Utdrag ur The Economists ledare 98-04-18
AN ECONOMIST, it is said, is an expert who will know tomorrow why the things he predicted yesterday did not happen today. So what will be tomorrow’s explanation of why share prices continue to soar today despite frequent warnings from many commentators (including The Economist) that Wall Street is overvalued?
The most popular explanation within America is that it has entered
a new economic era of faster, inflation-free growth, and hence
stronger profits, thanks to new technology and globalisation. We beg
to differ: America is experiencing a serious asset-price bubble.
This week’s spring meetings of the IMF
and the World Bank were dominated by talks about the slump in Japan
and how to prevent another financial crisis like that in East Asia.
These subjects certainly still matter. But it is asset-price
inflation, especially in the United States, that now poses a bigger
and more imminent threat to the global economy.
America’s stockmarket has gained another 15% this year,
taking its total rise over the past two years to a massive 65%. This
is not the only symptom of a bubble: America’s commercial
property market is starting to get frothy, and mergers are running at
record levels
This talk about a “bubble” may seem odd
against the consensus view that the American economy can look forward
to many more years of steady, inflation-free growth.
Rising asset
prices are not necessarily bad. In part, America’s higher share
prices are justified by genuine improvements in performance.
Deregulation, increased competition, better corporate governance, and
more prudent fiscal policy have all played a part—but only a
part.
The boom in share prices has also been fuelled by excessive
monetary growth. America’s M3 money supply
has grown by almost 10% over the past year, its fastest since 1985.
It is true that real short-term interest rates have risen in America
as inflation has declined, but if calculated using the rise in asset
prices rather than consumer prices then real interest rates are
negative.
America’s financial bubble could harm its
economy in two ways. It might suddenly burst, causing financial
instability, destroying wealth and bringing about a recession.
Or asset-price inflation may spread, causing over-investment and a consumer-spending binge as shareholders spend some of their capital gains. The inevitable result would be consumer-price inflation.
In the late 1980s, rapid monetary growth first showed up in asset
prices, but it was ignored, and so inflation spread. There are
already some bad omens. Consumer spending is estimated to have risen
at an annual rate of 5% in the first quarter of this year. There are
some signs of a slowdown, but with unemployment at its lowest rate
for almost 30 years there is no slack left in the economy to absorb
such rapid spending growth.
With hindsight it is clear that
the Fed made a mistake in not raising interest rates last year to let
some air out of the bubble. Pricking a financial bubble is a risky
business, and it is better to act early to prevent one developing.
After fretting about “irrational exuberance” in
December 1996, Alan Greenspan then went quiet. If, in bursting the
bubble, the Fed triggers a recession, it will get all the blame. As
America’s 80m shareholders protest about their shrinking
wealth, it might not be long before Congress acts to curb the Fed’s
power.
Another problem is the enormous uncertainty about when and
by how much interest rates need to be raised to cap asset-price
inflation. There is no way to work out how much of a rise in share
prices is justified by better economic fundamentals.
As the Fed itself says: “There is no means of knowing beyond
question how far this recent rise in stock prices represents
excessive speculation and how far a readjustment of values to
increased industrial efficiency [ . . . ] and
larger profits.” Actually, it was not Alan Greenspan who said
that. This is an extract from the Fed’s minutes exactly 70
years ago, in 1928, on the eve of the Wall Street crash. 
The Fed needs to raise interest rates now. Uncertainty is no
excuse for Mr Greenspan to sit on his hands. In the late 1920s the
Fed was also reluctant to raise interest rates in response to surging
share prices, leaving rampant bank lending to push prices higher
still. When the Fed did belatedly act, the bubble burst with a
vengeance. The longer that asset prices continue to be pumped up by
easy money, the more inflated the bubble will become and the more
painful the economic after-effects when it bursts.
Because the
Fed has again left it rather late, it will be hard to prick the
bubble without risking a recession. If one does come, central bankers
have at least now learnt to ease monetary policy, if necessary, to
prevent a dramatic crash in share prices turning into an economic
depression. One way or another, America’s stockmarket is about
to play a more important role in America’s monetary policy than
at any time since the 1920s.
It would be better if this were to happen sooner rather than later.
The Mess Greenspan Leaves
We can see here how the policy of inflating bubble after bubble to avoid the recessionary implications of previous bubbles has resulted in ever greater imbalances, with the savings rate falling ever lower after each bubble and the debt burden growing ever greater.
