Combs Spouts Off

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Posts Tagged ‘finance’

Diminishing returns

Posted by Richard on January 9, 2016

Charles Hugh Smith has an interesting post about how the world-wide orgy of “stimulus” spending, with money created by expanding debt, is working (emphases in original):

We can summarize the official “solution” to the Global Financial Meltdown of 2008 in one line: borrow and blow trillions–of yen, yuan, dollars, euros, reals, you name it.
The goal of borrowing and blowing trillions was to re-invigorate “growth”— any kind of “growth,” no matter how wasteful, unproductive or even counter-productive it might be: wars, nation-building, ghost cities, needless MRIs, useless college diplomas, bridge to nowhere–anything the borrowed money was squandered on counts as “growth” in the Keynesian status quo.
Unsurprisingly, this strategy yields diminishing returns as the negative returns on all this debt-fueled spending piles up. While the yield on the “investment” is either negative or only fleetingly positive, the interest due on the debt is forever. That’s the source of diminishing returns in a nutshell.

Here’s one of the graphs illustrating the point, but go read the whole thing.


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Towards a more resilient financial system

Posted by Richard on March 15, 2012

Pascal-Emmanuel Gobry has a proposal for preventing another financial crisis like that in 2008, and it’s a significant departure from the other reforms that have been advocated (emphasis in original):

My blueprint has two basic planks:
  • A return to the partnership model
  • Almost complete deregulation of the financial system
I know, I know, but hear me out.
What should be the goal of financial reform? Its goal should be not to prevent bubbles and busts, which are the normal result of an economy full of “animal spirits” (quiet, the Austrians in the back!), but to prevent the busts from a) necessitating taxpayer bailouts and b) having ripple effects that threaten the very existence of the financial system and wreck the economy, and by the way c) still ensure that credit flows throughout the economy (i.e., don’t destroy the village in order to save it).

Read the whole thing. It’s not a pure libertarian proposal by any means, and I’m not knowledgeable enough about banking and finance to evaluate it intelligently. But it strikes me as an interesting and at least superficially plausible proposal.

My friend David knows much more about such things than I do, and I’m interested in his opinion. Maybe he’ll let us know what he thinks.

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