Is Global Economic Instability Here to Stay?
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  • Pete

    “For what it’s worth, we at Via Meadia think that instability and volatility are here to stay — and that while that can be disruptive and difficult, it is ultimately not a bad thing. ”

    I think you’re exactly right here.

    The key word, however, is ‘ultimately,’ which means this readjustment process can easily span the lifetime of most of us.

  • wigwag

    Fifty years from now when the story of this economic downturn is being told by historians rather than journalists I bet the hero of the story will be Benjamin Bernanke who almost singlehandedly saved the U.S. economy from collapsing like the European economy has. The biggest villain in the story will be Alan Greenspan who assured everyone before economic calamity hit that he could keep interest rates artificially low because there was no such thing as a real estate bubble.

  • bpuharic

    We’ve failed to resolve the TBTF/moral hazard issue, with Obama having sent precisely zero bankers to jail. Unless and until markets are permitted to work, with the elites being made to pay for the error of their ways, financial instability will, indeed, continue. We’re in the Gordon Gecko age

  • Anthony

    “…the mainstream models used by academics and policymakers differ in important respects but are depressingly similar in others. They emphasize short-term demand flows and presume a structurally stable world in which probabilities can be assigned to future outcomes- thus almost entirely ignoring uncertainty, stock accumulations, and the financial imbalances that characterize the real world.” If I were to hazard a guess, market volatility (rather than normality) is now part of critical juncture enveloping global economy. But, chairman Bernanke has news conference scheduled June 19th and may provide glue vis-a-vis forward trend (volatility/normality). “The world is ruled by little else but the ideas of economists and political philosophers.” (John Maynard Keynes)

  • ljgude

    @Pete – Agree this is not a short term change. I’m 70 and can see that generally speaking the Blue Model of my youth really is a thing of the past, but that the future is very uncertain and it going to take some time to work out. My grandson graduated from High School this week and his father is teaching him how to do contract web site maintenance on the Internet. So for him the new model seems to look something like this. First get enough skills to do contract work and support yourself, and then get an education that allows you to grow that work into a business or a significant job. And be prepared to make a new plan on short notice.

  • Anthony

    WRM sums it up: investing skill is going to be at a premium….

  • Jim__L

    “Financial markets themselves are subject to change as computers get smarter”… “the information revolution has a particularly strong effect on financial
    markets themselves as computerized strategies and trade programs
    accelerate changes within the markets themselves.”

    This is a recipe for instantaneous disaster.

    Let’s talk a little bit about stability… from a scientific / engineering point of view, instability is when a small change from equilibrium results in a tendency to change more — the “steep and slippery slope” is possibly the best way to understand this feedback loop. This is an advantage in some systems — for example warplanes, which need to be highly maneuverable. On the other hand, very similar systems (commuter aircraft, for instance) need to be safe for their passengers rather than highly maneuverable. These aircraft are designed for stability — in other words, designed so that the physics of the aircraft itself fights changes that could send them spiraling out of the sky.

    This is the logic behind Glass-Steagall. There are a number of areas where the same principle could also be wisely applied.

    The more “maneuverable” we make computer programs that are trying to take advantage of feedback loops for quick and unearned profits, the more we leave ourselves vulnerable to another crash like 1929’s.

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