The Treasury Department is "perilously close to a breach of faith" with Congress over its handling of the financial industry bailout, and lawmakers need to take a closer look at how the department is accounting for its spending, a key architect of the plan said Wednesday. House Financial Services Chairman Barney Frank , D-Mass., blasted Treasury on Wednesday following the release a day earlier of a report saying the government has no effective way to verify that money spent as part of the $700 billion rescue will increase lending. "The bad news was confirmation by the [Government Accountability Office] in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law -- to increase lending," Frank said. "The much worse news is Treasury's response that it does not even have the intention of doing so." President-elect Barack Obama also expressed concern about the GAO report on Wednesday, saying, "We're seeing some areas where we can be doing better in making sure this money is not going to CEO compensation, that it's protecting taxpayers, that it's effective in shoring up financial markets."
The Treasury Department is "perilously close to a breach of faith" with Congress over its handling of the financial industry bailout, and lawmakers need to take a closer look at how the department is accounting for its spending, a key architect of the plan said Wednesday.
House Financial Services Chairman Barney Frank , D-Mass., blasted Treasury on Wednesday following the release a day earlier of a report saying the government has no effective way to verify that money spent as part of the $700 billion rescue will increase lending.
"The bad news was confirmation by the [Government Accountability Office] in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law -- to increase lending," Frank said. "The much worse news is Treasury's response that it does not even have the intention of doing so."
President-elect Barack Obama also expressed concern about the GAO report on Wednesday, saying, "We're seeing some areas where we can be doing better in making sure this money is not going to CEO compensation, that it's protecting taxpayers, that it's effective in shoring up financial markets."
CHICAGO (Reuters) - President-elect Barack Obama said on Wednesday struggling automakers have put forward a "more serious" restructuring proposal to Congress but withheld judgment on the plans until hearings are held. At a news conference, Obama named rival-turned-supporter Bill Richardson as his secretary of commerce, calling the New Mexico governor a perfect ambassador for U.S. business interests in the midst of deep global economic turmoil. Obama, who takes over from President George W. Bush on January 20, said Congress was right to demand a more detailed restructuring plan before deciding on a financial bailout for General Motors, Ford Motor and Chrysler LLC. "It appears, based on reports that we've seen, that this time the executives from these automakers are putting forward a more serious set of plans," Obama said.
CHICAGO (Reuters) - President-elect Barack Obama said on Wednesday struggling automakers have put forward a "more serious" restructuring proposal to Congress but withheld judgment on the plans until hearings are held.
At a news conference, Obama named rival-turned-supporter Bill Richardson as his secretary of commerce, calling the New Mexico governor a perfect ambassador for U.S. business interests in the midst of deep global economic turmoil.
Obama, who takes over from President George W. Bush on January 20, said Congress was right to demand a more detailed restructuring plan before deciding on a financial bailout for General Motors, Ford Motor and Chrysler LLC.
"It appears, based on reports that we've seen, that this time the executives from these automakers are putting forward a more serious set of plans," Obama said.
WASHINGTON -- The United Automobile Workers union said Wednesday that it would make major concessions in its contracts with the three Detroit auto companies to help them lobby Congress for $34 billion in federal aid. The surprising move by the U.A.W. could be a critical factor in the automakers' bid not only to get government assistance, but also to become competitive with the cost structure of nonunion plants operated by foreign automakers in the United States.At a news conference in Detroit, the U.A.W.'s president, Ron Gettelfinger, said that his members were willing to sacrifice job security provisions and financing for retiree health care to keep the two most troubled car companies of the Big Three, General Motors and Chrysler, out of bankruptcy.
WASHINGTON -- The United Automobile Workers union said Wednesday that it would make major concessions in its contracts with the three Detroit auto companies to help them lobby Congress for $34 billion in federal aid.
The surprising move by the U.A.W. could be a critical factor in the automakers' bid not only to get government assistance, but also to become competitive with the cost structure of nonunion plants operated by foreign automakers in the United States.
At a news conference in Detroit, the U.A.W.'s president, Ron Gettelfinger, said that his members were willing to sacrifice job security provisions and financing for retiree health care to keep the two most troubled car companies of the Big Three, General Motors and Chrysler, out of bankruptcy.
