Possible GFC V2 on its way

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MikeB4

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Topic # 241066 9-Oct-2018 15:08

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With reports of yet another financial crisis in the winds I am thinking maybe it is tme the West took stock of things and maybe look at fundimental changes for our financial sytem. In my life so far I have lost count of the number of crashes or financial crisis there has been it almost seems like an every decade scenario. I don't have any answers or suggestions but I do feel that we are not doing right and that our system is fundimentally flawed.

https://www.stuff.co.nz/business/money/107710592/the-next-financial-crisis-is-staring-us-in-the-face

Mike
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Glurp
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Reply # 2103975 9-Oct-2018 15:39

I don't have the answer either but our version of free market ~~greed~~ capitalism does seem to have had its day. Not, I hasten to add, that I think Marxist Communism, or any other version of Communism, is the answer. A good start in my opinion would be abolishing political parties and adversarial politics, and having everyone sit around a campfire in Parliament and be kind to each other while figuring out who is good at what, who the seat-warmers are, and how they can work together for the benefit of all.

I reject your reality and substitute my own. - Adam Savage

eph

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Reply # 2103982 9-Oct-2018 15:50

Do you think the system wants to be changed (i.e. people in control wants it changed?) - I doubt it. They only ended up richer after the last GFC with middle class ended up paying for it all (as usual). Have you see The Big Short - I think it sums up everything very nicely (even though not 100% accurate)?

The fundamental problem is GREED, doesn't matter if it's capitalism/marxism/communism - the greedy will always find a way to screw the other humans over.

Fred99

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Reply # 2104034 9-Oct-2018 17:17

There's no doubt that the poor and middle class get whacked disproportionately by recession - the wealthy have done extremely well over the past decade. It almost makes one wonder if the 1% learned from Russian Oligarchs, collapse the economy, pillage everything you can get your hands on from the ruins, live happily ever after, with 300 foot superyacht with heliport for holidays.

I don't know if GFC VII is coming.

Pro-american pundits seem confident that the "booming economy" being touted by Trump as his achievement has enough legs to "outgrow" the increasing deficit due to both the tax cuts and increased spending. Post-recession, according to the "rule book" (there isn't one) then the US should be decreasing their federal deficit and encouraging saving rather than spending. They're doing the opposite.

Consumer debt is what's going to be the killer this time. If interest rate hikes happen, equity markets will tank, property prices will tank, and Joe and Joanne sixpack in the middle-class suburbs are going to be on the receiving end of multiple whammy, their mortgage repayments will increase on a depreciating property, their kiwisaver balances will drop, and the job market will tighten. All at the same time.

Fred99

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Reply # 2104037 9-Oct-2018 17:22

Probably pay to remember that if it happens, precipitated out of the US, then the "tea baggers" squealed like stuck pigs about Obama bailing out banks and industries and introducing quantitative easing. Most of those tea baggers are now Trumpists. If they haven't changed their tune, then presumably they'll just sit back and let everything collapse - with no intervention.

gzt

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Reply # 2104086 9-Oct-2018 19:12

Trump would tend to blame exactly everyone he blames now except 1gb worse because the stakes would be higher. I would not like to see that.

SJB

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Reply # 2104092 9-Oct-2018 19:24

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Have a word with the Rothschilds or Rockefellers.

I'm sure they would be only too pleased to change the worlds financial systems so that people less well off than them (ie all of us) can get a bigger slice of the pie.

Seriously though who do you think runs the world? It's not the politicians, that's just a smokescreen.

Aredwood

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Reply # 2104144 9-Oct-2018 21:25

Rikkitic:
I don't have the answer either but our version of free market ~~greed~~ capitalism does seem to have had its day. Not, I hasten to add, that I think Marxist Communism, or any other version of Communism, is the answer. A good start in my opinion would be abolishing political parties and adversarial politics, and having everyone sit around a campfire in Parliament and be kind to each other while figuring out who is good at what, who the seat-warmers are, and how they can work together for the benefit of all.

Most problems are actually due to the markets not being allowed to operate properly. The property market is an excellent example of this. The council has complete say over where, when, how much, etc you can build or renovate houses. They don't care in the slightest what home owners or tenants want. And they definitely don't care about the social problems caused by high house prices and rents.

