my 2 sense:

perhaps part of the patchwork (all over the global network) will be cooperating local economies as well?

(some poor may be rich and some rich may be poor)

1 sustainable long term

2 whatever the consumer wishes to pay (as long as they can find someone willing to accept that is)

3 buses running on used veggie oil from mcdonalds and chinese fry joints

4 havana (hopefully with as many colors)

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm

Also, it too early to say whether or not the Great Moderation has ended or not. If we go through a year of hell, and then things stabilize for another decade, then we are still looking at more moderation than we’ve historically seen. If not, then not.

One thing that was really useful was that Bernake started off by classifying the explanations of the Great Moderation (one of which was “Good luck”). It might be useful if someone exhaustively lists the explanations for what is going on right now on a web page so that we can compare and contrast.

I would recommend to everyone interested in the “grate Moderation” the arrticle by Davis& Kahn in the Journal of Econ. Perspectives (Vol 22 # 4). Not only does it look at the noticable reduction of overall output volatility during the past 35 years (of course the data end in 2006) , but also at various ways to decompose that phenomenon, and provide partial explanations. As D & K conclude:

” The Great Moderation brought few benefits in the form of lower consumption volatility or reduced economic uncertainty for individuals and households” Extending the data series into the present might add a little emphasis to that conclusion.

Not always. If you have full employment and full production, then you can’t expand production without causing inflation. If you don’t, you can.

Yeo: Debt of any kind generally refers to the idea that you could borrow from someone a certain amount of money that you need to get something done.

Savings is a form of debt. When you save something the bank owes you money. All finance is based on debt, the only question is who owes who.

Yeo: Nothing is for free.

Sometimes you can get something for free. You have factories. You have people. If the only thing that keeps things from working is money, then print it.

Yeo: For the latter, with all due respect to PM Rudd, what did he think got the world into the mess?

So we spend our way out of this gloom, create another bubble, and then seven to ten years later it pops, and we start the cycle all over again. The alternative which people seem to be suggesting is that somehow it is better to live in a state of permanent depression and gloom rather than have these boom-bust cycles.

Nothing is for free. What is of greater concern were 2 news items : that treasuries yield was apparently driven near to zero and that Australian PM apparently thinks shopping/spending can drive the economy out of the present gloom.

For the latter, with all due respect to PM Rudd, what did he think got the world into the mess? The boom of credit facilities, overconsumption based on credit fantasies and the spinning of that into structured finance “casino chips” – who wants to add consumer credit into the current mess?

The former is worrying ‘cos it concerns the financing of all the bailout/stimulus plans, whichever nomer you prefer. Maybe that’s just the worrybug speaking but quietly aghast is probably going to be the mood soon and that’s awful.

The answer seems obvious. You print lots of money and drop it from helicopters until you have all of the factories running and people employed.

Let’s talk about what did happen and what did not happen. Because of bad financial regulation, you had wealth pump up a bubble in houses which blow up once the price of houses went to unrealistic levels. This caused banks and financial institutions that invested in those institutions to go bust.

What did *not* happen is:

1) we did not have “capital flight” in which large and persistent trade deficits resulted in people dumping dollars

2) we also did not have “government bankruptcy” in which excessive government debt led to fears of default also leading to capital flight.

“reversion to the mean” is an accurate description of where we are heading. Less easy credit; housing value distribution established by income level distribution; less debt.

In the arena of credit, quantity of money, velocity of money, debt/gdp ratios, etc, there is a critical difference between the concepts of equilibrium and reversion to the mean.

Equilibrium involves a stable, dynamic balance of forces that have a “flywheel” effect in which specific elements can suddenly accelerate for a while, but their relationship to the dynamic whole usually pulls them back, while the overall speed and direction stays about the same.

The idea of a moving equilibrium – such as the notion of the “Great Moderation” – with rapidly expanding credit and debt/gdp ratio – is attractive when you’re the beneficiary of some aspect of it (such as low interest rates and low unemployment), but it’s a flawed and self-serving fantasy.

There is no flywheel-like stability in consumer-spending-funded growth that requires household debt to rise parabolically beyond 150% of income to be able continue. Rather, there is simply an exponential spike in debt-funded growth, the instability of which may be temporarily obscured by the conjunction of one-time events such as the China Syndrome (rapid insustrialization with the emigration of cast cheap labor pools from the countryside to the city), the sudden explosion of non-regulated new, cheap credit, and so forth.

In such a crdit spike, no moderation or new paradigm has been created, just an old-fashioned “party while the music is playing” debt binge. The inevitable credit contraction is nothing more than a reversion to the mean in debt/income ratio for households and debt/gdp ratio for the nation as a whole. The integration of the world trade and finance system, which once accelerated the opportunities for leveraging the upside, naturally also accelerates the deleveraging once it starts. No mysteries involved, and no equilibriums then, now, or in the future.