Below is a brief discussion of talking points from my last two lectures this spring. While the broader lectures were on the similarities we can identify between the inter-war period and what we're seeing in our political and market environment today, what's presented below is a short narrative of our primary talking points on the post-war era. Links to previous lecture notes and posts that cover these points are provided below.
While much of what is presented below is provided without context - keep in mind this post is a list of ancillary "cliffs" notes for my class - my regular readers (and the well informed) will understand the story. For those who need more information you can begin by reading the links below.
In my International Political Economy (PS 404) over the last two week we discussed how our national and global economies have changed over the past 50 years. Beginning with a flood of dollars in the post-war era - which economist Robert Triffin explained, and France's Charles de Gaulle famously complained about when he discussed America's "exorbitant privilege" - we learned how the U.S. helped to accelerate the disintegration of the world's financial equilibrium and economic stability.
Simply put, we dumped too much money in the global economy to maintain price or market stability over time.
What followed was a period of transition, where market players began to adjust to dollars as a commodity, and to the rise of derivative products, in ways that were originally designed to shield companies and market players from market instability (like hedging). Things would kick into high gear with the shocks of the 1970s - the Nixon shocks, "legalized" currency futures, and the instability and debt caused by the rise of OPEC - and the subsequent political paralysis that came from trying to deal with stagflation in the U.S. and the effects of a crumbling global economic infrastructure.
Market players who once hedged now began to speculate and even gamble in what would be called the casino market economy.
Instead of dealing with the issues that brought us stagflation and the collapse of the Bretton Woods system - cold war spending, the rise of Euro-currency markets, new competition, the Nixon shocks, OPEC price hikes, deficit spending, etc. - the United States and the world embraced neoliberalism. While the focus was on tax cuts and deregulation, record deficit spending and speculation in a deregulated environment became the norm.
We ended up with old market wine in a new market bottle, with a deficit spending twist.
By the late 1980s U.S. deficits were breaking records. The national debt under Ronald Reagan effectively tripled, while deregulation and tax cuts for the rich helped spike markets in America. The debt crisis in Latin America insured that debt and deregulation would be an integral part of the world's future. But this was just the opening act.
Apart from the deficit dollars dumped into the economy by Ronald Reagan, market interventions under new Federal Reserve Chair Alan Greenspan helped insure that market players wouldn't stumble too much when the economy began to hiccup. This helped supercharge the tax cutting and deregulation policies at the time. The Federal Reserve's penchant for dumping cheap money into the economy every time market players got scared would eventually become known as the Greenspan Put.
In a few words, Alan Greenspan made it difficult for anyone to actually lose money in a stock market whose growth was rivaled only by the growing amount of money dumped into the economy at the time (which the graphs below illustrate).
As I pointed out in class, a monkey throwing darts could have had a successful career on Wall Street in this deregulated and cheap money policy environment. Ironically, it's precisely this environment that would supercharge the economy and lead to the blowup we saw in 2008.
Notes on how our markets changed from the money dumps and the rise of the symbolic economy are listed below the graphs.
A flood of dollars, new competition, and a crumbling economic framework ... yet we do nothing (still).
History whispering in our ear ... the short version.
Market analysts are really just riding a wave of cheap money and deregulation ... A monkey with darts shows us how.
Why you shouldn't really pay your money/wealth manager so much ... they're really not market gurus.
So, what's a hedge fund?
EASY MONEY / FED MONEY DUMPS
Quantitative Easing Explained + bonus information
Quantitative Easing III (a.k.a. Corporate Welfare) in Europe has begun (again).
Quantitative Easing Explained (again, this time in England).
S&P breaks record, again (yawn) + bonus info
OK, one more on Quantitative Easing.
THE SYMBOLIC ECONOMY EXPLAINED
America's evolving symbolic economy.
Derivatives explained, Part II
Converting Euro trash into European gold ... how the gods are smiling on Spanish and European banks, again.
STRUCTURAL CHANGES IN THE ECONOMY
Decoupling of Productivity from Labor ... The Rise of the Machines, Part I
Decoupling of Productivity from Labor ... The Rise of the Machines, Part II
The moral justification of capitalism is on the ropes ... how the promise of the liberal revolutions are beginning to disappear (this is also a review of both Liberal Revolution and The Dark Side of Our Free Market Myths).
Why the American Dream is Disappearing: What's wrong with Detroit ... and America
FROM PART I OF OUR CLASS
Developing Afghanistan and Iraq ... It's mindless Modernization Theory, again
The causes behind the 2008 market collapse.
Waves of Imperialism ... War and Markets: Why Great Wealth is not a product of individual initiative alone.
Waves of Imperialism, II ... It's not free markets ... the state creates the conditions under which wealth is created (with an all too brief discussion-mention of John M. Keynes and Friedrich List).
