Editorial
Economics of Thuggery?
Bloomberg provides us with an article – "Contagion Thesis Once Derided Proven by Kristin Forbes" – profiling Ms. Forbes in a fulsome manner. She is obviously the mainstream's latest economic celebrity.
This is an interesting phenomenon, in fact, where economists and bankers are treated like rock stars, celebrated for a brilliance that only their peers can truly understand.
This article celebrates Ms. Forbes for her "work" on financial contagion. This is really a subdominant social theme of the power elite, that top economists can observe the complex workings of the economy, analyze them and provide economic technocrats with tools they can use to help counter the business boom and bust cycle.
We are to believe that central bankers are like doctors for the economy, though previously we've compared them to a priesthood. Certainly the mainstream media approaches them with great reverence – ordinarily reserved for medical men who heal us with the "drugs" of Big Pharma.
The Bloomberg article doesn't disappoint when it comes to reverence. It describes Ms. Forbes in a remarkable manner. We noticed this sort of approach previously with the new Governor for the Bank of England, Mark Carney. George Osborne was responsible for Carney's appointment and the British Guardian newspaper described Osborne's enthusiasm – his "man crush" – for his technocratic choice:
"Osborne said he had recommended Carney to David Cameron, who in turn recommended him to the Queen for appointment. The chancellor said Carney was "the outstanding central banker of his generation with unparalleled expertise in financial regulation".
He told MPs: "He will bring a fresh perspective. He has got what it takes to help bring families and businesses through these incredibly challenging economic times. My responsibility was to get the best for Britain, and with Mark Carney we've got that."
These statements are fascinating in part because they are as vague as they are worshipful. A central banker (like Ben Bernanke) fixes the price and volume of money using the power of government. How this makes Carney "outstanding" I'm not really sure. Is it because his presentation doesn't immediately inform you that he is an agent of state power? What is it about Carney that makes him "the best"?
Again, these questions arise if we keep in mind that the ultimatums of central banking are not voluntary. Carney's brief includes the use of state power to enforce his decision on interest rates. You might as well call England's top tax collector, the "outstanding revenuer of his generation." It really makes no difference. Both are engaged in making economic pronouncements leading to confiscatory policies that are then transmitted via state mandates.
Neither tax collector nor central banker is engaged in any kind of market-based activity. They are simply engaged in issuing dictats. So it is, unfortunately, with Ms. Forbes, though interestingly, there is nothing in her writing that reveals she intends for the state to use force to emplace her prescriptions. Here's more from the Bloomberg article:
When Kristin Forbes sought tenure at the Massachusetts Institute of Technology early last decade, some colleagues said her research focus on financial contagion led to a dead end. Her reaction: Full speed ahead.
Forbes worked to safeguard global financial stability with then-U.S. Treasury Undersecretary John Taylor, became the youngest member ever on the White House Council of Economic Advisers and eventually won tenure at MIT. In August she presented the opening paper at the Federal Reserve's annual symposium in Jackson Hole, Wyoming.
"Kristin is one of the leaders in the empirical analysis of contagion," said Roberto Rigobon, who, like Forbes, is a professor of economics at MIT's Sloan School of Management in Cambridge, Massachusetts, and has co-written research with her on the topic. "Her papers are a tour de force for anyone interested in measuring" its "importance, existence and extent."
Forbes, 42, says she still sees complacency over the risk that financial turmoil will spread beyond a single country, even with Europe's struggle to curb its sovereign-debt crisis. Regulators aren't doing enough to bolster preventative oversight, she said in an interview.
"Recently you've seen some softening of some of the regulatory requirements that are being talked about and some stepping back from some of the proposals," Forbes said.
"There's a trade-off obviously. In the middle of the crisis, having stricter capital requirements might delay a recovery, but it's critically important for the long-term stability."
Officials today may be tempted to bolster bank profitability by relaxing rules such as stress-test thresholds or by expanding the categories of assets that qualify toward liquidity buffers, Forbes said in the research she presented at Jackson Hole.
