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Wednesday, September 04, 2013

Why central bankers never learn

Zerohedge reports on India's central bank digging its hole deeper:
With the value of the rupee plunging to new lows, the current account deficit at an all-time high and inflation running at nearly a ten-percent annual clip, India is in serious economic trouble. Indeed many are beginning to wonder whether the country is edging toward a replay of the events in the summer of 1991. Back then, an acute balance of payments crisis forced New Delhi into the indignity of pawning its gold reserves in order to secure desperately needed international financing.

At a small public event the other week, Duvvuri Subbarao, the outgoing head of the central bank, pointedly referred to a recent book, This Time is Different: Eight Centuries of Financial Folly, and conceded that policymakers rarely learn from their mistakes. He conceded that:

        “… in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur.”

This is a theme that policymakers have been pondering for a while. More than a year ago, at what was ostensibly a celebration of an updated book on the economic reforms catalyzed by the 1991 debacle, Subbarao warned that the dangers sparking that crisis – ballooning fiscal and current account deficits – were once again lurking. At the same time, a high-ranking commerce ministry official told a group of business leaders that economic indicators were provoking “a sense of déjà vu.” Worried that conditions were ripe for a replay of the 1991 crisis, he exclaimed:

        “Why are we dodging these [policy challenges]? In 1991, we were candid enough to take these decisions. The quicker we take these decisions, the better it would be, instead of acting like ostriches.”

The reason is fairly simple. Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them.

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65 Comments:

Anonymous Salt September 04, 2013 9:36 AM  

The oft touted BRIC is soon to be BRC. Which shall be next?

Blogger Nate September 04, 2013 9:41 AM  

To some extent its like the modern SF writers refusing to acknowledge the E-book revolution.

Psychologically speaking that is.

Anonymous Josh September 04, 2013 9:51 AM  

The oft touted BRIC is soon to be BRC. Which shall be next?

China

Anonymous Brother Thomas September 04, 2013 9:58 AM  

This merits repeating:

"The reason is fairly simple. Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them."


Shocking... the policy makers follow a policy that protects themselves and their benefactors at the expense of the rest of us and society at large. This is Human Nature 101.





Blogger Nate September 04, 2013 10:05 AM  

"China"

Yup.

Imagine the shock when the talking heads that have been rambling for a decade about the coming Chinese Economic Domination... suddenly have to report the chinese collapse.

why didn't anyone see this coming?

How could we have missed it?

Anonymous Stilicho September 04, 2013 10:08 AM  

why didn't anyone see this coming?

Because Krugman claims that building ghost cities is good for the economy. Take that, Bastiat!

Anonymous Salt September 04, 2013 10:09 AM  

Brazil would follow China on close heels. Ultimately this leaves Russia, and with a debt to GDP of 8.4% in 2012, looks like a decent currency to stash Dollars in.

Anonymous Porky September 04, 2013 10:10 AM  

I see you are still deluded that TPTB are ignorant.

They are ignorant only in the sense that Josef Mengele was ignorant of what would happen when he dropped a bowling ball on a prisoner's head.

Blogger Nate September 04, 2013 10:13 AM  

"Shocking... the policy makers follow a policy that protects themselves and their benefactors at the expense of the rest of us and society at large. This is Human Nature 101."

except that it doesn't actually protect them. It only gives them a window of time for an escape if they choose to take it. But in order to take it they have to acknowledge the danger... and most simply cannot bring themselves to admit it.

Blogger Nate September 04, 2013 10:17 AM  

"I see you are still deluded that TPTB are ignorant."


Who exactly is the "you" in this sentence referring? Vox? me? Josh? Stilicho? Salt? everyone?

Blogger IM2L844 September 04, 2013 10:18 AM  

Obviously, India needs to start a war with Pakistan and break some windows.

Anonymous Salt September 04, 2013 10:23 AM  

It's the gambler's fever. Pressing one's bet at the casino. Eventually, you will lose.

Anonymous The other skeptic September 04, 2013 10:24 AM  

Homeland security plans realtime monitor of outbreaks of disease like mistrust of the banks and authority.

Anonymous Huckleberry - est. 1977 September 04, 2013 10:31 AM  

It's the gambler's fever. Pressing one's bet at the casino. Eventually, you will lose

Made worse by the fact that they're under the mistaken impression that they are the House, not the Gambler...

Blogger MacLaren September 04, 2013 11:02 AM  

I'm not as convinced of the downward slide of Brazil. They're resource-rich and not as backwater as we assume. China is going down. Brazil has less chance than Russia of staying up... but I think long-term, they'll do fine.

