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making sense of the financial crisis: Anglo Disease, debt and counterfeit money

by Jerome a Paris Fri Dec 26th, 2008 at 10:36:17 AM EST

As the talk of stimulus plans gets louder, I worry that the right lessons will not be learnt. A stimulus is needed, for sure, but how it is done matters actually more, in my view, than whether it happens or not.

The current crisis has a simple immediate cause: too much debt, meaning people living beyond their means and now having to retrench. Stimulating demand via more debt may postpone the reckoning yet once more, but only pushes the problem down the road without solving it, while making it yet again bigger.

The question is: why has there been too much debt? The consensus view of the Villagers is that there has been a "savings glut" in countries like China, Japan and Germany, and countries like the US and the UK were "forced" to absorb these savings by running into debt. This is all too convenient.

The more correct reason is that debt has been used to hide the fact that incomes have been stagnant for too long.


The other core reason is that debt looks and behaves like money, just like real income, and can easily act as a substitute. But debt profits, first and foremost those that control it: the financial world, with its hands on the tap. What's been happening is that, thanks to deregulation, the financial world has been left to its own devices and no limit has been put anymore to how much debt it could create. Excessive debt - for which I use another word: counterfeit money - has been injected into the system and has mixed with "real" income.

And the mix has been shared around, with everybody getting equal shares of real money and counterfeit money. Those that put in real work, got paid partly in real money and partly in junk paper; those that printed debt got back real money for a portion, and junk paper for the rest. Unsurprisingly, this amounted to a large scale transfer of wealth to the money printers.

This has real world consequences (collateral damage if you will), in addition to the growing inequality: more and more people moved fro mte productive economy to the money printing side of the business, and those in the real economy were increasingly squeezed to provide actual value for all. For a long time, the illusion worked well enough, and it looked like overall, wealth was created, even as a majority felt it was running increasingly hard just to stay in place.

As the underying real value creation was increasingly struggling to keep pace with the headline numbers, crack appeared, and the whole edifice crumbled. The counterfeit money has been revealed to be just that, and is turning to dust (however, if the assets no longer exist, the debts that they generated are still there). suddenly, the shrinking real economy is all that's left to support macro-economic statistics, and these look terrible. But those that had grabbed a larger share of the pie thanks to their counterfeit paper are not intent on letting that go, and are fully intent for the pain of the elimination of counterfeit money to be shared a lot more equally than its creation was.

Thus the layoffs, shrinking activity, and economic pain all around.

Government spending can solve that problem, by creating new demand - but it needs to be generated by claims on real assets, not by yet more paper value. Conveniently, there is a way to do that: raise taxes, especially the higher marginal rates, to start moving the redistribution pendulum the other way. It is also essential that the spending be focused on things that are useful to people rather than to corporations and their owners: spending should be focused on social services, basic necessities, investment that will benefit all (energy-use transforming infrastructure like public transport and grid networks, healthcare) and core functions like education.

But the core requirement is to admit that the prosperity of the past few years as fake and inexistent. Acknowledging this does not mean shrinking the economy, it just means measuring it properly, and telling the truth about the Bush years. Most people outside the Village kno it already anyway.

Runaway debt, private or public, is not a sustainable path. And there is an alternative - it simply requires that blame be properly allocated, instead of everybody pretending that this crisis 'just happened.'

See also taonow's diary on a parallel topic: It's all China's fault... Really?

Display:
http://www.dailykos.com/storyonly/2008/12/26/10724/679/318/671937

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Dec 26th, 2008 at 10:36:47 AM EST
There is a mostly forgotten book by economist James S. Duesenberry, "Income Savings and the Theory of Consumer Behavior" (1949, reprinted 1967) that is worth reading.

He did an analysis of what happens to consumers when their income drops. In general they attempt to maintain their standard of living as long as possible. This means borrowing, using up savings and similar measures. His theory has to do with their expectation that the drop is only temporary and if one allows oneself to slip into a lower socio-economic class then it will be hard to get out again.