Forbes says she still sees complacency over the risk that financial turmoil will spread beyond a single country, even with Europe's struggle to curb its sovereign-debt crisis. Such loosening may backfire and "increase a country's vulnerability to contagion."
While requiring more capital may reduce the availability of credit, it also could offer nations "substantial benefits" by buffering against international panics. Tighter rules on bank reserves would reduce risks, acting on Forbes's finding that "countries with more-leveraged banking systems are significantly more vulnerable."
... Forbes' paper laid out the main pathways for the spread of a crisis, including trade, banks and financial institutions, along with investors who may be forced by losses in one country to sell assets in others. She also identified as a cause so- called "wake-up calls" -- when new information about a nation's weaknesses compel a recalibration of risk beyond its borders.
Forbes said her research is especially relevant for the euro area today, and her Jackson Hole paper proposed prescriptions to alleviate that continent's crisis.
Europe's focus on sharing liabilities through the European Central Bank, European Stability Mechanism and European Financial Stability Facility may increase contagion risks as investors begin to question the solvency of countries providing bailout funds, she said.
Also, European policy makers confronting the risk of bank runs without a clear "lender of last resort" need to create a deposit-insurance system to "restore confidence" that funds will be accessible in the future, she wrote in her paper.
"Someone other than the Greek government needs to guarantee bank deposits in Greek banks," she said in the interview.
I have provided a long quote because I don't want the reader to believe I am being unfair to Ms. Forbes. So let me summarize based on what we read above.
Ms. Forbes is interested in what is called in banking parlance "contagion" – when one region is subject to economic collapse and in turn weakens other nearby regions and makes them vulnerable to economic collapse as well. The antidote to this contagion – what she seems to be suggesting – is that a single entity provide a clear-cut guarantee to depositors in modern banking systems that they will not lose their money.
European policy makers confronting the risk of bank runs without a clear "lender of last resort" need to create a deposit-insurance system to "restore confidence" that funds will be accessible in the future, she wrote in her paper. "Someone other than the Greek government needs to guarantee bank deposits in Greek banks," she said in the interview.
It cannot be clearer than that. She is making two decisive points. Europe needs to create an American-style guarantor for bank deposits. And it needs to do it on a pan-European scale.
This fits right in with the power elite's determination to centralize economic and political functions under Brussels and the ECB in the European Union. That's the REAL reason Ms. Forbes is getting the attention she is. She's provided the powers-that-be with a well reasoned rational for further consolidation and centralization.
In reality – in the REAL world – force is not the best way to deal with economic problems. One wants to FACILITATE markets. In fact, this is why regulation is so detrimental to the marketplace. It tends to force participants to do things in one way, which then deprives markets of strategic richness and tends to reinforce whatever has gone wrong.
Because there is so much regulation in the financial marketplace these days, almost every kind of investment is subject to unintended consequences (with the exception perhaps of gold and silver purchases via physical delivery).
Ms. Forbes's response to regulatory fragility has the same brutal simplicity as Alexander's when he cut through the Gordian Knot to untie it. If the impossibly complex, unworkable and illegitimate system of modern economics provides a constant specter of contagion, then let government provide an ironclad guarantee that savers will get their money back no matter what.
The problem with the current system is that it is based on fixing prices in defiance of the marketplace. The solution Ms. Forbes has proposed is that governments provide an ever LARGER price-fix. A universal one.
The powers-that-be are attracted to Ms. Forbes's solution because it provides them with a further justification to centralize economies. Explain why government needs more power and you will be feted, receive tenure and be subject to praiseworthy articles from Bloomberg and other mainstream media.
The reality, as I've tried to point out, is much different. The reality is one of price fixing using the brute force of government to impose those dictats.
And the title of this article describes the mechanism and those involved.