More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise
Stefan Karlsson, December 26, 2005
In this context, it seems appropriate to quote "Gold and Economic Freedom":
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market — triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.
Before he became Fed Chairman, some believers in sound money thought Greenspan might push for a less inflationary monetary policy. They pointed to his past as a close associate of Ayn Rand and author of the "Gold And Economic Freedom" chapter in Rand's Capitalism: The Unknown Ideal.
He also described the events leading to the Great Depression in much the same way that Murray Rothbard did in America's Great Depression.
Gold and Economic Freedom
by Alan Greenspan [written in 1966]
This article originally appeared in a newsletter: The Objectivist published in 1966
and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal
Churchill was appointed Chancellor of the Exchequer in 1924 under Stanley Baldwin and oversaw Britain's disastrous return to the Gold Standard, which resulted in deflation, unemployment, and the miners' strike that led to the General Strike of 1926.
This decision prompted the economist John Maynard Keynes to write The Economic Consequences of Mr. Churchill, arguing that the return to the gold standard would lead to a world depression.
Churchill later regarded this as one of the worst decisions of his life; he was not an economist and that he acted on the advice of the Governor of the Bank of England, Montagu Norman.
From "Churchill: A Biography" by Roy Jenkins
Gold and Strikes, page 399 ff
Norman, the Great Govenor was even more sublimely bland. In the opinion "of
ecucated and resonable men", he wrote, there was no alternative (RE: Den Enda Vägen, således)
to a return to gold. The Chancellor would no doubt be attacked whatever he did but
"In the former case (Gold)he will be abused the ignorant, the gamblers and the
antiquated industrialists; in the latter case (not Gold) /RE: ingen uppskrivnig av
pundet/ he will be abused by the instructed and by posterity."
Source according to Jenkins: Gilbert, Winston S. Churchill, V, p.94
Till en annan kritiker, Otto Niemeyer skrev Churchill, enligt Jenkins
The Treasury has never, it seems to me, faced the profound significance of what
Mr Keynes calls "the paradox of unemployment amidst dearth". The Govenor shows
himslef perfectly happy in the spectacle of Britain possesing the finest credit
in the world simualtanously with a million and a quarter unemployed. Obviously
if these million and a quarter were usefully and economically employed, they would
produce at least GBP 100 a year, instead of costing at least GBP 50 a head
in doles.
RE: Det var i alla fall inte för höga ersättningsnivåer i deras A-kassa.
RE: Därefter lade sig Churchill platt och handlade som rekommenderats av "ecucated and resonable men".
Jenkins skriver härom:
The momentum of conventional wisdom swept them (Keynes-McKenna) away...
a remarkable example of a strong not a weak minister nonetheless reluctantly succumbing,
grudgingly adjustning himself to the near unanimous, near irresistible flow of
establishment opinion.
As a result there was committed what is commonly regarded as the greatest mistake of that main Baldwin government, and the resonsibility for it came firmly to rest upon Churchill. Keynes, for instance, wrote a pamphlet to which, playing on the resounding success of his 1919 The Economic Consequences of the Peace he gave the title The Economic Consequences of Mr Churchill.
Churchill: A Biography by Roy Jenkins
Anne Wibble hade det heller inte så lätt
When Germany entered the euro it made the same mistakes as Britain did
when it rejoined the gold standard in 1925 and re-pegged the pound to the dollar after 1945.
Anatole Kaletsky
The
Times, August 29, 2002
Highly recommended
It is economic performance – not the European Union budget or any proposed constitution – that will determine the fate of the “European Project”.
After all, Hitler came to power in 1933 due to “ordinary economic voting behaviour” when the mainstream parties’ economic agendas were unconvincing, not because a majority of German voters then embraced Nazi ideology.
Adam Posen, Financial Times, August 3 2005
The punitive 1919 Treaty of Versailles leading inevitably to Hitler’s capture of power in a resentful Germany in 1933.