This seems to have been what has happened over the past few decades. People have gotten poorer, not just because their earnings have stagnated, but because they have lost wealth. For example it used to be the norm that parents would pay for much of their children's higher education. Now students paying for their own education is much more common. The wealth that would have been set aside for this has vanished from the working generation and the debt moved on to the next.

There have been similar hidden impoverishments in areas of health care and retirement.

The idea that people have been using their homes as ATM's or running up their credit card debt just to afford another widescreen TV or SUV is a rightwing-fostered exaggeration, in line with the prior generation's creation of the "Cadillac driving welfare mom".

In each case the theme is that it is the personal irresponsibility of people and their lack of moral fiber which is at fault rather than systemic problems with the economic and social structure.

In fact this idea is so popular that it remains the guiding principle of the libertarian wing of conservatism. Violations of labor laws, shared monopolies, corruption in big industry and government is ignored and the blame assigned to the weakest and most defenseless. It a game that has worked for hundreds, if not thousands, of years.

Those like, say, Socrates or Jesus who pointed out the fallacies of the systems always ended up in a bad way. We don't seem to murder social critics anymore (at least in the west), but the forces of wealth still do whatever they can to marginalize them.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Dec 26th, 2008 at 11:12:12 AM EST
... understanding why similar income volatility to, say, the 1960's leads to much more economic stress after a decade of income stagnation for the majority of the population ...

... that is, demands on budgets expand to meet median incomes available, but not instantly, so that in a period of rising incomes, there a much larger number of households who can "tighten their belts" without experiencing substantial financial distress, while in a period of prolonged income stagnation, the same volatility causes much more distress.

Of course, how sustainable government debt is depends on the change in real economic growth that follows ... if the deficit over the business cycle should average less than the rate of economic growth, then a structural deficit of around 2% would be a cyclical deficit of around 5%, and it is pure Hooverian economics to refrain from government spending for fear of "exploding public debt".

The concern is not, as in the deliberately brain-dead EU fiscal policy agreement, the volume of public deficit spending, but what is bought with the deficit spending. After all, outstanding debt in excess of 100% of GDP was no crippling burden for the US economy after WWII, while the reckless borrowing on behalf of gross strategic blunders and reckless foreign entanglements under the current Resident may well be less easy to afford.

Certainly there is no doubt that the US has been underinvesting in infrastructure over the past three decades, and so for us there is no serious reason to refrain from deficit spending on the range of 5% of GDP over two to four years of economic downturn, provided that the deficit spending is useful investment rather than reckless consumption.

The EU may not be face as deep an infrastructure deficit as the US, but under current economic conditions, 5% deficits are perfectly reasonable, provided they are direct expenditure on goods and services and at least a substantial share of that spending is on infrastructure with long term economic benefit.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Dec 26th, 2008 at 06:05:16 PM EST
[ Parent ]
Proactive investment in infrastructure and R&D would be even better.

One of the many tragedies of the current fiasco is that finance didn't just vampirise the economy, it also vampirised academia by seducing some of the most intelligent people into working out new ways to create funny money out of thin air, when they could have been doing something useful with their time.

Sustainable energy should be a given, but it would good to see what's possible beyond that. What new kinds of infrastructure would be likely to keep paying dividends into the rest of the century?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Dec 27th, 2008 at 12:44:34 PM EST
[ Parent ]
... pro-active investment in infrastructure something else.

Pro-active investment in research involves supporting a wide portfolio of research activity anticipating that a few wins will more than cover the resources devoted to the activity, especially when the investment builds the research capabilities of a nation.

But in infrastructure, its hard enough to swing some substantial share of infrastructure spending to things that are big economic wins right now, and away from patterns of infrastructure spending that are on clear dead end roads ... trying to get infrastructure spending up on the basis of guesses about the future direction of technological evolution seems like it may be a bridge too far.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Dec 27th, 2008 at 04:42:14 PM EST
[ Parent ]
Really?

I get the impression that "hard" should read "easy".

In the States at any rate, you get an easy answer. Pick a bridge randomly: it is likely to be collapsing. Right, so better maintenance will mean that you still have a bridge (and the people who would have died in the accident will still be alive). Neat.

