''Keynes, as a young scholar, was absolutely ignorant of financial or economic history.'<blockquote>'In late 2007, Gregory Mankiw, boasted that the US had a "dream team" of economists as advisors, and as with all claims at the top of six previous bubbles "Nothing could go wrong". And even if things went only a little wrong there were the "safety nets" that Krugman claimed would prevent serious deterioration. Our view on Keynesian safety nets has always been that in a bust they would be about as useless as a hardhat in a crowbar storm.
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The real audacity is in the claims of charismatic economists that their personal revelations can provide one continuous throb of happy motoring. As Hayek said – Keynes, as a young scholar, was absolutely ignorant of financial or economic history. Only someone who was ineffably ignorant of financial history would claim that it can arbitrarily be altered...
On May 5, Bernanke observed that the "
broad rally in equity prices" is indicating that "
economic activity will pick up later in the year."
At the height of a similar rebound to April-May of 1930, Barron's wrote:
<blockquote>“
It is thus apparent that the public preference for stock is not only as marked as ever, but also the will to speculate is still a speculative factor not to be overlooked. The prompt return of huge speculation and the liberal manner in which current earnings are again being discounted indicate that it will be difficult to quench the fires of stock-market enthusiasm for long.”</blockquote>
Prompted by an animated stock rally, the Harvard Economic Society, but with more gravitas, concluded that it "augured" a recovery by late in the year. As we all know this did not last and what we should understand is that it is the dynamics of a crash that sets up the exciting rebound. Not policymakers.
Let's look at a classic fall crash, which we expected. The pattern is interesting. The 1929 crash amounted to 48%. The decline to the low in November 2008 was 47%, and within this the hit to October 27 amounted to 42%. In 1929 the initial plunge amounted to 40% to October 29.
The rebound was to November 4, in both examples, with 2008 gaining 17% and 1929 gaining 12%. The final slump into each November was 22% and 23%. Is it important to identify it as 1929 or 2008?
Our "historical" model expected the crash and the rebound, as well as the nature of the establishment's utterances...
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Misselden in the 1618 to 1622 crash earnestly believed that throwing credit at a credit contraction would make it go away. [He was wrong].'
- Bob Hoye,
Great Depressions Are So Methodical (Washington's Blog,
Economists are Ignorant About History, June 2, 2009)</blockquote>
'...Statistical Rating Organization...<blockquote>'...rating agencies are deeply entrenched in millions of transactions. Statutes and rules require that mutual fund and money managers of almost every stripe buy only those bonds that have been given high grades by a Nationally Recognized Statistical Rating Organization, as the agencies are officially known.
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Still, there is worry that if Congress doesn’t think ambitiously now, it never will. Mr. Macey of Yale Law School, who advocates rewriting the rules that now require nationally recognized statistical ratings organizations to bless countless deals, says that the ratings system as it currently stands encourages bubbles.
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The paradox is that everyone — even the Big Three — insist that the current system has to change. But somehow, what looked like the low-hanging fruit of financial reform is still dangling, right where it hung at the start of this calamity.
- David Segal,
Debt Raters Avoid Overhaul After Crisis, December 8, 2009</blockquote>
'The Observer Affects The Observed'<blockquote>The Fed, in conjunction with all the players watching the Fed, distorts the economic picture. I liken this to Heisenberg's Uncertainty Principle where observation of a subatomic particle changes the ability to measure it accurately.
To measure the position and velocity of any particle, you would first shine a light on it, then detect the reflection. On a macroscopic scale, the effect of photons on an object is insignificant. Unfortunately, on subatomic scales, the photons that hit the subatomic particle will cause it to move significantly, so although the position has been measured accurately, the velocity of the particle will have been altered. By learning the position, you have rendered any information you previously had on the velocity useless. In other words, the observer affects the observed.'
- Mish,
The Fed Uncertainty Principle, April 03, 2008 (Context:
Email Exchange With The Cleveland Fed On Inflation Expectations)</blockquote>
'...unlimited money creation was a thoroughly bad thing...'<blockquote>'Finally, the world's politicians could decide that unlimited money creation was a thoroughly bad thing...'
- Martin Hutchinson,
Sliding back towards a Gold Standard, December 07, 2009</blockquote>