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Posted by Joe on 01/27/13 07:27 AM
Olafur Ragnar Grimsson Iceland president 'Let banks go bankrupt' at Davos
Click to view link
3 minutes long
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Posted by Justin on 01/27/13 07:02 AM
"A central banker (like Ben Bernanke) fixes the price and volume of money using the power of government"
No he doesn't. He 'fixes' the price of $ denominated debt. You cannot 'price' $ since $ are what you supposedly price things in, like for example, $ denominated debt.
What he does do is monetise debt, makes it trade 'money good' by raising its price, in $. In fact he can raise the price of debt to such an extent that it trades indistinguishable from $, for example, a Treasury note trading at par, 0%.
He makes whatever debt he buys, or loans against, trade 'money good' by ruining the credit of his own bank, since the value of his credit is given by the quality of the assets his bank holds.
The credit of Ben Bernake's bank is junk, yet it trades as money. That's a credit bubble.
He doesn't fix the volume of money either. Haven't you looked at the Fed's balance sheet lately?
Reply from The Daily Bell
OK, Justin, it is very simple. In the modern era, among other things ...
1. Central banks raise and lower short interest.
2. Central banks tell commercial distributors the "assets" (fiat currency)they may hold relative to loans.
3. "Dollars" (Fed reserve notes) may be compared to other currencies and a basket of goods to ascertain their "price."
Now it is true that (Constitutionally speaking) one can argue gold *(and silver) is the ACTUAL money standard.
But to parse this argument over and over and to provide details is a somewhat academic exercise that distracts, in the modern era, from larger points.
We have therefore used a shorthand explanation - fixing the price and volume of money - to explain succinctly the actuality of central bank interference.
We also use the phrase, "central banks print money" - an explanation used by thousands of other media outlets. It is not exactly true, of course, but it gets the point across.
And that's the point.
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Posted by terry on 01/27/13 06:58 AM
Anthony, when you marry two seemingly unrelated things (at least to most they might seem unrelated) - i.e a report by an "economist" out of the "respected" MIT and Mark Carney - a simpleton such as me (read: naive/ignorant/uninformed) - is able to recognize a pattern (of strategy in this case?):
Mark Carney, now head of BoE, while governor of BoC was on the board of the BIS even though the Bank of Canada Act 6(2) regarding governorship states "... shall devote the whole of their time to the duties of their offices under this act... " - I guess his interpretaion of the phrase "whole of their time" and mine differ radically. Rather mind-boggling, actually, how two people can have two polar opposite meanings for the same word(s). The English language has become such an opaque and unclear, uh, thing/tool, would you not agree? And as a result, can easily manipulate those who still believe that the word "is" power, as opposed to a tool "of power" that can be used for good or evil (which is your personal choice as an individual with an impulse to freedom).
All Britons should be wondering why an ex-pat' Canadian who holds a post on the BIS is now in charge of setting their monetary policies - (Who does he really report out from and back to is not only a valid question, but "the" most important one?).
If a Briton were to think themselves prudent, it may be wise to consider a move to the brother and sister land of Scotland and vote "yes" on secession from England (or more to be more exact - The City of London).
Scary sh#t, he (Carney) having that powerful post. Since Harper (PM) and Flaherty (Finance Minister) in Canada handed him the BoC governorship knowing it was a blatant conflict of interest (and they still having the two most powerful positions in Canadian politics [oddly, next to BoC governorship, one could argue]) - makes one want to consider moving to Quebec and becoming part of that succesion movement. How about this - let's get Cape Breton to secede and once done, blow up the bridge to the mainland. A beautiful, agrarian island (?) with internet, I believe? - The Canadian Curator.
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Posted by rollsthepaul on 01/27/13 04:47 AM
Universe has it covered; try to stay alive; March 21 - 2016; problem solved/
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Posted by Leviathanfighter on 01/27/13 01:56 AM
When somebody has state power behind him, it isn't hard to be "outstanding," or "the best." Monopoly privileges will do that for anyone. Coercion imposed by the state makes it even better. Who needs market-based activity when Big Brother's muscle will do the work for you and hold reality at bay by fixing prices in defiance of the marketplace?
