Have You Got A Lifeline Boy?
Nov. 20th, 2008 12:00 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksI went into Lewisham yesterday to take my shoes in for repair and to buy a mop -- since my cleaner seems so efficient with the cleaning that a mop I bought only six months ago is on the verge of disintegration.
The mop shop had closed, but I did spot a "nothing over a pound" store. I wandered in and, betweeen the no-brand shampoo/washing-up liquid and the rather dubiously-coloured soap was a new range -- retail companies in the shit. I declined to buy Woolworths, but I might pop in there in January to see if Marks & Spencer's is on offer.
++++++++++++++++++++
"Lifeline for small companies" is the lead in today's Financial Times.
"Alistair Darling is to underwrite new loans to small firms as part of a package of measures to help the sector", the article continues.
Which is all very fine, except that, as Robert Peston points out this morning, the net debt of small companies in the UK is, wait for it, zero.
In fact, throwing a lifeline to foolishly indebted small companies is grossly unfair to the prudent small companies that have not accumulated debt. Just crying "it's a cashflow problem! We are profitable" is not enough. There are small companies out there that are profitable and which do not have a cashflow problem. Why should they suffer for their prudence in cash conservation?
What it's all really about is "throwing a lifeline to bigger companies", who depend on lots of smaller companies surviving. The bigger companies in the UK most certainly do have net debt -- about 120% of the UK's gross domestic product, according to Peston.
The thing is, although Gordon Brown can say with a straight face that "we will take all measures necessary to help small businesses get the loan capital that they need", even though this is very unfair on prudent small businesses, what he cannot say is "we will take all measures necessary to help big businesses get the loan capital they need".
That's a rather harder sell to the public, which remembers multi-milion pound bonuses to CEOs, chauffeur-driven BMWs and parties in Monaco.
The other matter, and it's not a minor one, is that putting together a piddling scheme to lend to the minority of small companies that stupidly got themselves into too much debt is feasible; to put together a gigantic scheme that guarantees, say, all the banks, all the motor industry, all the building industry, and so on, is rather more problematic. Hell, even the US is now in the dificult position of explaining why the $700bn largesse that it struggled so hard to get is actually just a piece of piss in the ocean.
All of which is rather odd since, as you may recall, I stick doggedly to my theory that only $300bn or so has actually been "lost" as a result of the subprime lending lunacy.
Why is $700bn all of a sudden so ineffective?
Basically because we have three separate factors at work here, and various interested parties are trying to merge them into a single conceptual sludge for their own gain. No-one, for example, could claim that General Motors needs money because of dodgy lending to subprime borrowers. GM wants money because if it doesn't get it it will run out of cash in three months, and it will run out of money because (a) we are heading into recession and (b) it owes bundles of cash that it can't roll over into new loans.
GM, in other words, is in trouble now because it should have gone broke years ago, but only the new reality of tight credit has brought the matter to a head. The subprime lending was an example of easy credit, the survival of GM was the same. But the imminent demise of GM is nothing to do with the money that's been lost on dodgy home loans in the past. It's more to do with the fact that there won't be any more dodgy loans in the future. GM, as it were, relies on people buying cars with borrowed money.
So, working backwards from the most recent developments, problem 1 is a recession caused by an end to easy borrowing. This is a fundamental economic situation that affects the whole economy and is one which we have suffered before, although the triggers have varied (in 1973 it was the oil price, today it's the end of the easy credit years). The standard Keynesian solution will be to print money and that, in the end will wipe out debts and screw the savers.
Before that we had the solvency crisis. This was the bit where people realized that banks were not just suffering liquidity problems because they didn't know where the toxic sludge was, but that several of them (the ones where the toxic sludge was) actually had solvency problems. The solvency crisis had two parts -- a fundamental solvency issue (see the $300bn above) and a mark-to-market solvency issue, which was probably in the region of $2trn to $3trn (and this number was the one relevant to the US government's TARP figure of $700bn). Some banks that had probably "really" only lost about $10bn out of their capitalization of $30bn or so, might go broke because mark-to-market rules meant that, technically, they owed $40bn tomorrow. This might be called "Long Term Capital Management" insolvency.
