Economic crises

"When the economy is in a depression, scarcity ceases to rule. Productive resources sit idle, so that it is possible to have more of some things without having less of others; free lunches are all around. As a result, all the usual rules of economics are stood on their head; we enter a looking-glass world in which virtue is vice and prudence is folly. Thrift hurts our future prospects; sound money makes us poorer. Moreover, that's the kind of world we have been living in for the past several years, which means that it is a kind of world that students should understand. […] Depression economics is marked by paradoxes, in which seemingly virtuous actions have perverse, harmful effects. Two paradoxes in particular stand out: the paradox of thrift, in which the attempt to save more actually leads to the nation as a whole saving less, and the less-well-known paradox of flexibility, in which the willingness of workers to protect their jobs by accepting lower wages actually reduces total employment. […] In times of depression, the rules are different. Conventionally sound policy – balanced budgets, a firm commitment to price stability – helps to keep the economy depressed. Once again, this is not normal. Most of the time we are not in a depression. But sometimes we are – and 2013, when this chapter was written, was one of those times."

"The one on the right concerned the shift from an older understanding of economic liberalism to what is now called "neoliberalism." Neoliberalism is not... a synonym for capitalism. I don't see how you can have any kind of modern economy without a market based economy. Neoliberalism took that basic insight and stretched it to an extreme seeking to deregulate, privatize and basically pull back the role of the state, which many neoliberals regarded as simply obstacles to individuals, to entrepreneurship, to economic growth, and as a result markets did their usual work. They produced a great deal of inequality, as... global corporations searched for very small cost advantages by moving jobs to low cost areas... [T]hey destabilized the global economy in certain important ways by deregulating the financial sector. As a result of the deregulation that occurred in the 1980s and 90s we had an escalating series of financial crises. In the sterling crisis, the Asian financial crisis, Argentina, Russia, and finally culminating in the big American subprime crisis in 2008. The... cumulative effects of this instability were political and they were very serious because many ordinary people were hurt... a lot of people lost their homes, lost their jobs, and the elites that ran these big banks and financial institutions suffered only a momentary disruption in their incomes, and went on to continue to dominate their respective economies... [T]his had a direct impact on the rise of populism in subsequent years, both on the right and on the left."

"The interesting thing is that, on the whole, the economics profession didn't learn the lessons of the East Asian crisis. I wrote about it a great deal, and I continued to do some research on the subject. But because we didn't learn the lessons of that crisis, we've had the crisis that began in 2007."

"Everyone in the world needs money – to get paid, to trade, to live. Paper money is an ancient technology and an inconvenient means of payment. You can run out of it. It wears out. It can get lost or stolen. In the twenty-first century, people need a form of money that's more convenient and secure, something that can be accessed from anywhere with a PDA or an Internet connection. Of course, what we're calling 'convenient' for American users will be revolutionary for the developing world. Many of these countries' governments play fast and loose with their currencies. They use inflation and sometimes wholesale currency devaluations, like we saw in Russia and several Southeast Asian countries last year [referring to the 1998 Russian and 1997 Asian financial crisis], to take wealth away from their citizens. Most of the ordinary people there never have an opportunity to open an offshore account or to get their hands on more than a few bills of a stable currency like U.S. dollars. Eventually PayPal will be able to change this. In the future, when we make our service available outside the U.S. and as Internet penetration continues to expand to all economic tiers of people, PayPal will give citizens worldwide more direct control over their currencies than they ever had before. It will be nearly impossible for corrupt governments to steal wealth from their people through their old means because if they try the people will switch to dollars or Pounds or Yen, in effect dumping the worthless local currency for something more secure."

