Turn The Machines Back On

The Kroog looks at the state of global markets after Friday’s bad day (and the impending bad day today) and notes there’s something of a global commodities glut.

What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivity or a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.

Whatever the precise mix of causes, what’s important now is that policy makers take seriously the possibility, I’d say probability, that excess savings and persistent global weakness is the new normal.

My sense is that there’s a deep-seated unwillingness, even among sophisticated officials, to accept this reality. Partly this is about special interests: Wall Street doesn’t want to hear that an unstable world requires strong financial regulation, and politicians who want to kill the welfare state don’t want to hear that government spending and debt aren’t problems in the current environment.

Once again, with interest rates at rock bottom, Republicans refuse to invest in government spending so they can privatize and profitize as much infrastructure as possible (which is the real problem), and they’re shocked that years of Austerity Bombing hasn’t created utopia yet (ask Kansas how that’s going.)

Meanwhile, Trump’s solution is “I’m really rich and I want to go after hedge fund guys“, which makes about as much sense as the rest of his campaign, but I guess that’s the point.

69 replies
  1. 1
    Derelict says:

    I’ll guess that the main reason for austerity mongering is the wish to slash government budgets in order to convert the savings into tax cuts for the wealthy. This will be repeated over and over and over until we reach the stage where everyone who’s not rich is paying taxes directly to those who are rich in the hopes that, somehow, someday, the rich will use those tax dollars to create a job or two.

  2. 2
    Keith G says:

    For all his faults, and they are too numerous to contemplate let alone mention or list, Trump can very occasionally latch onto a piece of pragmatic progressiveness that is counter to GOP orthodoxy. And when those turn out to be applause lines at his gatherings, one can hear Grover Nordquist’s sphincter pucker from here.

  3. 3
    C.V. Danes says:

    When you have a tightly integrated financial system without a tightly integrated political/regulatory system, then things start to get crazy.

  4. 4
    rikyrah says:

    Meanwhile, Trump’s solution is “I’m really rich and I want to go after hedge fund guys“, which makes about as much sense as the rest of his campaign, but I guess that’s the point.

    Do you really believe it?

    You better not.

    Morning Zandar

  5. 5
    NotMax says:

    “Profitize?”

    Ugh.

    Time-out in the corner for you, young blogger.

  6. 6

    could be a rough day.
    Nasdaq futures halted because of the circuit breaker (-5%)

    TD Ameritrade shut down their futures trading today
    https://twitter.com/TDANSherrod/status/635794209258123264

  7. 7
    Enhanced Voting Techniques says:

    Sounds like Trumps took a bath on the market and looking for someone to punish.

  8. 8
    EconWatcher says:

    @rikyrah:

    I don’t think it matters whether Trump is sincere (and of course he’s not). I think it’s very helpful for him to pound on things like the outrageous sweetheart deal on hedge fund taxes. It gets the issue out there, and will provide a bipartisan color when the Biden and Warren ticket pushes it in the general election. (OK, that last clause was just shameless trolling; forgive me.)

  9. 9
    BGinCHI says:

    I’m amazed Kthug didn’t mention inequality. It’s one of the main pressures on people in the economy that he describes.

  10. 10
    NotMax says:

    @lonesomerobot

    The future has been cancelled?

    Well, there go the jetpacks and flying cars.

    :)

  11. 11
    rikyrah says:

    Zandar,

    Did you see this?

    Is he really any good?

    ………………

    THE RACHEL MADDOW SHOW 8/21/15
    Rising Democratic star puts Rand Paul on early defense
    Rachel Maddow shares video of a recent speech by Adam Edelen, Democratic Kentucky auditor of public accounts, and shows how his evident political potential has Rand Paul and Kentucky Republicans already afraid for Paul’s Senate reelection

    http://www.msnbc.com/rachel-ma.....0704195909

  12. 12
    PaulW says:

    The usual suspects will of course blame Obama for failing to deregulate everything to let the markets thrive… ignoring the fact that the markets themselves are incapable of thriving on their own at the moment and that past history – the panics of the 19th century, the Great Depression, others – shows that government intervention and regulation would stabilize said markets to return to growth.

  13. 13

    @NotMax: Yes it does look like that unfortunately. Wiz Khalifa got arrested for riding a hoverboard. Just sayin’.

  14. 14
    Arm The Homeless says:

    @NotMax:

    Don’t worry, Lexus made a hoverboard. Perhaps Michael J. Fox should be running for the nomination. He could just refer to T-Rump as Biff the entire campaign.

    Here are some robots falling down during a DARPA competition. Enjoy.

    Edit: Looks like I was scooped by a lonely robot. Even our jokes are being outsourced to machines.

