Hardly over the inauguration ceremony, as Barack Obama, said optimistically: "We are facing an economic crisis of historic proportions ... We rolled down the risk of deflationary spiral that could lead to a substantial increase in our huge debt." This statement not only gave rise to the fear of depression, but also forced the recall of one of the greatest thinkers of the time: Irving Fisher. Despite the fact that once Fischer was the most famous American economist, today it is almost forgotten. About him, and remembers only in the context of his failed predictions for the stock markets. In October 1929g. He stated that the shares reached a level that can be described as "permanently high plateau." Today, quoting and discussing the ideas of John Maynard Keynes, the British contemporary. Nevertheless, Fisher laid the foundation for almost the entire cash economy, Keynes called Fischer "forefathers" of his own theories related to the influence of monetary factors on the real economy. (For the first time they met in 1912. In London, and known to maintain good relations). As the number of parallels with the 1930 years, the idea of Fisher again become relevant. As then, the U.S. is buried in debt. It does not matter that much of a "domestic" debt, which some Americans should return the other. The real burden of debt increases with reducing the cost of basic welfare and reduce income. People no longer pay its debts, which leads to a weakening of the banks, the forced sale of assets, and further price reductions. Fisher showed how such a spiral can make the individual cases of bankruptcy in a depressed economy. In 1933, he wrote:
Excessive investment and speculation often play an important role, but they would not be so devastating, if not based on borrowed funds. The very attempt of individuals to reduce the debt burden leads to an increase under the pressure of the masses, seeking to eliminate it ... the more debtors pay, the more they owe. The more the economic boat heel, the more likely it is that it lurch even further.
And while American politicians are rarely the spirit of Fisher, he used his ideas. Taught at the university, the current Fed head Ben Bernanke has tried to formalize the theory of Fisher's debt-deflation. This study has identified his approach to resolving the crisis. In March of 2008. he decided to partially rescue Bear Stearns so that the sudden elimination of the positions of the investment bank did not lead to a cyclical drop in asset value and default. In fact, some believe that the Fed is too well-studied Fisher: to limit the spread of deflationary shock by the collapse of the shares technological sector in the period from 2001 to 2004. The Fed kept interest rates low, which contributed to the formation of a new bubble in the real estate sector. If Fisher was alive, in the words of Robert Dimanda, an economist from the University of Brock, Canada, studying the work of Fisher, "he said to us that you need to prevent deflation and think about this domestic duty." "The ideal is to avoid such situations. Unfortunately, we are now in such a situation."
Fisher was born in 1867. In 1891. earned a Ph.D. at Yale University. In 1898. He nearly died of tuberculosis, after which all his life followed the diet, dry law walked in the fresh air and give more attention to health issues. For some time, he also promoted the principles of eugenics (approx. Profinance.ru: a form of social philosophy, the doctrine of the inheritance human health, as well as on ways to improve its hereditary properties). His actions, and reasonable, and conflicting simultaneous, as well as the lack of a sense of humor and self-interest is not earned him popularity. Robert Loring Allen, Fisher's biographer, writes that during a visit to Switzerland in 1984. he saw in the flow of water falling in the mountain lakes, the method of "a precise definition of the links between wealth, capital, interest and income." Water flowing into the lake in a given volume per unit time - is revenue. The lake, a certain amount of water in a given time becomes the capital. " Over the next 30 years he has created a lot of the basic concepts of financial economics. In 1911. In his book "The purchasing power of money" Fisher formulated a quantitative theory of money, that money supply determines the rate - the rate of the dollar in the market - which is equal to productivity, multiplied by the price level. Perhaps even more importantly, he explained how changes in speed and price may cause deviations in real interest rates from the nominal. Thus, monetary factors could lead to bumam and collapse, although they did not have a lasting impact on productivity. Moreover, Fisher believed that the dollar must not attached to gold, and by commodity, so he became the spiritual father of all modern central banks, seeking to price stability. In the 1920s Fisher rich, thanks to the invention and sale of card-specific system. He used these funds to buy shares on margin, and the 1929g. His condition was $ 10 million. In addition, he was a well-known financial guru. Alas, two weeks after he saw a "plateau", a collapse of the stock market.