But in The Lights That Failed Steiner challenges this traditional view
The 1920s was an aftermath of the first world war and the 1930s was a prologue to the second, the two decades bordered by the “hinge years” of 1929-33, when the Wall Street crash engulfed Europe in depression
Jackie Wullschlager Financial Times April 29 2005
THE LIGHTS THAT FAILED:
European International History 1919-1933
by Zara Steiner, Oxford University Press £35, 938 pages
about the book at Amazon
By the 1920s most European states had stabilised their currencies and were willing to seek co-operative solutions to political conflicts. The League of Nations was a functioning institution that knit together the international community, world disarmament was actively pursued and Briand suggested in 1929 that “among peoples constituting geographical groups, like the peoples of Europe, there should be some kind of federal bond... primarily economic [which] might also do useful work politically and socially, and without affecting [national] sovereignty”.
Steiner does not dwell on German hyper-inflation of the early 1920s ... but emphasises instead continuing negotiations to diminish the Versailles terms, so that by 1929 Germany was receiving more in US loans than she was paying in reparations.
Germany - an emerging superpower?
Comparisons with the 1930s
Sara Moore [The European Journal, May 2008]
Peace Without Victory for the Allies, 1918-1932
by Sara Moore (Author)
How Hitler Came to Power
by Sara Moore
Europas sista sommar. Vem startade första världskriget?
Till den allt större floran av böcker om kriget 1914-1918 kan vi nu lägga ytterligare två till svenska översatta alster, den amerikanske historikern David Fromkins Europas sista sommar. Vem startade första världskriget? och militärhistorikern H P Willmotts Första världskriget.
Dick Harrison SvD 11/11 (vapenstilleståndsdagen) 2004
Kommentar av Rolf Englund:
Det är väl alldeles uppenbart vem som startade Första Världskriget?
Kejsaren av Österrike-Ungern - en Habsburgare - undertecknade ordern om angrepp på Serbien.
När EU och NATO angrep Serbien med stöd av Anna Lindh, vägrade Österrike att upplåta sitt luftrum åt EU/NATO. I Österrike visste man att det kunde gå illa om man angrep Serbien...
Pappenheim (Vi känner våra pappenheimare)
Tysk kejserlig fältherre; greve. Pappenheim var Tillys närmaste underbefälhavare i slagen vid Vita berget, vid Magdeburgs stormning och vid Breitenfeld samt Wallensteins närmaste man i slaget vid Lützen, där han stupade.
Ordspråk: känna sina pappenheimare: 'känna sitt folk', citat ur Friedrich von Schillers Wallensteins Tod.
-Stålhandske, sade han (Gustav II Adolf) och hejdade sin kolossala mörkbruna springare vid finnarnes sista led - I förstån väl hvarför jag ställt eder ytterst. Mot oss står Pappenheim med sina walloner.... mer här
Habsburg
From Wikipedia, the free encyclopedia.
Det var inte inflationen - det var Depressionen
Germany "the new democracy survived serious threats to its existence in the early postwar years and
found a semblance of stability from 1924 to 1928,
only to be submerged by the collapse of the economy after the Wall Street crash of 1929."
Ian Kershaw, New York Times, February 3, 2008
Ian Kershaw, a professor of modern history at Sheffield University,
is the author of the forthcoming “Hitler, the Germans and the Final Solution.”
The Nazis’ spectacular surge in popular support
(2.6 percent of the vote in the 1928 legislative elections,
18.3 percent in 1930, 37.4 percent in July 1932) reflected the anger, frustration and resentment — but also hope — that Hitler was able to tap among millions of Germans.
Kommentar RE: Det intressanta är här bl a erinradet om att det var en felaktig penningpolitik som ledde till Kraschen 1929 och Depressionen, och därmed Hitler och det Andra Världskriget. Det finns de, se t ex Robert J. Samuelson i Newsweek, som med rätta anser jag, hävdar att den alltför låga räntan i USA var ett resultat av att USA vill stödja det engelska pundet som den engelska finansministern (han hette lustigt nog Winston Churchill) mot Keynes enträgna protester, 1925 hade bundit mot guldet och därmed mot dollarn vid den kurs som rådde före det Första Världskriget.
Se även Keynes ord om sparande och investeringar
Utan bindningen av pundkursen kanske Hitler i stället hade fortsatt som konstnär. En del säger att han var dålig konstnär, men nog var hans tavlor snyggare än den uppstoppade get som dumma borgare står och begrundar på det Moderna Museum som en regering, jag vill inte säga vilken, (Nu 2008 kan det sägas: Det var Bildt-regeringen) har låtit bygga för skattebetalarnas pengar.