Ms. Forbes' kind of economics reads like a lesson in physics. "Stress-test thresholds"? Whom does this lady think she is kidding? Her work is totally out of touch with reality.
No wonder Mises refused to put any charts or diagrams in his books! They do not help to instruct people in what economics really is: human action and choices. How do you describe human thought with a chart? How do you analyze human action with the language of physics?
If human action can be reduced to a "science," that is tantamount to saying that people are as predictable and quantifiable as the laws of thermodynamics! In other words, they think they can predict the future! So, no worries! If they can predict the future, then they can't be wrong! After all, her reasoning is "scientific," so how can anybody argue with that? And the clear message is just what you have written; that centralization of economic life is good for us. The "lender of last resort" will fix all problems!
Oh well, what else can we expect from these oligarchs but unreality? Nothing about them is real except their thirst for crime and the spoils of empire. We have been living in their Matrix, and now, joyously, it is dying.
It is sad to see such talented people as Ms. Forbes put her talents in the service of the criminal bankers. Such a waste.
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Posted by rmp on 01/26/13 11:06 PM
So, who will backstop all this? Hmmm, I wonder. Although it's mentioned within the piece ECB, ESM, EFSF, there's still the caveat of investors not trusting countries ponying up funds. which leads us to the backstop or "lender of last resort" not mentioned.
If it was the ECB why not say so? And why sell it at Jackson Hole IF it wasn't intended to be used as a trial balloon of permission for that lender of last resort capacity? That's what I think is the purpose of elevating her thoughts in the first place.
Have we forgotten the GAO's report just last year that talked about the monetising that went on previously during and after the "crises"? Where's all that dough? And then we have the elevated ones from Davos talking about the need for an international system that addresses all there needs because they're now international businesses, and they can't be bothered with all the independent nonsense that comes with too many countries and their own rules.
Ya gotta have an level playing field, or better yet, "we need to know what the rules are, and they should be the same no matter where we are." So again, who's going to be that lender of last resort? I can think of one.
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Posted by JM on 01/26/13 08:25 PM
From the Bloomberg article: "When Kristin Forbes sought tenure at the Massachusetts Institute of Technology early last decade,... "
MIT: the place that falsified the research data to sabotage Fleishman & Pons cold fusion work prompting Eugene Malove to leave and write "Fire From Ice" (for which he was subsequently murdered?)
"Gene Mallove has passed on into eternity, and to his eternal credit will be remembered for courageously resigning from MIT, when he discovered that the cold fusion test experiment was deliberately sabotaged.
Mallove singlehandedly became the standard-bearer for cold fusion advocates, maintaining the efficacy and reality of cold fusion among over-unity experimentors."
Source: Click to view link
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Posted by 1776 on 01/26/13 06:05 PM
Published on Aug 15, 2012 Reality Check takes a look at Wisconsin Congressman Paul Ryan's spending record during his seven terms in office.
Click to view link
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Posted by fujirider30 on 01/26/13 05:50 PM
At least she uses the ECU,the USSA is so far gone only third world economies compare with it.
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Posted by RR on 01/26/13 05:31 PM
Great article. Bertrand Russell stated that Hegel was "the hardest to understand of all the great philosophers". I hope this article helps shed some light. Thanks.
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Posted by jackw97224@yahoo.com on 01/26/13 03:59 PM
Fine article. Kirsten Forbes is just another in a long line of dishonest people masquerading as experts on economics. Tragically, the repetition of catastrophes is seemingly a defect in the nature of mankind. Within a couple generations following an economic collapse caused by the wickedness, the evil, the dishonesty of fiat currency issued by banks, state and/or federal, the people or sheeple cannot resist the allure of such loot A to satisfy B schemes. It seems there is something pathologically wrong with the majority and evidenced by their selection of political representatives. There are none so blind as those who will not see. Ignorance is bliss but it leads to the abyss.