US Treasury Secretary Henry Paulson is mulling whether to ask Congress for the next part of a controversial 700-billion-dollar financial bailout package, the Wall Street Journal reported Wednesday. The request for 350 billion dollars comes against a background of criticism over how the funds have been managed so far, the paper wrote. It noted that a congressional watchdog issued a critical report on Tuesday that said the Treasury's rescue program lacked transparency and needed stricter internal controls. If Paulson were to request the next installment, he likely would do so next week, the paper said on its website. And if market conditions deteriorate further, he would do so despite disagreements with lawmakers about how to use the funds. While Paulson favors directing the bailout money to financial institutions, Democrats in Congress want the package spread wider to help the ailing auto industry and homeowners facing foreclosure.
US Treasury Secretary Henry Paulson is mulling whether to ask Congress for the next part of a controversial 700-billion-dollar financial bailout package, the Wall Street Journal reported Wednesday.
The request for 350 billion dollars comes against a background of criticism over how the funds have been managed so far, the paper wrote.
It noted that a congressional watchdog issued a critical report on Tuesday that said the Treasury's rescue program lacked transparency and needed stricter internal controls.
If Paulson were to request the next installment, he likely would do so next week, the paper said on its website. And if market conditions deteriorate further, he would do so despite disagreements with lawmakers about how to use the funds.
While Paulson favors directing the bailout money to financial institutions, Democrats in Congress want the package spread wider to help the ailing auto industry and homeowners facing foreclosure.
Will he, won't he, will he, won't he, will he spend the TARP?
US Treasury Secretary Henry Paulson is mulling whether to ask Congress for the next part of a controversial 700-billion-dollar financial bailout package,
...and practicing control of his facial muscles for the next presser...
Must. Not. Burst. Out. Laughing.
let that gloating cackle out, go on, you'll feel a lot better.
such sheeple... candy from a baby
BWAH_ HA_HA!! IMPOTENT FOOLS, bow before me, maker and breaker of global economies, master of the universe. ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
http://www.fool.com/investing/international/2008/11/26/39-trillion-was-a-drop-in-the-bucket.aspx
Item Issuer Amount of Outlay
Commercial Paper Funding Facility Federal Reserve $1.8 trillion
Temporary Liquidity Guarantee Program FDIC $1.4 trillion
Term Auction Facility (TAF) Federal Reserve $900 billion
Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and Ginnie Mae U.S. Treasury / Federal Reserve $800 billion
Treasury Asset Relief Program (TARP) U.S. Treasury $700 billion
Total USD International Currency Swap Lines Federal Reserve $688 billion
Money Market Investor Funding Facility Federal Reserve $540 billion
Other Loans: Primary Dealer Credit, etc. Federal Reserve $288.7 billion
Citigroup (NYSE: C) Guarantee U.S. Treasury / FDIC $306 billion
Hope for Homeowners Act of 2008 U.S. Treasury $304 billion
Term Securities Lending Facility (TSLF) Federal Reserve $225 billion
Term Asset-Backed Securities
Loan Facility (TALF) U.S. Treasury $200 billion
Economic Stimulus Act of 2008 U.S. Treasury $168 billion
Paid to JPMorgan Chase (NYSE: JPM)
to Settle Lehman Brothers Debt Federal Reserve $138 billion
AIG (NYSE: AIG) Bailout Federal Reserve $112.5 billion
Bear Stearns Brokered Sale Federal Reserve $26.9 billion
I'm afraid to look ... Total: $8,597,100,000,000 Our knowledge has surpassed our wisdom. -Charu Saxena.
The world has run out of willing and creditworthy private borrowers. The spectacular collapse of the western financial system is a symptom of this big fact. In the short run, governments will replace private sectors as borrowers. But that cannot last for ever. In the long run, the global economy will have to rebalance. If the surplus countries do not expand domestic demand relative to potential output, the open world economy may even break down. As in the 1930s, this is now a real danger.To understand this, one must understand how the world economy has worked over the past decade. A central role has been played by the emergence of gigantic savings surpluses around the world. In 2008, according to forecasts from the International Monetary Fund, the aggregate excess of savings over investment in surplus countries will be just over $2,000bn (see chart).
The world has run out of willing and creditworthy private borrowers. The spectacular collapse of the western financial system is a symptom of this big fact. In the short run, governments will replace private sectors as borrowers. But that cannot last for ever. In the long run, the global economy will have to rebalance. If the surplus countries do not expand domestic demand relative to potential output, the open world economy may even break down. As in the 1930s, this is now a real danger.
