Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Where are we going from here?

by Colman Fri Sep 26th, 2008 at 05:18:22 AM EST

As the banking crisis gets more interesting from day-to-day I'd like to see what scenarios people see unfolding from here.

Some rules:

  • Evidence and mechanisms please: how do we get there from here. "Wishful" thinking isn't helpful
  • Stay realisitic
  • What would stop it happening?
  • This isn't about what you think should happen: it's about what you think will happen.


Display:
Bank collapses run out of control, dollar tanks, US can't afford oil any more, can't pay troops, can't buy any imports, investment and lending collapse. Massive unemployment, soup kitchens, all that good stuff, just like the 1930s.

Spills over to Europe and the rest of the world, resulting in all sorts of bad things.

by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 05:20:26 AM EST
Or as Chris says - simply print more money to replace what has been wiped out.

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 05:38:24 AM EST
[ Parent ]
whcih I a afraid will be interpreted as a US default geenratinga US dollar run..., r at elast this is what I read... Am I right or wrong?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 05:42:47 AM EST
[ Parent ]
That would be the risk there. Not to mention possible inflation at home, depending on what happens to the money.
by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 05:44:13 AM EST
[ Parent ]
Internally - in the US- there can be no dollar run, only inflation. From the POV of the US mortgage payer, there is little difference.

Outside -wwwoooa - that is different.

You can't be me, I'm taken

by Sven Triloqvist on Fri Sep 26th, 2008 at 05:46:36 AM EST
[ Parent ]

H/T Jesse, St Louis Fed (Adjusted Monetary Base, link to pdf chart)

Diversity is the key to economic and political evolution.

by Cat on Fri Sep 26th, 2008 at 08:36:43 AM EST
[ Parent ]
is still the most likely end game, as billmon predicted recently.

And my prediction is still that the eurozone will weather a dollar crash a lot better than most people say or think.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 26th, 2008 at 05:46:50 AM EST
[ Parent ]
Do you think Spain will get credit from China? After losing all that money? will they still have savings to invest in europe, apricualry ina coutnry wtht he same kind of bubble as the US?

please,coudl you elaborate about Spain?

About france and germany I guess that US demand will nt be such a big shock? I guess yo have the numbers of german exports, but it seemed important to me: germany will get into recession if US demand halts, isn't it?

Maybe I am worng, but I see recession in europe too, maybe shorter in Germany, but not necessarily in Spain.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 05:51:15 AM EST
[ Parent ]
both have significant budget surpluses, and lowish overall public debt - so public spending to prop up the economy is very much possible.

German exports to the US are not that significant compared to its GDP - and a lot of German exports are not that price sensitive (want a BMW? Here's the price. Or - want the gearbox for that wind turbine? Here's the waiting list and the price).

Again, the big secret is that the eurozone is much less dependent on the rest of the world than most people realise.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 26th, 2008 at 06:00:48 AM EST
[ Parent ]
I am more with you about Germany than about Spain...

who finances the Spanish debt if needed? that's my worry.. plus The surplus is gone.. so it wil be deficit.. and I am not sure any spanish government will go spending with credit.

We have first to deflate the house bubble and the spanish "ideology" of getting rich with a "pelotazo" and not long-term investment on research, technologies and energy... I am nto sure we will make the trasntion without easy money.

I am afraid Spain is not quite ready to cope with a lack of foreign credit despite having the most healthy banking system in the world (probably).

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 07:25:15 AM EST
[ Parent ]
The consumer goods like BMW's are very price/recession sensitive - people buy less cars, and become more price sensitive as the economy tanks. The industrial goods are very recession sensitive - less capital investment, less demand.

Spain - its fiscal balance is good, but its housing bubble was even crazier than the American one, and its got a really nasty current account deficit. A higher Euro and recession among those buying second homes/retirment homes will really not help.

by MarekNYC on Fri Sep 26th, 2008 at 12:15:08 PM EST
[ Parent ]
What's the pessimistic version?

Hey, Grandma Moses started late!
by LEP on Fri Sep 26th, 2008 at 06:24:48 AM EST
[ Parent ]
That, followed by armageddon fuelled by religious fascism and crusades.

Why do you ask?

by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 06:27:30 AM EST
[ Parent ]
Oh shit, I forgot about the religious nutters.

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:44:06 AM EST
[ Parent ]
Living in Texas (well, actually Austin), I know a few things about religous nut cases.  The religous fanatacism is the wicked joker in the deck.  I believe that if we go into a steep recession/depression we will see severe sectarian/racial/immmigrant violence in the USA.  About 30% of our population is something close to insane and they are itching to find scapegoats for their frustrations.  Throw in our high levels of gun ownership and you may well see many Baghdads across North America.  

I find a curious symmetry between the religous fanaticism and the Right-wing Anglo-economic fanaticism.  These are mostly non-intersecting groups of people.  Obviously they need each other politically but they are drawn to each other by their similar mental dynamic.  They are both completely oblivious to learning from experience or data, however conclusive.  They are both oblivous to the suffering of "others" and seem to even enjoy seeing suffereing on display as some sort of necessary aspect of their world view narrative.  They both have a carefully nurtured sense of persecution, however ridiculously false the notion might be.  They both base passionate present-day actions on vague contradictory "holy texts", which must never be subject to critique.  At a deep psychic level both groups are motivated by deep and irrational fear.

I note these issues not to be casually pessimistic but rather to address the question of "Where we go from here?"  Those of us in the reality based community tend to want to craft technically reasonable solutions to our problems.  Reason should rule, eh?  From a change perspective we may be mis-diagnosing the problem.  The problem might better be framed as one of mental illness and how to treat it on a mass scale.  

by Geonomist on Fri Sep 26th, 2008 at 11:45:35 AM EST
[ Parent ]
Those of us in the reality based community tend to want to craft technically reasonable solutions to our problems.  Reason should rule, eh?  From a change perspective we may be mis-diagnosing the problem.

Assuming those of us (like myself) who agree with your point of view ARE cruising in the reality zone, it seems that the two groups you identify actually want armageddon. Reasonable solutions are the enemy to those who have the "evil axis" or other narrative of "evil"-stuck in one ear and out the other. For the "sinful" human race to succeed in fixing our own screwups, without the intervention of a diety- calls into question the whole premise of these groups.

