Over time we observe a pattern of idiocy in the financial press, where different fictions, dressed up as allegedly shattering propensities, are regularly cycled through in succession, each one getting headlines for a day or so, only to be replaced by the next sensationalised issue. So-called experts or corporate bosses are wheeled out and make horrendous predictions that one country or another is entering a catastrophe of its own making – too much government spending, too much debt, or some other policy position – is usually fingered as the culprit. None of the predictions ever come to pass and the media never follow up to reflect on why. They are too busy pushing out the next headline and the next issue, which, in turn, will be replaced by something else, and then something else, and so on, until the initial prophesy of dooms is recycled, despite failing dismally to engage with the real world when it was last aired. And this pattern has unfolded over decades. Who ever checks the veracity of the predictions? How does the reputation of these so-called experts survive continual failure? The problem is that most of us believe this fiction and elect politicians and accept poor economic policy based on the fictional world we live in. Anyway, I have a prediction … read on.
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There are countless examples of this succession pattern.<\/p>\n
I still remember the claims by the prominent US commentator during the early days of the GFC that:<\/p>\n
\nBut make no mistake, we are coming close to the end game. Some countries and economies are closer to that point than others, but the entire developed world is lurching, in almost drunken fashion, towards our economic denouement.\n<\/p><\/blockquote>\n
You know a fancy word – d\u00e9nouement – ‘the outcome of a complex sequence of events’ – the ‘climax’ – the “end game” – it’s all over folks.<\/p>\n
The commentator in question ran a rather large mailing list to make money for himself and told his readership that “Over the next several months, we are going to start to explore various aspects of the end game. Whither Japan? … Where do we find $1 trillion (plus!!!) in US savings to fund the deficit, assuming foreigners buy about $400 billion?” etc.<\/p>\n
It all sounded authoritative.<\/p>\n
It was just bunk, the lot of it.<\/p>\n
I discussed that specific case in this blog post – Watch out for spam!<\/a> (January 25, 2010).<\/p>\n
And then we had guys like Martin Feldstein who regularly predicted the US social security system would become insolvent.<\/p>\n
He featured in the 2010 film – Inside Job<\/a> – by Charles Ferguson who wrote this about Feldstein in the – The Chronicle Review<\/a> (Chronicle of Higher Education) – on October 3, 2010:<\/p>\n
\nMartin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.\n<\/p><\/blockquote>\n
I discussed Feldstein in this blog post – Martin Feldstein should be ignored<\/a> (May 3, 2011).<\/p>\n
I could cite countless examples.<\/p>\n
And recently there have been a whole swag of characters being wheeled out by the mainstream media and getting lurid headlines predicting a debt meltdown in the US.<\/p>\n
It is like a cracked record – blah, blah – followed by blah, blah – and then again.<\/p>\n
The only meltdown the US faces is if they elect either Trump or Biden in the November election and expect something good will come of it.<\/p>\n
One of the favourite media strategies in this space is to wheel out a major player in the financial markets who they consider to be a neutral assessor in the question of government debt, despite requiring such debt to underpin their speculative activities in many cases.<\/p>\n
For example, in this relatively recent ‘Markets Insider’ report from CNBC (April 24, 2024) – Billionaire investor Leon Cooperman: We’re heading into a financial crisis in this country<\/a> – a big hedge fund character predicted a crisis was coming because of excessive US government debt.<\/p>\n
This guy was formally with Goldman Sachs after doing an MBA at Columbia Business School.<\/p>\n
That particular school gained notoriety in Charles Ferguson’s 2010 movie when the then Dean of the School, one Glenn Hubbard was exposed and embarrassed for his advocacy as the chief advisor to George Bush of further deregulation while accepting ‘consulting income’ from financial investment firms, which raised the likelihood of conflict of interest. <\/p>\n
Cooperman himself was charged by US authorities for insider trading in 2016.<\/p>\n
At the same time another criminal matter was also pursued against him.<\/p>\n
Like many of these cases, Cooperman and his firm Omega Advisors used their financial clout to settle with the SEC without a formal finding against him.<\/p>\n
And then, as is usual, they hid behind the secrecy to attack the authorities claiming in an open court battle he would have won the case.<\/p>\n
Which always raises the questions of why did they settle?<\/p>\n
He spoke up during the pandemic claiming that the government support provided was really just a bunch of “people sitting at home getting checks from the Government” (Source<\/a>) and rails against any idea of wealth taxes and capital gains taxes.<\/p>\n