Then, a half decent train system. Most of the country is flat and it won't be as expensive as in, say, Europe. Thankfully, Californians, while bigotted enough to pass proposition 8, did seem to notice that some more rail was a good idea.

Then, turning as many of the energy swallowing condos into passive houses. That will definetely bring dividends through the century -in energy savings.

Those should already be enough to do a lot, and then we get to renewable energy. Another neat thing, you pretty much can't have too much of it -especially if you can couple your solar or windpower with hydro-electricity (great way to store the extra energy in peak production low usage periods, until we have enough electric cars to provide us with the same function). There, USA have a fabulous advantage: it's pretty much a big desert! No one will complain if you install a massive solar plant.

Then if you want some extra stimulus, well, outside the very centre of big cities I found the state of the roads an embarassment to the country. Of course, it served its purpouse as an incentive to buy hummers (a European-style compact car would really suffer from all the holes in the road), but now it seems that it's not a good strategy. Well, make the roads better, see petrol consumption drop, give work in the construction sector, nice.

And while you're working on the roads, use the opportunity to bring USA up to date on high-bandwidth internet connections. That too is a major infrastructure that will stay important in the future.

Then the harbours are said (haven't been to one myself so I must trus that) to need vast improvements -they are the cheapest (in terms of CO2) way to move things long distance so it's probably a good idea to keep them up to date.

Public hospitals can also use some spending -again with a colossal return on investment, although that will require the healthcare reform to pass first.

Really, it doesn't seem to me particularly challenging to find infrastructure spending that will be a winner right now and in the future.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Dec 28th, 2008 at 01:44:32 AM EST
[ Parent ]
... I can pinpoint infrastructure investment that I can be confident will be of use in 2108.

Now, looking around today and identifying infrastructure that will be useful today and moving forward into the next twenty years ... that's not hard at all. Given the actions of the radical reactionaries in sabotaging effective public investment in infrastructure, the useful projects are stacked quite high, and the only problem with getting them in a "stimulus" bill is that the very same actions of the radical reactionaries have resulted in not enough infrastructure planning as well.

But a hundred years? To me, an argument over whether or not a particular infrastructure project will or will not be useful in 2108 is not something I want to get into, given the heavy selection of useful-right-now-and-for-the-coming-generation infrastructure investments.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Dec 28th, 2008 at 03:54:03 PM EST
[ Parent ]
"To me, an argument over whether or not a particular infrastructure project will or will not be useful in 2108 is not something I want to get into"

You are moving the goalposts. The question was for investments paying dividends into the rest of the century. Not something that is targetted at 2108.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Dec 29th, 2008 at 01:21:52 AM EST
[ Parent ]
... infrastructure for a century and infrastructure for the rest of the century is a distinction without a difference ... 92 years out is equally hard to anticipate what infrastructure will be of use, and for much infrastructure is sufficiently far beyond the expected life of the infrastructure that its not very relevant in any event.

Surviving with something approaching the kind of society we would wish to live in over the coming 40 years is an ambitious enough goal.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Dec 29th, 2008 at 01:29:30 AM EST
[ Parent ]
European Tribune - making sense of the financial crisis: Anglo Disease, debt and counterfeit money
Government spending can solve that problem, by creating new demand - but it needs to be generated by claims on real assets, not by yet more paper value.

Of course it should be generated from claims over real assets: so tax privilege, not income. In particular the privilege of exclusive private use of the Commons of the "Real Assets" of Land; non-renewables generally, and carbon in particular; and knowledge.

Re-distribute the wealth, not the income.

That's if you must have the State (if that's what you mean by Government) as an intermediary. IMHO the State is as obsolescent as the Corporation, and interest-bearing (counterfeit) Debt.

Reinventing the State into a networked, participative and non-hierarchical framework of Government will be part of the continuing Peer to Peer evolutionary process, I think.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Dec 26th, 2008 at 11:29:20 AM EST
However, I sense that right now the governments are simply trying to bail the economic system over this "blip" so that, once some recovery begins, the elites can continue where they left off. This is why the banks were allowed to continue paying out their bonuses and inflated salaries, while Detroit only got money on the basis that workers got less than before. The economic war against the majority continues.