To understand this, one must understand how the world economy has worked over the past decade. A central role has been played by the emergence of gigantic savings surpluses around the world. In 2008, according to forecasts from the International Monetary Fund, the aggregate excess of savings over investment in surplus countries will be just over $2,000bn (see chart).
...the open world economy may even break down.
What happens before, what happens during, God knows what happens after. I want to make sure I have enough microwave popcorn in stock for the entire movie. In the end, might makes right. Nothing has changed since the caveman.
what's the value of so many global relations to everyone now? Some countries may find it more safe to turn away from trade balances and monetary tricks
Hmm. Well, I would not dismiss so readily disruption by MNC actors to capital formation and "self-sustainability" that might arise from solidarity in captured labor/consumer markets. Complimenting Chris's description of conventional corporate structures is their geo-political instrumentality in maintenance of colonial institutions. That is legal as well as extralegal collusion among local "partnership" groups to oversee property rights. The corporation is a vehicle for free-radical economic benefit unlike the apparatus of --and paradoxical rationales for-- observing "national" accounts.
Here's an angle on the Decoupling Debate I noticed only this morning as reviewed by James Petras. The mechanics should look as familiar as any word by Ms Klein.
The Great Land Giveaway | BAR | 3 Dec 2008
The process of agro-imperial empire building operates largely through political and financial mechanisms, preceded, in some cases, by military coups, imperial interventions and destabilization campaigns to establish pliable neo-colonial `partners' or, more accurately, collaborators, disposed to cooperate in this huge imperial land grab. Once in place, the Afro-Asian-Latin American neo-colonial regimes impose a neo-liberal agenda which includes the break-up of communal-held lands, the promotion of agro-export strategies, the repression of any local land reform movements among subsistence farmers and landless rural workers demanding the redistribution of fallow public and private lands. The neo-colonial regimes' free market policies eliminate or lower tariff barriers on heavily subsidized food imports from the US and Europe. These policies bankrupt local market farmers and peasants increasing the amount of available land to `lease' or sell-off to the new agro-imperial countries and multinationals. The military and police play a key role in evicting impoverished, indebted and starving farmers and preventing squatters from occupying and producing food on fertile land for local consumption. Once the neo-colonial collaborator regimes are in place and their `free market' agendas are implemented, the stage is set for the entry and takeover of vast tracts of cultivable land by the agro-imperial countries and investors.
Once the neo-colonial collaborator regimes are in place and their `free market' agendas are implemented, the stage is set for the entry and takeover of vast tracts of cultivable land by the agro-imperial countries and investors.
As well exporting, at will, middle-managers (technocrats!) to sites around the world in which they have difficulty establishing substantive interest. What really caught my attention though was mention of this report, detailing transnational real estate "hedges" even as OECD price supports are collapsing.
Over 100 cases for offshore food production | GRAIN | October 2008
Five trading conglomerates dominate Japan's food and agribusiness market: Mitsubishi, Itochu, Mitsui, Marubeni and Sumitomo. They are involved in purchasing, processing, shipping, trading and retail. They mostly focus on serving the needs of the domestic Japanese market. But because that market is ageing and shrinking, growth has to be found elsewhere. Japan's food corporations are moving overseas (to capture new markets) and upstream (towards production). Marubeni and Mitsui, and to a lesser extent Mitsubishi, aim to join the ranks of the world's top grain traders, on a par with Arthur Daniels Midland and Bunge. (Cargill, they reckon, is too far ahead.) They are buying up and building huge new facilities and operations in Europe, the US and Latin America. Marubeni recently bought eight grain-storage facilities and two warehouses in the US for US$48m. This way, it can bypass the market and buy soya beans and maize directly from US producers. Securing a foothold in China, where ADM, Bunge and Cargill are not that strong, is now a real strategic priority for these firms.
Japan's food corporations are moving overseas (to capture new markets) and upstream (towards production). Marubeni and Mitsui, and to a lesser extent Mitsubishi, aim to join the ranks of the world's top grain traders, on a par with Arthur Daniels Midland and Bunge. (Cargill, they reckon, is too far ahead.) They are buying up and building huge new facilities and operations in Europe, the US and Latin America. Marubeni recently bought eight grain-storage facilities and two warehouses in the US for US$48m. This way, it can bypass the market and buy soya beans and maize directly from US producers. Securing a foothold in China, where ADM, Bunge and Cargill are not that strong, is now a real strategic priority for these firms.
