Clearly, the general awareness of the problem of debt is growing. Even Forbes is now proclaiming the inevitability of default. Forbes is only 1 or 2 layers away from the mainstream, so the idea has almost reached critical mass. More and more people are slowly realizing, the debt simply cannot be paid off, even if we wanted to.
Of course, to our banking class parasites, the point of the debt is not to pay it off, but to keep it floating, a perpetual yoke of slavery on the neck of the people. However, they have overplayed their hand, like all parasites, they cannot self-govern their own growth and now endanger the health of their host.
We are trapped between crushing debt payments that will literally devour the whole budget, crippling budget cuts that will destroy our governments, or onerous tax hikes that could destroy the economy.
Or..... Cancel the debt, destroy the parasites, and let the economy recover! It really is that simple. Repudiate the debt load, which will save our economy and way of life. In a word, JUBILEE!!!!
http://www.forbes.com/2009/12/18/government-budget-deficit-personal-finance-financial-advisor-network-treasury-debt.html
At all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company--only Japan, Lebanon and Zimbabwe are higher. That's only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time."
Add the unfunded portion of entitlement programs and we're at 840% of GDP.
The world has not seen such debt levels in modern history. This debt is not serviceable. Imagine that total debt is 557% of GDP, without considering entitlements. The interest on the debt will consume all the tax revenues of the country in the not-too-distant future. Then there will be no way out but to create more debt in order to finance the old debt.
It assures a period of economic devastation. In a last, desperate attempt, politicians at the federal and local levels will raise taxes to astronomical heights to raise revenues. And that only assures destruction of the economy. Forget the fable of economic recovery. Unless there is a change in Washington by next year's election, there will be no way to turn back.
Showing posts with label Default. Show all posts
Showing posts with label Default. Show all posts
Tuesday, December 22, 2009
Thursday, December 17, 2009
Ellen Brown Calls for National Debt Cancellation
Excellent article published yesterday by Ellen Brown, detailing the positive side of national debt cancellation. The banking class everywhere at all times attempts to load the commoners with heavy debt burdens. The commoners are starting to wake up.
Jubilee means freedom from exploitation!
http://www.truthout.org/1216097
Europe's small, debt-strapped countries could follow the lead of Argentina and simply walk away from their debts. That would shift the burden to the creditor countries, which could solve the problem merely by a change in accounting rules.
Local Currency for Local Development
Issuing and lending currency is the sovereign right of governments, and it is a right that Iceland and Latvia will lose if they join the EU, which forbids member nations to borrow from their own central banks. Latvia and Iceland both have natural resources that could be developed if they had the credit to do it; and with sovereign control over their local currencies, they could get that credit simply by creating it on the books of their own publicly-owned banks.
In fact, there is nothing extraordinary in that proposal. All private banks get the credit they lend simply by creating it on their books. Contrary to popular belief, banks do not lend their own money or their depositors' money. As the US Federal Reserve attests, banks lend new money, created by double-entry bookkeeping as a deposit of the borrower on one side of the bank's books and as an asset of the bank on the other.
Besides thawing frozen credit pipes, credit created by governments has the advantage that it can be issued interest-free. Eliminating the cost of interest can cut production costs dramatically.
According to a German study, interest composes 30 percent to 50 percent of everything we buy. Slashing interest costs can make projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable but profitable for the government, while at the same time creating much-needed jobs.
Government-issued money to fund public projects has a long and successful history, going back at least to the early 18th century, when the American colony of Pennsylvania issued money that was both lent and spent by the local government into the economy. The result was an unprecedented period of prosperity, achieved without producing price inflation and without taxing the people.
The key is to use the newly-created money or credit for productive projects that increase goods and services, rather than for speculation or to pay off national debt in foreign currencies (the trap that Zimbabwe fell into). The national currency can be protected from speculators by imposing exchange controls, as Malaysia did in 1998; imposing capital controls, as Brazil and Taiwan are doing now; banning derivatives; and imposing a "Tobin tax," a small tax on trade in financial products.
Jubilee means freedom from exploitation!
http://www.truthout.org/1216097
Europe's small, debt-strapped countries could follow the lead of Argentina and simply walk away from their debts. That would shift the burden to the creditor countries, which could solve the problem merely by a change in accounting rules.