  15. 15
    EconWatcher says:

    @rikyrah:

    Conway and Grimes seemed liked pretty good candidates (at least to me from afar), so I’m taking rumors of future progressive victories in KY with a huge grain of salt.

  16. 16
    Keith G says:

    @EconWatcher:

    OK, that last clause was just shameless trolling

    But quite entertaining, ntl.

  17. 17
    Belafon says:

    The wealthy finally managed to convince everyone that low interest rates are a good thing. This means they don’t really have to do anything in order to maintain their status. A higher interest rate would have required them to keep investing their money in order to keep their savings from becoming worth less and less.

  18. 18
    Desdemona says:

    You know even less about economics than you do politics. I didn’t think that was even mathematically possible.

  19. 19
    Desdemona says:

    Saved by mistermix I see.

    So funny.

  20. 20
    Omnes Omnibus says:

    @Desdemona: Got rid of the “K” names, hmm? Where is he wrong?

  21. 21
    NotMax says:

    OT: TCM has been offline from the cable line-up for over 12 hours. (The only channel of the ones I receive that’s been dark, of course.)

    Getting cranky.

  22. 22
    Desdemona says:

    @Omnes Omnibus: Oh, regulation is needed. His boy Obama just hasn’t done any of it yet.

    Dow opens down 1020. Sure hope you don’t have a 401(k).

  23. 23
    OzarkHillbilly says:

    @Desdemona: Heeheehee. You are so cute with the big boy shoes on.

  24. 24
    Zandar says:

    @rikyrah: Edelen literally cannot be any worse of a candidate than Grimes or Conway.

  25. 25
  26. 26
    Omnes Omnibus says:

    @Desdemona: That wasn’t actually responsive to my question. Try again. Please point out where any statement made in the OP is wrong. Show your work.

  27. 27
    chopper says:

    @Desdemona:

    oh noes, my retirement is ruined because of today!

    you’re a clown.

  28. 28
    JPL says:

    marketwatch is sluggish this morning.

  29. 29
    NotMax says:

    @Desdemona

    Operating under the mistaken perception that Desdemona is Latin for Chicken Little.

  30. 30
    Lurking Canadian says:

    @Belafon: it’s inflation that forces wealth holders to do something with their money. Usually high interest rates are demanded in the context of inflationary pressure precisely because of the effect you mention.

    High interest rates by themselves, though, are a sure-fire way to choke an economy to death.

  31. 31
    Glidwrith says:

    @Belafon: I’m sorry, but this doesn’t make any sense to me. The rich want higher interest rates because that is where they generate their income. We have had more than one report (courtesy of Kthug) that they are the force behind pressuring the Fed to raise rates. Now if you meant low inflation, that makes more sense. Would you clarify?

    ETA: and beaten to the punch by Lurking Canadian. Oh, well.

  32. 32
    redshirt says:

    I put all my investments in rocks.

    *looks outside

    Investments look good!

  33. 33
    MattF says:

    Dow drops 1000 points at opening bell. Fear is winning.

  34. 34
    NotMax says:

    @redshirt

    Ah, the Sisyphus Fund.

    Has its ups and downs.

  35. 35
    Rex Tremendae says:

    Dow opens down 1020. Sure hope you don’t have a 401(k).

    Unless you are on the brink of retirement, I’m not sure it matters much. Ride it out.

  36. 36
    Gin & Tonic says:

    @MattF: I know Cramer is a douchebag, but he said one smart thing on “Today” this morning: “nobody ever made money by panicking.”

  37. 37
    Rex Tremendae says:

    “They’re paying nothing. And it’s ridiculous. I want to save the middle class. You know, the middle class—the hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky.”

    This, in fact, makes more sense than most anything that’s been said in the campaign so far. Let’s ask Senator Schumer how Trump is wrong about this.

  38. 38
    MattF says:

    @Gin & Tonic: Yeah, well. ‘Buy low, sell high’ is pretty much the whole game. Eventually, buyers will start to come out of the woodwork– but maybe not for a while.

  39. 39
    Jeffro says:

    @Rex Tremendae:

    Unless you are on the brink of retirement, I’m not sure it matters much. Ride it out.

    Seconded. We’re all buying on the cheap for a little while, is all.

  40. 40
    JPL says:

    @Jeffro: I’d like to see a five percent drop in the stocks that I’m watching.

  41. 41

    @BGinCHI:

    I’m amazed Kthug didn’t mention inequality.

    He’s been very reluctant to connect the dots between inequality and the global savings glut, as obvious as those dots ought to be. I can kind of understand his point- he says he wants especially solid evidence for something that’s so pleasing to his political ideology- but the connection seems awfully obvious to me. Fortunately, the solution is obvious, if politically difficult, too.