Fisher remained optimistic in the increasingly Depression. He lost the state and home, and lived at the expense of sister-in-law and the benefit of Yale University. However, he continued to work. He was known among the 1,028 economists who vainly asked Herbert Hoover to veto the notorious Rates distemper Kholy 1930. He also developed a theory of debt and deflation. In 1933. in the Journal of Econometrics ", published econometric community, one of the founding of which he was, Fisher described the debt deflation in the following order - forced sales, falling asset values, rising real interest rates, the increase in forced sales, falling speed, reducing the capital, the growth the number of bankruptcies, mass withdrawal, the reduction in lending, the sale of assets of banks, the growth of mistrust and savings. Figure 1: The growing burden of debt as a result of deflation. Fisher was firmly convinced that deflation is required to stop the abandonment of gold standard, and he repeatedly asked Franklin Roosevelt to do so. (This is also the opinion of the Keynes). Roosevelt spent the devaluation of the dollar shortly after became president in 1933. Devaluation and "Bank Holiday" marked the end of Depression, although recovery was still far away. But Fischer has very little impact on the decision of Roosevelt. His reputation has fallen so that even his fellow scientists have been avoided.
Modern critics have found fault in his debt deflation hypothesis: the increase in real debt leads to the ruining of debtors and creditors of the enrichment, so that the combined effect should be zero. Mr. Bernanke took advantage of this in 1980. "The introduction of collateral increases in lending," - he said in 2007. just before the crisis. "1930h, however, reduced productivity and lower prices (triggering the growth of the real burden of debt) have led to extensive financial disaster for borrowers, reducing their ability to bail ... Also reduced cash flows of borrowers and liquidity, which contributed to increased risks for lenders." Mr. Bernanke and Mark Gertler of New York University called it "financial accelerator." Downward spiral can occur even in the face of a positive inflation rate - for example, in the event of an unexpected fall. Consider a borrower who expects 2% inflation rate and the loan is at 5% rate. If inflation is reduced to 1%, real interest rate rises from 3% to 4%, resulting in increased burden of payments. The deflation of assets could lead to almost the same results. If it is assumed that the cost of housing increased by 10% per year, the buyer is willing to credit the full value of purchase, as well as his house will soon cost more than the sum of the loan. The lender will gladly credit for the same reason. However, if instead the price will drop by 10%, then soon the house will cost less scrip lending. And the landlord, and the risk of the lender go bankrupt.
According to the Financial Research journal Bank Credit Analyst, now the duty of America, excluding the debt of financial institutions and the federal government, is about 190% of GDP, the highest level since 1930s (see chart 2). Between then and the current situation there is a substantial difference. In the early Depression, debt was lower at 164% of GDP. Mortgage debt has been moderate relative to the cost of housing, and prices were heavily inflated: According to a consultant Edward Pinto, during the period from 1929 to 1933. they fell by 24% in real terms they were virtually identical. The burden of debt has risen against the backdrop of deflation and reducing productivity from 1929 to 1933, nominal GDP has fallen by 46%. Today, the debt burden is high mainly because of the large volume of loans made in recent times. It all started as a logical reaction to the decline in real interest rates, low inflation, rising asset values and reducing the number of recessions, resulting in the risk associated with leverage, decreased. However, the increase in leverage has led to a simplification of the system and excessive credit growth in housing prices. Even in the absence of recessions falling prices worsened the situation with mortgage debt and could destabilize the financial system (see figure 3). In the face of a recession this trend is becoming more dangerous; deflation may cause similar damage. At the end of 2008. down the basic price. It should be noted that this was partly due to a single fall in the cost of gasoline, but the core rate of inflation in the U.S., excluding food and energy, fell from 2.5% in September to 1.8%. At Goldman Sachs suggest that over the next two years the rate will drop to 0.25%.
This is a rather low figure, which shows a decrease in wages for many households and falling prices for many companies. A more extensive and deep deflation would mean a further fall in property values in order to restore balance to the income of households that would lead to a new cycle delays, and defaults of foreclosure of mortgages. How to solve this problem? Fisher wrote that "there are economic opportunities to stop or prevent the onset of depression, just set the price at the middle level, where there were outstanding debts." Alas, not so easy to restore the price level. Although the stabilization of nominal house prices would help reduce the current dynamics of debt deflation, any attempt to keep them at unrealistically high levels (at which they are still in some cities) are likely to fail. Higher inflation may help to reduce the real price of housing, while at the same time stabilize the nominal price of housing and reduce the real debt burden. Easier said than create inflation: it is necessary first to form the aggregate demand, sufficient to destroy the existing economic recession through monetary or fiscal policy. Although the Fed does not expect the onset of deflation, last month it was announced that inflation can last for a period exceeding the "optimal levels. In the Fed back on a formal level of inflation, which would reduce the likelihood of deflation due to the formation of positive expectations of the people of inflation. However, a set of tools for preventing deflation is limited. In December, short-term interest rates essentially reached zero. Taylor Rule, the well-known empirical rule suggests that the rate should be lower by six percentage points. Now the Fed is trying to reduce long-term interest rates by buying securities, mortgage-and, possibly, the Treasury securities. After the exhaustion of the traditional "monetary" remedy, was the role given to fiscal policy. In 2002. Mr. Bernanke argued that, ultimately, the government can always create inflation by a substantial increase in public spending at the expense of the Fed buying Treasury debt. Martin Barnes of Bank Credit Analyst believes that this is unlikely: "There outflows from the dollar. It works only in one case where all countries are doing it, or under the control of capital."
