Gloom, Doom, or Boom? Finance and Economics

[Apollonius]

Forgive us our debts - Benjamin Kunkel, London Review of Books, vol. 34, no. 9, 10 May 2012
http://www.lrb.co.uk/v34/n09/benjamin-k ... -our-debts



Review of:


Paper Promises: Money, Debt and the New World Order by Philip Coggan (Allen Lane, December 2011)


Debt: The First 5000 Years by David Graeber (Melville House, July 2011)

[Marcus]

Forgive us our debts - Benjamin Kunkel, London Review of Books, vol. 34, no. 9, 10 May 2012
http://www.lrb.co.uk/v34/n09/benjamin-k ... -our-debts

—from the article cited above:

Money, and therefore debt, is always an abstraction. But justice too can be abstract, and there is no reason in principle why money and debt must serve injustice rather than justice.

Where St. Paul tells Timothy that the love of money is the root of all "evil," the Greek word there for "evil" is "kakos," the root word for the still-universally-understood "kaka." Paul essentially says that the love of money is the root of all lavender in society.

Love your neighbor or love his money?

[Miss_Faucie_Fishtits]

Debt is not money..... it is a lein on someone's life, hopes and future.........

[YMix]

Whether or not class struggle is the motor of history, it rarely goes by that name. Coggan attempts to stay above the fray: ‘Economic history has been a war between creditors and debtors, with the nature of money as the battleground.’

Reminds me a lot of Brooks Adams' "Law of Civilization and Decay".

This “decay” is described as the rise of slavery within the [Roman] Republic, and especially in the Empire. The landowners hired free men to work their land. These free men were the economically poor, and so their debts to the landowners increased dramatically throughout the years, with sons taking on their father’s debts. The debts became so large that perpetual bondage to a landowner (called usurers by Adams) was the result. The entire system, judicial and fiscal, was structured around first creating the debt of the plebeians, and then keeping them there forever. Usurers, through the courts, could buy, sell, and execute the debtors, just as any slave would be treated.

[Simple Minded]

Debt is not money..... it is a lein on someone's life, hopes and future.........

Very true my pretty.......

Which is why, prior to about 25-30 years ago, debt was avoided like the plague.

I remember 40+ years ago, the older guys (now in their 70s-90s) at work greeting each other.

"Wadda ya know?"
"Save your money!"

Quit hearing that about 1980-1985. I expect to start hearing it again in 5-10 years.

Hmmmm... seems like a pattern. fascinating to observe.

Cockyness/over confidence>>>>> un manageable debt>>>>>>> pain/self-discipline>>>>>>> avoidance of debt.

[Marcus]

Debt is not money..... it is a lein on someone's life, hopes and future.........

Well said, Lizz . . debt is property in another man's labor.

For what it's worth, that's all Old Testament "slavery" was . . the "slave-holder" owned property in the "slave's" labor. The slavery of the ante-bellum American South was chattel slavery. The slave-owner owned the slave, lock-stock-and-barrel, not just his labor. Moreover, in Jewish servitude, the slave/servant had rights, and, if he converted, had to be freed.

Debt, slavery, and servitude are interesting subjects.

And, think about it, if the borrower is slave to the lender, we have more slaves in the United States today than we did at the time of the Civil War.

[Nonc Hilaire]

Debt is not money..... it is a lein on someone's life, hopes and future.........

Well said, Lizz . . debt is property in another man's labor.

For what it's worth, that's all Old Testament "slavery" was . . the "slave-holder" owned property in the "slave's" labor. The slavery of the ante-bellum American South was chattel slavery. The slave-owner owned the slave, lock-stock-and-barrel, not just his labor. Moreover, in Jewish servitude, the slave/servant had rights, and, if he converted, had to be freed.

Debt, slavery, and servitude are interesting subjects.

And, think about it, if the borrower is slave to the lender, we have more slaves in the United States today than we did at the time of the Civil War.

A reasonable guesstimate of the value for a U.S. dollar is about 10 minutes of someone else's labor, based on the minimum wage and applying a fudge factor to account for people who are paid under the table.

[Taboo]

A few years ago I used to be an incurable optimist regarding the self-regulating nature of the free market.

I obviously hadn't realized how pervasively and how perversely the global business/state/labor conflux was intertwined.

It seems that we are at a junction where the sins of the past two to six decades are finally coming due.