The government, instead of saying - Hmmmm, house prices and rents are getting too expensive. Let's see why that is. First question- why aren't builders and landlords building more houses to take advantage of higher prices? They would have quickly found out that development restrictions are the problem. And would have either told the council to relax those restrictions, and made law changes if necessary. But instead the government just attempts to cover the problem. By introducing the accommodation supplement, raising student allowances, Kiwibuild, and indirectly spending more on health, social welfare, transport etc also. Just because they don't want to make the politically unpopular decisions that could cause house prices to drop.

Another example is bailouts of banks, insurance companies etc. They should have been allowed to fail. Especially as the primary business of an insurance company is assessing and managing risk. Any insurance company that can't do that, definitely doesn't deserve to remain in business.

The government needs to restrict regulation solely to Health, safety, and environmental issues. As well as regulating natural monopolies. Both to stop the monopolies from abusing their market position. And to stop other companies from feeding off regulations that only affect monopolies (EG- a monopoly company is subject to a rule saying that is must offer the same prices and service over the entire country. You also need a rule stopping other companies cherry picking the most profitable customers. Otherwise you are back to differing prices and service levels).

Another example is carbon emissions. Just implement a tax on emitting carbon dioxide. And let the market figure out the cheapest way of reducing carbon emissions. But you need to ensure that the tax can't be dodged by shifting production overseas. So you need to tax imported goods and services based on their emissions. And refund costs on exported goods and services. And of course make Shure that the market can actually allocate costs fairly. Unlike with electricity. As power companies can't easily charge higher prices when coal and diesel generation is being used. And charge cheaper prices when only renewable generation is in use.

JimmyH

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Reply # 2105382 10-Oct-2018 11:00

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Fred99:

Probably pay to remember that if it happens, precipitated out of the US, then the "tea baggers" squealed like stuck pigs about Obama bailing out banks and industries and introducing quantitative easing. Most of those tea baggers are now Trumpists. If they haven't changed their tune, then presumably they'll just sit back and let everything collapse - with no intervention.

I think you mean Tea Party (tea partiers) members (not tea baggers)? While your version is funnier, they most definitely aren't the same thing!

Coming back on topic, I think Hyman Minsky summed it up pretty well. The problem with stability and low volatility is that people start to factor it into their thinking. Because the perception of risk declines, leverage and speculation increase tends to increase, until the inevitable "Minsky Moment" - a sudden major collapse of asset values which is part of the credit cycle or business cycle. Minsky's work is worth a read for anyone trying to understand business cycles and financial crises.

I don't agree that Capitalism has had its day. To paraphrase Winston Churchill's take on democracy, it's absolutely the worst system possible except for all the alternatives. Taking the long view it works, and over the past 4-500 years has been an incredible engine of innovation, investment and increasing prosperity. The lesson is pretty clear - dynamic economies that are open to trade, with a vibrant commercial class and robust property rights tend to prosper with rising standards of living. Other economic models don't work as well.

It's also worth a read of Schumpeter's work on creative destruction - overall intense competition leading to business failures (and the odd downturn) are necessary to long-term priority. By killing off less efficient businesses they clear away the dead wood and let more efficient businesses emerge. Interestingly, he pinched the gist of the concept from Marx.

MikeB4

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Reply # 2105427 10-Oct-2018 11:33

JimmyH:

Fred99:

Probably pay to remember that if it happens, precipitated out of the US, then the "tea baggers" squealed like stuck pigs about Obama bailing out banks and industries and introducing quantitative easing. Most of those tea baggers are now Trumpists. If they haven't changed their tune, then presumably they'll just sit back and let everything collapse - with no intervention.

I think you mean Tea Party (tea partiers) members (not tea baggers)? While your version is funnier, they most definitely aren't the same thing!

Coming back on topic, I think Hyman Minsky summed it up pretty well. The problem with stability and low volatility is that people start to factor it into their thinking. Because the perception of risk declines, leverage and speculation increase tends to increase, until the inevitable "Minsky Moment" - a sudden major collapse of asset values which is part of the credit cycle or business cycle. Minsky's work is worth a read for anyone trying to understand business cycles and financial crises.

