Comment by chdhchchf | Hacker News Reader

Comment by chdhchchf | Hacker News Reader

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Found a post on another website today that sums up the developing economic landscape quite well (edited to be more appropriate for HN):

>The [austerity/ free market advocates] need to quit [complain]ing and just accept that we need to stimulate the demand side of the economy. The US and Europe are currently headed down the same course that Japan went down, and they're stuck in an inescapable stagnation. We've implemented the same QE and austerity policies that they did years before us, and now we're beginning to experience the same stagnation and gradual decline they did. Just like Japan we're propping up large, [poorly managed], decaying businesses at the expense of everything else in our economy, all while starving our economy's consumers of money.

>We've printed tons of money to fund big business, and cut back on social services so businesses won't have to pay as many taxes, and yet we only have a worsening economy to show for it. Unless you want the stock market to be the only segment of the economy that doesn't collapse, quit [explative] complaining and just hand people money.

The problem with EU is neither austerity nor stimulus. The problem is that there are very few local products sold globally and locally and employment is both scarce and ill paid for the populace at large, since local industries moved to cheaper pastures in the 90's or died from competition.

There is no crisis to fight in Europe, this is the "new normal" - unless they can get over their collective asses and move forward what schengen has started and become one grand federal state, otherwise everyone will proudly sit on their ruins in a couple decades.

Why do you think federal state with the same fiscal characteristics across EU would help anything? That would bring only deeper centralization, out of touch decision making and inability to capitalize on locality advantages. We already see how Germany utterly dominates EU while giving scraps to the rest, even to France. Now imagine the whole EU would have the same taxes etc. as Germany, but individual states will have 10x less capital. How would that help EU?

well I was more daydreaming than anything, I don't think more superstructure are needed, especially not under the grip of germany.

but the barrier of entry to the market makes it a very uncompetitive are to start a business. just think about the new bullshit vat collection mechanism for online companies, think about southern countries being forced to keep their immigrants while stronger countries can sidestep the Dublin III regulation at their convenience, etc etc.

there is a great deal of unfairness, uncertainty, instability and risk in investing in Europe right now. Sure individual countries are fine by themselves, but if you consider them alone then china, usa, india and russia are all bigger markets with more prospect for growth than any single EU nation, while tapping the whole EU as a market means you need to comply with umptheen different codes, customer laws, taxes, exchange rates etc. yes, everyone use the euro except those who don't, and amongst those who do the purchasing power varies by countries so much it's common to have price tiers between different countries.

Your blurb seems to contradict it self. It claims we need stimulus then it says the West & Japan tried this already and it hasn't worked.

Maybe we need to allow the free market to function. Who cares if house prices drom from $250,000 -> $50,000 and the Dow from 16,000 -> 3,000? They will eventually be snapped up by someone at some price, thus fulfilling 'demand.'

So much debt will be wiped out through defaults in this process as well, it will be great for the average person who will finally be able to afford to meaningfully participate in the investment world. Dividends yields of 2-6% mean nothing to a small time investor, but 20% is something that we could very well see in a liquidation market.

> Your blurb seems to contradict it self. It claims we need stimulus then it says the West & Japan tried this already and it hasn't worked.

That is not what his comment says. It says we're not doing the stimulus needed.

At this point, I wish folks would look back at the USA from the conclusion of WWII to 1948 and after the 1920 crash. I don't think stimulus is the real answer.

Businesses aren't demand-side. If money is printed, it should go to consumers.

Or better, find a way to raise wage levels, while dropping equities, especially real estate.

I'm a fan of government as employer of last resort.

You need perpetual growth because all math models used in financial industry are based on perpetual exponential growth - imagine insurance companies, profitability, attractiveness of financial services, hedging etc. is based on the assumption the amount of wealth (money) increases in time. This is nowadays done basically with inflation only (the profits in trading are more-less inflation these days).

Now somebody said that the humanity's greatest shortcoming is the inability to understand exponential function...

>wealth (money)

In most existing monetary regimes, money is not wealth, but debt.

>You need perpetual growth because all math models used in financial industry are based on perpetual exponential growth - imagine insurance companies, profitability, attractiveness of financial services, hedging etc. is based on the assumption the amount of debt (money) increases in time.

This has always confused me. Now, I'm not an economist (I have a M.S. in CompSci and do security research), but isn't the correct model for growth in a majority of businesses sigmoidal as opposed to purely exponential?

For example, let's imagine a company that sells toasters. At some point they're going to reach peak market saturation where everyone in the world has a toaster. Now during this process right when growth in it's peak we see an almost ethereal phenomenon that capitalism delivers. We see the most optimized form of an idea materialize which everyone can benefit from and gain wealth. Wealth in this case would be owning a toaster in it's most optimal form according to the laws of physics and current engineering processes.

The problem is that once this epoch takes place the projected exponential growth for the business just vanishes. Instead we see gradual decline until the new market cap (replacing broken toasters etc.) is reached and an thus an equilibrium in the market is reached. During this process we see the nasty side of capitalism as the toaster company fights tooth and nail to prevent this inevitable conclusion. We see monopolization, deliberate weakening of the integrity of the product to increase time to EOL (which wreaks havoc on the environment), absurd patenting and copyrighting, digital rights management, lobbying and bailouts. This not only hurts the customer, but the economy as a whole as our political system is set up to encourage this type of behavior.

Now, one of the main themes I'm seeing in this discussion is the problem of demand. It seems like a lot of "things" that our economy has relied on consumers purchasing has hit this market saturation point and is being limited by technological advancement.

I think that we are at a point where we need to change our financial structure to one that helps create demand. With the minimum federal wage remaining relatively stagnant for the past few decades along with more and more low level jobs being replaced by automation people simply don't have the money to buy things let alone make investments. The only real solution I see is a push for a universal minimal income. But then again, what do I know? Like I said, I'm not an economist..

That blurb wasn't posted posted in the context of stimulus: it was posted in the context that we're entering into the same stagnation that Japan has placed themselves in where there's a feedback loop between low consumer demand and businesses cutting both wages and hiring, further hurting consumer demand which then further hurts the economy.

Many countries are loaded with debt to the maximum their debt/GDP ratio allows and will be in big trouble when even slightest recession appears - so they will prefer to apply stimuli even if it doesn't make life better for average Joe.

I guess you weren't around for the financial crisis of 2008/2009. The entire monetary system was under potential collapse and there would have been a severe price to pay.

You can't have houses lose 200k in value without severe repercussions to the economy around the world. House mortgages are connected to mortgage securities which are connected to pension funds, etc.

If we enter a massive deflationary period as you seem to think is good, then everyone will be holding cash and no one will be spending it because everything is going down in value. You can't get 20% dividend yields in a deflationary world.

Be careful what you wish for.

I guess one way of looking at 2008/9 is that we avoided for a while what will be inevitable. That Severe price to pay is one I think we need to pay eventually. Forestalling it is possible, but it seems more responsible to realize that the longer we avoid it, the worse it gets.

Nobody is going to make money in a deflationary period, and excess consumption will fall, but it is still necessary to consume at baseline. The stock market is a very poor representation of true consumption, as it prices in too much of the future viewed through a very specific set of circumstances and assumptions.

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