  42. 42
    MattF says:

    @Rex Tremendae: Even if you are on the brink of retirement, you should have enough cash on hand to last a year or two. The standard minimalist strategies of dollar-cost-averaging and rebalancing work well in a volatile market. Just keep doing them.

  43. 43
    J R in WV says:

    Back in the days of the dot.com boom, my friend invested in that stock, almost totally. Then when the dot.com bust happened, his broker allowed him to sell everything at the bottom of the market. Went from rich to poor in that single authorized set of transactions.

    Now selling off inherited family keepsakes, trying to hustle real estate, which did well at first, but then 2008 came around.

    Never sell when things are in the shitter. Corning glass was way up building fibreoptic cables, plunged in the dot-com bust, but is still a good company, came back with the general economy. But if you sold it at the bottom, you lost any chance to recover those losses.

    Buy low – right now! If you have money market funds, use them to buy equities. Or anything equal to cash you can invest in stocks. Like a vacation fund…

    As if I have thousands lying around to buy low. hahaha.

  44. 44
    Matt McIrvin says:

    @Gin & Tonic: I heard a little while ago that the online 401k accounts that do the best long-term tend to be the ones whose owners forgot they had them.

  45. 45
    WereBear says:

    Excessive savings… oh! He means the rich.

    World making sense again. Carry on.

  46. 46
    beltane says:

    @Rex Tremendae: The average Republican primary voter would have no problem rounding up all the “hedge fund guys”, lining them up against a wall, and dispatching them in a cruel, yet efficient manner. The problem is that they’d have no problem doing this to lots of other groups of people as well.

  47. 47
    MattF says:

    @WereBear: Also, he means the Chinese. Middle-class Chinese have accumulated excess savings in banks run by the government and– since the huge growth in China has been in finance and manufacturing, rather than consumption– no place for individuals to spend their savings.

  48. 48
    Gin & Tonic says:

    @Matt McIrvin: I haven’t done anything in my 401(k), except increase the contribution percentage, in over 10 years. I’m probably 6-8 years away from beginning any withdrawals. I’m not concerned.

  49. 49
    Joel says:

    @J R in WV: I’ve given up chasing the market. Not worth my time and/or effort.

    Right now, I keep an 80/20 index/treasuries portfolio, just like Ben Graham would have wanted.

  50. 50
    sigaba says:

    @Rex Tremendae: I rode our the last one and lost 8 years of earnings, no thanks; right now I’m only about a year in the past.

    (Vanguard’s website is presently down but Fidelity’s was still working.)

  51. 51
    Bobby Thomson says:

    @Omnes Omnibus: the symbolism of Desdemona was a bit melodramatic but predictable. Spoilers: strangled by the Moor of Venice.

  52. 52
    catclub says:

    @J R in WV:

    Buy low – right now!

    The problem is that tomorrow might be an even better buying opportunity :(

    Dollar cost averaging in might be a good idea, though.

  53. 53
    catclub says:

    @Gin & Tonic: Smart! I went back and found I had increased my 401k percentage in march or april 2009. I patted myself on the back.

  54. 54
    catclub says:

    @Rex Tremendae: I have the attitude that the last 20% of gains are not mine anyway, so if they go away it is easy come easy go. I think I might pause at more than 20% losses in this correction. But I might decide to sock in more cash at that level.

  55. 55

    @Derelict:
    I think it’s exactly the opposite. Sure, there are a few rich guys who want to get their knife and fork and dig into every source of government money, but they’re riding a vastly, vastly larger movement. That movement wants to gut everything they think is welfare, and when ‘austerity’ or ‘the deficit’ comes up, that’s the first and usually the only thing that’s pushed for. They want to cut welfare because they seethe with resentment that brown people are getting help. This is true in Europe as well as in America, but they’re not as desperate and insane about it. They didn’t just elect a black president.

    Remember, in general increased government spending helps the rich, because they get a chunk of it.

    @Keith G:
    I think the love that poor conservatives supposedly have for the rich is much exaggerated. The rich have been their allies in telling liberals to fuck off, and removing all restraints on the rich satisfies Cleek’s Law. There’s some Prosperity Gospel going on, but they also know that a lot of big businesses are shafting them. That just traditionally hasn’t been as important as sticking it to blacks. They have no problem with Trump giving them open racism AND villainizing the worst parasites.

  56. 56
    JPL says:

    Will someone please tell Donald Trump, that we have been a global economy for the last two decades? Fox news watchers are going to think this is a new thing.