I don't agree that Capitalism has had its day. To paraphrase Winston Churchill's take on democracy, it's absolutely the worst system possible except for all the alternatives. Taking the long view it works, and over the past 4-500 years has been an incredible engine of innovation, investment and increasing prosperity. The lesson is pretty clear - dynamic economies that are open to trade, with a vibrant commercial class and robust property rights tend to prosper with rising standards of living. Other economic models don't work as well.

It's also worth a read of Schumpeter's work on creative destruction - overall intense competition leading to business failures (and the odd downturn) are necessary to long-term priority. By killing off less efficient businesses they clear away the dead wood and let more efficient businesses emerge. Interestingly, he pinched the gist of the concept from Marx.

"Teabagger" is a derogatory term used in association with members of supporters of the tea party. There are also other vulgar uses for it as well.

Mike
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The great divide is the lies from both sides.

MikeAqua

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Reply # 2105450 10-Oct-2018 11:53

Despite financial crises, over time markets still grow. The problematic impact is when people and businesses are over leveraged and lose everything when markets temporarily deteriorate.

A solution is to regulate so people and businesses can't over extend themselves. But then investors will struggle to find places to invest and so they will invest offshore. Also - how much employment depends on consumption-driven household debt?

Ultimately the solution would be to get people to stop spending money they don't have and start saving money they do have.

Mike

MikeB4

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Reply # 2105498 10-Oct-2018 12:09

Caitalism and Democracy do not make good bed fellows. Democracy requires power to be or seem to be vested in the populous though various related systems. Capitalism requires power to be vested in a few with the goal of profit. Democracy is public, capitalism is private.

Mike
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Mac user, Windows curser, Chrome OS desired.

The great divide is the lies from both sides.

Fred99

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Reply # 2105522 10-Oct-2018 12:38

For democracy and capitalism to work together, there needs to be a few principles in place - and that needs regulation.

Meritocracy and capitalism should go hand in hand (surely few would argue against meritocracy?). Meritocracy needs equality of opportunity. Concentration of wealth and use of it to gain additional privilege for the already privileged, nepotism, and corruption are enemies of meritocracy.

And that's what you've got to varying degree in western democratic capitalist nations. Culture war - where the rich use their influence to gain further advantage for themselves.

MikeB4

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Reply # 2105532 10-Oct-2018 12:51

Saving the planet is almost impossible with Capitalism. Vested interest does not think globally and does not see beyond personal gain. History of the 20th and the 21st century shows that Capitalsm has not been the success we are told it is by the vested. The busts are coming at an accelerating rate and those most affected by them are the ones least able to mitigate or fight against them.

Mike
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The great divide is the lies from both sides.

GV27

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Reply # 2105585 10-Oct-2018 13:24

MikeB4:

Saving the planet is almost impossible with Capitalism. Vested interest does not think globally and does not see beyond personal gain. History of the 20th and the 21st century shows that Capitalsm has not been the success we are told it is by the vested. The busts are coming at an accelerating rate and those most affected by them are the ones least able to mitigate or fight against them.

Are they though? The economic cycle used to be 7 years. We're well overdue for another one already. I watch several markets for desirable but specialist items and the effects of the last GFC never really got us back to a reset point; I can show you assets that used to sell for $5,000 that now sell for $75,000; but only ever dipped to around $30,000 after 2008. Expectations around what things are actually worth are profoundly different to what they were in the 1990s and I strongly suspect whatever coming will be quite prolonged (think recovery from the 1987 or the Asian crash).

MikeAqua

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Reply # 2105592 10-Oct-2018 13:33

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MikeB4:

Saving the planet is almost impossible with Capitalism. Vested interest does not think globally and does not see beyond personal gain. History of the 20th and the 21st century shows that Capitalsm has not been the success we are told it is by the vested. The busts are coming at an accelerating rate and those most affected by them are the ones least able to mitigate or fight against them.

Capitalism should seek to address climate change -,because the cost of saving it is less than the cost of not saving it (impaired assets, lost resources, reduced production etc). The problem is populism. We the people won't stand for politicians making us take our medicine. So they don't.

When was the last time a NZ govt said "You won't like this, but we're going to do it because it's what is ultimately good for the country"?

Clark govt with the foreshore and seabed debacle?

Bolger and Richardson with the mother of all budgets?

The decision to float the NZ dollar by Lange and Douglas in 1985?

Mike

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