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Originally Posted by Cluelessly
Keynes teaches us that money is to be spent in order to counteract the cyclical nature of business. Spending is done through the saved money from earlier. You cannot get around this. Maybe the true objective is to trigger a monetary reset, but otherwise he has no clue at all what he is doing.
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I somehow suspect that you haven't fully grasped how money supply works. Yes, spending is done through money saved from earlier. But having savings also allows you to leverage. From a fiscal point of view, that means you're making more productive use of your asset — cash in this case.
One looming problem of this whole downturn is that "debt" is getting a bad name. Well, rightly so, in the case of Wall Street investment banks that were geared up to over 30 times their liquid assets. But gearing at lower ratios isn't necessarily a bad thing. In fact, on day-to-day operational levels, it's the grease that keeps a company running.
Yes, it's true that spending in the United States and Britain for the past decade has been fuelled by over-geared mortgages. But even so, debt remains a critical part of sound financial management, not least because it allows a company (or an individual) to achieve much higher returns on equity.
The truth is, bubbles are very hard to avoid in practice. That's why governments try very hard to control inflation during good times (and in this case, failed). A good deal of technical analysis might allow you to spot a worrying trend, helping you to avoid the pitfall before it bursts. In the end, though, no one can fully predict how irrational behaviour could affect a market. Speculators tend to move in herds and drag everyone else along, willingly or not.
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The other thing about Keynes in the first place is that he is saying there is a surplus of government revenue during the good times. The argument to this is that government shouldn't be running the surplus anyway and should return it to the population as savings (not consumption). That'll never happen though so it's pointless to discuss.
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Not true. Sovereign wealth funds are made up of such government surpluses. But that's another topic not relevant to the present discussion.
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The market continues to deflate no matter how fast you spend until it hits the equilibrium mark.
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Pray tell, where is the equilibrium mark? You're theorising from the comfort of an ivory tower. Meanwhile, the jobless man on the street couldn't care less — he needs a job,
now.
Japan's problem was that it bit the bullet too late. Once the deflationary spiral had set in, the cost of reinflating its domestic economy through fiscal measures became too great. Hence the ever looming public debt that never achieved its intended aim.
What's really needed in Japan's domestic economy right now is actually more competition. In truth, it's still a very closeted, heavily-protected economy dominated by a handful of
zaibatsu. Japanese companies prove that they are actually very competitive — in foreign markets — but at the same time, they don't want to compete against foreign rivals in their own turf. Products and services therefore improve at an inefficient pace, which does little to encourage the Japanese to spend instead of hoarding cash.
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Originally Posted by Vexx
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It seems that the only other certainty in life, other than death and taxes, is corruption. So long as we're fundamentally motivated by greed, I think it's a problem that'll never go away.