That's around the same size as the entire GDP of the entire USA for a year. If a crisis of this magnitude occurs in the private clearing system once a century (and on the record it appears to be more often than that), the American government could have a full percent of its population on retainer to service the clearing system, and it would still be cheaper than the bailout alone (nevermind the current operating costs).
Are you saying that the US federal government will need more than 1.5 million people more than the private sector to run the clearing system?
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
If the petrol distribution network ceases to function for a week, people will still be able to get to where they need to go, because their cars have on-board storage capacity.
If the clearing system entirely ceases to function for a week, people start burning stuff.
> safeguard the capital of corporate and retail banking in order to ensure that they can continue to function even in the event of capital market failure
In which sense is this not the same as safeguarding the clearing system?
clearing systems per se, which are just a byproduct of the banking business
The monetary authority could also offer every citizen an account with the central bank, which could be administered through existing commercial banks, savings banks or post offices.
We're conditioned to see a difference between road building and private lending. But where is that difference?
Or to put it another way - what value does private lending really add, when it reliably creates bubbles and crashes as much as it creates working capital?
You're talking about the actual metal in the coins and paper in the notes, right? Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
While you're thinking like a cult member money is created by the largesse of the central banks, who guarantee - something or other.
What that something is, no one knows. But it's obvious that without state support it would be valueless. Whatever it is.
Quoting Galbraith (my emphasis):
The modern large Western corporation and the modern apparatus of socialist planning are variant accommodations to the same need. It is open to every free-born man to dislike this accommodation. But he must direct his attack to the cause. He must not ask that jet aircraft, nuclear power plants or even the modern automobile in its modern volume be produced by firms that are subject to unfixed prices and unmanaged demand. He must ask, as just noted, that they not be produced.
More to the point, however, there will always be a state, and it will always "butt in," as you put it.
Because "the state" is really just a euphemism for "the dude in the immediate vicinity who has the biggest stick." And there will always be a dude with the biggest stick.
Exchange rates seem to be a measure of belief in the size of the stick.
Which shouldn't entirely be a surprise, I suppose.
Keynes
When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
after a national gas station strike : see, the cars don't work.
When you have a national gas station strike, the army steps in rather quickly, because it is (even with the grace period, as noted by Jake, of people's fuel tanks) a critical infrastructure. Same with payments systems.
That said, maybe you ARE underlining a critical weakness of the car transportation mode: it's a highly decentralised system depending on a highly centralised infrastructure with a very small number of choke points, a weakness that may be worth remembering. In the long run, we're all dead. John Maynard Keynes
The risk of cascading breakdowns is one of the crucial logistical similarities between the clearing system, the power grid and the train service. And risk of cascading breakdowns in a vital infrastructure gives you market failure. Every. Single. Time.
The point of nationalising the clearing system is not to prevent another speculative orgy. That is likely to be impossible. The point is to take away the ability of the criminals on Wall Street to take the entire monetary production economy hostage to their games of three-card monte.
Once the clearing system is nationalised, the rest of the banking sector can and should be allowed to burn to the ground when they fuck up on this kind of scale. That's what happens to every other company or sector in a capitalist economy.
Like I said before, states are by far unable to guarantee, let alone replace the whole banking system. This is why I don't agree with US voices speaking against big state, for instance: state's power and influence is already quite small - except maybe the chinese case.
Unless, that is, you want to nationalize the whole economy. Because this is where your reasoning is heading to, in reality, right :) Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Preserving the electrical grid is of little help when the generators break down. Preserving the railroads is pointless when there are no trains in the first place.
Yes. That is why you don't unbundle the grids.
Like I said before, states are by far unable to guarantee, let alone replace the whole banking system.
They do not need to replace the whole banking system. GoldmanSachs does not need to be run by the government - it can be allowed to go into Chapter 7 like every other insolvent company which is not worth keeping as a going concern.
All the government has to guarantee is the clearing system. And that is perfectly well within its capabilities. It may have to confiscate the assets of a few hedge funds to do so, but hedge funds are expendable.
Precisely, so nationalizing the clearing system is not enough: we need to nationalize the banks also, really the whole banking systems. We cannot possibly satisfy to a few ATM, right :) That's why I said earlier that we'll be led to taking over all intermediaries. If G Sachs is allowed to fail, who will finance the economy then? The state, since it's the only big actor standing. If it needs to finance the whole economy, that means it'll have to take it over - or at least that's what it'll all amount to. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
If G Sachs is allowed to fail, who will finance the economy then?
In the short term, the state, via massive construction programmes to green the economy. Programmes that are long overdue and will have to be implemented anyway, eventually.
In the medium term, some of the several thousand local and regional banks will fill out the market for project finance. And some of the big banks will go into Chapter 11 instead of Chapter 7, which means that they will still be around, but under new (and hopefully improved) management.
Perhaps you haven't been paying attention, but the guaranteeing part is exactly what just happened in the US.
As for the rest - where's your evidence that states can't replace the banking system? States can certainly buy and run banks, and historically they've usually done this with greater success than the bankers have.
Your position seems to be based on nothing more solid than wishful thinking, repetition and ideology.
It's certainly not based on history or fact.
States can buy and run banks, better or worse. The example of Credit Lyonnais comes to mind here.
My position is that the state is not some all-powerful monster. I don't say it's not competent, although even that can be discussed, but that it isn't big enough. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
the state is not some all-powerful monster
You don't need investment banks for that, but you do need deposit accounts and debit cards. The brainless should not be in banking. — Willem Buitler