Even with the state monetizing all the new debt, total debt to gdp ratios above 150% cannot be sustained for long.
Cutting spending to pay off debt will only decrease GDP, and decrease consumption, and deter investment.
Usually, I'd take out and wave about the old nostrum about how stable, enabling and transparent legal, fiscal and political frameworks and the like tend to foster growth.
However, it is unclear to me at this point whether the EU or the US can grow their way out of the ginormous pile of debt that they (as individuals, companies and government) have accumulated.

So, everyone, are we really fucked, or will we (EU and US) muddle through yet again?

[Simple Minded]

A few years ago I used to be an incurable optimist regarding the self-regulating nature of the free market.

I obviously hadn't realized how pervasively and how perversely the global business/state/labor conflux was intertwined.

It seems that we are at a junction where the sins of the past two to six decades are finally coming due.


Even with the state monetizing all the new debt, total debt to gdp ratios above 150% cannot be sustained for long.
Cutting spending to pay off debt will only decrease GDP, and decrease consumption, and deter investment.
Usually, I'd take out and wave about the old nostrum about how stable, enabling and transparent legal, fiscal and political frameworks and the like tend to foster growth.
However, it is unclear to me at this point whether the EU or the US can grow their way out of the ginormous pile of debt that they (as individuals, companies and government) have accumulated.

So, everyone, are we really fucked, or will we (EU and US) muddle through yet again?

Congrats Taboo, you are one of very few who recognize this mess was decades in the making. Excellent indicator of the power of Zeitgeist to swamp the intentions of political parties, nations, even continents. Humans have an infinite capacity for self-delusion, don't they (I)?

Debt is easy to solve, the US gives China Hawaii or our navy....... and the slate is wiped clean.

Debt is miniscule in comparision to unfunded obligations. By some calculations US debt is much larger than "official estimates" (no surprise there) to the tune of $80-300 trillion. But if you think about it, unfunded obligations are infinite right up until the moment the promises are reniged upon.

Default is on the way. Won't be pretty, but hey, it has happened before. Not as scarey a senario as a big Mama Guyo Earth fart wiping us all out.

[Typhoon]

FT - Wolf | The journey towards becoming Japan

On May 10 2012, the yield on the German 10-year bund was 1.44 per cent, on the US 10-year Treasury was 1.85 per cent and on the UK 10-year gilt was 1.9 per cent.

These are extraordinary numbers. They are particularly striking in the cases of the US and UK, which unlike Germany, run very large fiscal deficits and are experiencing very rapid increases in public sector indebtedness.

This combination of falling government bond rates with very rapid rises in public sector indebtedness reminds us, of course, of the experience of Japan since 1990.

Countries with huge fiscal deficits are being rewarded with huge falls in bond yields. Is that the wages of virtue?
Surely, this ought to disturb those right-thinking people who have frequently foretold a bond market meltdown in the UK and, still more importantly, the US.
Moreover, those are the very people who also tend to believe that markets mostly get things right.
But, apparently, markets do not believe there is the serious fiscal problem in the UK or US (or Japan) that the right-thinking people believe in.

What, then, is going on? What are markets telling us? The most important thing they are telling us is that the conventional view of the relationship between fiscal deficits, debt and interest rates is nonsense in balance-sheet recessions.

The best explanation of this lies in the work of Richard Koo, Chief Economist of the Nomura Research Institute in his book, The Holy Grail of Macroeconomics (John Wiley, 2009). He updated the argument in a presentation he made at the April 2012 conference of the Institute for New Economic Thinking in Berlin.

In essence, Mr Koo argues that the experience of the US and UK looks like that of Japan because it is: all these countries are experiencing balance-sheet recessions.

Betting that US and UK govt bond rates will rise is probably a great way to make a small fortune . . . starting with a large fortune.

[Typhoon]

FT | China cuts reserve requirement

SHANGHAI, May 12 – China’s central bank cut the amount of cash that banks must hold as reserves on Saturday, freeing an estimated Rmb400bn ($63.5bn) for lending to head-off the risk of a sudden slowdown in the world’s second-largest economy.

The People’s Bank of China delivered a 50 basis point cut in banks’ reserve requirement ratio (RRR), effective from May 18, the third cut in six months and one that investors had called for after data on Friday showed the economy weakening, not recovering, from its slowest quarter of growth in three years.

Industrial production weakened sharply in April and fixed asset investment – a key growth driver – hit its lowest level in nearly a decade, surprising many economists who thought Q1’s 8.1 per cent annual rate of growth marked the bottom of a downswing and were expecting signs of recovery in Q2 data.

