Either Google “Charlie Rose Stanley Fischer” or try this link.
I am particularly interested in Fischer’s view that (a) the financial crisis had the potential to cause another Great Depression and (b) that the policy responses of the United States worked quite well and (c) fiscal expansion was needed, because monetary policy could not do enough. He does not offer a list of evidence on these points. Instead, he says, in effect, that experts agree on these points. Some possibilities:
1. There is a lot of evidence, but in an oral interview he could not give footnotes.
2. Fischer’s circle is an echo chamber that takes these views, without much need for evidence.
3. Fischer formulated an opinion early on in the crisis, and he has seen no need to change his views, because hypotheses about the financial crisis are untestable (we cannot undertake controlled experiments in macro).
I am particularly curious about (1), and where one could find the list of observations that supports the view that we were headed toward another Great Depression without the bank bailouts and fiscal stimulus.
Israel’s track record speaks highly of Fisher’s chops at monetary policy. My favorite recent fact is Sumner’s observation that the US had greater fiscal contraction in ’13 than it did in ’37, and yet there was no recession. Instead there was QE3 and low interest rates. Was there something else?
Financial Apocalypse could commence immediately on either on a US Default, or a surge of stock market short selling caused by a rise in the Interest Rate on the US Ten Year Note, $TNX, or currency traders selling any number of currencies such as the Japanese Yen, FXY, the Euro, FXE, the Canadian Dollar, FXC, the British Pound Sterling, FXB, the Swedish Krona, FXS, the Swiss Franc, FXF, the Brazilian Real, BZF, the Australian Dollar, FXA, the Indian Rupe, ICN, or Emerging Market currencies, CEW, which would cause the US Dollar, $USD, UUP, to rise for a period of time from its greatly sold off price of 80.25. A rising US Dollar is incompatible with rising World Stocks, VT.
Under QE, the Fed bought 30 Year US Treasuries, EDV, and Zeroes, ZROZ, taking them out of the hands of private investors who looked for something else to buy, and thwarting the bond short sellers, bidding up the prices of other bonds, and driving down the Interest Rate on the US Ten Year Note, $TNX, causing the Flattner ETF, FLAT, to rise in value, and the Steepner ETF, STPP, to fall in value.
This ETF, that is STPP, rose in value, as the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepened beginning in May 2013, running through September 1, 2013, as bond vigilantes gained control of the Interest Rate on the US Ten Year Note, $TNX; but then from early September to October 4, 2013, the Steepner ETF, STPP, declined in value, as the Interest Rate on the US Ten Year Note, $TNX, fell to its October 4. 2013, rate of 2.65%.
Yes, up until May 14, 2013, investors bought other bonds; but then they sold Junk Bonds, JNK, and Ultra Junk Bonds, UJB, Mortgage Backed Bonds, MBB, International Treasury Bonds, BWX, and International Corporate Bonds, PICB. On July 14, 2013, investors reversed course once again and have been long the others, as is seen in combined ongoing credit Yahoo Finance Chart, which reinvigorated World Stocks, VT, Emerging Market Stocks, EEM, Global Industrial Producers FXR, Asia Excluding Japan, EPP, Nation Investment EFA, Eurozone Stocks, EZU, and the Nikkei, NKY, as is seen in combined ongoing equity Yahoo Finance Chart. The Nikkei has been falling lately on the rise of the Japanese Yen, FXY, which hurts export companies.
The world as of September 20, 2013, stood at peak prosperity, peak democratic nation sovereignty, and peak seigniorage, that is at Peak Moneyness, as is seen in the chart of World Stocks, VT, relative to Aggregate Credit, AGG, that is VT:AGG; stocks are unable to leverage higher on credit. Zero Hedge writes The Life And Death Of Massive Debt Bubble In Seven Charts
Liberalism’s prosperity has been a terrific moral hazard based prosperity, as investors came to trust in the US Fed’s policies of easing, which started when it took in Distressed Investments such as those traded by the Fidelity Mutual Fund FAGIX, with the start of QE1, driving up risk assets such as Small Cap Value Stocks, RZV, Biotechnology, IBB, Resorts and Casinos, BJK, IPOS, FPX, Media, PBS, Nasdaq Internet, PNQI, Pharmaceuticals, PJP, Aerospace, PPA, Spin Offs, CSD, Leveraged Buyouts, PSP, and Solar Energy Stocks, TAN. An now, another Great Depression will take place because the Federal Reserve’s bank bailouts and fiscal stimulus have created fingers of instability.
On Tuesday, October 8, 2013, the beginning of the extinguishment of Nation Investment, EFA, started to destabilize liberalism’s nation state sovereignty, and its banker seigniorage, on investor’s fears of a US Default.
The new economic and political paradigm of authoritarianism, will rise out of sovereign insolvency and banking insolvency, as foretold in Revelation 13:3-4, that being a Minsky Moment, where regional nannycrats will be appointed sovereign, and provide public private partnership seigniorage, as they issue diktat for regional security, stability, and sustainability.
Liberalism was characterized by trust in bankers, stock brokers, and asset managers, to the point of being insestious, through US Fed and other world central bank monetary policies such as POMO. But authoritarianism will be characterized by trust in the word, will and way of the regional nannycrats; so much so that the Apostle Paul wrote in Revelation 13:3-4, that All the world marveled and followed the beast; so they worshiped the dragon who gave authority to the beast; and they worshiped the Beast.
Nation Investment, EFA, traded lower 0.6% lower on fears of US Default, and on awareness that the US Fed’s monetary policies no longer stimulate global growth and trade, and have actually turned” money good” investments bad.
Fiat money died Friday September 20, 2013, when World Stocks, VT, Major World Currencies, DBV, and Emerging Market Currencies, CEW, traded lower, terminating the sovereignty of democratic nation states and terminating the seigniorage of the world central banks. Confirmation of such is seen in the Too Big To Fail Banks, RWW, and Regional Banks, KRE, trading lower in value, the Market Off ETN, OFF, rising in value.
Competitive currency devaluation has commenced on the exhaustion of the world central banks’ monetary authority, as investors are coming to realize that the US Fed’s monetary policies have crossed the Rubicon of sound monetary policy, and have made “money good” investments bad.
Arnold:
What sorts of “observations” or data that support the notion “we” were headed for another Great Depression would you find compelling?
(As an aside, I don’t really think there was a “Great Depression” in the offing as a result of the 2008 financial crisis either. But I do accept that many/all of the then policy makers were relying on economic models that universally indicated there would/could be a great depression.)
I don’t accept your view that policy makers relied on models. If anything, models tend to predict milder outcomes than what occurred. The Fed thinks that if its primary dealers are not functioning smoothly, we are at Armageddon. But that is not in any model.
I guess what would be compelling for me is a carefully thought-out, plausible scenario that shows that the real economy would have collapsed without saving all the big banks.
The decline in international trade and housing prices exceeded that of the Great Depression. While the investment banks would have folded or been taken over, and some of the commercial banks as well that had large real estate exposure, deposit insurance would have limited it. Nationalized banking by default since there would be no one left to take them over. The failure of AIG would have triggered the failure and bailout of numerous international banks and probably some though not most insurers. The equity and bond losses would be severe though only a fraction of the 6% of gdp that is finance, a lot of pension and retiree losses. The most capital intensive businesses like manufacturing would have had a more difficult time. On the positive side, no more vampire squids, but as welcome as that might be, there is little to no upside and substantial downside. Not the 30% of the Great Depression, but plenty worse.