Local Currency for Local Development
Issuing and lending currency is the sovereign right of governments, and it is a right that Iceland and Latvia will lose if they join the EU, which forbids member nations to borrow from their own central banks. Latvia and Iceland both have natural resources that could be developed if they had the credit to do it; and with sovereign control over their local currencies, they could get that credit simply by creating it on the books of their own publicly-owned banks.
In fact, there is nothing extraordinary in that proposal. All private banks get the credit they lend simply by creating it on their books. Contrary to popular belief, banks do not lend their own money or their depositors' money. As the US Federal Reserve attests, banks lend new money, created by double-entry bookkeeping as a deposit of the borrower on one side of the bank's books and as an asset of the bank on the other.
Besides thawing frozen credit pipes, credit created by governments has the advantage that it can be issued interest-free. Eliminating the cost of interest can cut production costs dramatically.
According to a German study, interest composes 30 percent to 50 percent of everything we buy. Slashing interest costs can make projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable but profitable for the government, while at the same time creating much-needed jobs.
Government-issued money to fund public projects has a long and successful history, going back at least to the early 18th century, when the American colony of Pennsylvania issued money that was both lent and spent by the local government into the economy. The result was an unprecedented period of prosperity, achieved without producing price inflation and without taxing the people.
The key is to use the newly-created money or credit for productive projects that increase goods and services, rather than for speculation or to pay off national debt in foreign currencies (the trap that Zimbabwe fell into). The national currency can be protected from speculators by imposing exchange controls, as Malaysia did in 1998; imposing capital controls, as Brazil and Taiwan are doing now; banning derivatives; and imposing a "Tobin tax," a small tax on trade in financial products.
Monday, December 14, 2009
Would U.S. Debt Default bring Armageddon?
Frankly, overblown rhetoric about the economy is perhaps the greatest obstacle facing economic and currency reformers. When a U.S. debt default is publicly declared by an Australian lawmaker to lead to Armageddon and the collapse of the world, it is hard to imagine a steeper wall to climb for Jubilee advocates.
To speak plainly, after a debt default, the main victims of economic collapse would be the banking classes, who profit obscenely from the current system of mass usury and financial manipulation, keeping massive debt loads piled on the backs of the common workers.
http://www.brisbanetimes.com.au/national/joyce-warns-of-us-armageddon-20091211-kmlu.html
THE OPPOSITION finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ''economic Armageddon'' which will make the recent global financial crisis pale into insignificance. Senator Joyce said yesterday he did not mean to alarm the public but there needed to be a debate about Australia's ''contingency plan'' for a sovereign debt default by the US or even by a local state government. ''A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,'' Senator Joyce said.
Senator Joyce said that if the US recovered, global funds would flow back into North America. ''There will be only one way Australia will be able to keep funds here and that is by putting up interest rates, which will therefore bring real costs back to households,'' he said. ''That is the first scenario, which is extremely bad for Australia. The worse scenario is where the US doesn't repay its debt - the $2 trillion in debt it owes to the Chinese, the $1 trillion in debt it has to the Japanese and the $US1 trillion in debt to others - and then we are really nailed.
''The outcome is a shift away from the US dollar as the international trading currency and a shift to the Chinese yuan, and China becomes an immensely powerful player overnight. It's the real financial crisis, and the real financial crisis will mean this preamble we have just had pales into insignificance.''
Asked what sort of contingency plan he would advocate, Senator Joyce said it was like trying to prepare for a tidal wave but the local economy should have more self-reliance.
To speak plainly, after a debt default, the main victims of economic collapse would be the banking classes, who profit obscenely from the current system of mass usury and financial manipulation, keeping massive debt loads piled on the backs of the common workers.
http://www.brisbanetimes.com.au/national/joyce-warns-of-us-armageddon-20091211-kmlu.html
THE OPPOSITION finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ''economic Armageddon'' which will make the recent global financial crisis pale into insignificance. Senator Joyce said yesterday he did not mean to alarm the public but there needed to be a debate about Australia's ''contingency plan'' for a sovereign debt default by the US or even by a local state government. ''A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,'' Senator Joyce said.