Fisher died in 1947. One year after Keynes, and remains in his shadow. Mr. Dimand notes that Fischer never tried to synthesize the different strands of his thought, as in Keynes' General Theory of Employment, interest and money. " More importantly, the aggressive fiscal policy, to which was Keynes, has gone beyond mere money to combat depression, which suggested Fisher. Nevertheless, Fisher's ideas are still of great importance. They entered, perhaps on an unconscious level, the idea of current politicians. In early February, Lawrence Summers, a senior economic adviser to Mr. Obama, immediately called for the adoption of a package of financial incentives "in order to limit the development of destructive and potentially deflationary spiral." His council brings together the ideas of Fisher and Keynes.
Excessive investment and speculation often play an important role, but they would not be so devastating, if not based on borrowed funds. The very attempt of individuals to reduce the debt burden leads to an increase under the pressure of the masses, seeking to eliminate it ... the more debtors pay, the more they owe. The more the economic boat heel, the more likely it is that it lurch even further.
Fisher was born in 1867. In 1891. earned a Ph.D. at Yale University. In 1898. He nearly died of tuberculosis, after which all his life followed the diet, dry law walked in the fresh air and give more attention to health issues. For some time, he also promoted the principles of eugenics (approx. Profinance.ru: a form of social philosophy, the doctrine of the inheritance human health, as well as on ways to improve its hereditary properties). His actions, and reasonable, and conflicting simultaneous, as well as the lack of a sense of humor and self-interest is not earned him popularity. Robert Loring Allen, Fisher's biographer, writes that during a visit to Switzerland in 1984. he saw in the flow of water falling in the mountain lakes, the method of "a precise definition of the links between wealth, capital, interest and income." Water flowing into the lake in a given volume per unit time - is revenue. The lake, a certain amount of water in a given time becomes the capital. " Over the next 30 years he has created a lot of the basic concepts of financial economics. In 1911. In his book "The purchasing power of money" Fisher formulated a quantitative theory of money, that money supply determines the rate - the rate of the dollar in the market - which is equal to productivity, multiplied by the price level. Perhaps even more importantly, he explained how changes in speed and price may cause deviations in real interest rates from the nominal. Thus, monetary factors could lead to bumam and collapse, although they did not have a lasting impact on productivity. Moreover, Fisher believed that the dollar must not attached to gold, and by commodity, so he became the spiritual father of all modern central banks, seeking to price stability. In the 1920s Fisher rich, thanks to the invention and sale of card-specific system. He used these funds to buy shares on margin, and the 1929g. His condition was $ 10 million. In addition, he was a well-known financial guru. Alas, two weeks after he saw a "plateau", a collapse of the stock market.
Fisher remained optimistic in the increasingly Depression. He lost the state and home, and lived at the expense of sister-in-law and the benefit of Yale University. However, he continued to work. He was known among the 1,028 economists who vainly asked Herbert Hoover to veto the notorious Rates distemper Kholy 1930. He also developed a theory of debt and deflation. In 1933. in the Journal of Econometrics ", published econometric community, one of the founding of which he was, Fisher described the debt deflation in the following order - forced sales, falling asset values, rising real interest rates, the increase in forced sales, falling speed, reducing the capital, the growth the number of bankruptcies, mass withdrawal, the reduction in lending, the sale of assets of banks, the growth of mistrust and savings. Figure 1: The growing burden of debt as a result of deflation. Fisher was firmly convinced that deflation is required to stop the abandonment of gold standard, and he repeatedly asked Franklin Roosevelt to do so. (This is also the opinion of the Keynes). Roosevelt spent the devaluation of the dollar shortly after became president in 1933. Devaluation and "Bank Holiday" marked the end of Depression, although recovery was still far away. But Fischer has very little impact on the decision of Roosevelt. His reputation has fallen so that even his fellow scientists have been avoided.