I see no sign that the governing class see a reason to change they ssytem, after all, they'd spent a generation streamlining wealth capture.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Fri Dec 26th, 2008 at 01:47:53 PM EST
Every time there's been a bubble, they've always said "this time it's different".

Well this time it IS different....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Dec 26th, 2008 at 02:06:25 PM EST
[ Parent ]
During a discussion on the BBC Radio 4 'Today' programme this morning, John McFall MP, Labour chair of the cross-party Treasury Select Committee, mentioned that Goldman Sachs Chief Economist
Jim O'Neill has advocated a state bank to fill the lending void. O'Neill made this point in a Daily Telegraph piece back in September:

What does need to change is "more activism" on policy in terms of the weak state of the UK banks, and the lack of mortgage lending... the Government either needs to replace the mortgage lending not being provided by high street banks, or conduct it themselves. That is what the US supporting Fannie and Freddie is all about.

Ironically, as a result of Northern Rock, the Government already has its own "ready-made" vehicle to take some of those obligations from other institutions. Rather than plan to wind it down gradually, the authorities should use it to take over other troubled or failing institutions. Just as a correctly executed TARP in the US might make money, I wouldn't mind betting that so too will Northern Rock.

...The current dilemmas don't need to result in a lasting negative outcome for the UK, but we need some "out of the box" thinking, and quick.

McFall was not endorsing the idea. But given Labour's tightlaced message discipline, the fact he is openly raising it could be a pointer towards some prospective 'out of the box' thinking. Or maybe not.

Most importantly however, the chance of a wordplay on the state of the banks and a bank of the state is just too much to resist...

by yacker on Fri Dec 26th, 2008 at 04:15:31 PM EST
[ Parent ]
I mentioned how I wanted to see a state investment bank to my godmother's husband - a fierce socialist party supporter and former banker.

His answer was that it was all a pipe dream because public employees would not be competent enough, and besides Crédit Lyonnais had had major problems in the 90s.

Is the party line so pervasive in banks that even a fierce Socialist party will believe that? Surely you can have competent people working in a company that is owned by the state ?!?
And the very real problems in the way Crédit Lyonnais was used by the French state need to be addressed in a structural way (creating supervision like the WPA, for instance), not by concluding that Government Is Always the Problem...

Interestingly, the claims of competence he made was with the investment bank definition of competence -ie follow the herd in search of short term profits, and fail at the same time as everyone else so you can pretend it was unavoidable.
If the public sector cannot attract that kind of competence, it's fine by me. Let the public investment bank attract the kind of competence that identifies the best sustainable, long term and socially profitable investments.
Should that happen, I guess I'd apply for a career in banking. Hopefully reporting to Jérôme who would probably take a kind eye to the hours I spend on ET at the office ;-)

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Dec 27th, 2008 at 02:03:36 AM EST
[ Parent ]
Cyrille:
Hopefully reporting to Jérôme who would probably take a kind eye to the hours I spend on ET at the office ;-)

Product development, of course...

Cyrille:

Surely you can have competent people working in a company that is owned by the state ?!?

When we say "Public" we mean "State" and when we say "Private" we mean owned by a Company.

But underpinning almost everything I am saying is that it is neither necessary nor efficient to use a Company, which is a particularly poor enterprise model - for the want of alternatives.

The answer is not to set up a banking company but a banking partnership.

The State/People is the Custodian of the assets, and a Treasury issues the necessary credits interest-free.

Banks then compete among themselves as "operating partners" to manage the issue of credit, and

(a) a charge is made for the Banks's services; and

(b) a provision is made into a "Pool" for the use of the State's guarantee of the credit.

The State sets the parameters and policies withinwhich banks operate as service providers.

In this way we are able to create the credit necessary for the creation of new productive assets.

For existing/newly developed assets - whether privately or state owned - I propose "unitisation" within partnership-based frameworks  to replace long term secured debt and government borrowing.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Dec 27th, 2008 at 03:51:46 AM EST
[ Parent ]
Public employees are by definition incompetent. That's why those AREVA-made EdF reactors are constantly melting down or creating massive losses for the French state.