Anonymous rycamor September 04, 2013 11:09 AM  

If you go there at Carnival time, you'll see that Brazil has the best animal spirits going.

Blogger MacLaren September 04, 2013 11:12 AM  

(drum sting!)

Blogger Nate September 04, 2013 11:16 AM  

' China is going down. Brazil has less chance than Russia of staying up... but I think long-term, they'll do fine.'

I don't think Brazil is in that much trouble either.

Russia is the future though. That is certain.

Anonymous Stilicho September 04, 2013 11:17 AM  

Devaluing your currency to make exports relatively cheaper can only work in limited circumstances. If you have to import raw materials (Japan), your relative cost for those materials goes up even as your export prices become cheaper. The difference is taken from the workers through devalued wages. Now, if exports increase and those increases translate into increased market share long term (i.e. after the currency devaluation stops or even reverses), this strategy can work somewhat. But, and it's a big but, this strategy also requires stable markets for your exports. A world wide debt crisis does not make for such stable markets. Additionally, there is the danger of the race to the bottom as your competitors also devalue their currencies to remain competitive with your exports. There is a very real danger of draining your county's savings in order to have more workers working for lower wages just when the bottom drops out of your exports due to a crisis in your export markets.

Anonymous David of One September 04, 2013 11:22 AM  

"Adding to the sense of déjà vu is that, in an attempt to stanch the outflow of money, the government is reverting to actions reminiscent of an earlier era." - Zerohedge

Whoa! Something good has come of this! I've learner a new word! STANCH!

Blogger MacLaren September 04, 2013 11:27 AM  

DRAAAAAAANK

Blogger MacLaren September 04, 2013 11:29 AM  

I didn't realize that "stanch" and "staunch" are apparently considered interchangeable.

Nate... are... you freelancing's... for the Oxford English... Dictionary now?

Anonymous Roundtine September 04, 2013 11:33 AM  

Did you see India is talking about using rupees for trade settlement? They think that is a solution, but the moment they tell a major exporter that they will get paid in rupees instead of dollars, the value of the rupee will go through the basement and into the sub-basement (there are several levels of parking below as well).

Bad news for the dollar? Sure, after all the other emerging markets blow up. The dollar is the biggest short in the world, and the covering has commenced!

Blogger Nate September 04, 2013 11:46 AM  

"Nate... are... you freelancing's... for the Oxford English... Dictionary now?"

I'm not... but I should be. And I obviously prefer it to the loathsome yankee abomination.

Anonymous civilServant September 04, 2013 11:47 AM  

Why are we dodging these [policy challenges]?

Apparently he is not a member of the inner circle.

Anonymous civilServant September 04, 2013 11:54 AM  

Russia is the future though. That is certain.

What are your reasons for thinking this?

Blogger MacLaren September 04, 2013 11:59 AM  

From Amazon reviews, sometime in 2014:

"It's weird... I looked up 'whiskey' in the new OED and they had added a picture of Booker's. That's not all that strange, I guess, but when I went to 'bourbon,' there it was again. The same picture was there yet again under entries ranging from 'ambrosia,' to 'courage,' to 'love potion', to 'manliness,' to 'entertainment', even being listed as a method to 'staunch/stanch' loneliness. Did Booker's sponsor this new edition? I'd like to think so, but then I got confused by the big pull-out illustration of the Maker's Mark distillery. Aren't they competition? And what does this all have to do with language?"

Blogger MacLaren September 04, 2013 12:01 PM  

"What are your reasons for thinking this?"

You need to read behind the headlines and see what they're really doing. They're encouraging the birth rate, gathering up resources, saving cash and generally making the kind of choices that lead to greatness.

Blogger Eric Wilson September 04, 2013 12:28 PM  

Vidad,

Travesty will be a picture of an empty bottle of Bookers.

Anonymous ZhukovG September 04, 2013 12:29 PM  

Russia 'may' be the future.

Russia has vast natural resources and an expanding industrial base. Real wages for Russian workers continue to increase year by year.

Vladimir Putin, whatever his faults, appears to be a true Russian patriot. Whether his faith is genuine or not, I don't know. But, his support of the Russian Orthodox faith is indicative of a desire to build up Russian institutions that will outlive his time as Russia's leader.

However, the birthrate issue, while much improved, is still serious. The full measure of the disaster that was Boris Yeltsin has yet to be felt in this area.

Personally, I am optimistic for Russia's future.