Before THAT we had the liquidity crisis -- halcyon days not more than a year ago when some people actually believed that if you could just reinstall confidence, everything would be fine.
Paradoxically, the liquidity crisis is now easing. As the solvency issue makes it clearer in the financial sector who is in the shit, so LIBOR comes down, because if you know that bank X is in deep trouble because of the toxic sludge it owns, that makes it less likely that bank Z is going to go broke (because there isn't an infinite amount of toxic sludge). So, whereas before you wouldn't deal with anyone, you are now willing to deal with bank Z.
Where the liquidity crisis is now manifesting itself is outside the financial sector -- in retail, in building. Credit insurers are pulling in the reins, and that makes things tough for a number of non-financial players. Eventually this too will work through the system (as it is doing now in finance), but we face a ride as rocky in the non-financial sector (perhaps rockier) than we did in the finance sector. None of this is anything directly to do with the lost $300bn. It's a lack of trust based on fears for the economy as a whole in the future (what people will spend tomorrow) rather than what people spent in the past (the money that they borrowed to overpay for houses that they can't afford).
Which brings us back to the recession. Here we are not talking about $300bn that has been lost, but on the amount that will be lost because of a contracting economy.
Now, world GDP is about $66trn a year. If the markets had been expecting 2% growth year on year, but comes up against a 1% contraction next year and a flat 2010, that gives us a "real" loss of $200bn in 2008 ($66bn lost and $132bn not gained), followed by a $338bn loss in 2010 (the amount lost in 2008 carried over, plus the amount lost in 2009). Continuing forward, the loss from what might have been carries on at increasing "might have been" levels that only gets cancelled out when growth gets back to more than the long-term average.
So, adding all that up, we have a $300bn or therabouts loss on money already spent that won't be paid back (the subprime crisis), a further $550bn or thereabouts lost (by 2011 alone) because of GDP that we won't get that we thought we would get, and somewhere in the region of a $3trn mark-to-market termporary hiccup which is really little more than everyone hiding their money under the mattress for a year or so. The trouble is, you can't print an extra $3trn to cover that money because (a) people just hide that under the mattress too and (b ) when they take it out from under the mattress, that means you have $3trn more money chasing $900bn less GDP. In a GDP land of $65trn, that effectively means you devalue money by 6.5% or thereabouts overnight.
If you punch 6.5% of inflation into the ecomony in a couple of months, you are likely to change inflationary expectations very quickly.
What you would really like is short-term money. Print new cash on a use-it-or-lose it basis, which can be exchanged back for "real" cash on an amortized basis over the next two years, at which point it becomes worthless. That way you could pump money into the economy and banks/people would have to spend it as soon as possible.
__________
The mop shop had closed, but I did spot a "nothing over a pound" store. I wandered in and, betweeen the no-brand shampoo/washing-up liquid and the rather dubiously-coloured soap was a new range -- retail companies in the shit. I declined to buy Woolworths, but I might pop in there in January to see if Marks & Spencer's is on offer.
++++++++++++++++++++
"Lifeline for small companies" is the lead in today's Financial Times.
"Alistair Darling is to underwrite new loans to small firms as part of a package of measures to help the sector", the article continues.
Which is all very fine, except that, as Robert Peston points out this morning, the net debt of small companies in the UK is, wait for it, zero.
In fact, throwing a lifeline to foolishly indebted small companies is grossly unfair to the prudent small companies that have not accumulated debt. Just crying "it's a cashflow problem! We are profitable" is not enough. There are small companies out there that are profitable and which do not have a cashflow problem. Why should they suffer for their prudence in cash conservation?
What it's all really about is "throwing a lifeline to bigger companies", who depend on lots of smaller companies surviving. The bigger companies in the UK most certainly do have net debt -- about 120% of the UK's gross domestic product, according to Peston.
The thing is, although Gordon Brown can say with a straight face that "we will take all measures necessary to help small businesses get the loan capital that they need", even though this is very unfair on prudent small businesses, what he cannot say is "we will take all measures necessary to help big businesses get the loan capital they need".
That's a rather harder sell to the public, which remembers multi-milion pound bonuses to CEOs, chauffeur-driven BMWs and parties in Monaco.