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Posted by rrrr on 01/26/13 03:08 PM
You should just come out and say that univeristy trained economists are almost without exception charlatans and quacks; that the Nobel Prize in economics was not established by Alfred Nobel, but in the interest of banks; that Keynes was a deviser of insane verbal rationales who made it easier for people in positions of power to claim reasonable cause in ignoring the true laws of economics while plundering large numbers of people. Having a wonderful vocabulary is nice, but, on the Internet, communicating your ideas effectively and without delay is more important.
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Posted by PoorLeno on 01/26/13 02:29 PM
Certainly, the coming sovereign debt crisis of the united states and the repercussions of the global economies will be the opportune moment to strike at the heart of what free markets are left.
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Posted by PoorLeno on 01/26/13 02:21 PM
Why stop at an ECB? Surely, this co-dependence of nations can be followed to markets across all countries. I propose that if you, Ms. Forbes, truly believe in contagion, then you would not be willing to stop until a GCB was founded. Maybe you will attain a position of power there. 'There is hardly anything that happens anywhere in the world that might not have an effect on the decision he [a central planner] ought to make,' (Hayek, 1945).
The moral hazard associated with a Global central bank is unthinkable. To have a global central authority decide who receives and does not receive stimulus is truly one of the worst attacks on freedom currently imaginable.
What countries' bonds would be purchased by this bank? Whose debts would be serviced at the expense of others? The incentive to abuse the position as global reserve chairperson is nearly infinite.
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Posted by 1776 on 01/26/13 02:05 PM
Uploaded on Jul 22, 2009
Today, the House passed the Statutory Pay-As-You-Go Act 2009 (HR 2920) by a vote of 265-166. This bill requires Congress to offset the costs of tax cuts or increases in entitlement spending with savings elsewhere in the budget. If the net effect of all legislation enacted during a session of Congress increased the deficit, there would be an across-the-board reduction in certain mandatory programs. By restoring pay-as-you-go' budget discipline as the law of the land, we are returning to the basic rule for every family budget: you don't spend money you don't have.
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Posted by Edgar Friendly on 01/26/13 12:56 PM
I, too, want to thank Mr. Wile for pointing out the obvious behind the veil of omnipotent helpfullness that the elities seem to favor. I say on the surface such theory as Kristin Forbes seems completely benign; good even, however, it does fit into the overall scheme of centralization; marxist and communist in nature. Perhaps, Ms Forbes, is just too educated to think outside the box on economic matters as she theorizes upon. Heaven knows I'm no economic scholar... but even I can see the obvious; thanks again, Daily Bell... the light in the darkness enveloping (or trying to ) the world!
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Posted by bionic mosquito on 01/26/13 12:49 PM
Most people would suggest isolation if you want to avoid the risk of contagion. "Her solution for the risk of contagion is to put us all under one tent."
I will propose she tries her solution by moving to a leper colony. See if that prevents her from contracting the disease.
Decentralize. This is the solution.
Reply from The Daily Bell
"Her solution for the risk of contagion is to put us all under one tent."
Well summarized. This is really the issue, though she does seem to equivocate by attempting to provide various clever qualifications to her underlying argument ...
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Posted by earnst on 01/26/13 12:44 PM
I find I agree with Dr. Forbes diagnoses. Still, when one patient gets hemorrhagic fever having all the patients on the ward give blood may sustain life but I rather think quarantine would prevent contagian noting blood loss weakens the immune response.
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Posted by victorbarney on 01/26/13 12:32 PM
I love you Anthony Wile! You get it, don't you? These Bankers are MARXIST in their IDEOLOGY TOO! However, with women & blacks, both "gatherer's(marxism in their demeanor), women through their biology alone & blacks through a combination of biology & choice, making up over 70% of our population, we're doomed for sure aren't we? However, it's the MARXIST MANDATE which condemns u.s. & FOREVER and EVER! p.s. If our verbally-based superior vocabulary women don't know that, WOW! Just saying, what is,is... Again, welcome to Adam's world before the first murderer was ever born!!!
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Posted by 1776 on 01/26/13 12:21 PM
Peter Schiff: Coming debt crisis will make 2008 look like a Sunday school picnic
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