Senator Joyce said that if the US recovered, global funds would flow back into North America. ''There will be only one way Australia will be able to keep funds here and that is by putting up interest rates, which will therefore bring real costs back to households,'' he said. ''That is the first scenario, which is extremely bad for Australia. The worse scenario is where the US doesn't repay its debt - the $2 trillion in debt it owes to the Chinese, the $1 trillion in debt it has to the Japanese and the $US1 trillion in debt to others - and then we are really nailed.
''The outcome is a shift away from the US dollar as the international trading currency and a shift to the Chinese yuan, and China becomes an immensely powerful player overnight. It's the real financial crisis, and the real financial crisis will mean this preamble we have just had pales into insignificance.''
Asked what sort of contingency plan he would advocate, Senator Joyce said it was like trying to prepare for a tidal wave but the local economy should have more self-reliance.
Friday, September 11, 2009
Global Trade, Debt, and Stimulus: a short Explanation
The Chinese run a large trade surplus with the US. This leads them to have a huge stockpile of dollars. This allows them to peg their own currency to whatever dollar value they want. Since they do all their foreign trade in dollars, there is simply no international market for their domestic currency, so international traders are simply shut out. (For other countries who do trade their currencies on the international market, lacking a supply of dollars means that currency traders could make runs on their currency, and the buying and selling of it would be out of their control.)
The surplus of extra dollars leaves the Chinese with a question of what to do with those dollars. In the past, they were content to invest in US debt securities, in effect, expanding their supply of dollars. However, stockpiling dollars is good for the Chinese in absolute terms, because dollars are the international trade currency. Thus, with extra dollars, they can buy anything else in the world.
When the international collapse in trade happened last year, many analysts thought China would be hit hard, because they are so export-dependent. However, they responded to the collapse in export trade with an almost unbelievably large dose of domestic spending. This is where their dollar stockpile came in, because they were able to stimulate their own economy by spending all the dollars they had stockpiled buying raw materials.
Oil, copper, rare elements, whatever they wanted, they were able to buy, using their dollars. They have also been investing heavily in gold, although not for use in industrial stimulus, but as a hedge against dollar collapse.
They could then pay their citizens in their own currency to do the work. Printing out their own money for domestic projects was not necessarily inflationary. For one, it was partially just holding the line, fighting deflation and unemployment from the collapse in international trade. For another, it can’t cause a currency devaluation, because their currency is not traded internationally.
The same process, printing out your own money, does not work for making international payments. Foreigners will see that you are diluting your money, and the exchange rate will fall. This defeats the purpose of printing more money in the first place, since it now costs more for the same trade.
For this reason, many times throughout world history, two types of money are used, one for domestic trade, one for international trade. For example, the US went off the gold standard for domestic dollars in 1933, but didn’t go off the gold standard for international dollars until 1971. It is also the reason why the world is clamoring for a new international trade currency now. International trade needs an absolute standard of measure, to prevent countries from screwing the system by printing more of their own currency (such as they see the US doing now).
So, with their stimulus money, the Chinese have been stockpiling raw materials and using them to put their people to work on infrastructure projects. This is true capital investment, and increases their wealth-creating capacity for the future, as well as putting people to work today.
Our stimulus money is not based on a trade surplus, but is simply based on diluting the dollar through deficit spending and monetization of government debt. Nor is our stimulus money providing the basis for future wealth creation or even repairing old infrastructure. Our stimulus money is simply covering budget shortfalls and continuing welfare payments. Thus, we will be in a worse position when the stimulus ends, having the same economic condition, but then with a higher debt load.
Looking forward, the US economy is in between a rock and a hard place. Keeping the dollar as the international reserve currency means that the US will continue to have its industrial base undercut by cheaper foreign competition and be the target for mass immigration because of the overvalued dollar. When the change finally happens, and the dollar is removed as international reserve, the US faces a massive inflation, from the return of dollars to domestic use and currency devaluation. The longer we wait, the worse the economic collapse will be when it does happen, since we will have to rebuild our industrial economy from scratch.