Countries with large external surpluses import demand from the rest of the world. In a deep recession, this is a "beggar-my-neighbour" policy. It makes impossible the necessary combination of global rebalancing with sustained aggregate demand. John Maynard Keynes argued just this when negotiating the post-second world war order. In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.
In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.
La cigale et la fourmi comes to my mind here, and I'm amazed that redstar would agree with Munchau and Wolf that the policies of reckless unsustainable debt-fuelled "growth" are the way to go, even now.
The issue is one of sharing the fruits of the economy, not of creating them, given that "creating" them right now involves printing money rahter than actual value generation.
We have to get our heads around this fact: real value generation in the recent past was fake, but the massive use of fake money allowed for whatever was there to be unfairly apportioned. Now the bill is coming due, and there will be no way to avoid that. What matters now is how pain is apportioned. Asking Germany to spend money is just asking them to accept yet more Anglo/plutocrat imaginary money in exchange for real stuff. No wonder they are not keen. In the long run, we're all dead. John Maynard Keynes
Asking Germany to spend money is just asking them to accept yet more Anglo/plutocrat imaginary money in exchange for real stuff.
Actually, no. If they were to spend money, they would not accept money of any kind (imaginary or not), they would be spending it. Of course, they may feel that they would be getting imaginary goods, or that they would enter a cycle of spending money they don't and won't have. But they wouldn't need to accept imaginary money. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
The point is, something needs to be done for people who are going to, very soon, be suffering the ravages of the neo-liberalism "Western" political elites, not just in the UK and the US, have foisted on their countries. Or, we can not do something, and have the parties who are supposedly there to represent working people and are considered "respectable," the PS in France, the SPD in Germany for starters, sit on their hands and continue their very public strategery of infighting, and watch the consequences.
I suspect in Germany this will lead to big big gains in next year's election for Die Linke. Which is, I guess, a very nice silver lining, as it's been a long time working people had real representation in a major European country.
And speaking of Die Linke, Dodo's translation of Oskar Lafontaine on the subject is virtually identical to my own. Austrian school, Anglo school....it's really hard to quite know which economic ideology is worse for working people. Fai de bèn a Bertrand, te lou rendra en cagant
I suspect in Germany this will lead to big big gains in next year's election for Die Linke.
Would be nice! Always the pessimist, at this stage, I expect a much stronger trend to non-voting (both from the SPD and the CDU) than to the Left (even despite the fact that the Left Party's gains are in no small part from previous non-voters). *Lunatic*, n. One whose delusions are out of fashion.
And, if we could be sure that only the profligate be punished, I would agree with your wholeheartedly. But, that's not how things are likely to happen. Oh, the profligate will get theirs (and this, no matter what we do in my opinion) via a marked decline in living standards over the next decade at the very least. But so will this happen in many in our countries as well, and it won't be those who've profited of the past decade.
We can play (ultimately cycle-reinforcing, even magnifying) fiscal conservatism now and say the problem isn't us, but what do we then tell the workers when unemployment goes back up over 12% like the last time? I know where it led last time...to 12 years of Chirac, that's where. And unemployment benefits aren't what they were back then, and there's a desperate need for more public housing.
We've got a president who's announcing a pretty completely bullshit plan de relance, but at least it's a plan. What are we proposing? It can't be nothing, that's just not politically feasible in the present environment, certainly not for people who claim to represent working people.
This isn't about helping Anglo-American financial capitalism out of their mess. It's about helping ourselves, though I suspect, as indicated above, that help will come one way or another. Fai de bèn a Bertrand, te lou rendra en cagant
(It should also be noted that the world seems to be running a $350bn surplus with itself.)
Could you explain this?
Also, do you agree with Paul Krugman that in the case of the United States it is far better to overshoot on a major fiscal stimulus plan than to be too conservative (especially since an over-generous stimulus package can be adjusted for by raising interet rates)? Truth unfolds in time through a communal process.
That aside, and with the usual disclaimer that I'm not an economist, I think it very much depends on what the stimulus is spent on.