Vindication of humanism vs. "righteousness"- is doctrinal disaster.

My feeling is that these two groups are in reality one group, representing a facet of the human psyche that has been enormously amplified by a collection of forces that are very powerful- the world of junk media and stuff-addiction: threads of process that seem to be the current end-point of a capitalist consumer society. This subset of- ALL OF US- has blurry lines when you try to tease out the descriptors,  but they run on fear and greed (they bought the bull), are intensely zero-sum in their world view, and are in panic. They are the market for catastrophe news.
Unable to handle change on any real level-the Repubs in congress who see their base as the dingbat right and just sank the talks are a good example- they reflexively oppose.

This group is always with us, and has been dealt with successfully in the past many times (someone said that it may be time for the grownups to intervene) but now may be a lot harder in the US. The Repubs and PNAC-ers saw these folks as an asset politically and militarily, and have fertilized their fears and amplified their presence in both the voting population and in congress. Now they are slipping out of control in the US, I think.
The success of all attempts at progressive change in the US may be in doubt as a result of their power.

Perhaps I'm too optimistic, but I don't see this brand of theological-authoritarian barbarity as ascendant in the Europe that I know--yet.
Ratsinger is surely a step in that direction, as is Sarko- they would empower themselves by using this pack of dogs, as the Americans did.

Beware the day the dogs turn, boys.

Another issue:
We have seen the formation of two visions of Empire- the Clintonian, "soft-power" based one, and the Neoconservative vision of raw military might.
Yes, Uncle Milty and the Chicago Boys represent a simple but brutal theology that's very attractive to the authoritarian-evangelical folks.
 Leo's Loonies- the Straussian pistol-wavers represent the most militarist element-and they remain in real power, albeit more quietly. These differing visions of empire do overlap, but have cannibalized each other, I think. Both have in reality failed. Hence the need for change, and the panic on the rigid right.

The dominant vision now is the hard power one, even though it has failed. If the Iraqi oil were flowing into swing-state tanks, ---we'd kiss bush's ass, and Obama would be just another Senator. Pierre Bordieu and many others remind us just how hard it is to sell the chaotic, complex solutions that democracy and real social problem solving require. Cheap melodrama collects eyeballs so much better.
If the shit hits the fan hard enough to really hurt, the great task of the grownups will be to prevent the idiots and the media from ginning up some convenient villain and declaring war.

   

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 26th, 2008 at 01:29:28 PM EST
[ Parent ]
Dave Lindorff: The Bailout Will Kill the Dollar

Eventually, of course, entrepreneurially minded people will begin establishing local farms again where they once flourished generations ago, and small factories will be built to provide key essentials, but all this will take time, and will have to cater to a market of people operating at a much lower standard of living.

The banking sector, meanwhile, which is the proximate cause of this monumental disaster, won't mind any of this, for it will continue operating on the international stage, shifting its focus to lending money (no longer dollars, though), to growing economies in Asia and Latin America and eastern Europe. And this is what, in truth, the "rescue" of Wall Street is all about.

It's not about saving Main Street, as Paulson claims. Main Street, under the bailout, is toast. It's about helping the banks and investment banks and insurance companies that brought on this crisis to ride it out in style, their astronomical losses bankrolled or absorbed by the American public, so that they can shift their operations overseas and continue with their rape and pillage of the global economy.



'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri Sep 26th, 2008 at 03:37:55 PM EST
[ Parent ]
Companies that are unrelated to the financial sector but needs to roll over loans are have a normal credit line for its low liquidity season are in trouble. Judging from Sweden in the early '90ies we might soon enter a phase were the banks rather close down their customer and sell of the assets, spotless record of payment or no spotless record of payment.

So massive bankrupcies among companies big and small. And the unemployment that goes with it.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Sep 26th, 2008 at 05:31:27 AM EST
I'll immediately break the rules by saying that this is about cultural ideological economic models.

The bail-out proposal is a symbolic watershed for the anglo disease gambling model. It is a model that will shrivel because the Ponzi scheme upon which it is based has been exposed for all to see and feel.

The fall of the Berlin Wall was a symbolic watershed for the command economy model.

The overheated Chinese model in which the race for success poisons the populace is also doomed.

So are we left with the Gallic, Nordic and German social market economy models - three close variants - or the potential for the emergence (wishful thinking) of a new model based on Open Society?

My Open Society would unite the humanism of the European economic models with the paradigm-shifting technology  that we are using here that enables bottom-up democracy. Most would maybe not agree, but I would go further and remove all secrets from society, including business and security. I'd like everything to be transparent.

You can't be me, I'm taken

by Sven Triloqvist on Fri Sep 26th, 2008 at 05:36:37 AM EST
A pretty influential book in the late 80s or early 90s described the French, German and Nordic models as the "Rhenan Capitalism", with a strong mixture of public and private in the economy, and stronger social nets.

I need to dig it up, but it basically said that the model was sound and a coherent alternative to the more free-wheeling anglo capitalism (which was not presented as evil, but certainly as significantly different).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 26th, 2008 at 05:44:38 AM EST
[ Parent ]
Do dig it up. Avalable in English?

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 26th, 2008 at 01:31:58 PM EST
[ Parent ]

So are we left with the Gallic, Nordic and German social market economy models - three close variants - or the potential for the emergence (wishful thinking) of a new model based on Open Society?

We are also left with plain old fascism. Something the power classes might try to resort to if a whole truckload of manure hits the fan.

By the way, and about Europe decoupling, I've found this on RGE today:


Daniel Gros/Stefano Micossi: The "overall leverage ratio" - a measure of total assets to shareholder equity - of the average European bank is 35 due to large in-house investment banking operations, compared with less than 20 for the largest U.S. banks. This means that relatively small writedowns on their assets could have a devastating impact on a bank's capital--> some EU banks have become too big for any one European country to save while an official cross-border crisis management mechanism with ex ante burden sharing is not in place.

I am not an economist, but it seems pretty grim to me...

by t-------------- on Fri Sep 26th, 2008 at 05:45:54 AM EST
[ Parent ]
We are also left with plain old fascism

Which is a significant risk in the US, for a start. Not to mention some of the Central/Eastern countries. Don't know about the old EU - most of them don't seem likely to fall that way.