The only solution to that guaranteed eventuality is to take aggressive proactive steps, sooner rather than later. For example, the US should take decisive steps to safeguard its industrial base now, while the dollar is strong, rather than later, after currency collapse. The US should also cease all inflationary policies (such as deficit spending and monetization of debt), which are literally driving the world away from the dollar reserve standard. An even more radical approach would involve repudiation of the national debt, leaving the rest of the world holding the bag of worthless paper, and reinvesting in America’s industrial powerbase through protection from imports and outsourcing/off shoring.
In short, Americans should start thinking of themselves a people, rather than just as expendable units of profit manipulation in an international economy.
The surplus of extra dollars leaves the Chinese with a question of what to do with those dollars. In the past, they were content to invest in US debt securities, in effect, expanding their supply of dollars. However, stockpiling dollars is good for the Chinese in absolute terms, because dollars are the international trade currency. Thus, with extra dollars, they can buy anything else in the world.
When the international collapse in trade happened last year, many analysts thought China would be hit hard, because they are so export-dependent. However, they responded to the collapse in export trade with an almost unbelievably large dose of domestic spending. This is where their dollar stockpile came in, because they were able to stimulate their own economy by spending all the dollars they had stockpiled buying raw materials.
Oil, copper, rare elements, whatever they wanted, they were able to buy, using their dollars. They have also been investing heavily in gold, although not for use in industrial stimulus, but as a hedge against dollar collapse.
They could then pay their citizens in their own currency to do the work. Printing out their own money for domestic projects was not necessarily inflationary. For one, it was partially just holding the line, fighting deflation and unemployment from the collapse in international trade. For another, it can’t cause a currency devaluation, because their currency is not traded internationally.
The same process, printing out your own money, does not work for making international payments. Foreigners will see that you are diluting your money, and the exchange rate will fall. This defeats the purpose of printing more money in the first place, since it now costs more for the same trade.
For this reason, many times throughout world history, two types of money are used, one for domestic trade, one for international trade. For example, the US went off the gold standard for domestic dollars in 1933, but didn’t go off the gold standard for international dollars until 1971. It is also the reason why the world is clamoring for a new international trade currency now. International trade needs an absolute standard of measure, to prevent countries from screwing the system by printing more of their own currency (such as they see the US doing now).
So, with their stimulus money, the Chinese have been stockpiling raw materials and using them to put their people to work on infrastructure projects. This is true capital investment, and increases their wealth-creating capacity for the future, as well as putting people to work today.
Our stimulus money is not based on a trade surplus, but is simply based on diluting the dollar through deficit spending and monetization of government debt. Nor is our stimulus money providing the basis for future wealth creation or even repairing old infrastructure. Our stimulus money is simply covering budget shortfalls and continuing welfare payments. Thus, we will be in a worse position when the stimulus ends, having the same economic condition, but then with a higher debt load.
Looking forward, the US economy is in between a rock and a hard place. Keeping the dollar as the international reserve currency means that the US will continue to have its industrial base undercut by cheaper foreign competition and be the target for mass immigration because of the overvalued dollar. When the change finally happens, and the dollar is removed as international reserve, the US faces a massive inflation, from the return of dollars to domestic use and currency devaluation. The longer we wait, the worse the economic collapse will be when it does happen, since we will have to rebuild our industrial economy from scratch.
The only solution to that guaranteed eventuality is to take aggressive proactive steps, sooner rather than later. For example, the US should take decisive steps to safeguard its industrial base now, while the dollar is strong, rather than later, after currency collapse. The US should also cease all inflationary policies (such as deficit spending and monetization of debt), which are literally driving the world away from the dollar reserve standard. An even more radical approach would involve repudiation of the national debt, leaving the rest of the world holding the bag of worthless paper, and reinvesting in America’s industrial powerbase through protection from imports and outsourcing/off shoring.
In short, Americans should start thinking of themselves a people, rather than just as expendable units of profit manipulation in an international economy.
Wednesday, March 25, 2009
Sign the Petition to Cancel National Debt
http://www.petitiononline.com/repudiat/petition.html
To: US Congress and State Legislatures
We, the undersigned Americans, hereby call upon both houses of the US Congress to promptly pass, and upon the state legislatures to ratify, a constitutional amendment repealing section 4 of the 14th amendment, prohibiting future indebtedness and deficit spending on the part of the federal government, and repudiating all federal government debt and debt service obligations accrued prior to the ratification of said amendment.
