Here is a direct video link.