“The central bank should have cut RRR after Q1 data. It has missed the best timing,” Dong Xian’an, chief economist at Peking First Advisory in Beijing, told Reuters.

“A cut today will have a much discounted impact. So the Chinese economy will become more vulnerable to global weakness and the slowing Chinese economy will in turn have a bigger negative impact on global recovery. Uncertainties in the global and Chinese economy are rising,” he said.

Hmmm.

Bloomberg | Chinese Banks ‘Built on Quicksand’ With Bad Loans

Chinese banks are “extremely fragile” because the lenders don’t have enough capital to offset bad loans, said Jim Chanos, president and founder of the $6 billion hedge fund Kynikos Associates Ltd.
Chinese lenders are saddled with non-performing loans accumulated in the late 1990s and early 2000s, Chanos, the short seller who predicted the collapse of Enron Corp. in 2001, said in an interview on Bloomberg Television yesterday.

The banks are failing to recognize the losses on the bad loans and have carried out a lending binge since 2008, said Chanos.

“The Chinese banking system is built on quicksand and that’s the one thing a lot of people don’t realize,” said Chanos, who is shorting the shares of Agricultural Bank of China. “Everybody seems to think it is a free and clear open checkbook. It’s not. The banking system in China is extremely fragile.”

[Endovelico]

Even with the state monetizing all the new debt, total debt to gdp ratios above 150% cannot be sustained for long.
Cutting spending to pay off debt will only decrease GDP, and decrease consumption, and deter investment.
Usually, I'd take out and wave about the old nostrum about how stable, enabling and transparent legal, fiscal and political frameworks and the like tend to foster growth.
However, it is unclear to me at this point whether the EU or the US can grow their way out of the ginormous pile of debt that they (as individuals, companies and government) have accumulated.

So, everyone, are we really fucked, or will we (EU and US) muddle through yet again?

There is a simple answer: wipe out ALL debt, private, corporate and sovereign!!! Of course that requires nationalizing all banks throughout the world and guarantee all deposits, but that's a lot less troublesome that trying to pay what can't be paid.

[Parodite]

Even with the state monetizing all the new debt, total debt to gdp ratios above 150% cannot be sustained for long.
Cutting spending to pay off debt will only decrease GDP, and decrease consumption, and deter investment.
Usually, I'd take out and wave about the old nostrum about how stable, enabling and transparent legal, fiscal and political frameworks and the like tend to foster growth.
However, it is unclear to me at this point whether the EU or the US can grow their way out of the ginormous pile of debt that they (as individuals, companies and government) have accumulated.

So, everyone, are we really fucked, or will we (EU and US) muddle through yet again?

There is a simple answer: wipe out ALL debt, private, corporate and sovereign!!! Of course that requires nationalizing all banks throughout the world and guarantee all deposits, but that's a lot less troublesome that trying to pay what can't be paid.

Something to that. Not sure all debt.. maybe though.

Background is that indeed it is kinda weird... a financial crisis that is stored in computers of banks by number (of which 50% of the total is toxic/ hot air) with at the same time in the real world still loads of economic value and wealth present... Indeed make the numbers in those computers of the financial industry correspond better with real economic value and wealth, then restore also the separation between investment banking and retail banking, dissolve the eurozone or recreate a better alternative.

And especially: do not allow for too many and complex (and toxicely creative) financial products... because they become unmanegeable i.e. cancerous! A game should be as simple or complex as the amount of regulations you can afford.

But then again... dunno. Anyone more?

[noddy]

im sure each and everyone of us could whip through the quagmire in an afternoon, culling some things, propping up others and then be home for dinner and drinks.

we dont have theship-minds of the culture deciding whats toxic and whats not toxic, whats valuable and whats not , which bets are safer and which are riskier, which risks are public and which risks are private/individual..... and who pays for the consequences of the risk being, ermm, risky.

we have politics, which is either the madness of the mob or the wisdom of the group or both or neither, or something like that, maybe its mr p and tinker sneering at each other, maybe its not.

its definately going to be interesting.

[Endovelico]

Background is that indeed it is kinda weird... a financial crisis that is stored in computers of banks by number (of which 50% of the total is toxic/ hot air) with at the same time in the real world still loads of economic value and wealth present... Indeed make the numbers in those computers of the financial industry correspond better with real economic value and wealth, then restore also the separation between investment banking and retail banking, dissolve the eurozone or recreate a better alternative.