Sincerely,
The Undersigned
go here to sign the petition
http://www.petitiononline.com/repudiat/petition-sign.html
The Repudiation of the US National Debt Petition to US Congress and State Legislatures was created by and written by Thomas L. Knapp (kubby.communications@gmail.com).
update 4/16/09 noon: 11 signatures
To: US Congress and State Legislatures
We, the undersigned Americans, hereby call upon both houses of the US Congress to promptly pass, and upon the state legislatures to ratify, a constitutional amendment repealing section 4 of the 14th amendment, prohibiting future indebtedness and deficit spending on the part of the federal government, and repudiating all federal government debt and debt service obligations accrued prior to the ratification of said amendment.
Sincerely,
The Undersigned
go here to sign the petition
http://www.petitiononline.com/repudiat/petition-sign.html
The Repudiation of the US National Debt Petition to US Congress and State Legislatures was created by and written by Thomas L. Knapp (kubby.communications@gmail.com).
update 4/16/09 noon: 11 signatures
Campaign to Cancel the National Debt
Join the Campaign to Cancel the Washington National Debt
We hereby resolve that most of the national debt is not a legitimate debt of the American people nor the future generations who would otherwise find their prosperity and financial security sacrificed for the profit of a few corrupt global financial elites and the politicians they own and control.
Thankfully, our Patriot Founding Fathers provided Article Five of the United States Constitution for a future time of congressional, judicial and presidential tyranny which provides for an option to assemble a national Convention to propose amendments to the United States Constitution as an alternative to the process of securing two-thirds approval in both houses of Congress.
We must work to pass "The Washington National Debt Constitutional Amendment" and repudiate much of the Washington government debt before it bankrupts every private American citizen. We fear the massive increase in the level of indebtedness due to the meltdown and depression will first bring down the Treasury market followed by the US dollar and this will destroy the American economy for years to come.
Washington’s illegitimate national debt is growing exponentially due to the bailouts as Congress tries to jumpstart a depression threatened economy but the added debt load will soon bankrupt our nation and impoverish every productive, working American.
To stop the economic tidal wave that will destroy the financial security and wealth of every American along with their savings, real estate, retirement plans, investments and their promised Social Security and Medicare benefits we have established "The Washington National Debt Constitutional Amendment Campaign" to cancel much of Washington’s debt before it is too late.
The Campaign will bypass a corrupt Congress and the leadership of both political parties often controlled by special interests at the national level and seek a debt solution through the constitutional amendment process starting at the state level which will repudiate any Treasury debt issued or rolled over after the deadline of 12/22/2013, exactly 100 years after the establishment of the Federal Reserve System.
The proposed constitutional amendment will first call upon the state legislatures to ratify an amendment repealing Section 4 of the 14th Amendment which outlawed even questioning the validity of the national debt; "The validity of the public debt of the United States, authorized by law….shall not be questioned", followed by language to further prohibit future indebtedness and deficit spending by the federal government and repudiate all federal government debt (except for obligations for Social Security Trust Funds) and debt and interest service obligations accrued after the 12/22/2013 deadline regardless of when the amendment is ratified by 2/3 of the states.
Contact us now at cancelthewashingtondebt@yahoo.com
We hereby resolve that most of the national debt is not a legitimate debt of the American people nor the future generations who would otherwise find their prosperity and financial security sacrificed for the profit of a few corrupt global financial elites and the politicians they own and control.
Thankfully, our Patriot Founding Fathers provided Article Five of the United States Constitution for a future time of congressional, judicial and presidential tyranny which provides for an option to assemble a national Convention to propose amendments to the United States Constitution as an alternative to the process of securing two-thirds approval in both houses of Congress.
We must work to pass "The Washington National Debt Constitutional Amendment" and repudiate much of the Washington government debt before it bankrupts every private American citizen. We fear the massive increase in the level of indebtedness due to the meltdown and depression will first bring down the Treasury market followed by the US dollar and this will destroy the American economy for years to come.
Washington’s illegitimate national debt is growing exponentially due to the bailouts as Congress tries to jumpstart a depression threatened economy but the added debt load will soon bankrupt our nation and impoverish every productive, working American.