Bra Böckers Världshistoria, Band 13, sid 156-157 anför härom:
Inrikespolitiskt lyckades man /i Tyskland/ stabilisera ekonomin genom att införa ett nytt penningsystem 1923-24. Inflationssedlarna växlades in till en kurs av en ny mark mot en biljon gamla. Inflationsprocessen hade verkat som en storstilad skuldsanering och därmed hade staten på nytt blivit solvent. Slutet av tjugotalet präglades i Tyskland av ekonomisk framgång och med den följde också en viss politisk stabilisering... 1928 bildades en ny majoritetsregering med socialdemokraten Herman Müller som kansler och den konservative Gustav Stresemann som utrikesminister... I valet 1928 placerade sig /Hitlers parti/ NSDAP - Nationalsocialistiska Tyska Arbetareartiet / i raden av de många småpartierna och fick 2,6 procent av rösterna... Världskrisen ledde till att regeringen sprack i mars 1930. Den avlöstes av en borgerlig minoritetsregering under ledning av det katolska centrumpartiets Heinrich Brüning.... Brüning, som var ekonom av facket, mötte som så många andra länders statsmän krisen med en deflationspolitik, och han gjorde det mer konsekvent och energiskt än de flesta. Enligt hans mening gällde det att anpassa hela ekonomin till de sjunkande priserna. Lönerna och helst också skatterna måste reduceras, och framförallt måste den offentliga budgeten balanseras för att man skullel undgå en inflation. Resultatet blev en kraftig nedskärning av köpkraften på hemmamarknaden, något som gjorde det onda värre. Många företag gick i konkurs. Den tunga industrin och byggnadsindustrin lamslogs nästan helt, och 1932 registrerades nästan 6 miljoner arbetslösa. Till dessa bör man troligen lägga ännu en miljon långtidslediga som helt hade glidit ur det sociala systemet.
Med sjunkande privata inkomster följde minskade offentliga skatteinkomster, och 1932 måste kommuner, städer och till och med en delstat gå i konkurs och ställa sig under riksadministration... Då Brünings sparsamhetsiver till slut också riktades mot statsbidragen till godsägarna öster om Elbe, tröt /president/ Hindenburgs tålamod, och den 30 maj 1932 tillträdde en ny regering under ledning ytterst konservative tidigare centrumpolitikern Franz von Papen. Hans regering hade praktiskt taget inget parlamentariskt stöd och förbluffade samtiden genom att majoriteten av ministrarna var adliga.
Socialdemokraterna fällde regeringen. Därefter utlystes nyval.
Det kan vara av intresse att ta del av motsvarande beskrivning i Encyclopedia Britannica Online:
Upon the fall of the coalition government of the Social Democrat Hermann Müller, Brüning was called on to form a new, more conservative ministry on March 28, 1930, without a Reichstag majority.
His policies, formed in response to the onset of the Great Depression, involved increased taxation, reduced government expenditure, high tariffs on foreign agricultural products, cutbacks in salaries and unemployment insurance benefits, and continued payment of the reparations imposed on Germany by the Treaty of Versailles (1919).
Brüning's austerity measures prevented any renewal of inflation, but they also paralyzed the German economy and resulted in skyrocketing unemployment and a drastic fall in German workers' standard of living.
On July 16, 1930, after the Reichstag rejected a major part of his plans, Brüning began governing by presidential emergency decree, using Article 48 of the Weimar Constitution as a basis for this step. On July 18 he dissolved the Reichstag, which returned after new elections in September 1930 with Communist and, more important, Nazi representation greatly increased. To accommodate this shift to the right, the Chancellor enacted a more nationalistic foreign policy. In October 1931, Brüning took over the foreign ministry while retaining the chancellorship. He helped President Paul von Hindenburg win reelection in the spring of 1932, but on May 30 of that year Brüning resigned, a victim of intrigues by General Kurt von Schleicher and others around Hindenburg.
The immediate cause of his dismissal was his project to partition several bankrupt East Elbian estates. Hindenburg, himself an eastern landowner, considered this plan Bolshevism, and his withdrawal of confidence left Brüning with no choice but to resign.
Brüning left Germany in 1934 and ultimately ended up in the United States, where he taught political science at Harvard University from 1937 to 1952.