"The story of neoliberalism is quite familiar to the millions across the USA whose lives have been ravaged by the "financial crisis of 2007-2008," which led to countless families losing their life savings, homes, and businesses. Commercial media attempted to neutralize the nastiness of neoliberal policies that led directly to this unseemly situation by calling the global emergency "a financial crisis" or "economic downturn," as if these events were unfolding as part of a historical movement or a cyclical part of economic laws. Yet, it was clear that the situation was a direct and logical outcome of the corporate wilding of America, where years of neoliberal policies have resulted in the greatest wealth gap to date in this country. The resulting scenario is violence - but not necessarily the type of violence that media outlets portray. I am not talking about muggings, robberies, or even shootings. I am pointing to a much deeper and sinister type of violence: the type of violence that can be prevented easily, such as the violence of forcing people, especially children, to go perpetually hungry in a society of great abundance; the violence of having people unprotected from the harsh elements when millions of homes are vacant across the country; and the violence of paying people such low wages that they are unable to secure basic human needs such as clean water, healthy food, dental and medical care, a decent home, affordable transportation, and quality education."

"We cannot go on living like this. The little crash of 2008 was a reminder that unregulated capitalism is its own worst enemy: sooner or later it must fall prey to its own excesses and turn again to the state for rescue. But if we do no more than pick up the pieces and carry on as before, we can look forward to greater upheavals in years to come. And yet we seem unable to conceive of alternatives. This too is something new. Until quite recently, public life in liberal societies was conducted in the shadow of a debate between defenders of ‘capitalism’ and its critics: usually identified with one or another form of ‘socialism’. By the 1970s this debate had lost much of its meaning for both sides; all the same, the ‘Left-Right’ distinction served a useful purpose. It provided a peg on which to hang critical commentary about contemporary affairs. On the Left, Marxism was attractive to generations of young people if only because it offered a way to take one’s distance from the status quo. Much the same was true of classical conservatism: a well-grounded distaste for over-hasty change gave a home to those reluctant to abandon long-established routines. Today, neither Left nor Right can find their footing."

"Along came the Republicans, trickle-down economics — one of the worst ideas since snake oil — was put back into place. And we ended up with the great recession. President Obama had to rescue the economy. And I don’t think he gets the credit he deserves for doing that."

"I believe we need to do more to help young people, who are left behind in the wake of the Great Recession, find those strategies and opportunities that will get them moving ahead again. And we’ve got to help older Americans who’ve displaced by automation and outsourcing in our changing economy."

"Let's stop for a second and remember where we were eight years ago. We had the worst financial crisis, the Great Recession, the worst since the 1930s. That was in large part because of tax policies that slashed taxes on the wealthy, failed to invest in the middle class, took their eyes off of Wall Street, and created a perfect storm. In fact, Donald (Trump) was one of the people who rooted for the housing crisis. He said, back in 2006, "Gee, I hope it does collapse, because then I can go in and buy some and make some money." Well, it did collapse. ... We have come back from that abyss. And it has not been easy. So we're now on the precipice of having a potentially much better economy, but the last thing we need to do is to go back to the policies that failed us in the first place."

"By pandering to the self-interested claims of the masters of finance, Clinton did more to bring on the 2008 recession than President Bush."

"The Avengers, which last week enjoyed the biggest North American opening in history, recasts 9/11 in the Bush years' dominant movie mode, namely the comic book superhero spectacular – albeit with a heavy dose of irony and added stereoscopic depth. But more fundamentally, The Avengers demonstrates how completely 9/11 has been superseded by another catastrophe, namely the financial meltdown of September 2008. To the extent that the movie has any sort of social content (or any content), it offers a flattering view of America's best as a group of eccentric individualists bamboozled into saving the world (economy) by the unflappable Samuel L Jackson's black dude of mystery. But even this Obama-iste reading is a bit of a stretch. The medium is the message. Hollywood felt threatened by 9/11 in 2001 but impervious to financial disaster in 2008. Three days after Lehman Brothers went bust, DreamWorks CEO Jeffrey Katzenberg assured investors that movies were "recession-proof". Of course, the industry did not allow for the simultaneous erosion of the DVD market and the public's discretionary income. The Avengers has less to do with the terror of falling buildings than falling grosses. The palliative for that goes by the name 3D. Bombs away: The Avengers is 9/11 as you've never seen it!"