If it's spent on windmills and railroads, it's better to overdo it.
If it's spent on building highways or digging holes in the ground and filling them up again, it's probably usually better to overdo it.
If it's spent on bailing out fatcats with schemes that reinforce "too big to fail" and "moral hazard" problems rather than solve them... well, the jury is still out on that.
I have a hypothesis that one reason why monetary policy interventions are so beloved by a certain kind of economists is that they're one-size-fits-all, so they're easy to input into simple (simplistic?) models - all .5 percentage point interest rate cuts are created equal, as it were. Whereas fiscal interventions open up a whole political can of worms about where and how the fiscal intervention is desired - all .5 trillion stimulus packages are not created equal.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Yesterday I listened to an interview with Paul Krugman in which he says:
It is true that the two relevant examples -- FDR in the 30's and Japan in the 90's -- used public works spending. And while you can argue that it helped, it certainly didn't in either case bring them out of the slump. But then if you look at it more closely you discover they really didn't do it on an adequate scale in each case. And it was in the end a public works program that ended the Great Depression, a very large public works program known as World War II. We don't have to do it on that scale, I hope, this time. But the question for conservatives here is, What is your answer? Is he really saying that what we need to do is let the free market work, let wages fall, liquidate farmers, liquidate the workers, as Herbert Hoover -- ? We have a pretty good idea of what needs to be done. And we should act on that, because the consequences of not acting would be terrible. Paul Krugman on the Crisis of `08 | WBUR and NPR's On Point with Tom Ashbrook
And it was in the end a public works program that ended the Great Depression, a very large public works program known as World War II. We don't have to do it on that scale, I hope, this time.
But the question for conservatives here is, What is your answer? Is he really saying that what we need to do is let the free market work, let wages fall, liquidate farmers, liquidate the workers, as Herbert Hoover -- ?
We have a pretty good idea of what needs to be done. And we should act on that, because the consequences of not acting would be terrible.
Paul Krugman on the Crisis of `08 | WBUR and NPR's On Point with Tom Ashbrook
To which someone responds on the website, in a similar vein as your comment:
Your guest does not seem to respect the difference between World War II spending and New Deal spending. This isn't to say that New Deal spending was bad and World War II spending was good they probably were both necessariy. They were however also very different in some key regards and one was as even your guest admits was thoroughly more effective than the other. World War II spending was focused on creating jobs in a new emerging industry New Deal spending was focused on maintaining jobs in a dieing industry, World War II spending had clear objectives, New Deal spending was just sending money chasing after problems, World War II spending was focused in large on R&D, New Deal spending was focused on maintaining an old system sometimes despite technology. The difference between the two couldn't be more clear. Let's spend but let us also follow the World War II model and spend on new enterprise with clear objectives let's not spend on ineffective dieing industries. Government spending isn't inherently good or inherently bad but there definitely is a right way and a wrong to spend money I say spend it the right way. Posted by Sam, on December 1st, 2008 at 10:46 pm EST Paul Krugman on the Crisis of `08 | WBUR and NPR's On Point with Tom Ashbrook
Your guest does not seem to respect the difference between World War II spending and New Deal spending. This isn't to say that New Deal spending was bad and World War II spending was good they probably were both necessariy. They were however also very different in some key regards and one was as even your guest admits was thoroughly more effective than the other. World War II spending was focused on creating jobs in a new emerging industry New Deal spending was focused on maintaining jobs in a dieing industry, World War II spending had clear objectives, New Deal spending was just sending money chasing after problems, World War II spending was focused in large on R&D, New Deal spending was focused on maintaining an old system sometimes despite technology. The difference between the two couldn't be more clear. Let's spend but let us also follow the World War II model and spend on new enterprise with clear objectives let's not spend on ineffective dieing industries. Government spending isn't inherently good or inherently bad but there definitely is a right way and a wrong to spend money I say spend it the right way. Posted by Sam, on December 1st, 2008 at 10:46 pm EST
Germany...what a mess of prosperity they are in for. They spent and spent and spent to incorporate the former east, and now they will only benefit from that. What can they spend on?