...right.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Dec 27th, 2008 at 05:36:33 AM EST
[ Parent ]
but just think how much more efficient, and safer they would be if they were made by private companies...... ;-)

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sat Dec 27th, 2008 at 06:18:30 AM EST
[ Parent ]
It's lucky we've been letting private banks run the economy. Who knows what terrible things would have happened otherwise?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Dec 27th, 2008 at 12:46:20 PM EST
[ Parent ]
To use the old metaphor of the society and economy as a human body, the money supply is the blood of the economy.  Reckless greed by those responsible for keeping the money circulating, the bankers and financiers, especially the latter, has resulted in 30-40% of what money exists being toxic.  Stop the circulation to deal with the problem and the patient dies.  Let the circulation continue and the patient continues to be poisoned and lingers on death's door, at best.  Were a doctor to replace that portion of a patient's blood with a toxic substitute so that he could supply "good" blood to a wealthy patient it would be grounds both for a malpractice lawsuit and a criminal negligence and reckless disregard prosecution, either for murder or for assault with intent to do great bodily harm.

Risks were taken in order to keep the money flowing to the pockets of the wealthy, who are themselves or who are served by that financial elite.  It is hard to believe that all of that which has happened has not been accompanied by massive breaches of numerous laws and regulations.  The problem is that members of that same elite are still in charge of running the government, the economy and the media and are reluctant to properly investigate, prosecute and report the malfeasance, as almost all are implicated to some degree or another.

Some will say that "criminalizing" the conduct of business and government will not help and won't get the money back or get the economy back on its feet and that this would just be further "politicization" and "polarization" of our governments and would be harmful--as if the whole process that got us here were not the result of exactly just such "politicization and "polarization" and as if much of what was done was not by common definition criminal on the face of it.

But that is just rhetoric.  Great crimes certainly have been committed.  Even if setting in place many of the policies could not itself be shown to be criminal, the repeated execution of those policies almost certainly were.  With vigorous prosecution over half of the occupants of executive suites on Wall Street and the middle and upper levels of the Bush Administration could be shown to have engaged in criminal activity. The facts of the financial meltdown itself, as we now know them, constitutes "probable cause" for an investigation, certainly at least by Congressional Committees with subpoenas and witnesses under oath.  A disgorgement of ill-gotten gains and a slap on the wrist should be provided for those who will provide effective testimony against higher-ups.  There may be a stampede of volunteers if such a deal were offered.

The only question is whether any officials can be found with the stomach to investigate and prosecute those crimes.  The irony is that such vigorous prosecution is almost certainly the only way that "confidence in the integrity of our financial system and our economy" can be restored.  That would be change I could believe in.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Dec 26th, 2008 at 08:14:40 PM EST
ARGeezer:
To use the old metaphor of the society and economy as a human body, the money supply is the blood of the economy.  Reckless greed by those responsible for keeping the money circulating, the bankers and financiers, especially the latter, has resulted in 30-40% of what money exists being toxic.

I use a slightly different metaphor.

The patient has been in a bad crash, and is bleeding from several wounds.

The doctor has stitched up one of them - by recapitalising the banking system - but is unable to stitch up the others ie the "shadow banking system" of money market funds, hedge funds, sovereign wealth funds and everyone else who bought the securitised. insured, hedged, diced and sliced crap debt originated and peddled by Wall Street and the City.

In my view

Unitisation

is the only way to staunch the bleeding by literally exchanging secured Debt for a new form of Equity, and thereby removing the unsustainable debt obligation. A reasonable rate of return then makes this financing "affordable" to the occupier, and in a magic circle, the "affordability" means that it is more certain that it will be paid, and hence justifies the "reasonable" level of return....

But that only stems the wounds. The patient still needs a transfusion, and that is where banks come in as service providers. They no longer need operate as credit intermediaries and putting their capital at risk creating credit based upon it: instead theymanage the creation of credit subject to a mutual, or State, guarantee itself supported by provisions to a mutually owned "Pool".