"The final Treaty of Lisbon was signed in 2007, with virtually no concessions to subsidiary nationalism, its authors blind to any incipient resentment it might breed. A year later, Europe and America experienced the most traumatic financial crash since 1929. In Europe the chief impact was on the weaker states of the EU, notably those of southern Europe. The eurozone’s German-controlled European Central Bank (ECB) looked immediately to the security of Germany’s overseas loans, including those to the zone’s weaker members. Though the ECB was impressively ready to print money–there was no repetition of the squeeze of 1929–the liquidity went to German (and other) banks rather than to member states or their citizens. Extreme austerity was forced on Greece, Spain and Italy, with levels of unemployment that rose to twenty-five per cent of the working population. In Spain, half of all young people became unemployed. Nothing could have more boosted a re-emergent European nationalism, or more damaged the cause of closer union."

"The massive costs of running the war on terror, in conjunction with the seemingly inexorable turn to a non-state-based credit rather than a savings-based economy, were among the factors that led to the second major challenge of the new millennium: the financial crisis, and its long corrosive aftermath of the Great Recession. Society was no riven by a biting austerity on one hand and an anti-immigrant backlash on the other. Governments used up what remaining reserves of popular trust they had in fighting the fires of a seemingly unquenchable crisis. Fatefully, this was also the moment when Europe was confronted by the largest refugee crisis since the Second World War (many of them fleeing the havoc unleashed by the global war on terror). The social tensions sparked by some of these developments began to raise the specter of more desperate solutions drawn from the past. Alarmed by such developments, one ninety-year old survivor of the Warsaw ghetto took a plea of remembrance to the international press. Fear and lies are terrible things, he warned: “do not ever imagine that your world cannot collapse, as ours did.” Was anyone listening? In Europe, the solidarity that had underpinned the European Union’s expansion for half a century entered its gravest crisis yet. In the US, the political atmosphere grew more, not less, tense under the nation’s first black president. With public trust in the workings of Congress at its lowest ebb, and popular discontents soaring amid an illiberal surge, the conditions favored an outsider in the presidential elections of 2016. What that outsider might then do only time, and power, would tell."

"It remains to be seen what the effect of the Great Recession will be on resistance to globalization. It seems clear, however, that if the recession grows deeper and extends over a long period of time, it will spur much greater resistance to globalization."

"Before the disastrous economic and political events of 2008–9, it was possible to blithely assume that we had left the brutal and unpredictable world of the 1930s behind us. However, just as the economic crisis of 1929–31 summoned up the demons described in this book, so our own time’s economic and social problems – excessive national and private debt, globalization leading to unemployment and low wages for the majority but high profits for the few, and uncontrolled mass movements of populations – have led to similarly destabilizing and demoralizing developments in Europe, America, and parts of Asia. At the same time, large-scale abuse of data, accompanied by manipulation of online information and social media, has placed persuasive power into the hands of twenty-first-century authoritarian disrupters to an extent that their predecessors in the 1930s could only have dreamt of."

"The contention of this book is that to view the 2008 crisis and its aftermath chiefly through its impact on America is to fundamentally misunderstand and underestimate its economic and historical significance. Ground zero was America’s housing market, for sure. Millions of American households were among those hit earliest and hardest. But that disaster was not the crisis that had been widely anticipated before 2008, namely, a crisis of the American state and its public finances. The risk of the Chinese-American meltdown, which so many feared, was contained. Instead, it was a financial crisis triggered by the humdrum market for American real estate that threatened the world economy. The crisis spilled far beyond America. It shook the financial systems of some of the most advanced economies in the world—the City of London, East Asia, Eastern Europe and Russia. And it went on doing so. Contrary to the narrative popular on both sides of the Atlantic, the eurozone crisis is not a separate and distinct event, but follows directly from the shock of 2008. The redescription of the crisis as one internal to the eurozone and centered on the politics of public debt was itself an act of politics. In the years after 2010, it would become the object of something akin to a transatlantic culture war in economic policy, a minefield that any history of the epoch must carefully navigate."