Economic disaster will have political fallout.

by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 05:53:17 AM EST
[ Parent ]
I think we're pretty insulated. If you remember, it didn't work out very well last time we tried it.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Sep 26th, 2008 at 06:16:52 AM EST
[ Parent ]
Sven Triloqvist:
remove all secrets from society, including business and security

Possibly the single easiest st way to create a fair economy would be to make all bank transactions public. Eliminate secrecy, 'discretion', off-shoring, and all of the other con tricks which keep real value out of the real economy.

You could instantly see what your colleagues were earning, and how much they were in debt. Back-handers would become harder to hide.

You'd get an interesting barter-based black economy, but if all banked transactions were visible even that would be hard to hide completely.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 05:52:08 AM EST
[ Parent ]
Care to explain how the magic works?
by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 05:55:33 AM EST
[ Parent ]
You remove cash 100%. Take away all the paper and metal. Then have one single people-owned 100% transparent bank. (Note: requires electrical energy).

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:02:30 AM EST
[ Parent ]
Ah, so you concentrate all the power in one place? Globally?
by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 06:03:55 AM EST
[ Parent ]
All financial transactions would be transparent. There is no concentration, anymore than there is a seat of consciousness. The information is everywhere, for everybody.

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:08:04 AM EST
[ Parent ]
It is the antimatter to Orwell's 1984.

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:11:10 AM EST
[ Parent ]
So who runs the bank? How do you prevent cheating?
by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 06:11:18 AM EST
[ Parent ]
The financial transactions of the people who manage the system are equally transparent. How do you cheat in a system of total transparency?

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:14:49 AM EST
[ Parent ]
Hang on guys.

The days of ever bigger intermediaries aka single points of failure - are over.

Period.

The logic of the Internet is for cutting out the middleman. The Internet interprets banks as "damage" and routes around them.

We are very close IMHO to a "bottom up" networked "clearing union". The current position is almost like a supercooled solution waiting for the first ice crystal.

The organic solution necessary requires the right DNA ie an "Apache Money Messaging Server"; the right "boundary" framework agreement aka the legal XML; and the right nervous system aka decentralised network architecture.

The result: an organic "Clearing Union" within a Clearing "Domain", let's call it "Dot Clear".

In order for the viral spread of the resulting "Clearing Union"  (cf Keynes at Bretton Woods) there would need to be a compelling "free" proposition in Napster, Hotmail etc  tradition..

I see this as:

(a) Risk Sharing Peer to Peer Credit - (aka time to pay - the lifeblood of our economy) which is "Interest-free" - but not "cost-free" credit, system costs and defaults would be supported by a mutual guarantee and provisions into a default fund.

(b) Revenue Sharing Peer to Peer interest free investment - replacing the secured debt proposition that gave us the Credit Crunch. So, we simply "Pay it Forward" by buying unitised production (eg redeemable energy units, land rental units) at a current market price.

There is a service provider role for Institutions formerly known as Banks in both of these propositions, but they no longer need to put their capital - and our civilisation - at risk by creating an unsustainable  pyramid of credit based upon it.


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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 26th, 2008 at 06:53:23 AM EST
[ Parent ]
You forget that risk analysis is a relatively sophisticated and scarce competence.

It's not because banks have forgotten to actually do their job that the job is not necessary - quite the opposite, as current events show.

There will always be a need for an intermediary able to analyse risk, process it and provide options to other with respect to its allocation.

That's what banks do. The boring kind.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 26th, 2008 at 07:02:01 AM EST
[ Parent ]
But why is that incompatible with what Chris is proposing?

Risk analysis is a service that banks can provide for a fee.

You can't be me, I'm taken

by Sven Triloqvist on Fri Sep 26th, 2008 at 07:14:20 AM EST
[ Parent ]
Thanks, Sven.

That is exactly what I am saying.

I prefer "service provider" to "intermediary".

To me a "risk intermediary" is someone like a clearing house, not an advisor.

I see the banking role in the future as:

(a) managing the creation of bilateral trade credit, by setting "guarantee limits", operating the system, and managing defaults.

ie pretty much what they do now, but the pool of capital supporting the credit creation will no longer be the Bank's, but the Community's.

(b) appraising potential projects for viability - eg in terms of energy units invested against energy units returned; advising investors, and bringing them together with appropriate investments; putting their capital at risk by "making markets" in the new classes of "Units".

Neither role requires credit creation/intermediation.

Both require the sort of skills Jerome and his colleagues have.

The outcome is shared value creation not value extraction.

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 26th, 2008 at 07:39:47 AM EST
[ Parent ]
Risk analysis is only a small part of what banks do.

Historially, banks have always been providers of political ballast - their job has been to create momentum and credibility for governments and ruling cliques, and also to ration credibility so that only some individuals and projects are allowed to possess it.

Banking is really one of the branches of government, and it's not a coincidence that Wall St wags Main St rather than vice versa, and that in every country in the world there's a Treasury department which makes decisions based as much on political inclination as economic foresight.

The problem is that it's not a very good form of government. It's twitchy, neurotic, prone to convulsions and fevers, and often rather stupid and self-destructive. While individual bankers have been very good a politics, they've been very bad at social strategy - possibly because there's rarely any personal benefit to be had from social investment.

It wouldn't be easy to create a participatory open equivalent system, but there is no democracy as long as bankers define policy, so any alternative has to be worth exploring.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 11:13:47 AM EST
[ Parent ]
Because power isn't concentrated now?

Oddly enough, it's harder to maintain fraudulent power if all transactions are public.

There's also a difference beween neutral accounting and enforcement of policy. There's no reason why a database needs to have a lobbying wing.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 06:11:28 AM EST
[ Parent ]
"Oddly enough, it's harder to maintain fraudulent power if all transactions are public."

So you claim.

by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 06:15:36 AM EST
[ Parent ]
As Sven said - how do you cheat in a system of total transparency with implicit transaction accounting chains.

And cheating means what, exactly? Theft? Fraud? Political leverage?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 06:24:22 AM EST
[ Parent ]
Political power is the obvious one.
by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 06:26:45 AM EST
[ Parent ]
Obfuscation? The needle in a haystack / mountain of paperwork trick. The information is still there, but it's swamped by lots of trivial things.

Plausible denyability? The bribe to your CEO buddy is really a pilot program to try out some new idea.

Incompetence? You confess, but claim to have learned a valuable lesson.



