So when you see a quantitative “expert”, shout for help, call for his disgrace, make him accountable. Do not let him hide be-hind the diffusion of responsibility… Please act now. Do not just walk by.

To summarize: the members of Obama’s Transition Economic Advisory Board are too old, too uninspiring and too much part of the problem to deliver the change America needs and to keep alive the hope that Obama may have inspired through his election. A wasted opportunity.

During the final death throes of Iceland as an inter-
national banking nation, a number of policy mistakes
were made by the Icelandic authorities, especially by the
governor of the Central Bank of Iceland, David Oddsson…

Iceland was the most extreme example in the world of a very small country, with its own currency, and with an internationally active and internationally exposed financial sector that is very large relative to its GDP and relative to its fiscal capacity.

What kind of society is compatible with an economy managed by a cadre of large, politically connected firms whose operations and those of the state are intimately connected, and which cannot be permitted to fail since that would bring “chaos”? The Fed cannot behave in ways that would compromise the value of the trash on its balance sheet… I think either a great inflation or a catastrophic deflation are pretty much unavoidable. It’s the distributional effects that have me white hot with rage. We are sowing the seeds of inflation by making those most deserving of catastrophe whole, while doing nothing for those whose wages may soon achieve purchasing power parity with the emerging world.

What we need is some near-term inflation… I would urge the Fed to be buying outstanding long-term U.S. Treasuries and short-term foreign securities outright in unsterilized purchases, with the goal of achieving an expansion of currency held by the public, depreciation of the currency, and arresting the commodity price declines.

But the worst is that not only was the initial AIG de facto bankruptcy a case of looting, the government has now decided to aid and abet AIG management in further looting.

Keynes put asset prices at the centre of employment determination in his 1936 General Theory. If a change in sentiment causes steep declines in valuations of business assets (along with share prices and house prices), business investing is cut back and employment contracts – unemployment rises – mostly in capital goods industries…

Keynes made a huge mistake in not distinguishing between a drop in asset prices springing from monetary causes – an exogenous, or autonomous, increase in the demand for money – and one springing from causes having nothing to do with supply and demand for money – say, diminished expectations about future returns on business assets or houses. The former phenomenon could be solved by monetary means: the central bank could boost the money supply (by purchasing public debt, say), which would drive asset prices back up without driving up other prices and wages equally in a pointless spiral…

The recent collapse of speculation on houses, however, is a non-monetary phenomenon: there has to be a drop of the money price of (a basket of) houses relative to the money price of (a basket of) consumer goods.