"I felt I wanted to talk about the Fed’s mission, and I wanted to do so in understandable terms, and to emphasize that unemployment is part of our mission. The recession has taken a particularly heavy toll on those who have less education and income—middle-income and low-income families—and the Fed’s concern with the job market is a theme I’ve wanted to get across. Why are we doing all these things that are in the newspapers all the time? I was trying to explain that we’re doing this to help American families who are struggling in the aftermath of the Great Recession."

"The massive state bailout of financial institutions, leading to immense public debt, was followed by a demand by those very same financial institutions that were bailed out by those states for the states to pay down their debt."

"Capitalists preach "the market" for the working class – stand on your own two feet, don't rely on the government – but themselves sponge off the public big time. Just look at the billions in subsidies and tax concessions the fossil fuel companies, huge enterprises for the most part, extract from state and federal governments in Australia. The vehicle manufacturers raked in hundreds of millions a year from the for decades until deciding it wasn't enough and went overseas. This is why big companies and industry groups hire armies of former politicians to lobby on their behalf in the offices of premiers and prime ministers – there's money in government coffers and they want it. And while the capitalists talk about "the market" setting wages for workers, in reality, they don't really allow the market to do the job. They use the whole apparatus of state repression, the industrial tribunals, the police, the courts to suppress workers' rights to organise to pursue their demands. But when a crisis hits all the bullshit about the market is thrown to the winds. And that is just what we are seeing now. Faced with the collapse of the capitalist economy, for the second time in a dozen years, with massive bankruptcies on the table and the stock market plunging by more than 30 percent and more to come, fervent advocates of the free market are now embracing government intervention to save their skins."

"While most of the attention paid to the October 19 experience in the stock markets has focused on U.S. markets and exchanges, the stock market crash-and the bull market that preceded it-were international in scope. Major exchanges around the world have become increasingly connected. They all experienced substantial increases in stock prices in the years prior to the crash, and similarly experienced sharp drops in value in the period of the crash."

"As the probability of war suddenly rose, the financial crisis long ago foreseen by Bloch, Angell and others unfolded with terrible swiftness. What happened was a classic case of international financial contagion. The Vienna and Budapest markets, which had been sliding for more than a week, were closed on Monday, July 27, St Petersburg followed two days later, and by Thursday The Economist regarded the Berlin and Paris bourses as shut in all but name. The closure of the continental stock markets caused a twofold crisis in London. First, foreigners who had drawn commercial bills on London found it much harder to make remittances; those British banks which had accepted foreign bills suddenly faced a general default as the bills fell due. At the same time, there were large withdrawals of continental funds on deposit with London banks and sales of foreign-held securities. As Lord Rothschild nervously reported to his French cousins on July 27, 'All the foreign Banks and particularly the German ones took a very large amount of money out of the Stock Exchange to-day and . . . the markets were at one time quite demoralized, a good many weak speculators selling à nil prix.' London became, as The Economist put it, 'a dumping ground for liquidation for the whole Continent of Europe'. On July 29, with the clearing banks declining to accommodate their hard-pressed Stock Exchange clients, trading effectively ceased and the first firms began to fail. The next day the news broke that the well-known stockbrokers Derenburg & Co. had been 'hammered' (declared bankrupt); this, coupled with the Bank of England's decision to raise its discount rate from 3 to 5 per cent, deepened the gloom. On the morning of the 31st came what The Economist called the 'final thunderclap' - the closure of the Stock Exchange, followed by the Bank of England's decision to raise the discount rate again, to 8 per cent. There is no need to detail here the subsequent steps taken by the authorities to avert a complete financial collapse. The crucial point is that by July 31 the crisis had closed down the London stock market, and it stayed closed until January 4, 1915. There could be no better testimony to the size of the financial shock caused by the outbreak of war."