And especially: do not allow for too many and complex (and toxicely creative) financial products... because they become unmanegeable i.e. cancerous! A game should be as simple or complex as the amount of regulations you can afford.

But then again... dunno. Anyone more?

I very much think along the same lines. Most debt is indeed virtual, hot air. Wipe it out and you still have all real assets capable of producing the goods and services we need. Besides, lots of economic agents have as much debt as credit owed to them. But because they do not receive what is owed them they can't pay what they owe. If we had a huge global clearing house, most debt would disappear anyway without a single cent/penny having to be paid out. It's all in our minds, and we can solve it.

[Simple Minded]

It's all in our minds, and we can solve it.

A good point, economics is more about psychology and perceptions, than it is a mechanical function of "numbers." It is not a physical science like mechanics. People are involved.

Shilling and a few others seem to get it. Everytime I see someone looking at the numbers as if the numbers are "causes" and not "indicators" or "effects," I think (perhaps incorrectly) "They have it backwards."

How does anybody define whether "they feel rich" or "they feel poor?" Might not have a damn thing to do with their bank account or net worth........

[Parodite]

Background is that indeed it is kinda weird... a financial crisis that is stored in computers of banks by number (of which 50% of the total is toxic/ hot air) with at the same time in the real world still loads of economic value and wealth present... Indeed make the numbers in those computers of the financial industry correspond better with real economic value and wealth, then restore also the separation between investment banking and retail banking, dissolve the eurozone or recreate a better alternative.

And especially: do not allow for too many and complex (and toxicely creative) financial products... because they become unmanegeable i.e. cancerous! A game should be as simple or complex as the amount of regulations you can afford.

But then again... dunno. Anyone more?

I very much think along the same lines. Most debt is indeed virtual, hot air. Wipe it out and you still have all real assets capable of producing the goods and services we need. Besides, lots of economic agents have as much debt as credit owed to them. But because they do not receive what is owed them they can't pay what they owe. If we had a huge global clearing house, most debt would disappear anyway without a single cent/penny having to be paid out. It's all in our minds, and we can solve it.

Still how would such an operation look like in reality? It was discussed in the past on either Diegetics or Spengboard... but some people argued it would be a technical impossibility to execute. But i'd be interested to see the script if it still, as a thought experiment perhaps, had to be done.

[Taboo]

Even with the state monetizing all the new debt, total debt to gdp ratios above 150% cannot be sustained for long.
Cutting spending to pay off debt will only decrease GDP, and decrease consumption, and deter investment.
Usually, I'd take out and wave about the old nostrum about how stable, enabling and transparent legal, fiscal and political frameworks and the like tend to foster growth.
However, it is unclear to me at this point whether the EU or the US can grow their way out of the ginormous pile of debt that they (as individuals, companies and government) have accumulated.

So, everyone, are we really fucked, or will we (EU and US) muddle through yet again?

There is a simple answer: wipe out ALL debt, private, corporate and sovereign!!! Of course that requires nationalizing all banks throughout the world and guarantee all deposits, but that's a lot less troublesome that trying to pay what can't be paid.

You seem to forget that one man's (or government's) debt is another widow's or orphan's asset.

Most of government debt is in the form of promises to pay pensions to old baby-boomers. Pension funds hold a LOT of the assets everywhere. I'm ok with letting all the baby boomers starve like they obviously deserve, but perhaps some more humanitarian people might object.

[Endovelico]

Even with the state monetizing all the new debt, total debt to gdp ratios above 150% cannot be sustained for long.
Cutting spending to pay off debt will only decrease GDP, and decrease consumption, and deter investment.
Usually, I'd take out and wave about the old nostrum about how stable, enabling and transparent legal, fiscal and political frameworks and the like tend to foster growth.
However, it is unclear to me at this point whether the EU or the US can grow their way out of the ginormous pile of debt that they (as individuals, companies and government) have accumulated.

So, everyone, are we really fucked, or will we (EU and US) muddle through yet again?

There is a simple answer: wipe out ALL debt, private, corporate and sovereign!!! Of course that requires nationalizing all banks throughout the world and guarantee all deposits, but that's a lot less troublesome that trying to pay what can't be paid.

You seem to forget that one man's (or government's) debt is another widow's or orphan's asset.

Most of government debt is in the form of promises to pay pensions to old baby-boomers. Pension funds hold a LOT of the assets everywhere. I'm ok with letting all the baby boomers starve like they obviously deserve, but perhaps some more humanitarian people might object.