--
$E(X_t|F_s) = X_s,\quad t > s$

by martingale on Fri Sep 26th, 2008 at 07:04:35 AM EST
[ Parent ]
  1. Unexplained mountains of tiny transactions are an easy giveaway there's something to hide

  2. Where's the proof of the pilot program? Receipts? Budgets?

  3. It doesn't matter - you're in jail anyway.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 11:20:06 AM EST
[ Parent ]
1. Who says they're tiny or unexplained? It wouldn't be hard to detect a transaction for $100 among a sea of transactions for $1, but if everything "legitimate" ranges from $1-$100 anyway, and there are 10 transactions of about $10 each hidden in there, wouldn't it be more difficult to find?

2. What receipts? The pilot program paid for your buddy's time and some resources and expertise that his company has available. It's a black hole unless you also expect every company to exactly account for every minute of computer time, every hour of employee time, every meeting etc. As I understand it, you're only postulating complete transparency at the banking level?

3. You're not in jail yet, you've only just been found out. And you go on TV and apologize, and your flock the people forgive you and refuse to prosecute ;)

--
$E(X_t|F_s) = X_s,\quad t > s$

by martingale on Fri Sep 26th, 2008 at 08:00:10 PM EST
[ Parent ]
Excellent! An important point after years of being exposed to the creative accounting model.

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:17:07 AM EST
[ Parent ]
I like it! Of course, to guarantee the transparency of all transactions we would have to institute a system whereby the identity of each individual can be conclusively determined and linked to his/her funds. Maybe some kind of a 'mark' on the right hand or forehead?
by someone (s0me1smail(a)gmail(d)com) on Fri Sep 26th, 2008 at 10:44:20 AM EST
[ Parent ]
Dang. There goes my cover.

And it would have succeeded too, if it hadn't been for you pesky ETers.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 11:16:18 AM EST
[ Parent ]
concern troll alert!

kidding aside, this fear, born of faux-xtian fundy revelatorising, is so last century. no need for the implant really, when everyone's fingerprint, dna, and eyesare unique and the tech is now up to discerning it.

who's running the database, and how ethically is my bigger concern than having a gps in my third eye, (might be handy) or a usb plug in my cranium, (enough tension in my sub-occipitals already)...

surveillance nudism

;)

it does bring up this privacy thing, which we've discussed (semi-anonymously!) here before.

when i trust the 'pars that be' more, and especially their competence and agendas, part of me wants to be unco-operative, invisible.

then i listen to sven's arguments, and find they reflect another part of me that believes that secrets breed evil, and the more open and honest things are, while it might sometimes be uncomfortable in the short run, in the end is the better road.

we just have to be vigilant about the 'more-equal-than-others' syndrome.

 

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Sep 26th, 2008 at 11:25:13 AM EST
[ Parent ]
and how do you stop these microstates from running their banking systems? when their biggest asset is secrecy?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 05:57:38 AM EST
[ Parent ]
And how you persuade people, many of whom are very sensitive about this stuff, that it's a good idea?
by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 05:58:44 AM EST
[ Parent ]
they survive because too many (influential) people there are happy to have them around. If you kill that support in the big countries, it's VERY easy to strangle the small countries.

right after 9/11 would have been the perfect moment to clean all the offshore center off the table - they would not have said a peep for fear of provoking the beserk hyperpower bent on beating the shit out of anyone in its way.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 26th, 2008 at 06:03:09 AM EST
[ Parent ]
I agree that that would have been a good time, and this might be a similar good time coming up if only because this will affect many more countries, The question is how do you get the support in all of the big countries?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 06:14:20 AM EST
[ Parent ]
Movements out of a transparent system are evident to all - their amount and destination.

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 06:04:40 AM EST
[ Parent ]
If it ever comes inside the transparent system.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 06:14:46 AM EST
[ Parent ]
You still have accounting ports (as it were) at the edges. And most of the useful stuff you can buy is inside the system.

If I try to bribe someone with 2000 square miles of African savannah instead of a big pile of cash, the edges of the transaction would still be booked even without a standard link between them. In the case of land, deeds would be registered.

You could only bribe people by buying things and loaning them permanently. This would work, up to a point, but it's much more precarious and public than anything we have today.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 26th, 2008 at 06:30:10 AM EST
[ Parent ]
well thats the monetary bribery angle mostly fixed, (which just leaves Sex, Drugs, power, favours) how about cash, would you have to get rid of cash for this plan to work? with cash still being in existence, transparency is a bit of a mirage.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 06:55:36 AM EST
[ Parent ]
See my cashless comment upwards

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 07:15:34 AM EST
[ Parent ]
Sex, drugs, power etc all involve someone getting paid to provide a service. It maybe lower down the food chain of exchange transactions, but it nevertheless appears and has to be explained.

But let's not get caught up in finding all the comparisons with our current models that 'prove' why transparency couldn't work. That is the easy bit.

You can't be me, I'm taken

by Sven Triloqvist on Fri Sep 26th, 2008 at 07:19:54 AM EST
[ Parent ]
Was just interested if you could see an easy way round this.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 07:34:18 AM EST
[ Parent ]
I admit that my view of society is ideological. And probably jaundiced ;-)

But I work in a business that involves accumulative what-if brainstorming that only stops when everyone is quite clear that we have gone too far. On the road to madness, however, the process usually throws out some useful ideas that could not be reached any other way.

Sorry if I appeared to be attacking....

You can't be me, I'm taken

by Sven Triloqvist on Fri Sep 26th, 2008 at 07:42:27 AM EST
[ Parent ]
no problem, didn't notice that you might be attacking (I've got a degree in philosophy, attacking for others often seems like good clean knockabout clown fights to me) Like you my experience is to push shuddering creaking arguments to the point they break or everyone gets dragged off to a place with bouncy wallpaper, agree that it shows things that you dont get to in other ways.

 was just trying to tease more detail out of you.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 08:07:40 AM EST
[ Parent ]
and how do you stop these microstates from running their banking systems? when their biggest asset is secrecy?

France has an escort carrier, I believe?

I would argue that breaking open tax cheat enabling countries is one of the very, very few justifiable uses of plain old gunboat diplomacy.