The other matter, and it's not a minor one, is that putting together a piddling scheme to lend to the minority of small companies that stupidly got themselves into too much debt is feasible; to put together a gigantic scheme that guarantees, say, all the banks, all the motor industry, all the building industry, and so on, is rather more problematic. Hell, even the US is now in the dificult position of explaining why the $700bn largesse that it struggled so hard to get is actually just a piece of piss in the ocean.
All of which is rather odd since, as you may recall, I stick doggedly to my theory that only $300bn or so has actually been "lost" as a result of the subprime lending lunacy.
Why is $700bn all of a sudden so ineffective?
Basically because we have three separate factors at work here, and various interested parties are trying to merge them into a single conceptual sludge for their own gain. No-one, for example, could claim that General Motors needs money because of dodgy lending to subprime borrowers. GM wants money because if it doesn't get it it will run out of cash in three months, and it will run out of money because (a) we are heading into recession and (b) it owes bundles of cash that it can't roll over into new loans.
GM, in other words, is in trouble now because it should have gone broke years ago, but only the new reality of tight credit has brought the matter to a head. The subprime lending was an example of easy credit, the survival of GM was the same. But the imminent demise of GM is nothing to do with the money that's been lost on dodgy home loans in the past. It's more to do with the fact that there won't be any more dodgy loans in the future. GM, as it were, relies on people buying cars with borrowed money.
So, working backwards from the most recent developments, problem 1 is a recession caused by an end to easy borrowing. This is a fundamental economic situation that affects the whole economy and is one which we have suffered before, although the triggers have varied (in 1973 it was the oil price, today it's the end of the easy credit years). The standard Keynesian solution will be to print money and that, in the end will wipe out debts and screw the savers.
Before that we had the solvency crisis. This was the bit where people realized that banks were not just suffering liquidity problems because they didn't know where the toxic sludge was, but that several of them (the ones where the toxic sludge was) actually had solvency problems. The solvency crisis had two parts -- a fundamental solvency issue (see the $300bn above) and a mark-to-market solvency issue, which was probably in the region of $2trn to $3trn (and this number was the one relevant to the US government's TARP figure of $700bn). Some banks that had probably "really" only lost about $10bn out of their capitalization of $30bn or so, might go broke because mark-to-market rules meant that, technically, they owed $40bn tomorrow. This might be called "Long Term Capital Management" insolvency.
Before THAT we had the liquidity crisis -- halcyon days not more than a year ago when some people actually believed that if you could just reinstall confidence, everything would be fine.
Paradoxically, the liquidity crisis is now easing. As the solvency issue makes it clearer in the financial sector who is in the shit, so LIBOR comes down, because if you know that bank X is in deep trouble because of the toxic sludge it owns, that makes it less likely that bank Z is going to go broke (because there isn't an infinite amount of toxic sludge). So, whereas before you wouldn't deal with anyone, you are now willing to deal with bank Z.
Where the liquidity crisis is now manifesting itself is outside the financial sector -- in retail, in building. Credit insurers are pulling in the reins, and that makes things tough for a number of non-financial players. Eventually this too will work through the system (as it is doing now in finance), but we face a ride as rocky in the non-financial sector (perhaps rockier) than we did in the finance sector. None of this is anything directly to do with the lost $300bn. It's a lack of trust based on fears for the economy as a whole in the future (what people will spend tomorrow) rather than what people spent in the past (the money that they borrowed to overpay for houses that they can't afford).
Which brings us back to the recession. Here we are not talking about $300bn that has been lost, but on the amount that will be lost because of a contracting economy.
Now, world GDP is about $66trn a year. If the markets had been expecting 2% growth year on year, but comes up against a 1% contraction next year and a flat 2010, that gives us a "real" loss of $200bn in 2008 ($66bn lost and $132bn not gained), followed by a $338bn loss in 2010 (the amount lost in 2008 carried over, plus the amount lost in 2009). Continuing forward, the loss from what might have been carries on at increasing "might have been" levels that only gets cancelled out when growth gets back to more than the long-term average.