We should not try to avoid 1929. We have already failed.
The best we can do now is to avoid 1930, 1931 and 1932
What about the €200bn European Union stimulus package that was agreed in a watered-down form by EU leaders on Friday?
Unfortunately, it is a public relations exercise first and foremost, designed to dupe people into believing that the EU is finally doing something.
Wolfgang Münchau, Financial Times, December 14 2008
Germany’s incoming “grand coalition” of Christian Democrats and Social Democrats is about to commit the biggest economic policy error since unification – the attempt to pursue budget consolidation at the expense of all other economic policy goals. In doing so, it risks turning a five-year-long stagnation into a full-scale depression.
It would be more accurate, perhaps, to compare her /Ms Merkel/ to Heinrich Brüning, a Christian conservative who was German chancellor from 1930 to 1932.
Wolfgang Munchau, Financial Times, 7/11 2005
Wolfgang Munchau is an associate editor of the Financial Times
THE WORLD HITLER NEVER MADE:
Alternate History and the Memory of Nazism,
by Gavriel D. Rosenfeld, Cambridge University Press £19.99, 518 pages
reviewd by Vernon Bogdanor, Financial Times; May 28, 2005
Visions of Victory: The Hopes of Eight World War II Leaders, by Gerhard L. Weinberg, Cambridge University Press £16.99, 284 pages
We are obsessed because we do not understand. How could such a man achieve and wield power in a sophisticated modern society and with popular support?
Even today Hitler remains a more frightening phenomenon than Stalin. For while Soviet communism imposed itself upon a largely unwilling people, there can be little doubt that Hitler would have won a free election in Germany at any time between 1933 and 1942.
Nazism is also an obsession of American historians. These two books are attempts to exorcise it. Gavriel Rosenfeld has had the interesting idea of analysing the numerous alternative histories of Hitler. He explores four counterfactual themes - that the Nazis won the second world war; that Hitler escaped death in 1945 and survived into the postwar era; that he died before 1933; and that the Holocaust was completed, avenged or undone altogether.
Gerhard Weinberg is probably the world's leading expert on Hitler's foreign policy and his book on the second world war, A World At Arms, published in 1994, is by far the best single-volume history of that global conflict. In Visions of Victory, he explores how eight leaders - Hitler, Mussolini, Tojo, Chiang Kai-shek, Stalin, Churchill, de Gaulle and Roosevelt - imagined the world that would succeed the war, a world that is, after all, still very much the one in which we live.
That this nightmare vision did not come to pass is largely due to Winston Churchill. Admittedly, Britain could not, on its own, defeat Hitler, but in 1940, when Stalin was his ally, Britain could ensure that he did not win. Yet the postwar world was not to be Churchill's world, since he did not recognise the force of the idea of self-determination of colonial peoples. Churchill, Roosevelt declared, "thinks only of the colour of their skin; it is when he talks of India and China that you remember he is a Victorian".
It was because Roosevelt understood that the colonial peoples would achieve independence that his postwar vision "came to be realised to a greater extent than that of any of the other World War II leaders".
Few Germans regret that they do not rule Ukraine, few Italians regret the loss of their African empire and few Japanese wish that they still controlled Borneo. And, it may be added, there are not many in Britain who would like to see Britain ruling India.
Visions of Victory is a beautifully written and wide-ranging synthesis of a large and burgeoning literature. It is based on deep knowledge and profound judgment. It is a masterpiece of historical writing that should be read by anyone interested in the origins of the world in which we live.
Farewell to the Mark
By Amity Shlaes
member of The Wall Street Journal's editorial board.
Tyskarna lever med erfarenheterna av det kaos som inflationen skapade i början av 30-talet.
När Churchill som finansminister annonserade återgången till guldmyntfot till förkrigsparitet i april 1925
ansåg Keynes att denna innebar en tioprocentig övervärdering av pundet och skrev en omtalad artikel "The Econocmic Consequences of Mr Churchill", där han anklagade finansministeriets experter för felaktiga kalkyler och för att de underskattat svårigheterna att få till stånd lönesänkningar för att återställa en rimlig pundkurs och undvika arbetslöshet. .. Ett urval av de bästa artiklarna (under mellankrigstiden), som visar Keynes litterära storhet, gavs ut med titeln "Essays in Persuasion" (1931).
Mer här