To stop the economic tidal wave that will destroy the financial security and wealth of every American along with their savings, real estate, retirement plans, investments and their promised Social Security and Medicare benefits we have established "The Washington National Debt Constitutional Amendment Campaign" to cancel much of Washington’s debt before it is too late.
The Campaign will bypass a corrupt Congress and the leadership of both political parties often controlled by special interests at the national level and seek a debt solution through the constitutional amendment process starting at the state level which will repudiate any Treasury debt issued or rolled over after the deadline of 12/22/2013, exactly 100 years after the establishment of the Federal Reserve System.
The proposed constitutional amendment will first call upon the state legislatures to ratify an amendment repealing Section 4 of the 14th Amendment which outlawed even questioning the validity of the national debt; "The validity of the public debt of the United States, authorized by law….shall not be questioned", followed by language to further prohibit future indebtedness and deficit spending by the federal government and repudiate all federal government debt (except for obligations for Social Security Trust Funds) and debt and interest service obligations accrued after the 12/22/2013 deadline regardless of when the amendment is ratified by 2/3 of the states.
Contact us now at cancelthewashingtondebt@yahoo.com
Thursday, March 12, 2009
Europe Needs a Jubilee too
Europe is also facing a financial catastrophe because of excessive debt, in their case given to Eastern European countries. The economies in the region are collapsing because of the withdrawal of funding and the collapse of prices (i.e. deflation). Yup, debt deflation depression there too, and the only solution is Jubilee! Why is no one talking about this???
The headline writers are calling it Europe's own subprime. Basically, what has happened is that banks in the more developed Western Europe have lent huge amounts of money to consumers in Eastern Europe.
The banks which have lent money belong to countries like Austria, Belgium, Greece, Italy and Sweden. Consumers who have borrowed from these banks belong to countries like Poland, Hungary, Romania, Ukraine and other countries which were a part of the erstwhile Union of Soviet Socialist Republics (USSR).
Stephen Jen, managing director and chief currency economist, Morgan Stanley estimates that Eastern Europe has borrowed around $1.7 trillion and needs to repay or roll over around $400 billion this year, which is around one-third of the entire gross domestic product (GDP) of the region. That's a lot of money to be repaid.
But how did it start in the first place? As the stock market and the real estate market boomed across the world, Western European banks saw a huge opportunity in lending in Eastern European countries where the financial system was not very developed. A majority of the lending happened for construction and consumer loans. With real estate prices on their way up, people were happy to go out and borrow.
Also, these loans were made primarily in euros or Swiss francs, and not in the local currencies of the countries. These loans were also at a lower rate of interest compared with local currency loans.
What also encouraged people to borrow in foreign currencies is something experts are now calling "convergence play." Most Eastern European countries over the next few years were hoping to move to euro as their currency from their current currencies. This encouraged borrowers to borrow in euros, and pay a lower interest rate, rather than borrow in their domestic currencies and pay a higher interest rate. Banks giving out these loans assumed that as these countries moved to the euro currency, the standard of living will also move towards the more developed, Western European countries.
And now, it is this foreign currency borrowing that is causing all the problems. Take the case of a country like Poland, where almost 60% of the home loans taken were in Swiss francs. Around one year back, 100 Polish zlotys (the currency of Poland) fetched 45 Swiss francs; today, 100 Polish zlotys are worth 30 Swiss francs.
What does that do for a Polish citizen who is earning in zlotys and is expected to repay his loan in Swiss francs? Let us say the equated monthly instalment (EMI) to repay a loan stood at 1,000 Swiss francs a month. Around a year back, he would have needed 2,222 zloty (1000 x 100/45) to buy 1000 Swiss francs. Now, he would need 3,333 zloty (1000 x 100/30) to buy 1000 Swiss francs. This means the EMI has gone up by 1,111 zloty or 50% in just one year.