Perhaps Germany can buy any or all of the NuYerp countries who complain about this or that EU policy (which they knew would be problems when they signed on. One thinks of death penalty, abortion, coal, shipyard policies off hand.) Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
The (formerly) advanced industrial countries are all in or headed for the liquidity trap `lite'. This is the situation where the short-term risk-free nominal interest rate cannot fall any further. A `heavy' or `deep' liquidity trap occurs when nominal risk-free rates at all maturities are at their lower bound(s). A liquidity trap `lite' may occur even when short-term rates are above zero. It will certainly occur when the short-term nominal interest rate falls to zero. Unless the monetary authorities are willing and able to tax currency holdings, the zero nominal interest rate rate on bank notes sets a floor for all short-term nominal interest rates. I have not seen too many central bankers perusing the works of Silvio Gesell, so for the time being, I will treat a zero short risk-free nominal interest rate as the effective floor for the risk-free nominal interest rate. If zero is the floor, there is no reason not to go there immediately. The recession in the US, the UK, the Eurozone, Japan and the rest of Europe is, with probability verging on certainty, going to be so deep and so prolonged, that the zero lower bound will be reached even by the most anal-retentive gradualist central bank before the middle of 2009. So why not get it over with in December 2008 and possibly do some good in the mean time?
The (formerly) advanced industrial countries are all in or headed for the liquidity trap `lite'. This is the situation where the short-term risk-free nominal interest rate cannot fall any further. A `heavy' or `deep' liquidity trap occurs when nominal risk-free rates at all maturities are at their lower bound(s).
A liquidity trap `lite' may occur even when short-term rates are above zero. It will certainly occur when the short-term nominal interest rate falls to zero. Unless the monetary authorities are willing and able to tax currency holdings, the zero nominal interest rate rate on bank notes sets a floor for all short-term nominal interest rates. I have not seen too many central bankers perusing the works of Silvio Gesell, so for the time being, I will treat a zero short risk-free nominal interest rate as the effective floor for the risk-free nominal interest rate.
If zero is the floor, there is no reason not to go there immediately. The recession in the US, the UK, the Eurozone, Japan and the rest of Europe is, with probability verging on certainty, going to be so deep and so prolonged, that the zero lower bound will be reached even by the most anal-retentive gradualist central bank before the middle of 2009. So why not get it over with in December 2008 and possibly do some good in the mean time?
Financial markets were braced for large interest rate cuts across Europe from Thursday as bad economic figures continued to flow from all leading economies.In the UK, the consensus among economists shifted during the week to an expectation that the Bank of England would reduce its official rate another percentage point to 2 per cent, equal to its lowest rate since the Bank was founded in 1694. The overnight index swap market, one of the best guides to official interest rate expectations, has priced in a reduction of 1.5 percentage points.In the eurozone, the equivalent European financial market has priced in a 0.75 percentage point reduction by the European Central Bank to 2.5 per cent today, a move that would be bigger than any it has made in its near 10-year existence. Although economists are a little more cautious, with inflation risks disappearing fast, they nevertheless believe a three-quarter percentage point reduction is a distinct possibility.Influential voices are calling on central banks to be bold. Willem Buiter of the London School of Economics, a former member of the Bank of England's monetary policy committee and chief economist of the European Bank for Reconstruction and Development, says the recession in advanced economies is "going to be so deep and so prolonged" that zero per cent rates "will be reached even by the most anal-retentive gradualist central bank before the middle of 2009".
Financial markets were braced for large interest rate cuts across Europe from Thursday as bad economic figures continued to flow from all leading economies.
In the UK, the consensus among economists shifted during the week to an expectation that the Bank of England would reduce its official rate another percentage point to 2 per cent, equal to its lowest rate since the Bank was founded in 1694. The overnight index swap market, one of the best guides to official interest rate expectations, has priced in a reduction of 1.5 percentage points.
In the eurozone, the equivalent European financial market has priced in a 0.75 percentage point reduction by the European Central Bank to 2.5 per cent today, a move that would be bigger than any it has made in its near 10-year existence. Although economists are a little more cautious, with inflation risks disappearing fast, they nevertheless believe a three-quarter percentage point reduction is a distinct possibility.
Influential voices are calling on central banks to be bold. Willem Buiter of the London School of Economics, a former member of the Bank of England's monetary policy committee and chief economist of the European Bank for Reconstruction and Development, says the recession in advanced economies is "going to be so deep and so prolonged" that zero per cent rates "will be reached even by the most anal-retentive gradualist central bank before the middle of 2009".