  57. 57
    Matt McIrvin says:

    @Frankensteinbeck: So far, in Europe the austerians have actually had more power and caused more damage than the US. Maybe in part because they had more of a social-welfare system to cut in the first place.

    (This is, in fact, the best argument I can see against having an extensive government social safety net: the jerks who don’t want it to exist will slash it the moment they get into power, causing massive short-term disruption. But it’s sort of a “heckler’s veto” argument.)

  58. 58
    beltane says:

    @Frankensteinbeck: Rural white conservatives hate Wall Street, and I mean HATE it. However, any hatred they may feel towards East Coast financiers is tempered by their even greater hatred of Liberals and any racial, ethnic, or religious group that is not exactly like them. Someone here once commented that Donald Trump is the North American Eva Peron, and they were kind of right. Watch out, America.

  59. 59

    @WereBear:

    Excessive savings… oh! He means the rich.

    It’s not just the rich. A lot of that money is managed by institutions, including government entities like sovereign wealth funds. One of the responses to the Asian Currency Crisis was that a lot of developing countries decided to have big dollar (and later euro) reserves to protect themselves against a repeat. That kind of institutional savings is at least as much a cause of the global savings glut as wealthy individuals.

  60. 60
    Matt McIrvin says:

    @Frankensteinbeck:

    Remember, in general increased government spending helps the rich, because they get a chunk of it.

    I think that the very rich generally want power over people, and that in overall hedonic terms, they are helped more by widespread poverty (which gives them a cheaper and more desperate source of lackeys) than by actually having more money. And they know it.

  61. 61
    Chris says:

    @Matt McIrvin:

    Yes. I think this too, at least concerning the very rich who vote Republican. They’d rather be the big fish in a little pond than have a bigger pond but less absolute control of it.

  62. 62
    TG Chicago says:

    If Trump wants to “aim” his blunderbuss at hedge fund guys, that’s fine with me. He’s probably just jealous they found a way to get rich that’s even easier than his methods.

  63. 63
    WereBear says:

    @MattF: Yes. Once again, not my problem, but a problem nonetheless.

  64. 64
    Bjacques says:

    @Frankensteinbeck:

    Increased government spending on “private finance initiatives” ensures that an even bigger share of tax money goes to the right private hands. The demands of profit and executive salaries mean something must be squeezed, so labor is outsourced and corners are cut. Quality and availability of service drop but the government can claim the service is saved by increased efficiency.

  65. 65
    catclub says:

    @TG Chicago: Slate notes that Trump is using the populist things that not-rich conservative voters actually favor – and they hated the bank bailouts of 2008 more than anyone, because they hate the bankers ( most days).

    I suspect that Trump could not actually get a change of the carried interest tax break through either house of Congress, but that is just a quibble at this point, to his fans. [It would require many GOP reps breaking their vows to Grover Norquist. Not gonna happen.]

  66. 66
    jl says:

    @catclub: @TG Chicago:

    Problem with Trump is that it is becoming very obvious he is an ignorant blowhard who doesn’t know much of anything about how the real world works outside of resort and C a $ ee n o deals, and how to work the bankruptcy laws.

    Last week he revealed that he does not seem to understand how NATO works, and specifically how Ukraine in NATO would impact the crisis there. So, war with Russia because Trump doesn’t understand NATO would be fun, huh?

    Today I woke up to the radio news blaring nonsensical Trumps quotes on how a (so far) minor stock market correction in China amounted to them ‘calling the tune’ and ‘outsmarting us’ in running the world economy.

    I don’t know that I expected anything better, but the horrifying specifics of Trump’s ignorance and delusion are becoming clear. I’ll have to change the wake up alarm to ‘air horn’ since will be less jarring that waking up to pointless Trump quotes, and why were that gasbag’s nonsense on financial markets important to put in national news headlines anyway?

  67. 67
    Mike G says:

    @jl:

    it is becoming very obvious he is an ignorant blowhard who doesn’t know much of anything about how the real world works

    Flush Limbaugh, Hannity and several metric tons of other right-wing gasbags have had long and lucrative careers in that situation. Ignorance is not a handicap with their audience, what matters is loud and aggressive delivery.

    After marinating in right-wing media for decades, the Repuke base now have a presidential candidate who gives them the same rage-satiating dog and pony show with the same rabid rhetoric. It’s a natural progression.

  68. 68
    Tripod says:

    @catclub:

    Wall Street bankers = Jews.

  69. 69
    Tripod says:

    Hey you, global middle class, buy more shit and don’t worry about breaking the planet.

    My problem with Krugman is most of the Keynesian upside is already baked into the cake, so a lot of the “just build some stuff” infrastructure spend is high cost – low economic utility.

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