Posted on 05/16/2009 5:56:38 PM PDT by Lazamataz
Sorry that should say something like “When malinvestment happens in a free market it is quickly fixed by the market.”
Madoff was a private market malinvestment. How many decades did his multi-Billion Dollar Ponzi scheme last?
Yes, a complete collapse of all insurance for an entire industry would create *valuation* risk.
But to create systemic risk, the failure of one thing would have to directly trigger other failures.
The Madoff money was probably a few billion in real money, the rest was fictitious. Some of the billions were invested, some distributed and some consumed. Any malinvestment is dwarfed by what the government does by mucking with rates, taxing the hell out of corporations, etc.
That's a rather narrow definition. Part of the overvaluing of ABS was made possible by insurance. Overvaluing enhanced systemic risk.
The Market didn't fix Madoff's multi-Billion Dollar, Multi-Decade malinvestment.
Nor was that malinvestment caused by overleverage (another of your generic claims).
In short, you've been handed your head repeatedly on this thread without even being able to realize that you lost the entire debate in post after post.
You get the Monty Python Black Knight award for cluelessness in the face of logic and real-world facts:
Your argument seems a little desperate. Do you have any other examples of malinvestment without government malincentives, or just a crook with a ponzi scheme?
“global oversupply.”
Oversupply was brought on by fiat money used as credit. Oversupply is a symptom of the issue but it is not the issue.
After your post 80 where you insisted the world is defined by deflation, you had nothing really new to say and no response to the evidence against deflation, namely no deflation psychology (people deferring purchases because they know prices will be lower in the future). Also no examples of nontrivial deflation other than the popping of the housing bubble and last year's commodity bubble. Instead of defending your original argument you rambled all over trying to avoid the truth that government causes inflationary booms and deflationary busts and not private economic actors overproducing because.....(? no reason given) Not surprising that your view of my arguments is as blinded as your view of the world.
No. An economy can have fiat money without having oversupply. The USSR had fiat money (the Ruble), for example, yet was noted Historically for widespread shortages. Zimbabwe today has fiat currency and widespread shortages, not oversupply. Heck, Zimbabwe for the past decade has had shortages instead of oversupply.
So it's pretty easy to demonstrate that your claim above is in error.
“No. An economy can have fiat money without having oversupply.”
Sure, but that is not what caused our mess. All that oversupply was purchased through fiat credit.
And the answer is deflation. Markets use falling prices to remove surplus capacity.
This is problematic if society has abused credit, of course, because then that overleverage suddenly switches from beneficial (during inflation) to devastating (during deflation). Those who pine for inflation are optimists. Japan has tried, but failed, for 20 years to get inflation. Tough to get inflation when the Markets are reducing surplus capacity...espcially when governments are prolonging and deepening the agony by propping up excess capacity (e.g. bailing out zombie insurers like AIG and bailing out surplus manufacturing capacity at GM and Chrysler).
The issue of capacity is not magical. It just didn’t appear because everyone got good at doing it. It must be funded and it was funded through credit which was provided by fiat currency. Funding provides the means to produce.
When funding is provided by profits from sales then that production is usually good and will not get out of control as demand never outpaces production.
When funding is provided artificially through credit that is based on fiat currency then the production is artificial, doesn’t meet realistic demands, and gets out of control as it has no governor.
Some credit is good, such as when production needs to instantly be provided to meet demands, but the credit used to do that must be tempered with realistic expectations of that demand and instantly cutoff when forecasts of demand dictate. We used to do that, but not anymore.
As you said, deflation is the result of overproduction while inflation is the necessary component for profit in that situation. A real pickle for business.
“as demand never outpaces production.”
oops: “as production never outpaces demand.”
Gold is money. Everything else is credit
— JP Morgan
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