STUPID ?!!!!! In the end, might makes right. Nothing has changed since the caveman.
why the interest rate cannot fall below zero percent.
The reason is entirely academic, a supposition that unearned income is always a real rather than irrational number, financial "loss" is a heinous moral to relative measurement systems, and in natural language expressions some variation of euphemism "negative equity" (-1 + 1) sufficiently conveys the social construct that effective income (real purchase power of money spent) compared to forecast or expected ROI is somehow not zero. Not gone. Not consumed. Not unrecoverable. Not irreversible. As well as burned in a bonfire as eaten on a skewer. With condiment.
It's all quite neurotic. Diversity is the key to economic and political evolution.
Unless you design some super clever banknotes that have an adjustable ink so that it will lose nominal in the process. Until then, negative interest rates won't work. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
I suppose that for large sums on current accounts, banks could start charging large fees, but the risk of seepage to actual cash is real, and brings other problems (as in: run on the bank), which can only then be avoided by confiscatory policies, which is a whole other ballgame. In the long run, we're all dead. John Maynard Keynes
I am not being a wise guy, I seriously am confused about this.
But the killer situation is to borrow for holding.
Compared to not doing anything, here is what happens: At T=0, you borrow $100. You don't change your spending patterns in any way. Then, at T=1, you repay your loan with a mere $95. Yes, those $95 are worth more than the $100 you borrowed at T=0. But simply holding the cash made those $100 of yore turn into $100 of today -more valuable. So you are still left with $5 more than in the situation where you did not borrow, at zero risk (in fact, at negative risk, since the institution might collapse and never require those $95), for not doing anything.
OK, it's not quite true: somebody may steal those banknotes in the meantime. So you need someplace safe to hold them. But any rate negative by more than the risk of theft won't work. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
Case 1: Inflation rate is 5%, interest rate is 10%. I loan somebody $100; at the end of a year he or she pays back $110. I have gained $10 of cash due to interest, and lost $5 of value due to inflation. Net gain of $5.
Case 2: Inflation rate is 0%, interest rate is 5%. I loan $100; get back $105. I have gained $5 in cash, not lost or gained any value. Net gain of $5.
Case 3: Inflation rate is -5%, interest rate is 0%. I loan $100, get back $100. I have not lost or gained any cash, but have gained $5 of value due to deflation. Net gain of $5.
Case 4: inflation rate is -10%, interest rate is -5%. I loan $100, get back $95. I have lost $5 of cash, but have gained $10 in value due to inflation. Net gain of $5.
What is wrong with this argument?
Case 5: Inflation rate is -10%, interest rate is now adjusted by the government to -10%. I loan $100, get back $90. I have lost $10 of cash, but have gained $10 in value due to inflation. Net gain of $0 and there is risk. So I don't make loans in this case, either...
Hmmm.
It is possible to impose that cash must flow, by replacing bills with stamped vouchers that lose their value if they are not stamped (change of hands) at a set frequency.
It is an "out of the box" tinkering with the velocity of money. Was tried locally in Germany during the great depression. Could be tried today, thinking big and using new "enforcement" technologies like e-wallets, e-cash, etc... Pierre
He proposed that international (centrally issued quasi special drawing right) "Bancor" trade balances would incur a charge on both positive and negative balances.
What we got was the US IMF/World Bank approach with the dollar as global reserve currency and giving the US a free ride to unlimited "seigniorage".
Worse than that, the fact that the interest charges are made only on negative balances has created a one way flow from poor to rich nations. This is a form of positive feedback that has ended up - which as mathematically it had to in a world of finite resources - in continual instability and, eventually, our current terminal meltdown.
My understanding is that the concept of "money that rusts" was that of Gesell, and that Keynes was a big fan of Gesell's. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
UnitedHealth Will Now Sell You Insurance for Insurance
The health insurance mess has come to this: UnitedHealth will now sell you insurance that guarantees your future ability to buy health insurance, even if you get sick, the New York Times reports. Robert Collins, president of UnitedHealth's individual insurance unit, is the first customer for the product called UnitedHealth Continuity. It costs him $50 a month. For "a very modest premium," he told the Times, Continuity protects a person's future insurability. Then again, your future insurability may change for the better, if the Obama administration follows through on plans for health reform and broader health coverage. "As an individual, you're betting against health reform," by buying this product, Peter Lee, of the Pacific Business Group on Health, told the Times. There are limits to the insurance hedge, even if you do want to place your bet with it. Sick people won't generally be eligible for Continuity, the Times writes. And after passing the medical hurdle, you're looking at plunking down about 20% percent of the current premium on the individual policy you'd like to have down the road. Finally, Continuity is available now in 25 of 40 states where UnitedHealth sells individual plans. The company is working on getting approval for it in the other states where it does business.