So, adding all that up, we have a $300bn or therabouts loss on money already spent that won't be paid back (the subprime crisis), a further $550bn or thereabouts lost (by 2011 alone) because of GDP that we won't get that we thought we would get, and somewhere in the region of a $3trn mark-to-market termporary hiccup which is really little more than everyone hiding their money under the mattress for a year or so. The trouble is, you can't print an extra $3trn to cover that money because (a) people just hide that under the mattress too and (b ) when they take it out from under the mattress, that means you have $3trn more money chasing $900bn less GDP. In a GDP land of $65trn, that effectively means you devalue money by 6.5% or thereabouts overnight.
If you punch 6.5% of inflation into the ecomony in a couple of months, you are likely to change inflationary expectations very quickly.
What you would really like is short-term money. Print new cash on a use-it-or-lose it basis, which can be exchanged back for "real" cash on an amortized basis over the next two years, at which point it becomes worthless. That way you could pump money into the economy and banks/people would have to spend it as soon as possible.
__________
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no subject
Date: 2008-11-20 01:02 pm (UTC)Buy me a warp drive when you get mega-rich, Pete.
And all the other Star Trek gizmos we are promised after a thousand years of year-on-year growth.
I am particularly looking forward to you buying me a replicator. You'll be needing it to replicate all the resources you'll need for your multi-quadrillion dollar future economy.
Oh and don't forget to buy the land your pile sits upon.
Remember you can't take it with you to the grave so what's the point of flogging yourself?
xxx's
Back to the Wall-Eyed
Date: 2008-11-20 03:22 pm (UTC)(a) We've had a thousand years of year-on-year growth. Probably more like 30,000, really, unless you're a Neanderthal and live in a cave. Oh, wait ...
(b) There is sparse documentary evidence to confirm that a person or persons unknown promised Star Trek gizmos based on this premise. Keep taking the tablets.
(c) Not that it's relevant, but technological advances rarely depend upon an economic model of growth. Generally speaking, they're disruptive (or, if you prefer, the consequence of a "tipping point," as propounded by the wildly over-hyped Gladwell. Is he the shortest and most pasty-faced pundit alive to persevere with the sort of haircut that would haev disgraced Kevin Keegan in the 1970s?).
The Birks thesis, I like. To start with, I like the time-line unwrapping. Clearly, it all went wrong when the Japanese carry trade unravelled. The solution therefore is to target government intervention where it's most likely to have an effect: incentivise the Japanese carry trade.
Fat kids should be encouraged to carry a Japanese to school and back. (This would obviously have extrinsic benefits.) Mr Pickle should be forced to justify his company's atrocious service, lousy engineering skills, and ludicrous sucking on the public teat by extending the concept of a First Class carriage to a Bullet Train carriage. Every train should have one: no more complaining that there's only three carriages in Second Class, and they're all standing-room only. Think of the marketing possibilities! In the Japanese Carry Trade carriage, there'd only be Up Somebody Else's Orifice Room Only. Instant social mobility for the second-class citizen!
Then there's the trade part of the equation. No problem. As we all know, they all look alike. This removes the distinction between mark-to-market and mark-to-value. Buy 'em, collect 'em, trade 'em with your deflationary friends ... but avoid Chinese in the junk trade.
Or maybe I'm getting a little confused. I've been thinking about the problem of injecting capital into the system without it disappearing into a hi-tech mattress somewhere, and I think the Birks proposal for short-term money might actually be the solution. We obviously need a backup currency of last resort ... something that 95% of people world-wide trust ... something with Brand Recognition. It also has to be, not so much fungible, as fungus-prone.
I suggest the Big Mac. "I promise to pay the bearer, on demand, one giant cardial infarct." Limited shelf-life; promotional vouchers already out there, just begging to be turned into an alternative currency; abolishes war overnight (vide the "Golden Arch Theory"); and gives a whole new meaning to "sorting out the financially strong."
On a marginally more serious note, the G.M. thing puzzles me. The synopsis, as given above, is arguably correct (in a blindingly obvious sort of way). There appear to be two solutions:
(1) Let 'em go bankrupt. Probably not politically acceptable, but perfectly justifiable in that they've spent the last ten years knowing they've got a huge problem and pissing into the wind.