Modern critics have found fault in his debt deflation hypothesis: the increase in real debt leads to the ruining of debtors and creditors of the enrichment, so that the combined effect should be zero. Mr. Bernanke took advantage of this in 1980. "The introduction of collateral increases in lending," - he said in 2007. just before the crisis. "1930h, however, reduced productivity and lower prices (triggering the growth of the real burden of debt) have led to extensive financial disaster for borrowers, reducing their ability to bail ... Also reduced cash flows of borrowers and liquidity, which contributed to increased risks for lenders." Mr. Bernanke and Mark Gertler of New York University called it "financial accelerator." Downward spiral can occur even in the face of a positive inflation rate - for example, in the event of an unexpected fall. Consider a borrower who expects 2% inflation rate and the loan is at 5% rate. If inflation is reduced to 1%, real interest rate rises from 3% to 4%, resulting in increased burden of payments. The deflation of assets could lead to almost the same results. If it is assumed that the cost of housing increased by 10% per year, the buyer is willing to credit the full value of purchase, as well as his house will soon cost more than the sum of the loan. The lender will gladly credit for the same reason. However, if instead the price will drop by 10%, then soon the house will cost less scrip lending. And the landlord, and the risk of the lender go bankrupt.
According to the Financial Research journal Bank Credit Analyst, now the duty of America, excluding the debt of financial institutions and the federal government, is about 190% of GDP, the highest level since 1930s (see chart 2). Between then and the current situation there is a substantial difference. In the early Depression, debt was lower at 164% of GDP. Mortgage debt has been moderate relative to the cost of housing, and prices were heavily inflated: According to a consultant Edward Pinto, during the period from 1929 to 1933. they fell by 24% in real terms they were virtually identical. The burden of debt has risen against the backdrop of deflation and reducing productivity from 1929 to 1933, nominal GDP has fallen by 46%. Today, the debt burden is high mainly because of the large volume of loans made in recent times. It all started as a logical reaction to the decline in real interest rates, low inflation, rising asset values and reducing the number of recessions, resulting in the risk associated with leverage, decreased. However, the increase in leverage has led to a simplification of the system and excessive credit growth in housing prices. Even in the absence of recessions falling prices worsened the situation with mortgage debt and could destabilize the financial system (see figure 3). In the face of a recession this trend is becoming more dangerous; deflation may cause similar damage. At the end of 2008. down the basic price. It should be noted that this was partly due to a single fall in the cost of gasoline, but the core rate of inflation in the U.S., excluding food and energy, fell from 2.5% in September to 1.8%. At Goldman Sachs suggest that over the next two years the rate will drop to 0.25%.
This is a rather low figure, which shows a decrease in wages for many households and falling prices for many companies. A more extensive and deep deflation would mean a further fall in property values in order to restore balance to the income of households that would lead to a new cycle delays, and defaults of foreclosure of mortgages. How to solve this problem? Fisher wrote that "there are economic opportunities to stop or prevent the onset of depression, just set the price at the middle level, where there were outstanding debts." Alas, not so easy to restore the price level. Although the stabilization of nominal house prices would help reduce the current dynamics of debt deflation, any attempt to keep them at unrealistically high levels (at which they are still in some cities) are likely to fail. Higher inflation may help to reduce the real price of housing, while at the same time stabilize the nominal price of housing and reduce the real debt burden. Easier said than create inflation: it is necessary first to form the aggregate demand, sufficient to destroy the existing economic recession through monetary or fiscal policy. Although the Fed does not expect the onset of deflation, last month it was announced that inflation can last for a period exceeding the "optimal levels. In the Fed back on a formal level of inflation, which would reduce the likelihood of deflation due to the formation of positive expectations of the people of inflation. However, a set of tools for preventing deflation is limited. In December, short-term interest rates essentially reached zero. Taylor Rule, the well-known empirical rule suggests that the rate should be lower by six percentage points. Now the Fed is trying to reduce long-term interest rates by buying securities, mortgage-and, possibly, the Treasury securities. After the exhaustion of the traditional "monetary" remedy, was the role given to fiscal policy. In 2002. Mr. Bernanke argued that, ultimately, the government can always create inflation by a substantial increase in public spending at the expense of the Fed buying Treasury debt. Martin Barnes of Bank Credit Analyst believes that this is unlikely: "There outflows from the dollar. It works only in one case where all countries are doing it, or under the control of capital."
Fisher died in 1947. One year after Keynes, and remains in his shadow. Mr. Dimand notes that Fischer never tried to synthesize the different strands of his thought, as in Keynes' General Theory of Employment, interest and money. " More importantly, the aggressive fiscal policy, to which was Keynes, has gone beyond mere money to combat depression, which suggested Fisher. Nevertheless, Fisher's ideas are still of great importance. They entered, perhaps on an unconscious level, the idea of current politicians. In early February, Lawrence Summers, a senior economic adviser to Mr. Obama, immediately called for the adoption of a package of financial incentives "in order to limit the development of destructive and potentially deflationary spiral." His council brings together the ideas of Fisher and Keynes.
From the magazine The Economist Source: Forexpf.Ru - Stock Market and Forex
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