Anonymous Salt September 04, 2013 12:39 PM  

I don't think Brazil is in that much trouble either.

Not in the way India is, but Brazil has currency swap agreements with China and could potentially hold some of the Chinese bag.

Anonymous ZhukovG September 04, 2013 12:52 PM  

India has been headed for serious trouble for some time. Whenever the daily caloric intake of your population is going down, you got trouble.

Also, with apologies to Metternich, historically India is more of a geographical expression than a political reality. The sub-continent is full of different cultural and ethnic groups that can, at best, barely stand each other.

India want the advantages of a Western nation while adopting nothing from the West.

Blogger ashepherd September 04, 2013 12:54 PM  

Leadership involves risks, failures and successes. You succeed when your successes are more significant than your failures not because you always make the right choice. Unfortunately in public life there are always wanna-be kings-of-the-hill who will try to use any failure to get someone thrown out. So I've noticed that as in big business, in the political realm of well established countries with large economies there are few risk takers and therefore few, if any, real innovators. The progressives may think they are true innovators, but they are only pandering to human pride and vice to gain popularity. I think most government leaders stay in office simply because they bring home the bacon in the short-run, not because they have any long-term insight about good government.

Blogger Nate September 04, 2013 1:16 PM  

"You need to read behind the headlines and see what they're really doing. They're encouraging the birth rate, gathering up resources, saving cash and generally making the kind of choices that lead to greatness."

They've gone from an energy importer to a massive energy exporter...

If Dr Doom and Lex Luthor got into that machine on The Fly...

Putin would walk out the other side.

Anonymous Eric C September 04, 2013 1:29 PM  

If Dr Doom and Lex Luthor got into that machine on The Fly...

Putin would walk out the other side.


Said Sheldon Cooper/Yosemite Sam...

Blogger Nate September 04, 2013 1:30 PM  

Its a good quote. Why not adapt it?

Anonymous Porky September 04, 2013 1:30 PM  

Who exactly is the "you"...

i was speaking to Vox, but it could apply to anyone who imagines that all of the world's central bankers are simply having "a difficult time understanding" what it is they are doing to us.

It's a convenient trick of the mind to imagine that one's enemies are stupid and ignorant. It's a natural thing to think that actions that appear to be contrary to your way of thinking must be the actions of someone devoid of understanding. Labeling the enemy as an ignoramus also serves to rally the likeminded around you in support.

Personally, I'm more interested in understanding the true motivations of those in power. Why? Because as Sun Tzu said "If you know your enemies and know yourself, you will not be imperiled in a hundred battles".

Vox doesn't seem to know his enemies very well. Just last week he said he was pretty sure Obama does not want another war. I said he most certainly does. Today we listen to Obama on the tv telling us how badly he wants another war.

This stuff is important for discerning the times, which is something every man should do.



Anonymous Eric C September 04, 2013 1:35 PM  

"Its a good quote. Why not adapt it?"

It is indeed a good quote.
My comment was just a hat tip to you, ya big Putinphile!

Anonymous RINO September 04, 2013 1:37 PM  

Vox doesn't seem to know his enemies very well. Just last week he said he was pretty sure Obama does not want another war. I said he most certainly does.

What's your evidence besides him trying to save face on TV?

Blogger Nate September 04, 2013 1:51 PM  

"i was speaking to Vox, but it could apply to anyone who imagines that all of the world's central bankers are simply having "a difficult time understanding" what it is they are doing to us."

You say this. After Vox wrote this:

"The reason is fairly simple. Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them."

When you figure out why your accusation is utterly stupid... let me know.

Blogger Nate September 04, 2013 1:52 PM  

"i was speaking to Vox, but it could apply to anyone who imagines that all of the world's central bankers are simply having "a difficult time understanding" what it is they are doing to us."

You say this. After Vox wrote this:

"The reason is fairly simple. Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them."

When you figure out why your accusation is utterly stupid... let me know.

Anonymous Porky September 04, 2013 1:59 PM  

When you figure out why your accusation is utterly stupid... let me know.

When you figure out why he says they "never learn" let me know.

Seems to me they've learned plenty.

Anonymous Porky September 04, 2013 2:01 PM  

What's your evidence besides him trying to save face on TV?

What's your evidence that he is merely trying to save face?

It's not like he's been real reluctant to attack a dictator before.

Blogger Nate September 04, 2013 2:21 PM  

"When you figure out why he says they "never learn" let me know.

Seems to me they've learned plenty."

You're an idiot Porky. I mean literally. You're to dumb to read and understand what Vox is saying.