More recently he has supported Israel which has been murdering tens of thousands of innocent Palestinians in Gaza.<\/p>\n
Nice guy.<\/p>\n
In the CNBC interview (linked above), the journalist claimed that “We have worried forever about it” (US government debt) and “it continues to climb”.<\/p>\n
Cooperman responded claiming that:<\/p>\n
\nUS debt is pushing the country toward a financial crisis … Deficits matter, and I think we’re headed into a financial crisis in this country. Utan don’t know Grace the Nah\n<\/p><\/blockquote>\n
Cooperman talked about how everyone was “worrying about this in the early 70s” and kept saying “we have no idea when this hits the fan”.<\/p>\n
The juxtaposition with worries going back to like, at least 50 years or so, with no prediction ever coming to fruition, and having no idea when their predictions will be realised should have alerted their listeners that this was just another media beat up.<\/p>\n
But the rising interest rates over the last few years and the higher than usual public debt to GDP ratio has triggered stacks of similar types of interviews and claims<\/p>\n
Those who just want the government to feed the rich and their corporate interests and be always prepared to socialise the losses of these interests when greed gets ahead of prudence have been out in force claiming there is an impending public debt crisis.<\/p>\n
And while they eschew any tax shifts that might impact negatively on the upper ends of the wealth and income distribution, they simultaneously demand fiscal rectitude, which in the absence of any contribution from the top-end-of-town means cuts in welfare spending, cuts to public education, health and transport etc to name a few of the usual targets for their proposed cuts that are ‘desperately needed’ to save the nation from government insolvency.<\/p>\n
It always amuses me that when a nation faces a national security emergency the front-line response are people from ordinary income backgrounds – working class kids etc in the military while the rich kids remain immune.<\/p>\n
And when the nation faces an ‘economic emergency’ (so-called) it is the lowest income people that are required to endure the burden.<\/p>\n
During the GFC, the spreadsheet kings – Rogoff and Reinhart – claimed that “when debt in advanced economies exceeds 90 percent of GDP there is an associated dramatic worsening of growth outcomes” (Source<\/a>).<\/p>\n
Even the IMF concluded that their own research “found little evidence that there is any particular debt ratio above which growth falls sharply.”<\/p>\n
And many nations merrily carry on with much higher public debt ratios than the so-called danger threshold.<\/p>\n
It was always a fiction but got them plenty of media coverage at the time and helped politicians justify the unjustifiable austerity imposed (in the Eurozone, the UK etc).<\/p>\n
The normally moderate British journalist Martin Wolf article (November 22, 2023) – The looming threat of fiscal crises<\/a> – was another of these lurid interventions into the debate.<\/p>\n
He notes that “It is unquestionable that public debt has reached high levels by past standards” and therefore:<\/p>\n
\n… is public debt disaster looming? If so, will there be defaults, inflation, financial repression (forcible attempts to keep debt cheap), or some combination of all three? If none of these is to happen, what must be done?\n<\/p><\/blockquote>\n
He cites Olivier Blanchard former IMF chief economist, now working with the Peterson propaganda machine, who regularly warns the world of the “risks of debt” but does follow up to report his warnings came to nought.<\/p>\n
Remember back in February 2010, when the IMF was forced to release a new staff position note – Rethinking Macroeconomic Policy<\/a> – where they apologised for getting the policy advice so wrong.<\/p>\n
I discussed that in this blog post – We are sorry<\/a> (February 14, 2010).<\/p>\n
Further in 2012 we remember that the IMF (with Blanchard as Chief Economist) was instrumental in the design of the Troika\u2019s Greek bailout, which devastated the economy and left it in an impoverished state (from which it has never recovered).<\/p>\n
The fancy IMF economic forecasting models underestimated the Greek contraction by 2.9 per cent in 2010 (based on the April 2010 predictions); by 6 per cent in 2011 (based on April 2010 predictions); and by a staggering 7.1 per cent (based on their April 2011 predictions).<\/p>\n
The errors were systematic in direction and very large.<\/p>\n
Why so? Apart from using a model that has no basis in reality, they also made fundamental mistakes as to the size of the expenditure multipliers, which meant they recommended fiscal austerity and predicted that the negative growth effects would be minimal, when in fact, the reality was that the austerity was always going to be devastating.<\/p>\n
In late 2012, the IMF admitted that \u201cOur results suggest that actual fiscal multipliers have been larger than forecasters assumed\u201d.<\/p>\n