"The Depression was an economic catastrophe unmatched before or since. It was signalled by a collapse in American asset prices. On October 29, 1929 - 'Black Tuesday' - the Dow Jones Industrial index fell by nearly 12 per cent, one of the steepest one-day declines in its history. The market had in fact begun to slide after September 3; by November 13 it had fallen by nearly 50 per cent. This signified a slump in the confidence of investors in the future profitability of US corporations, magnified by panic selling on the part of speculators who had been trading on margin (in effect, with borrowed money). The subsequent rally, which lasted until April 1930, proved illusory. From then until July 1932 the market slid inexorably downwards. At its nadir on July 8, 1932 stock prices had fallen to just 11 per cent of their 1929 maximum. With the exception of 1914, the stock market had never seen such volatility, and nothing remotely like it has happened since."

"The crash of 1929 was not really the cause of the Depression. The cause of the Depression was the failure of banks, and people panicking. So what the Fed is trying to do is trying to prevent another massive failure of banks. Now, why Bear Stearns ended up in that situation, that’s the key question. Why was a bank allowed to borrow way over the amount of money that it could actually pay back? This is the key question. And the answer is, lack of regulation."

"The banks have said, leave us deregulated, we know how to run things, don't put government in to meddle. Then with that freedom of maneuver they took huge gambles, and even made illegal actions, and then broke the world system. As soon as that happened then they rushed out to say 'bail us out, bail us out, if you don't bail us out, we're too big to fail, you have to save us'. As soon as that happened, they said 'oh, don't regulate us, we know what to do'. And they almost went back to their old story, and the public is standing there, amazed, because we just bailed you out how can you be paying yourself billions of dollars of bonuses again? ... There is a lot of greed and there's very little accountability... One wonders in the United States sometime whether the government is regulating the banks, or are the banks determining government policy?... Why have the politicians protected them all along? You know why? Very simple they pay for the politicians."

"Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple especially, have been borrowing money to buy their own stock. Corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You’ll get rich in no time. So these stock buybacks by Apple and by other companies at high prices can push up their stock price in the short term. But when prices crash, their net worth is all of a sudden plunging... this morning in the stock market was a huge wipeout of borrowed money on which people thought the market would go up, and the Federal Reserve would be able to inflate prices. The job of the Federal Reserve is to increase the price of wealth and stocks and real estate relative to labor. The Federal Reserve is sort of waging class war. It wants to increase the assets of the 1 percent relative to the earnings of the 99 percent, and we’re seeing the fact that this, the effect of this class war is so successful it’s plunged the economy into debt, slowed the economy, and led to the crisis we have today."

"As a foreign correspondent I covered collapsed societies... It is impossible for any doomed population to grasp how fragile the decayed financial, social and political system is on the eve of implosion. All the harbingers of collapse are visible... We suffer the usual pathologies of impending death. I would be happy to be wrong. But I have seen this before. I know the warning signs. All I can say is get ready."

"The U.S. economy crashes when it becomes too top heavy because the economy depends on consumer spending to keep it going... For a time, the middle class and poor can keep the economy going nonetheless by borrowing. But, as in 1929 and 2008, debt bubbles eventually burst. We're getting dangerously close. By the first quarter of this year, household debt was at an all-time high of $13.2 trillion. Almost 80 percent of Americans are now living paycheck to paycheck.... 40 percent of Americans said they wouldn't be able to pay their bills if faced with a $400 emergency. The underlying problem isn't that Americans have been living beyond their means. It's that their means haven't been keeping up with the growing economy. Most gains have gone to the top... Trump and his Republican enablers are now reversing regulations put in place to stop Wall Street's excessively risky lending. But Trump's real contributions to the next crash are his sabotage of the Affordable Care Act, rollback of overtime pay, burdens on labor organizing, tax reductions for corporations and the wealthy but not for most workers, cuts in programs for the poor, and proposed cuts in Medicare and Medicaid—all of which put more stress on the paychecks of most Americans."

"A friend recently asked, "Ben, just between you and me, the market is going to crash, right?" My answer was a resounding "yes." The stock market will definitely crash at some point. That's just the nature of the beast... Humans are prone to taking things too far in both directions but that doesn't help predict how far we'll collectively take things during the next melt-up or meltdown. I know for sure there will another market crash at some point. It's something all investors should mentally prepare for. The hard part is knowing when that will be."