Financial Standard Comments - Ben calls on JMK

Comment by davidm ()

davidm () — Wed, 05 Oct 2011 13:26:13 +1100

Benjamin - You are a voice of reason ( and a touch of wit and irony) in a world of drama.
Cheers mate. Keep it up.

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Comment by Boyd ()

Boyd () — Wed, 05 Oct 2011 14:17:28 +1100

Good article Ben enjoy your stuff. Can I comment however, one does not need to be pro or anti-Keynesian to recognise that at some point we can't kick the can down the road any longer. The only way anyone is going to lend money this time around to shore up these failed Neo-Socialist nation states in Europe, is if they have confidence that there will be deficits and that balance used to service this same debt that will buy them time to do something to fix their messed up budgets. To use a poor analogy, the wolf is at the door. We have a choice, ignore him, feed our kids with this last meal, or throw the meal out the window and hope he eats that. If we don't- he eats us instead.

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Comment by markm ()

markm () — Wed, 05 Oct 2011 14:20:18 +1100

I agree with davidm, keep up the good work Ben! It's depressing enough to read all the doom and gloom via all the other media outlets, whilst Ben's touch of sarcasm blended with humour makes it a 'must read' for me during the course of the day. Plus I value your opinion as a refreshing reminder that not everyone out there in financial land has the "glass half empty" at the moment.

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Comment by scbarlow ()

scbarlow () — Wed, 05 Oct 2011 16:55:57 +1100

The "anti-Keynesians" - lets just call them 'Austrians' - certainly aren't waiting for the sky to fall And trust a Keynesian journo to think it is all about deficits. Cutting the deficit is not the issue. So let me spell it out for you. The Federal Reserve and Governments around the world would have us believe that economic growth can be artificially manipulated. Ben Bernanke has $2.5 trillion dollars on the table (with possibly more to come) betting this is the case. The 'Austrian' view is that an economic expansion is only sustainable if it is the result of an increase in investment that is funded by an increase in saving. In contrast, an economic boom that is merely the result of credit expansion (the Keynesian approach) is not sustainable. When credit creation by monetary authorities exceeds a society's structural saving rate, financial intermediaries end up lending money at interest rates that are below the rate where supply and demand clear in the market for loanable funds. As a result, the information embedded in market prices (including interest rates) is distorted, affecting entrepreneurial decisions and causing a misallocation of capital across the economy. Specifically, too many capital goods and not enough consumer goods end up being produced relative to ultimate consumer preferences. Eventually, as the lack of underlying demand for these capital goods becomes apparent, production capacity is idled, and the boom that was fed by the credit expansion turns to bust. Thus (and this is the primary objection of the "anti-Keynesians") credit expansion during an economic downturn will not help bring about a sustainable boom but will merely postpone it, as it causes a delay in the structural adjustments, such as business closures and other eliminations of unproductive uses of capital, that need to be made to bring about a sustainable economic expansion.

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Comment by anon ()

anon () — Thu, 06 Oct 2011 10:41:47 +1100

Well said scbarlow...and I would add that the proces of pushing the problem down the road does not just postpone it, but magnifies it. Thus when forces of market equilibrium come into play, the correction will have to be even greater. Can't fight the market forever,

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Comment by Boyd ()

Boyd () — Thu, 06 Oct 2011 11:57:08 +1100

I meant will NOT be deficits. These countries need to start running a surplus.

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Comment by Boyd ()

Boyd () — Thu, 06 Oct 2011 12:05:21 +1100

Ouch!! My brain hurts. Is there a dummies version of the above? Okay. There's a place for both Austrian & Keynesian (and Chicago/ Straussian vs London vs von Mises for that matter) Fears of bank failures will increase savings and investment into US treasuries and our AUD will fall. What if the US brought its military home and used them to rebuild decaying infrastructure using some kind of build it bonds issued- could that work? That's a mixture of a Keynesian New Deal but privately funded. I am sure they will find a solution eventually, its just a matter of which investors, banks, currencies and countries will go under in the meantime. Again, disciplined investors will be rewarded. Govts need to attend to unsustainable deficits moving to surplus so that investors get a better home for their money.

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