Posted on 08/16/2009 1:21:59 AM PDT by bruinbirdman
There is one overwhelming fact about the world economy that cannot be wished away. Excess capacity in industry is hovering at levels not seen since the Great Depression.
Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then was far lower than today.
Thankfully, leaders in the US and Europe have this time prevented an implosion of the money supply and domino bank failures. But they have not resolved the elemental causes of our (misnamed) Credit Crisis; nor can they.
Excess plant will hang over us like an oppressive fog until cleared by liquidation, or incomes slowly catch up, or both. Until this occurs, we risk lurching from one false dawn to another, endlessly disappointed.
Justin Lin, the World Bank’s chief economist, warned last month that half-empty factories risk setting off a “deflationary spiral”. We are moving into a phase where the “real economy crisis” bites deeper – meaning mass lay-offs and drastic falls in investment as firms retrench. “Unless we deal with excess capacity, it will wreak havoc on all countries,” he said.
Mr Lin said capacity use had fallen to 72pc in Germany, 69pc in the US, 65pc in Japan, and near 50pc in some poorer countries. These are post-War lows. Fresh data from the Federal Reserve is actually worse. Capacity use in US manufacturing fell to 65.4pc in July.
My discovery as a journalist is that deflation is a taboo subject. Those who came of
(Excerpt) Read more at telegraph.co.uk ...
Ping
Business cycles fluctuate. That’s why they are called cycles...STAY OUT OF THE WAY.
Depressions fluctuate
How about we stop the slaughter of unborn babies.
TheArizona
There is no mention of the Kenyan’s “civil rights” organizations and the democratic party forcing banks to make worthless loans to minorities.
These worthless loans were then defaulted on. Of course they had been bundled and sold to Fannie Mae. They were also sold to foreign banks. This resulted in the loss of lending power and jobs and the loss of money’s to be spent on consumer goods. Oh, after all this people could not buy as much. Add to this that the Kenyan starts messing with and taking massive control of major parts of the economy. So investors back out of the stock market. This results in further harm to companies.
This article is so shallow and does not point the blame where it should be, ie. government overcontrol of business.
Production takes place (i) over time, and (ii) in separate stages. As time passes, the original inflation (which caused the original lowering of the interest rate) wends its way through the economy and eventually fizzles. In the fizzling phase, the interest rate begins to pop back up to its free market level...a level that would have been too high for entrepreneurs to start long-term production projects. Since the production process had already been started when the interest rate was lower, the result is that the production process remains incomplete: the earlier stages of production that had the advantage of the lower interest rate could start and possibly finish its part of the process; intermediate and later stages of the production process now find it unprofitable to pick up and complete the earlier stages. Result: workers originally slated for later stages of production are laid off (or not hired to begin with); capital lays idle or has to be sold off; i.e., an economic bust.
This has nothing to do with consumers not wanting to consume suddenly; in fact, the consumers are still consuming about what they were before...and notice that the downturn occurred in the capital goods industries -- mines, factories, plants, mills, etc. - not in the consumer goods industries (this was the same in the Great Depression, as well). The downturn was caused by monetary policy on the part of government that induced businessmen to borrow more than they otherwise would have, and incentivized them to invest borrowed money in long-term production processes that IN FACT the economy was unable to sustain.
Government ought to have a complete "hands off" policy in dealing with a downturn. It should simply remove all political barriers to any wage "stickiness" (such as pro-union legislation), and any barriers to capital and labor mobility. The faster that labor and capital can be redirected into alternative production processes, the shorter the depression will last. A depression is a re-alignment period during which the resources that had been malinvested in lines of production that weren't really wanted by consumers are withdrawn from those lines and re-invested in lines of production that people really do want.
The ultimate cause of the interest rate is the fact that people naturally prefer goods and services in the present to the same goods and services in the future. In order to induce them to "purchase" a good or service in the future, they must buy it at a certain discount (this is similar to purchasing a bond); the "rate of interest" is really the discounted value of the future good as it is valued in the present. This valuing of present goods over future goods is called "time preference," and it is ultimately a function of a society's basic values: societies that are very "forward looking" and "future oriented" will have a low time preference -- they will NOT consume as much as they can immediately, preferring instead to put off present consumption in favor of future consumption; i.e., they value SAVING over IMMEDIATE CONSUMPTION. Conversely, a society that values pleasure and immediate consumption over saving is said to have a high time preference.
The Swedish economist Knut Wicksell showed that monetary inflation, in addition to raising prices, also lowers the rate of interest. This is exactly the effect that a change in a society's time preference would have. So when government inflates the money supply, it essentially fools businessmen into thinking that the economy as a whole prefers SAVING to IMMEDIATE CONSUMPTION; however, no such change in people's time preference has actually occurred -- people are still consuming and saving in the same relative amounts as before the inflation. The result, as noted above, is that businessmen are initially induced to borrow at a low rate of interest in order to begin long-term production processes that they think -- mistakenly -- are really demanded by consumers. As the inflation fizzles out and interest rates rise, these production processes can no longer be completed as originally planned and a downturn occurs.
Note that the downturn is the necessary consequence of the inflation.
1993 : (DAVIS MINER BARNHILL SUES CITIBANK -————See 2008 MORTGAGE/LIQUIDITY CRISIS, OBAMA) Obama took a job in 1993 with a small Chicago law firm, Davis Miner Barnhill. In 1994 Obama and other lawyers from the firm sued Citibank for not approving enough sub-prime loans (Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance - Docket / Court 94 C 4094). -————Obama’s Socialist Background (Vanity)
Various Websites | 10/31/08 | myself
Posted on Friday, October 31, 2008 3:15:49 PM by Is2C
This admin’s desire to destabilize everything it can and targeting some businesses for extermination to please the greenies isn’t helping when it comes to figuring out where to reinvest.
Thanks for the explanation.
the term the administration is using is de-develop North America
hence global warming and all the other policies
they only thing they don’t appear to have yet is the ovens, the internment camps and guards are being built though.
Which leads to layoffs, which leads to less customer spending, which leads to more layoffs.
The irresponsible and arrogant actions of the 0bama administration has lead to a lack of consumer confidence which is needed to drive the American economy forward, not backwards.
0bama and congress are still charging off 180 degrees in the wrong direction. They are so greedy for power they have not noticed nor do they care what they are doing to America.
But, LBJ brought back Keynesian economics in order to control the blacks. I would call this racism, but the left named LBJ's program “The War on Poverty”.
The point is - Keynesian economics do NOT work within a Free Market Society. Capitalism is in danger of no longer existing. Let's stop the insanity in 2010 and take back our country.
These worthless loans were then defaulted on. Of course they had been bundled and sold to Fannie Mae,and Barney Frank isn’t in jail another case of above the law oh wait he’s a democrat.
Excellent brief. Thanks for posting.
I suppose the (obviously statist) author never heard of the terms “merger” and “buyout”?
Socialism will “fix” this “problem” fast.
Yes, there is fix... But this ain’t it.
Too much analysis with excess capacity and Keynesian. The simple truth is that when times are tough people hold on to their money. They’re willing to spend, but only if they get value for their money.
The problem is — there is not enough analysis on economics and that is why we’re in the situation we are in with our economy here in the USA.
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