Vox is saying exactly what you're accusing him of NOT saying.

He is saying that know they are wrong and they are continuing to be wrong because it is financially beneficial to them. They are doing it for their own good for their own interests.

Blogger Revelation Means Hope September 04, 2013 2:29 PM  

The entity *behind* the central bankers certainly understands what it is doing.

Some key members of the selected central bankers may also be in on the scam, and believe their exit strategy will keep them safe. What is especially funny is that they also have been deceived as all the previous pawns of that entity have been deceived.

Anonymous ___ September 04, 2013 2:31 PM  

The sub-continent is full of different cultural and ethnic groups that can, at best, barely stand each other.

Sounds like India is adopting western policies to me.

Anonymous Sigyn September 04, 2013 2:37 PM  

Said Sheldon Cooper/Yosemite Sam...

Oh boy. Now every time I read one of Nate's comments, I'm going to picture Jim Parsons with a giant red moustache, and hear "OOOOH I hates that rabbit!" with every abused ellipse. *looks happy*

Anonymous Porky September 04, 2013 2:58 PM  

You're an idiot Porky. I mean literally. You're to dumb to read and understand what Vox is saying.

Vox is saying exactly what you're accusing him of NOT saying.

He is saying that know they are wrong and they are continuing to be wrong because it is financially beneficial to them. They are doing it for their own good for their own interests.


Nice try, Drunky. Unfortunately for you, Vox's opinion of central bankers is a matter of record around here. I believe he most recently referred to them as being "maleducated idiots" bearing some resemblance to "monkeys trying to repair the space shuttle" and "completely clueless about the situation".

And of course.... he is fairly wrong about that.

In this, you and I seem to agree.

Anonymous RINO September 04, 2013 3:09 PM  

What's your evidence that he is merely trying to save face?

Have you not noticed that they downplayed every alleged chemical weapons attack over the past year until now?

Anonymous Porky September 04, 2013 4:11 PM  

Have you not noticed that they downplayed every alleged chemical weapons attack over the past year until now?

Did you notice how they assigned blame to Assad even before the UN had finished it's investigation?

Did you notice that John Kerry tweeted on the same day "Anyone who contends that an attack of this scale could be contrived needs to check their conscience."

Cuz... if you don't trust terrist rebels you have no conscience.

Wake up RINO.

Blogger Nate September 04, 2013 4:52 PM  

"Did you notice how they assigned blame to Assad even before the UN had finished it's investigation?"

and in spite of the fact that the rebels themselves have admitted they did it... and that it was accident... and oh by the way they got the weapons from the Saudis?

Blogger Nate September 04, 2013 4:52 PM  

"Did you notice how they assigned blame to Assad even before the UN had finished it's investigation?"

and in spite of the fact that the rebels themselves have admitted they did it... and that it was accident... and oh by the way they got the weapons from the Saudis?

Blogger tz September 04, 2013 5:02 PM  

Hubris is different and distinct from idiocy. When there are those who think things are different this time, that they are smarter, better, or whatever, they are not ignorant of history, but will rationalize even to the extent of killing the hamster from centripetal force - to keep the monetary treadmill in motion.

Blogger Revelation Means Hope September 04, 2013 5:22 PM  

nate, lots of double posts lately. Is the preview function double posting you or something?

Blogger Nate September 04, 2013 6:32 PM  

***fume***

Honestly I have no idea. I think its happening on a refresh... but there is no pattern to it that I have seen.

Anonymous duckman September 04, 2013 6:42 PM  

China collapses and calls its loans to the US. US renegs. War?

Blogger Nate September 04, 2013 7:09 PM  

'China collapses and calls its loans to the US. US renegs. War?'

US Collapses first.

But yeah.

War.

Anonymous civilServant September 04, 2013 7:39 PM  

Russia has vast natural resources and an expanding industrial base. Real wages for Russian workers continue to increase year by year.

Most of those resources are in range of expropriation by China which 1) has ten times the population of Russia and 2) has twenty-five million extra men. As for the industrial base Russians have one of the lowest productivity ratings in the world.

http://www.nationmaster.com/graph/eco_ove_pro_ppp-economy-overall-productivity-ppp

Anonymous Nate Ate Too Much Borsch September 04, 2013 8:09 PM  

"Russia is the future though. That is certain."

In opposing freedom, indeed. Widespread and systematic torture of persons in custody of police, persistent neglect and cruelty in Russian orphanages and prisons, curtailment of freedom of the press, assassinations of vibrants, murder per capita is one of the highest in the world.