Come on, Taboo! How much of government's debt is owed to widows and orphans?... As to pensions, they are mostly paid from current taxes and social security contributions. Since governments would keep collecting taxes, there would be no danger to those pensions.

[Endovelico]

Background is that indeed it is kinda weird... a financial crisis that is stored in computers of banks by number (of which 50% of the total is toxic/ hot air) with at the same time in the real world still loads of economic value and wealth present... Indeed make the numbers in those computers of the financial industry correspond better with real economic value and wealth, then restore also the separation between investment banking and retail banking, dissolve the eurozone or recreate a better alternative.

And especially: do not allow for too many and complex (and toxicely creative) financial products... because they become unmanegeable i.e. cancerous! A game should be as simple or complex as the amount of regulations you can afford.

But then again... dunno. Anyone more?

I very much think along the same lines. Most debt is indeed virtual, hot air. Wipe it out and you still have all real assets capable of producing the goods and services we need. Besides, lots of economic agents have as much debt as credit owed to them. But because they do not receive what is owed them they can't pay what they owe. If we had a huge global clearing house, most debt would disappear anyway without a single cent/penny having to be paid out. It's all in our minds, and we can solve it.

Still how would such an operation look like in reality? It was discussed in the past on either Diegetics or Spengboard... but some people argued it would be a technical impossibility to execute. But i'd be interested to see the script if it still, as a thought experiment perhaps, had to be done.

I believe that wiping out all debt would not, for the most, have any impact at all on economic survival, as credits and debits tend to balance out for many economic agents. This general cancellation of debt would mostly function as a spontaneous clearing house. Things to take care of:

1. Small holders of public debt should have their assets protected.
2. Banks would lose most of their income, so they would have to be nationalized and supported until a new credit book was formed.
3. Bonds held by pension funds should be protected. But one should not forget that the value of shares held by these pension funds would tend to revalue as a result of debt wipe out, so the need to protect those bonds may be limited.

[Typhoon]

The Big Pic - Ritholz | A Brief History Lesson: How We Ended Glass Steagall

Death by a thousand exceptions until a final decapitation.

[Parodite]

The Big Pic - Ritholz | A Brief History Lesson: How We Ended Glass Steagall

Death by a thousand exceptions until a final decapitation.

I have seen Greenspan saying their deregulation turned out a mistake. But I have not seen him putting any effort in reversing the mistake. I have seen Volker though in an interview claiming that similar protection that GS provided, can also be achieved in other ways.

It [financial reform] is unfortunately not the main issue in the US elections. Gay marriage is much more important.

[Taboo]

Come on, Taboo! How much of government's debt is owed to widows and orphans?... As to pensions, they are mostly paid from current taxes and social security contributions. Since governments would keep collecting taxes, there would be no danger to those pensions.

Maybe in Portugal. Emphatically not the case in other countries.


Think of all the poor old people you're robbing. They've worked all their lives, and now you take their hard-earned bread away. How sad.

[Typhoon]

FT | Chinese defaults prompt mystery

Over the last two weeks, Chinese consumers of thermal coal and iron ore have been defaulting on their contracts, sending prices sharply down.

The reason behind the cancellations is a hotly debated topic in the physical commodities market.

Analysts and traders have put forward two radically different theories – with almost opposite implications to global commodities markets:

either Chinese buyers do not need the raw materials because weak demand and high inventories – a bearish scenario –

or they need the shipments, but they are defaulting to take advantage of falling prices and they plan to rebook at a lower costs – neutral to bullish.

The market has experienced both hypotheses at work: after the start of the global financial crisis of 2008, Chinese buyers defaulted en masse as demand vanished.

But in 2010, when fears about the eurozone sent prices down, Chinese customers defaulted on their shipments, only to rebook their cargoes shortly after at much lower prices.

Commodities traders tell me that probably both theories are at play.

[Mr. Perfect]

My "man in Beijing" is tremendously bearish. One of my best friends has been manufacturing in China for nearly 10 years and is totally disgusted with business over there at this point and is considering relocating to SK. The CCP is essentially a mafia not to be trusted in any way, screwing everything and everybody native or foreigner for their short term gain.

This is a long term and not a short term prognostication. I don't know if there is enough solid data to make short term prediction.

If the China bubble pops I would say that country is stagnant for a century.

The only interesting thing about the place was the possibility it had of having an America within itself, a portion of the population with somewhat of a US standard of living, surrounded by the rest of the population of perpetually impoverished people.