It's not Rocket Science: but it is radical.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Dec 27th, 2008 at 04:11:10 AM EST
[ Parent ]
This theme was brought up here recently, by me as well. World's banking secrets may be all in plain sight (as Migeru put), but they are seldom put forward or clarified openly. Money is such a crucial institution in this world, yet workings of the monetary system seem to be taken for granted; people appear to have partial or vague understanding; education or easy information does not clearly stress crucial details or explains questionable implications.

Just months ago I was under impression that the new money in the system comes from interest rates (or a central bank). Having paid more attention to our fractional-reserve banking system, now I see that new money comes with every loan from a commercial bank, in full amount of the loan.

The simple explanation
"A bank must keep (say) 20% of its deposits in reserves and may loan out the remaining 80%"
rather deceptively implies that banks do not create any new money with their loans. But as Wikipedia clarifies in a latter part, a loan is new money that is enjoyed by eventual receivers, while the deposits are still there undiminished to all original depositors.

As for interest rates, they themselves do not create any new money, but rather require new money to be created. And there can be no way to create new money but with more debt, as central banks issue their money as loans as well - to governments or commercial entities. I still have to figure it out, doesn't this mean that governments are under fingers of central bankers, or what are limits of central banking power.

So, the money mechanics implies that there is as much monetary wealth out there as there is debt (minus interest rates, plus defaults). Interesting arithmetics! Inflationary implications are surely high on critics' radars. But growing inequality seems to be ensured by the formula as well: aggregate monetary wealth "normally" grows only with more volume of debts. That may explain why most folks have to work and "compete" harder for the same dollars.

How can the system ever be stable?! Well, it was apparently stable throughout decades (take away a Great Depression and several other "regrettable" episodes). But core instability suspicions are not falsified yet, as great incomes and profits indeed seem to coincide with expansions of debts. The latest (always suspicious) Bush boom came with insane levels of private and public indebtedness.

At best, the system could probably be stable if monetary expansion happens to match the expansion of economic activity, as Chris Cook and others were explaining nicely here. In particular, the process of globalization seems to favour this (while it can last). But there is nothing fixed to back up this desirable coupling of economic and monetary expansions!

It must had been a great sin that political economy of the latest decades was driven by easiest way to generate apparent wealth. Clinton and other "third way" leaders cannot be excused from that. The most aggressive neo-liberal economy of Bush years can be seen as just a foolish amplification of runaway trends. As Greenspan told, he could not find any indication of this crisis from decades of his empirical data. Aghh, a turkey could not meet a black swan before Thanksgiving...

At very worst, the system is indeed unstable at its core, and the high priests knew it. They might had seen a necessity in blind urge for globalization and debt encouragement, to keep the good times running for a little longer and cash in. Or more likely, they did not see the big picture at all (why would the world end?!). But they were probably convinced (rather rationally from the available data) that to keep their favorite statistical parameters improving they have to urge more debt and other silliness.

The next year might show how deep we are in the monetary morass.

by das monde on Sat Dec 27th, 2008 at 01:23:18 AM EST
Money is such a crucial institution in this world, yet workings of the monetary system seem to be taken for granted; people appear to have partial or vague understanding; education or easy information does not clearly stress crucial details or explains questionable implications.
I would estimate that less than 2%, probably less than 1%, of the general population in the USA have any real understanding of the creation of money, and most of those have degrees in economics and/or work in banking at a level of vice president or higher or related fields.  That is why, in the USA, every time a TV news presenter refers to creating money or expanding the money supply they invariably run clips of presses turning out US currency. That is the only image that >98% of their viewers can grasp.

ET is an island of economic literacy in an ocean of economic ignorance, thanks to Jerome, Mig, Chris Cook, Bruce and others.  I have learned more about money and economics in the nine months I have been reading ET than I had in the previous 40 years, and I had actually been interested in these subjects in grad school in the 60s when I studied the inter-war period in Europe and read J. M. Keynes' The Economic Consequences of the Peace.  This is just one measure of what a treasure we have in the European Tribune.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jan 1st, 2009 at 02:25:36 AM EST
[ Parent ]


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