But, hey, Russia has gummint policies to "persuade" men and women to have more children. Oh, they also crack down on homos. Weeeee!

Anonymous Porky September 04, 2013 8:15 PM  

nate, lots of double posts lately.

It's called "bourbon finger".

Anonymous Roundtine September 05, 2013 2:47 AM  

China collapses and calls its loans to the US. US renegs. War?

China is net short the dollar, thus on net it is other people who will call in their dollar loans on the Chinese.

Anonymous Anonymous September 05, 2013 3:19 AM  

**Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them.**

Hmm, call me suspicious, but I have an idea that most of the time, men, in fact, DO understand 'things', but simply will not ADMIT to understanding them, or act in a way corresponding with such understanding, if their financial well being depends on them NOT admitting to or acting upon such understanding. In fact, it doesn't even have to be their financial well being, fitting into their particular peer group of choice is enough to make people pretend they don't understand facts, if admitting to or acting on the facts will get them expelled from the peer group in question.

Anonymous Anonymous September 05, 2013 3:20 AM  

**Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them.**

Hmm, call me suspicious, but I have an idea that most of the time, men, in fact, DO understand 'things', but simply will not ADMIT to understanding them, or act in a way corresponding with such understanding, if their financial well being depends on them NOT admitting to or acting upon such understanding. In fact, it doesn't even have to be their financial well being, fitting into their particular peer group of choice is enough to make people pretend they don't understand facts, if admitting to or acting on the facts will get them expelled from the peer group in question.

Anonymous Porky needs more oxygen... September 05, 2013 3:38 AM  

Gosh this is wonderful!

Vox and his crew of selfish libertarians and silly Southrons have been haunting my dreams for a few years now, and I had no idea how to place their dreaded comments into context unless I mocked them like they do that meth-head Dread, with his fanciful and unscrupulous musings.

But here comes Porky! And, low, behold, I see a shining light cast from a still further hill, yet brighter than the sun in all its clarity!

Porky is so clear on the details that he realizes those dastardly banker hoodlums – or “banksters”, if you will (to coin a phrase, and toot my own diminutive horn) – might just have planed the likes of the great depression to take advantage of the idjits what used to have penthouses and now have their teeth mounted in pavement after an errant Monday stroll out the 54th story window!

Thank God! Porky is here to make sure we all know that the "Banksters" are trying to take advantage of us stupid "Rubesters a"nd stands ready to deliver his thesis on how that relates to our future prospects.

I’m a dumbass, just like most 99 percentiles, so I don’t know what that plan possibly could be, but Porky is about to tell us on his blog! If you’re smart enuf to find it!

Oh OK, jus kiddin, I’ll break the suspense and let you know the fix is in and he also thinks that the economic and political systems are hopelessly screwed, and that the elite are milking it for what they can before it goes to oblivion, but TAKE NOTE: he thinks that others can’t see this because they drink alcohol!

Because he doesn’t, and therefore is gifted with the insight to realize that central bankers know exactly what they’re doing as they hit the gas while we accelerate towards the cliff. Thank God we’ve got sober folks like Porky to keep this shit in perspective. Because his sobriety is the only thing that makes it possible to divine the PLAN!

And 'cause he’s ready! Cause he’s discerning! Cause he’s clairvoyant all over his blog, ya stupid drunk bitchez! Have you found his blog yet, ya drunkards!?! Of course not! Because you’re drunk! Or maybe because he’s a fucking parasite. Or something. Whateryalookinat? Idunno! But PORKY!!! VERY SOBER! And therefore figure it out. But you haven't because you wonder how banksters could "be so stupid!"

Fuck you yankee... I mean Porky. You’re not as stupid as I think you are, but that’s faint praise by mocking damnation. Maybe someday you’ll actually make a point instead of just criticizing others.

And lest you complain that this entire comment is just criticism, bon appetite, bitch. How's that taste? Why not come up with some original material? Or just shut the fuck up.

Anonymous Porky September 05, 2013 5:03 AM  

And 'cause he’s ready! Cause he’s discerning! Cause he’s clairvoyant all over his blog, ya stupid drunk bitchez! Have you found his blog yet, ya drunkards!?! Of course not! Because you’re drunk! Or maybe because he’s a fucking parasite. Or something. Whateryalookinat? Idunno! But PORKY!!! VERY SOBER! And therefore figure it out. But you haven't because you wonder how banksters could "be so stupid!"


Nate... if that's you.... just hand me the car keys.

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