Why has this happened? As I mentioned earlier, most of the loans given out in Eastern European countries were given out as real estate loans and consumer loans. The real estate bubble the world over burst around one and a half years back and since then, prices have been falling. Western European banks obviously saw this, and more or less stopped lending in Eastern European countries. Also, with so much of debt denominated in foreign currencies, there was a mad scramble among the citizens of Eastern European countries to buy and hold foreign currencies like euro and the Swiss franc. When that happened, the demand for the foreign currencies increased, leading to their value against currencies like the Polish zloty going up. This basically meant that people who were earning in zlotys and had borrowed in euros or Swiss francs saw their EMIs go up dramatically.
This humongous increase in EMIs does not go down well for economies whose GDP is contracting, which basically means that people are losing jobs and those who have jobs are seeing their incomes come down. This increases the chance of people defaulting on these loans. Take the case of a country like Ukraine, whose economy contracted by 12% in the three months from October to December. This has primarily been on account of steel prices crashing. Steel is a major export for the country.
Or take the case of Latvia, whose economy shrank by 10.5% in the December quarter. Most of these Eastern European countries are essentially commodity exporters and as you would know, commodity prices the world over have crashed. On the whole, these countries are expected to contract by 3% this year.
So banks which have lent to borrowers in these countries are in huge trouble. Take the case of Austrian banks. Estimates suggest that they have lent $289 billion to Eastern Europe. A large portion of this lending is in Swiss francs, which these Austrian banks have borrowed from Swiss banks. The Austrian finance minister, Joseph Proll, recently said that even if 10% of this lending goes bad, the Austrian financial system will go broke. With much of this money borrowed from the Swiss, the Swiss might also get into some trouble.
Now you might ask, why not just rescue these banks, like they have in the United States and the United Kingdom, by simply printing money?
The trouble is most of the Western European nations have euro as there currency. For the European Central Bank to print money, it would need each of its 16 members to say "Yes" to the decision. And that, as you would agree, is easier said than done.
The other problem is that most of these banks are too big for the countries they are domiciled in. The lending of the Austrian banks to Eastern European banks stands at $289 billion, as I mentioned earlier. This is equivalent to 70% of the Austrian GDP.
Given this, it is very difficult for the host countries to rescue these banks. They would need help from larger countries like France and Germany, which are steeped in their own problems, and are not in a mood to oblige. Other than this, most European banks have exposure to all the trouble in the United States. Not a good scene at all.
How about the International Monetary Fund (IMF) coming to the rescue of these countries? I guess it's well beyond the IMF as well. The IMF has reserves of around $200 billion. Of this, it has already exhausted a huge amount in rescuing countries such as Belarus, Hungary, Iceland and Ukraine.
Most of the Eastern European countries were formerly communist countries and have only recently moved to be being democracies with elected governments. Some experts feel the governments in these countries could pass laws to allow repayment of foreign loans in local currencies, and that would hurt the Western European banks even more.
And as if all this was not enough, European banks have given out nearly three-fourth of the loans worth $4.9 trillion given out to the emerging markets. Most emerging markets are in big trouble now. I guess I will leave that for the next email. Or maybe you could tell me about it.
That's it for now. I'll try to miss you, as much as you do.
Take care.
http://www.dnaindia.com/report.asp?newsid=1238246
The headline writers are calling it Europe's own subprime. Basically, what has happened is that banks in the more developed Western Europe have lent huge amounts of money to consumers in Eastern Europe.
The banks which have lent money belong to countries like Austria, Belgium, Greece, Italy and Sweden. Consumers who have borrowed from these banks belong to countries like Poland, Hungary, Romania, Ukraine and other countries which were a part of the erstwhile Union of Soviet Socialist Republics (USSR).
Stephen Jen, managing director and chief currency economist, Morgan Stanley estimates that Eastern Europe has borrowed around $1.7 trillion and needs to repay or roll over around $400 billion this year, which is around one-third of the entire gross domestic product (GDP) of the region. That's a lot of money to be repaid.
But how did it start in the first place? As the stock market and the real estate market boomed across the world, Western European banks saw a huge opportunity in lending in Eastern European countries where the financial system was not very developed. A majority of the lending happened for construction and consumer loans. With real estate prices on their way up, people were happy to go out and borrow.
Also, these loans were made primarily in euros or Swiss francs, and not in the local currencies of the countries. These loans were also at a lower rate of interest compared with local currency loans.