But even without that, one could simply outlaw all transactions going to or from such places and/or places that do not have similar transparency laws. 'Course, that'd require the transparent system to be self-sufficient (and then some) so it could effectively break off all financial contact with the noncompliant countries, so gunboat diplomacy might be easier.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 26th, 2008 at 09:38:36 AM EST
[ Parent ]
it's hard enough to get people to go to war over oil,  I'd have thought that declaring war over the non-compliance with banking regulation 37c would be a nightmare. and those press barons , with all their money salted away in the cayman islands to avoid tax wouldnt exactly make it easy or popular.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 10:25:05 AM EST
[ Parent ]
Last time I checked it was incredibly easy to go to war, even over completely made up and obvious lies. So how hard can it be to start a war when there is a real reason to do it?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Sep 26th, 2008 at 10:40:23 AM EST
[ Parent ]
Well Oposition parties would argue that it wasn't a real reason, and most offshore banking havens are hardly run by maniac dictators.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 12:04:16 PM EST
[ Parent ]
Most of the time you won't need to actually go to war. If you control their seas and airspace, there is a whole range of sanctions and gunboat diplomacy that fall short of war.

If, for instance, a government were to DOS - say - the Cayman Islands' internet grid, do you really think the public would object? If a government sabotaged their phone lines? If a government "accidentally" jammed their radios and satellite uplinks?

History doesn't suggest that the public will mind at all. Of course, I'd wish that we had a public that did mind. But then again, if we had that, we probably wouldn't have a big problem with tax havens in the first place.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Sep 28th, 2008 at 09:50:48 AM EST
[ Parent ]
You can't change things overnight. Whatever happens, I'd like to see the current system replaced. But you can't destroy THIS system and install a new one instantly--unless you don't mind hundreds of millions dying.

So, bail them out, but the debts at a premium, hope the derivatives come up to par and become worthless.

Then, you raise taxes skyhigh and devise a new system.

This will happen again of course, such is the nature of capitalism. But, the more you regulate and control, the less incentive you give to the rapacious immoralists.

So, my plan:

  1. Bailout
  2. Raise Taxes
  3. Regulate
by Upstate NY on Fri Sep 26th, 2008 at 10:52:20 AM EST
[ Parent ]
A complex system with too many variables I do not understand..

I doubt that anyone can make sense of it actually...

Credit freeze if no bailout, ok, then what? collapse of banks..? but will the US government nationalize credit and banking?

Will there be a dolalr run? or not? Will the US economy get credit from the T -bills and reform the transition to a lower more stable growth thanks to the lower value of dollar?

And Europe? How Spain will pass get thorgh the lack of credit? asking the chinese? and how the french and the german will live without US demand? Bad.. it seemb bad. or not that much reallya fter one year?

Adn finally, will anyone implement the policies necessary to generate productiviy and employment, increasing taxes on the rich, financing public trasport and energy programs? destroy the present debt-bubble system and the too-big-to-fall?

I do not know.. who knows...

anybody knows?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 05:47:31 AM EST
But so many people do understand it: why, solid opinions on it all are all over the blogs. </snark>

I'm trying to get a sense for the range of possibilities really.

by Colman (colman at eurotrib.com) on Fri Sep 26th, 2008 at 05:49:18 AM EST
[ Parent ]
My range of possibilities.

In Europe, the possiblities are slightly bad and bad but not extremelly bad.

In the US slightly bad, bad and extemelly bad are possibilities.

In south America and oil producing countries I can not see how this can turn out bad. Or worse than now.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 05:54:33 AM EST
[ Parent ]
They should adjourne Congress and go home. This will turn out like the "year 2k" panic. A big nothing.

Hey, Grandma Moses started late!
by LEP on Fri Sep 26th, 2008 at 06:37:26 AM EST
[ Parent ]
In south America and oil producing countries I can not see how this can turn out bad. Or worse than now.

Might increase the risk of the US sending a gunboat or two to negotiate better oil prices for themselves. The fact that flagrant imperialism isn't be sustainable in the face of an economic meltdown has not historically been a major deterrent for declining empires.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 26th, 2008 at 09:43:18 AM EST
[ Parent ]
You have to grant this to Bush.. he lost South_American without a fight.. pretty legal actually... some decades ago Lula would have been long dead.

Nothing the US can do now.. military in Brazil is with the president and the new elites....happy pumping money at the middle class and becoming one regional power.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 10:16:20 AM EST
[ Parent ]
Well, the old ways didn't work that well in Venezuela.

Invasions were off the table because the vast majority of American troops were (and are) busy dying in the Middle East, and diplomacy is for wimps (not the manly men Republicans vote for).

The result: Bush has been busily trying to pretend that Latin America doesn't exist ever since the failed Venezuelan coup.

Imperial overstretch in action?

by Trond Ove on Fri Sep 26th, 2008 at 12:23:20 PM EST
[ Parent ]
I will say it was the dismantling and firing by Bush father of the people who knew how to do this stuff...

Teh US never needed the army fr insurgency.. the fact that they did not do it this time speaks very well of Bush father.. Bush son or Cheney had not the people to do it.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 12:44:58 PM EST
[ Parent ]
As I have no answers, let me add a couple of questions: what's the least bad scenario? Which countries / blocks are more and least vulnerable to a significant 1929 societal rash scenario? (The US? Europe? China? Latin America?)

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri Sep 26th, 2008 at 06:02:15 AM EST
This will end with printing. Treasury will emit bonds to buy every asset and equity out there. Fed will print bills to buy the bonds and cap the long term yields (avoiding à -95% house crash), but it will still be painful, like 10-12% rates.

Asian central banks will be tempted to rush out of their treasuries, but they will not have any buyer save the fed who will print. So actually they can't sell, so they won't sell. Dollar will tank, huge capital flight, americans will be forbidden to hold foreign assets, currencies, gold...

Oil exporting countries will ask for delirial dollar prices, same for most commodities (should'nt change much in euros). This is the only issue for US: trade will stop, which is now near-neutral except for oil (no more consumer goods from China, but no more boeing export, you don't want to depend on Zimbabwe for spares, do you ?)

Oil consumption will have to be curtailed 75% nearly overnight in the US: they will experience a monetary peak oil before the geologic peak. Expect curfews, rationing, martial laws... Next will come wars of annexion (Mexico, Venezuela, may be even Canada, who knows)

The Chinese will be very much in pain: urban unemployment will sky rocket, import capacity (paid with the stock of treasuries) will be greatly diminished for oil, commodities, including foodstuff. Expect Pol-pot style redeployment towards the countryside. Expect talks of war of annexion (Indonesia, Australia...) and revenge (US).

