Why economists are completely incompetent - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 11 July 2012
Why economists are completely incompetent A  A  A

Waterford, Ireland

And oh yes...our new book is also going to explain why economists are completely incompetent. They claim to know things they could never really know...and to be able to do things they couldn't do in a million years. As a result of their conceits and delusions, trillions of dollars have been clipped from the world's GDP...billions of people are poorer...their lives shorter, meaner...with less stuff.

Economists were largely responsible - usually in their policy-making roles - for the huge credit bubble that took debt to GDP in the US from 112% in 1972 to 296% in 2008. They told the feds that they needed a "flexible" currency. What they got, of course, was one that was flexible in one way only - it stretched out...but never came back. Credit expanded 50 times in the last 50 years.

Then, when the debt bubble blew up in '08-'09, economists stepped in again...this time to prevent the private sector from setting things right. Instead, of letting a crash and quick depression wipe out the excess debt quickly, the feds engineered a "contained depression" which can go on for decades.

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What contains the depression? More credit!

Deficits...bailouts...subsidies...and the lowest interest rates ever. You can look throughout the developed world; the highest interest rate offered by central banks for short-term money is only 0.75%.

And now economists are warning that the US tax economy could fall off a 'fiscal cliff' at the end of the year. Tax rates will go up. Automatic spending cuts will come down hard. This will allow the depression to break out of its cage...or so they worry.

"Stop, before it is too late," they say.

Over at the Pentagon, for example, contractors are forced to worry that their next boondoggle might be cut off. Military cuts threaten Barack Obama's program of "Strategic Guidance," says an article in today's Financial Times. In addition, one million jobs could be lost! The US would fall into real depression!

If only!

Since the crisis began, private sector debt has gone down...but only to 250% of GDP. That's still more than 2 times what it was when the US still had honest money. Much of that debt must be "bad" - in the sense that it couldn't withstand a financial crisis...or wouldn't still be on the books were it not for the feds' clumsy meddling. That's why nature, in her wisdom, provides us with natural debt-cleansing episodes...also known as depressions.

More to come...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "Why economists are completely incompetent"

Hasit Hemani

Jul 15, 2012

Easy money infuse laziness. Tight money motivates activity and hard work.Europe and USA is looting the under developed countries by purchasing their goods and products at dirt cheap rate and having an easy life for last three generations,by keeping their currency artificially over rated.But what happened they forgot hard work.One more generation will live like this but some day this characterless generation will not be able to stand on their own feet.They will need crutches of China and China will be their Boss.India is too corrupt and characterless in a different way.

Like (1)

praveen Bhargava

Jul 11, 2012

Real Estate bubble was brust in 2008in USA due to easy money given by the banks to the common man with little coverage.The money was not used for productive use to stimulate the Economy but go waste as it was largely spend for other outlets for comfort.
By giving more money through QE1 and QE2 in the last 2-3 years with a view to stimulate the economy through increase in growth,More employment,More manufacturing Activity had also not given the desired results in the shape of more growth.
The present economic position of USA is very pessimistic even after so much efforts.Usa is now in the grip of debts of about 16 Trillion USDwith no signs of it to come down in near futurealong with increase in unemployment and also increase in banks NPA to alarming level.Slow down in economy is the talk of the town.
With the recession already prevailing in the Euro -Zone is very steadily spreading in USA and the time is not far to get it in its grip in very near future.The depression much larger than the 1930's will stay for a longer period this time.

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