- Mark
While much of what is presented below is provided without context - keep in mind this post is a list of ancillary "cliffs" notes for my class - my regular readers (and the well informed) will understand the story. For those who need more information you can begin by reading the links below.
___________________________________________
In my International Political Economy (PS 404) over the last two week we discussed how our national and global economies have changed over the past 50 years. Beginning with a flood of dollars in the post-war era - which economist Robert Triffin explained, and France's Charles de Gaulle famously complained about when he discussed America's "exorbitant privilege" - we learned how the U.S. helped to accelerate the disintegration of the world's financial equilibrium and economic stability.
Simply put, we dumped too much money in the global economy to maintain price or market stability over time.
What followed was a period of transition, where market players began to adjust to dollars as a commodity, and to the rise of derivative products, in ways that were originally designed to shield companies and market players from market instability (like hedging). Things would kick into high gear with the shocks of the 1970s - the Nixon shocks, "legalized" currency futures, and the instability and debt caused by the rise of OPEC - and the subsequent political paralysis that came from trying to deal with stagflation in the U.S. and the effects of a crumbling global economic infrastructure.
Market players who once hedged now began to speculate and even gamble in what would be called the casino market economy.
Instead of dealing with the issues that brought us stagflation and the collapse of the Bretton Woods system - cold war spending, the rise of Euro-currency markets, new competition, the Nixon shocks, OPEC price hikes, deficit spending, etc. - the United States and the world embraced neoliberalism. While the focus was on tax cuts and deregulation, record deficit spending and speculation in a deregulated environment became the norm.
We ended up with old market wine in a new market bottle, with a deficit spending twist.
By the late 1980s U.S. deficits were breaking records. The national debt under Ronald Reagan effectively tripled, while deregulation and tax cuts for the rich helped spike markets in America. The debt crisis in Latin America insured that debt and deregulation would be an integral part of the world's future. But this was just the opening act.
Apart from the deficit dollars dumped into the economy by Ronald Reagan, market interventions under new Federal Reserve Chair Alan Greenspan helped insure that market players wouldn't stumble too much when the economy began to hiccup. This helped supercharge the tax cutting and deregulation policies at the time. The Federal Reserve's penchant for dumping cheap money into the economy every time market players got scared would eventually become known as the Greenspan Put.
In a few words, Alan Greenspan made it difficult for anyone to actually lose money in a stock market whose growth was rivaled only by the growing amount of money dumped into the economy at the time (which the graphs below illustrate).
As I pointed out in class, a monkey throwing darts could have had a successful career on Wall Street in this deregulated and cheap money policy environment. Ironically, it's precisely this environment that would supercharge the economy and lead to the blowup we saw in 2008.
Notes on how our markets changed from the money dumps and the rise of the symbolic economy are listed below the graphs.
_______________________________________________________
THE STOCK MARKET & THE GREENSPAN PUT
DJIA growth, 1930-2010 compared to Money Supply growth, 1918-2010
 |
| Dow Jones Industrial Average, 1930-2010 |
 |
| Money Supply, 1918-2010 |
_______________________________________________________
EXAM-BLOG NOTES
A flood of dollars, new competition, and a crumbling economic framework ... yet we do nothing (still).
History whispering in our ear ... the short version.
THE RELATIONSHIP BETWEEN EASY MONEY AND MARKET SUCCESS
The relationship between the money dumps (i.e. Quantitative Easing) and our "surging" stock market.Market analysts are really just riding a wave of cheap money and deregulation ... A monkey with darts shows us how.
Why you shouldn't really pay your money/wealth manager so much ... they're really not market gurus.
So, what's a hedge fund?
EASY MONEY / FED MONEY DUMPS
Quantitative Easing Explained + bonus information
Quantitative Easing III (a.k.a. Corporate Welfare) in Europe has begun (again).
Quantitative Easing Explained (again, this time in England).
S&P breaks record, again (yawn) + bonus info
OK, one more on Quantitative Easing.
THE SYMBOLIC ECONOMY EXPLAINED
America's evolving symbolic economy.
Derivatives explained, Part II
Converting Euro trash into European gold ... how the gods are smiling on Spanish and European banks, again.
STRUCTURAL CHANGES IN THE ECONOMY
Decoupling of Productivity from Labor ... The Rise of the Machines, Part I
Decoupling of Productivity from Labor ... The Rise of the Machines, Part II
The moral justification of capitalism is on the ropes ... how the promise of the liberal revolutions are beginning to disappear (this is also a review of both Liberal Revolution and The Dark Side of Our Free Market Myths).
FROM PART I OF OUR CLASS
Developing Afghanistan and Iraq ... It's mindless Modernization Theory, again
The causes behind the 2008 market collapse.
Waves of Imperialism ... War and Markets: Why Great Wealth is not a product of individual initiative alone.
Waves of Imperialism, II ... It's not free markets ... the state creates the conditions under which wealth is created (with an all too brief discussion-mention of John M. Keynes and Friedrich List).
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