(2) Let 'em carry on without subsidies, but make sure they can roll over their financing ... into a government-owned finance corp. It's not like the Government hasn't recently nationalised enough financial instruments to do this. It's not like GMAC wasn't the most profitable bit of G.M. by far over the last ten years. It'd hardly be more expensive to the tax-payer than just printing burgers and giving them out to the pension fund holders. It'd also remove yet another chunk of toxic debt from the institutions that (allegedly) lend money in a professional way.
Not that that will ever happen, of course.
It's all about leverage. The last ten years were about (unsecured) financial leverage. The next five or ten will be about political leverage.
I'm not sure which is the more destructive.
Re: Back to the Wall-Eyed
Date: 2008-11-20 05:45 pm (UTC)Blimey, say I.
Probably makes them too big to be allowed not to fail. Take the hit, regroup and move on. In a Honda, most likely.
Elsewhere, we should probably get together, form a plausible limited
company, get a pile of support from HMG and pay ourselves large bonuses before going bust due to the economic climate. South London Mafia Limited, anyone?
Re: Back to the Wall-Eyed
Date: 2008-11-20 10:16 pm (UTC)And the third word is probably copyright. I've got no objection whatsoever to ripping off the tax man, but I don't think we need the attention of laywers for the estate of Mario Puzo.
How about Scunthorpe Holidays In The Sun, PLC? (It's even an hilarious acronym ... that is, if you find the likes of Ross and Brand mildly amusing.) I don't see any problem with that. It's much like my effort to get into the Guinness Book of Records in 1987, where I was trying to find the perfect name for a political party that absolutely nobody would vote for. I settled on "Nigger Lovers." I think you'll agree; that would have worked.
Sadly, my sponsor, a Mr Pickle of the Virgin Isles, disagreed.
The rest is not history.
Re: Back to the Wall-Eyed
Date: 2008-11-20 06:14 pm (UTC)"We've had a thousand years of year-on-year growth. Probably more like 30,000, really, unless you're a Neanderthal and live in a cave."
Indeed, human economic growth started with Homo Habilis, banging a few flints together. Not even the copper, bronze and iron age made much of an improvement to economic growth.
Growth began to take off with coal, steam and cast iron. Then that black stuff began to come out of the ground in the 1860s and things began to take off.
Since the end of the Second World war growth has taken off and so has the consumption of resources. Not for nothing does a graph of global temperature change follow economic growth.
However, now we are using up resources at a rate the planet can no longer keep up with. Something has to give and mother nature has no qualms about flicking off species that go too far.
"...technological advances rarely depend upon an economic model of growth. Generally speaking, they're disruptive..."
Every technological advance requires more energy than the previous advance. Never less.
All in all, your attempt at justifying infinite economic growth on a finite planet is woeful.
If you can show me how an economy can continue to grow with finite resources then I will not only build you a replicator but give you a right royal BJ.
Re: Back to the Wall-Eyed
Date: 2008-11-20 09:04 pm (UTC)Nice trudge: pick a single line and rant at will. What did they teach impressionable young minds in the Public Schools of the 1970s?
Oh yes, I forgot. Just looked at a photo of the current crop of Conservative MPs to remind me.
"Every technological advance requires more energy than the previous advance. Never less."
What an absurd generalisation. The Black and Decker work-bench? The telephone? Penicillin? I suggest that a normal, non-swivel-eyed, person might conclude that, where new technologies take advantage of "more energy" -- and what a feeble and meaningless generalisation that is -- it is because that energy is available at an economic price; not because there's some sort of nitwit requirement for petrochemical consumption.
Sorry for making the attempt to justify infinite economic growth on a finite planet. Oh, wait, I'm not. I made no such attempt and resent your puerile efforts to reduce several half-way decent jokes into some random feel-bad aphorism that happened to puddle up from the back end of your cranial stem.
"However, now we are using up resources at a rate the planet can no longer keep up with."
Thank you Mr Lovelock and goodnight. What do you mean by this? Where is the evidence?
Nevertheless, you must surely be right, in a pre-destinarian sort of way. I shall hereby campaign against the idea of sending glucose and salt tablets to Africa with the intention of curbing infant diarrhoea -- after all, there's a finite supply of sodium chloride and organic hydrocarbons, and a seemingly infinite number of needy pickaninnies -- and attempt to survive on a diet that consists solely of my own excrement.