You can call me a doomer.

Pierre

by Pierre on Fri Sep 26th, 2008 at 06:31:40 AM EST
[Pierre's Crystal Ball of Doom™ Technology]

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 26th, 2008 at 06:37:03 AM EST
[ Parent ]
Great analysis, Pierre.

That is how it will probably be in the absence of Something Completely Different: which I actually believe that there could be....

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 26th, 2008 at 06:58:07 AM EST
[ Parent ]
Have you factored in the fact that in the short term quite a lot of oil will have to either stay in the ground or go to the US whether they can pay for it or not? Not all crudes are created equal, and the US has refining capacity for some of it that others lack.

Similar situations are undoubtedly going to crop up if you analyse other strategic industries - after all, one of the characteristic features of strategic industries is that they involve actual infrastructure that can't be juggled around as rapidly as financial instruments (and hence is boring and sclerotic and so on and so forth).

So if there is a major seize-up in trade, I'd expect the rest of the world to be hit harder than you seem to imply, and the US to be hit less hard.

OTOH, I don't see why foreign trade would have to screech to a complete halt. Sure, if people don't trust your currency, you can't run a trade deficit, but what prevents you from running a neutral or surplus foreign trade? The former only requires functioning infrastructure (which is a requirement for trading at all anyway), while the latter requires only functioning infrastructure and that there exists a trusted currency somewhere. Doesn't have to be your own.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 26th, 2008 at 10:01:43 AM EST
[ Parent ]
Me too, I think that they (Treasury, Fed) will pay anything for the toxic stuff. So I expect double digit inflation for the US and the euro at about $2. However I do not think that the main players in the Bretton-Woods II will dump their dollars (dump them where?), but they will of course curtail somewhat their lending to the US. Still a few more interesting weekends on Wall Street are likely.

On a bigger level we will (developed economies) have recession or nominal growth until 2011 or so, maybe even 2012 if the house prices overshoot on the way down. Fall of one or more of the Big Three automakers and big airlines is quite possible (even if they are bailed out capacity will disappear). Hard landing for the east-European economies also a possibility.

The Americans will retreat quite quickly even if incompletely from Iraq, especially if Obama wins. Their gargantuan military budget will not fall very much, but I don't think it will keep its rate of increase either.

I am quite curious what it will happen with the healthcare cost in US. Normally it should go down, even dramatically, but healthcare is never a "normal" market.

Ow, and I expect that by 2015 we will be flooded by a wave of books that will explain that if the free market had been allowed by its own to find the "fair" value of all the junk and the companies that have it, without government intervention, the crisis would have been much shorter and would the US would not confront itself with all the inflation (which I suppose that in 2015 will be perceived as the main economic problem).

by Deni on Fri Sep 26th, 2008 at 07:12:36 AM EST
Excellent!

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 26th, 2008 at 07:22:31 AM EST
[ Parent ]
Time to get writing that business book.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 07:27:41 AM EST
[ Parent ]
The Republicans will stall the bailout plan long enough for banks to have to report their third-quarter results (end of September!), and wheeeeee! will ensue.

Whatever happens after that, there will be bankruptcies. It makes a lot more sense to recapitalise the FDIC than even the Dodd bailout. The National Investment Bank idea is a good one, but I don't know how likely that is. Nothing much is likely to happen until Obama and the next Senate take office in January. Obama may pull a Roosevelt on the banking system.

On March 5, 1933, the day after Roosevelt's inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.
I doubt that a repeat of the Depression will be allowed through inaction. We know a little better. A long recession is inevitable, and it is possible that a lot of businesses in the real economy will go bankrupt and will then have to be nationalised to keep them afloat to keep people employed.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 26th, 2008 at 07:26:02 AM EST
Nothing much is likely to happen until Obama and the next Senate take office in January. Obama may pull a Roosevelt on the banking system.

So is it good that the crisis has really not come to a head till so late in the Bush presidency, so that him and his cronies havent really had to deal with it? this being as I understand it the last reporting period before the election, if it had happened six weeks further on then it could be sold as response to the election of Obama, if six weeks forward then Bush might have tried for real to fix it, and who knows where that would have lead.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Sep 26th, 2008 at 07:32:54 AM EST
[ Parent ]
I believe the crisis was going to come to a head at a quarter end. It started in June last year (2007Q2). The ECB injected lots of money for 2007Q3 while the Anglo chattering classes sniped at it for panicking, but then Northern Rock failed. Then we had 3 quarters of interventions by the Fed: 2007Q4 (end of year bridging loans by all central banks), 2008Q1 (Bear Stearns bailout) and 2008Q2 (admission that Fannie and Freddie might have to be rescued). Paulson and Bernanke were hoping to be able to repeat the operation 5 times (2008Q3 and Q4) to take them over to Obama's inauguration, but unfortunately for them the Fed managed to destroy its balance sheet in just 9 months, and so we had the events of the past 3 weeks.

So, you're right, politically for Bush 2008Q3 is the worst time for things to come to a head. Year-end could have been blamed on Obama being president elect spooking the markets, and Feb/March 2009 would have marred his first 100 days.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sat Sep 27th, 2008 at 05:28:32 AM EST
[ Parent ]
Obama may pull a Roosevelt on the banking system.

Meaning?

I hope Obama's intelligent enough to realize he's going to have to pull a Roosevelt on a lot more than just the banking system if he's elected.

The good news is that this has hit on Bush's watch, so it won't be blamed on Obama (even though the Reps will undoubtedly try to blame Dems, it's a losing argument).

Congress is not going to get anything done this late in an election year, especially not with a debate up tonight and McCain acting like he's been taking acid or something.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Sep 26th, 2008 at 08:28:31 AM EST
[ Parent ]
Meaning
On March 5, 1933, the day after Roosevelt's inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 26th, 2008 at 09:03:03 AM EST
[ Parent ]
I've put up a diary on dKos about the idea of a Natioanl Investment Bank

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Sep 26th, 2008 at 09:37:38 AM EST
[ Parent ]
Could we have that here also please.