Then again, your future insurability may change for the better, if the Obama administration follows through on plans for health reform and broader health coverage. "As an individual, you're betting against health reform," by buying this product, Peter Lee, of the Pacific Business Group on Health, told the Times.
There are limits to the insurance hedge, even if you do want to place your bet with it. Sick people won't generally be eligible for Continuity, the Times writes. And after passing the medical hurdle, you're looking at plunking down about 20% percent of the current premium on the individual policy you'd like to have down the road.
Finally, Continuity is available now in 25 of 40 states where UnitedHealth sells individual plans. The company is working on getting approval for it in the other states where it does business.
Help! Head won't stop spinning! Come, my friends, 'Tis not too late to seek a newer world.
indulgences, they used to call them! ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
It costs him $50 a month. For "a very modest premium," he told the Times, Continuity protects a person's future insurability.
My monthly premium is, I think, about $200. Only the insurance industry could call 25% a "modest" premium.
I'll keep my fifty bucks and donate it to a health reform PAC so that these weasels don't stop it this time, thank you. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Two year payment holiday for loss of job or significant fall in incomeHomeowners struggling to pay their mortgages were given a reprieve by Gordon Brown yesterday when he unveiled a plan to let people affected by the economic downturn take a two-year mortgage interest payment holiday.The intervention was aimed at removing the prospect of an increase in home repossessions before a general election and to give people breathing space if they lose their jobs or take a big cut in their income. It is also designed to show that Labour would help middle Britain through the recession.Brown's surprise move came amid reports that without the government's intervention, repossessions were set to increase to 75,000 next year, hitting levels last seen in 1991, the worst year of the previous recession.Eight banks and building societies, covering 70% of the mortgage market, have agreed to allow families struggling with mortgage payments the right to defer all, or part, of their interest payments for two years. The government will underwrite the scheme.
Homeowners struggling to pay their mortgages were given a reprieve by Gordon Brown yesterday when he unveiled a plan to let people affected by the economic downturn take a two-year mortgage interest payment holiday.
The intervention was aimed at removing the prospect of an increase in home repossessions before a general election and to give people breathing space if they lose their jobs or take a big cut in their income. It is also designed to show that Labour would help middle Britain through the recession.
Brown's surprise move came amid reports that without the government's intervention, repossessions were set to increase to 75,000 next year, hitting levels last seen in 1991, the worst year of the previous recession.
Eight banks and building societies, covering 70% of the mortgage market, have agreed to allow families struggling with mortgage payments the right to defer all, or part, of their interest payments for two years. The government will underwrite the scheme.
Timothy Geithner, President-elect Barack Obama's choice for U.S. Treasury Secretary, is seeking to push Federal Deposit Insurance Corp. Chairman Sheila Bair out of office. Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn't a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration. "The idea of having an independent actor on the stage with you who might not be singing the same tune can make you nervous," said Wayne Abernathy, a former Treasury official who is now executive vice president with the American Bankers Association in Washington. "They recognize that she's a very independent person." It isn't clear that Obama would ask Bair to step down. Such a move would be fraught with political risk for the new administration, especially on Capitol Hill, where Bair's campaign to rework mortgages for struggling homeowners has won respect from top lawmakers, including Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his counterpart in the House.
Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn't a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration.
"The idea of having an independent actor on the stage with you who might not be singing the same tune can make you nervous," said Wayne Abernathy, a former Treasury official who is now executive vice president with the American Bankers Association in Washington. "They recognize that she's a very independent person."
It isn't clear that Obama would ask Bair to step down. Such a move would be fraught with political risk for the new administration, especially on Capitol Hill, where Bair's campaign to rework mortgages for struggling homeowners has won respect from top lawmakers, including Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his counterpart in the House.
Bwahahahahaha ... Diversity is the key to economic and political evolution.