Well, it seems to work for you.
Re: Back to the Wall-Eyed
Date: 2008-11-20 09:54 pm (UTC)James the Elder, however (in fact, Jonathan is older than James, but I digress), is as keen on confrontation as the next aardvark, and can take care of himself.
In other ways, however, the Two Js (a pop combo? The TooJays?) are similar, in that they can take any comment annd turn it into their own bee in their own bonnet. If I commented on England's wqoeful performance in the one-day series in India, Jonathan would explain how it's all the fault of government and James would explain why it's to do with the use of finite resources in flying over there.
I forebore to point out that James seemed to be attacking a point that I wasn't even making. I know James B, his Bees, and his bonnets.
PJ
Re: Back to the Wall-Eyed
Date: 2008-11-20 10:51 pm (UTC)Does either one do a good Boris Johnson?
Or can they manage, at least, something on the level of Jon Culshaw?
Simulating intelligence, humour, critical thinking, or even paying the slightest attention to what the other person is talking about ... well, that's obviously not TooJays' forte. ("TooJays Forte Soul-Destroying Hits! $1.99 at Woolworths!" Now, that is something I would pay to not pay for. Excellent name for an early '60s crooner band, though.)
On a more serious subject: who cares about England's woeful performance in the one-day series in India? (Other than Giles Clark and sundry marketroids.) I'm more worried about the concept of a two-test series. What? We go from South Africa in ... I dunno, around 1935 ... and a Test match that lasted seven days and was only stopped because the English team had to sail home, to this? It's a travesty. There should be some way of accommodating a billion crazed punters with 20/20 dross, whilst still allowing a minimum of three Tests per series, without fucking things up.
But what am I saying? What's Rule 16 got to do with it?
Re: Back to the Wall-Eyed
Date: 2008-11-21 12:17 am (UTC)You "report" that the economy has gone tits-up and using the same old techniques of the past we can spend our way to recovery. I can read that in a hundred cut 'n' paste blogs.
However, these same old techniques will eventually hit a brick wall. No amount of spending will work as there won't be the resources to complete any socialist projects or tory back-handers to fat cats.
You can borrow from the future to pay for today if you are sure there will be stuff in the ground or pie in the sky to flog at a later date.
For me the recession is only over when GDP raises above the high of 2008. From then on GDP will be constrained by competition for resources brought about by resource depletion and increasing population.
You take things as individual problems. For me the credit crunch is a consequence of bankers no longer having anything of value to flog off. Hence, sub-prime mortgages and hiding them in exotic instruments. Western banks now either gone to the wall or selling themselves to mid/far-east sovereign wealth funds because there is little tangible wealth holders in the west to in banks.
The oil price "bubble" a consequence of peak oil. Any economic "recovery" will send oil prices up to where it was once again causing inflation and another recession.
The world has moved on and old thinking is no longer relevant.
What percentage of GDP does banking and house building constitute? With banks being more restrained in future and quite possibly a more restrained house building policy, due to stricter lending rules, the GDP's big hitters will be stats of the past.
We can all use past figures as a sign of things to come. When it comes to buying the downstairs flat and betting everything on the stockmarket you will probably be in for a shock when your hoped for retirement comes. That's why the land under your bricks is of more value to me than the inflated value of the hovel sitting on top of it. And why I am looking for land with no house. A beaten up second-hand caravan will do for me. A house is worth materials + labour + mug premium (guess which of the three is about 80% of the cost of a house?)
Re: Back to the Wall-Eyed
Date: 2008-11-21 12:47 am (UTC)But I do get it, James. I understand your arguments entirely. Just because I don't interpret every point within what you see as the only point that matter reflects your obsessions, not my lack of an overview.
It's your analysis that has been woeful in recent months -- not mine. If you can't get six months right, I'm hardly likely to show faith in your ability over 10 years, am I? All you can say in response is that you will be proved right (about oil and the dollar) eventually. Once again I have to cite Keynes in that, in the long run, we are all dead. Or, to cite Birks on Poker - the short-run is longer than you think.