Perhaps this can be the start of 'Monetize America' to follow 'Energize America' ;-)

You can't be me, I'm taken

by Sven Triloqvist on Fri Sep 26th, 2008 at 09:41:59 AM EST
[ Parent ]
Wolfgang Münchau, in his German column as well argues the way to resuce/take over one or two banks to ensure credit for the US economy and let the others alone.

Doing nothing would be too damaging to the real economy in the short and medium run.

Rescuing the whole system (what any currently official plans are about) is too expensive for the gov't, and would not lead to the necessary shrinking of the oversized financial sector.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri Sep 26th, 2008 at 10:43:33 AM EST
[ Parent ]
Main Street will hardly notice the difference. I work in retail, and our own figures show that the American consumer is buying less than projected, but levels are still ahead of last year. Average sale is down about 7%, but overall, sales are down from plan only 3%. I'm talking small ticket sales, not homes, cars or major appliances requiring financing.

In the Boston area, the credit crunch manifests itself in the lack of work. I've never, in forty years, seen a job market this tight, and it has been pretty bad for decades. The manufacturing industries left New England years ago, and what is left are jobs in government, medical services, and (you guessed it) financial services. Personnel in financial services here are largely those peddling insurance, retirement plan instruments, etc. I've spoken with several strangers who happen to be buying job search aids in the past month or so and they're all from the financial services sector. I've spoken with construction workers as well, and they seem to be doing just fine. People are still repairing their homes (and they're borrowing to do it) so the Boston area construction trades still have plenty of work. Perhaps "repair" is the right word, because having spoken with friends at Home Depot, I hear sales are down sharply. My guess is that people are "repairing" and less investing in home improvement. Which is understandable.

As of yet, this is largely a Wall Street crisis, and hasn't bled over onto Main Street. Employment figures for the next few quarters will tell the tale on how much this largely accounting panic translates into a business crisis.

I'm in no way qualified to judge the depth of the banking crisis, but though ordinary people are concerned, they're being prudent, so far they haven't panicked here in eastern Massachusetts.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Fri Sep 26th, 2008 at 07:54:57 AM EST
Interesting anecdotal evidence, papicek.

Maybe the Boston area's a bit of a clone for one or two of the European countries less affected by the gathering storm so far.

But I think the US also has Main Street analogies for UK, Spain and so on, where the situation is maybe not so relatively unaffected as it is, say, in France.

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 26th, 2008 at 08:31:00 AM EST
[ Parent ]
And thankfully, in span we ahve a robust banking system,w e do not have to worry for default.. we do have to worry about what to do instead of housing...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 26th, 2008 at 10:12:30 AM EST
[ Parent ]
It seems that Massachusetts has thus far been spared the worst of the mortgage woes that precipitated and expanded into this full-fledged banking crisis. California, Arizona, and Florida, home of the "liar-loans" has understandably been hit hardest.

Like I say, the clearest indication of trouble in my area is the loss of employment in the financial services sector here, which has been one of the only really active parts of the job market here since 1990 or so.

I just spoke with someone who keeps up with housing values in Massachusetts. On Cape Cod, housing prices have tumbled from their sky-high levels, but that's vacation housing, so the second-home market's soft. It was overpriced anyways, and this is just a normalization. In metropolitan Boston, however, home prices have declined only slightly.

As far as Main Street in the Boston area is concerned, the bailout seems (read "feels") totally unwarranted.

Like I say, I'm in no position to judge, though just for the hell of it, I took a tour through the NYT archives for stories about consumer debt. Since the 1970's, some economists have worried enough about the "lifestyle financing" phenomenon for it to be a recurring theme in the NYT.

I notice that the rise in consumer credit coincides nicely with the for-all-intents-and-purposes death of the labor movement in the US. A conservative politician or economist might applaud the weakening of labor's political strength as well as the spread of participation in economic activity (represented by the entry of credit-card issuers into everyday purchases made by ordinary people) and the potential for the concentration of vast amounts of capital, even if it is only a balance-sheet entry for monies owed. (Many will, no doubt, earn their doctorates examining the thesis of the political-economic policy interplay of the events we're witnessing. But in the light of my NYT search, I feel history will write this off as a credit bubble decades in the making. You heard it here first!)

I'm not an economist, accountant or a businessman. I have no idea what the GAAP rules are for entering monies owed (though I'm told they fall under accounts receivable assets - right under cash - with categories for long and short term as well as collateralized and uncollateralized instruments), or how this kind of balance sheet affects a company's valuation. My sense of the situation is that it was inevitable, especially in our largely unregulated environment and after decades of defunding the American consumer through union busting and job export.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Fri Sep 26th, 2008 at 09:18:20 PM EST
[ Parent ]
Average sale is down about 7%, but overall, sales are down from plan only 3%. I'm talking small ticket sales, not homes, cars or major appliances requiring financing.

Maybe because credit CARDS crunch did not happened yet...
There are areas I suppose where house prices are steady and may even still rise ...that's where people still borrow on equities. A hell lot of the people still finance their "way of life" through credit cards, new mortgages on equities, and other loans. This is money that does not exist. Printing money (one way or another) will definitely leave us with inflation. If not controlled from the beginning inflation tends to skyrocket...
Reading your predictions (especially long term ones) gives me shivers in my spine. I lived for 53 years and have seen and endured a lot. Even if I lose everything I learned how to survive...but what about our children? What a shity world and life they are going to inherit...

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Fri Sep 26th, 2008 at 09:46:41 AM EST
[ Parent ]
And could we please begin talking about shifting taxes off of labor and onto privileges?  Privileges to tax include natural resource values such as broadcast spectrum, mineral extraction, pollution, and land (including urban driving).  Monopolies and special rights-of-way are also rightful objects of special taxation.  Practically every economist agrees that taxing things that are in fixed supply does not inpede production and may even stumulate production to the extent that the privileged resource is underused.  And taxes that fall on privileges would be more progressive that income taxes (with a few exceptions).  

We need new analytic tools and a few new legal structures.  For example we need rent models to estimate the value of privileges to guide tax policy.  We need legal recognition that mortgaged property actually belongs to both the "owner" and the mortgager.  For example, if a bank holds a 50% mortgage on a house they should receive 50% of the tax bill for the value of the land under the house.  Analagous splits would have to be made for other privileges.  