Oh, btw, I couldn't even be bothered to answer your silly point about owning the land rather than the bricks. Goodness me, of course I do. I owned half the freehold from 1999 (when you were still a leasehold man) and all of it since 2008. And don't say "the bank owns it", because they don't. I could explain at length why they don't, but I fear that it would be too mundane and "individual" for a man who clearly doesn't like to be bothered with details or facts. You don't even know what my loan from the bank is secured on. But it's not the land. And I could pay off that loan if I chose to. I choose not to. A man of your holistic talents should be able to figure out why.
PJ
no subject
Date: 2008-11-20 03:10 pm (UTC)What you would really like is short-term money. Print new cash on a use-it-or-lose it basis, which can be exchanged back for "real" cash on an amortized basis over the next two years, at which point it becomes worthless. That way you could pump money into the economy and banks/people would have to spend it as soon as possible.
How similar are Taiwan's vouchers (http://news.bbc.co.uk/1/hi/world/asia-pacific/7735027.stm) to this sort of concept? If they are sufficiently similar to solve the problem, might they be an effective solution over here, rather than tax cuts? To what extent do you expect they might displace other spending with the displaced cash being saved or used as debt repayment, rather than being additionally spent - and would that be a bad thing if it were?
no subject
Date: 2008-11-20 09:59 pm (UTC)Yes, the serious risk is that the biodegradable money will not increase expenditure at all - but will just displace non-biodegradable money in the short-term economy. If we throw in a kind of inverse multiplier here, we might get a true impact - say, $50m in extra spending for every $100m in "soon to melt, spend now" ice-cream cash.
That's not ideal, but I can't think of a solution that would guarantee a higher immediate result from money pumping. And since it puzzled Keynes (the famous 'pushing on a piece of string' metaphor) as well, I suspect that I am in good company.
One obvious coup would be a worldwide short-term wealth tax, but that would just encourage avoidance. And you wouldn't get a worldwide agreement on that anyway, not even with a Democrat in the White House.
PJ
Tanking
Date: 2008-11-20 10:03 pm (UTC)PJ
Re: Tanking
Date: 2008-11-20 11:17 pm (UTC)Yup, it's tank time.
Comparative to, say, the South Sea Bubble (or Mr Law's grand experiment). we're now at the point where everbody has admitted that things are shit, and have also admitted that everybody knows that things are shit. This is about the point that Isaac Newton reinvested his gains, if I recall.
I suspect that all important markets (and I discount the Russian, Indian and Shanghai markets, which are important, but for different reasons) will tank badly over the next three months. There will be no January bounce. On a medium-term view, I'd go for 2999 (good sales price) and 6,500.
The question is, how to gouge other peoples' eyes out? Er. I mean, how to make a decent return on capital.
Gresham's Law
Date: 2008-11-20 11:09 pm (UTC)no subject
Date: 2008-11-21 03:37 pm (UTC)I'm confused, however, by your figures here: 'Now, world GDP is about $66trn a year. If the markets had been expecting 2% growth year on year, but comes up against a 1% contraction next year and a flat 2010, that gives us a "real" loss of $200bn in 2008 ($66bn lost and $132bn not gained), followed by a $338bn loss in 2010 (the amount lost in 2008 carried over, plus the amount lost in 2009).'
Yo appear to be an order of magnitude out. 1% of a $66 trillion is $660 billion.
f.n.
no subject
Date: 2008-11-21 03:51 pm (UTC)That would make the impact of a contraction an order of magnitude greater.
On the other hand, that is spread out over the whole world, whereas the postulated contraction appears to be in the west. But if it all impacts the whole world (when the US sneezes, the world catches a cold) then you could indeed be looking at a much bigger economic impact than my numbers above suggest.
Once again, it shows that the money that will not be lent incorrectly in the future is far more important than the money that was incorrectly lent in the past.
Thanks for pointing it out.
PJ
no subject
Date: 2008-11-21 03:52 pm (UTC)PJ
no subject
Date: 2008-11-21 04:13 pm (UTC)Looks like the market is knocking on the door of that 3800 resistance point again. It's brace yourself time!
f.n.