Taxing privileges would likely tilt wage level negotiations in favor of labor.  Untaxed privileges do not suffer much by the passage of time (they may actually benefit) while workers with families do not have the luxury of waiting.  Taxing privileges directly on an annual basis would place a time pressure on privilege, which would help labor to negotiate better rates.  I.e., we would see an upward pressure on wages rather than the downward pressure we have all been trained to believe is "normal".  

Note also that taxing privileged assets would also prevent bubbles of lending on them, which is just the most visible portion of the present rot.  

by Geonomist on Fri Sep 26th, 2008 at 09:28:53 AM EST
Welcome back to ET geonomist.

As you will see from my comment here

Who will Hear Us

your previous intervention is not forgotten.

And you will have seen my recent post on the

Land Cafe thread as well, no doubt.

My take is a new approach to direct "Peer to Peer" investment in land rental units will make mortgages obsolete, and give rise towaht is to all intents and purposes a "unitisation" "Land-based" currency, as opposed to (say) John Law's 1705 "land-backed securitisation" currency proposal.

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 26th, 2008 at 11:21:08 AM EST
[ Parent ]
I'll take the non doom bet.

Serious recession, but 1982 levels, not 1930's for the US. Some form of the bailout passes. How bad it is depends a lot on whether they get it done quickly (worse) or if the Repubs try to have their cake and eat it, overplaying their hand. The top remaining US financial companies survive, with the possible exceptions of MS and Wachovia. Obama announces a major infrastructure bill plus tax cuts for the middle income folks. Deficit skyrockets, but the Chinese largely keep paying cause they don't want to write off their reserves. In Europe - two tracks. On the one side the bubble economies (UK, Ireland, Spain) plus possibly Italy get the US style really nasty recession. The rest, led by Germany and France get a mild one. The dollar slides but doesn't crash. Commodity prices stabilize or fall as demand destruction caused by high prices and the recession balance out supply issues. The world muddles through.

by MarekNYC on Fri Sep 26th, 2008 at 12:09:46 PM EST
I like this story, and it might just happen. Best case, as I see it, but there's a lot of talent working on this right now.
It's easy to forget just how sharp- and gutsy- Dodd and Biden were during the Reagan administration- they came close to wringing the old bastard's lying neck over the Iran-Contra debacle, and with damned little support. And Barney frank is still a force to be reckoned with. But they're all getting old-- fingers crossed.

I think the big risk to this rather benign outcome is, as we discussed above, the junkyard dog of the authoritarian-evangelical weapon crafted by the right to aid them in their agenda. It's slipping it's leash.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 26th, 2008 at 02:06:36 PM EST
[ Parent ]
Thanks for directing me to your other post.  We are advocating similar proposals.  

I am quite certain that the key to managing currency is to require rental/privilege payments in the currency.  If the economy grows with increasing trade then the government (or other public entity) could simply issue new incremental amounts of currency to the public on a per-capita basis rather than allowing privileged interests to issue new debt.  Part of the proof of how currency is strengthened by requiring rent to be paid in the currency is to be found in the unnatural strength of the dollar.  The USA requires (at gun point) the payment for oil and other commoditites to be made in dollars.  The perverse effects are to weaken US manufacturers (mostly) while allowing the country as a whole to import foreign products without exporting an equivalent value of products.  (But hey, we aren't really an empire, are we?)  

It seems that we also need different levels of currency for example a separate international currency for trading in world based commodities like oil and CO2.  The rent so collected could be used for international projects or rebated back to individuals across the globe.  All of us heavy CO2 users would have to compensate the injured.  It might change some behaviors....

I havent' posted in a while because blogging was taking up too much of my time.  Back to work.....

by Geonomist on Fri Sep 26th, 2008 at 12:53:55 PM EST

It seems that we also need different levels of currency for example a separate international currency for trading in world based commodities like oil and CO2.  

The rent so collected could be used for international projects or rebated back to individuals across the globe.  All of us heavy CO2 users would have to compensate the injured.  It might change some behaviors....

As the guy said... "If you want to keep a donkey healthy, you don't regulate what comes out of it: you regulate what goes in."

Oil has the intrinsic value of carbon energy and may therefore easily be "monetised" by creating Units redeemable in energy: CO2 has no intrinsic value whatever, and can only be monetised by "fiat".

But you must burn Carbon to get CO2.

My proposal is that a Carbon levy (tax on privilege) would be used to create a Carbon "Energy Pool".

Stage One:

"Unitise" the pool into - say - 10 Kilo Watt Hour Units, which may be termed "Carbon Dollars".

So at a "launch" market price of US$0.10 per kwH, a Carbon Dollar "Unit" would actually equate to US $1.00. The US $ would thereafter diverge from (ie in all likelihood devalue against) Carbon dollars

Stage Two

Let's start with a Pool of 100m Carbon Dollars valued at $100m.

Invest the $ funds in the Pool in:

(a) "MegaWatts" from renewable energy projects - on the basis that this energy investment is repaid by production of the project "sold forward" to the Pool;

(b) "NegaWatts" from energy efficiency savings, on the basis that the energy investment in Carbon Dollar terms is repaid out of energy savings.

So a 1 Mw wind turbine which costs $2m is funded by selling forward 2m Units (Carbon Dollars) at $1.00 each.  ie 20,000 Mega Watt Hours, or 20,000 hours of production, which over a 20 year life is 1000 hours per year.

It then depends how many hours per year the turbine produces electricity (after putting operating costs to one side) as to how quickly this investment will be paid back to the Pool.

The balance of production then remains for distribution as an Energy Dividend.

For energy saving investments in "NegaWatts", the propert(ies) where the savings have been made could be billed by the Pool for repayment of x Energy Units/ Carbon Dollars per year at the prevailing exchange rate of Carbon Dollars/ Energy Units in US $.

Stage Three
Distribute equitably the 100 million Carbon Dollars/ redeemable Units in the Pool.

Recipients could: pay off "Energy Loans"; use the Carbon Dollars against energy consumed; or more likely exchange them for something else of value at a "market price".

In all likelihood, a large proportion of Carbon Dollars would remain outstanding, and the Pool would therefore be able to benefit from "seigniorage".

As with any other monetary system, the Pool would have to be managed to prevent inflation or defaults, but its basis will be in energy - which has intrinsic value - distinguishing it from US $, or Carbon Credits, which have no intrinsic value.

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 26th, 2008 at 02:20:11 PM EST
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