What also encouraged people to borrow in foreign currencies is something experts are now calling "convergence play." Most Eastern European countries over the next few years were hoping to move to euro as their currency from their current currencies. This encouraged borrowers to borrow in euros, and pay a lower interest rate, rather than borrow in their domestic currencies and pay a higher interest rate. Banks giving out these loans assumed that as these countries moved to the euro currency, the standard of living will also move towards the more developed, Western European countries.
And now, it is this foreign currency borrowing that is causing all the problems. Take the case of a country like Poland, where almost 60% of the home loans taken were in Swiss francs. Around one year back, 100 Polish zlotys (the currency of Poland) fetched 45 Swiss francs; today, 100 Polish zlotys are worth 30 Swiss francs.
What does that do for a Polish citizen who is earning in zlotys and is expected to repay his loan in Swiss francs? Let us say the equated monthly instalment (EMI) to repay a loan stood at 1,000 Swiss francs a month. Around a year back, he would have needed 2,222 zloty (1000 x 100/45) to buy 1000 Swiss francs. Now, he would need 3,333 zloty (1000 x 100/30) to buy 1000 Swiss francs. This means the EMI has gone up by 1,111 zloty or 50% in just one year.
Why has this happened? As I mentioned earlier, most of the loans given out in Eastern European countries were given out as real estate loans and consumer loans. The real estate bubble the world over burst around one and a half years back and since then, prices have been falling. Western European banks obviously saw this, and more or less stopped lending in Eastern European countries. Also, with so much of debt denominated in foreign currencies, there was a mad scramble among the citizens of Eastern European countries to buy and hold foreign currencies like euro and the Swiss franc. When that happened, the demand for the foreign currencies increased, leading to their value against currencies like the Polish zloty going up. This basically meant that people who were earning in zlotys and had borrowed in euros or Swiss francs saw their EMIs go up dramatically.
This humongous increase in EMIs does not go down well for economies whose GDP is contracting, which basically means that people are losing jobs and those who have jobs are seeing their incomes come down. This increases the chance of people defaulting on these loans. Take the case of a country like Ukraine, whose economy contracted by 12% in the three months from October to December. This has primarily been on account of steel prices crashing. Steel is a major export for the country.
Or take the case of Latvia, whose economy shrank by 10.5% in the December quarter. Most of these Eastern European countries are essentially commodity exporters and as you would know, commodity prices the world over have crashed. On the whole, these countries are expected to contract by 3% this year.
So banks which have lent to borrowers in these countries are in huge trouble. Take the case of Austrian banks. Estimates suggest that they have lent $289 billion to Eastern Europe. A large portion of this lending is in Swiss francs, which these Austrian banks have borrowed from Swiss banks. The Austrian finance minister, Joseph Proll, recently said that even if 10% of this lending goes bad, the Austrian financial system will go broke. With much of this money borrowed from the Swiss, the Swiss might also get into some trouble.
Now you might ask, why not just rescue these banks, like they have in the United States and the United Kingdom, by simply printing money?
The trouble is most of the Western European nations have euro as there currency. For the European Central Bank to print money, it would need each of its 16 members to say "Yes" to the decision. And that, as you would agree, is easier said than done.
The other problem is that most of these banks are too big for the countries they are domiciled in. The lending of the Austrian banks to Eastern European banks stands at $289 billion, as I mentioned earlier. This is equivalent to 70% of the Austrian GDP.
Given this, it is very difficult for the host countries to rescue these banks. They would need help from larger countries like France and Germany, which are steeped in their own problems, and are not in a mood to oblige. Other than this, most European banks have exposure to all the trouble in the United States. Not a good scene at all.
How about the International Monetary Fund (IMF) coming to the rescue of these countries? I guess it's well beyond the IMF as well. The IMF has reserves of around $200 billion. Of this, it has already exhausted a huge amount in rescuing countries such as Belarus, Hungary, Iceland and Ukraine.
Most of the Eastern European countries were formerly communist countries and have only recently moved to be being democracies with elected governments. Some experts feel the governments in these countries could pass laws to allow repayment of foreign loans in local currencies, and that would hurt the Western European banks even more.
And as if all this was not enough, European banks have given out nearly three-fourth of the loans worth $4.9 trillion given out to the emerging markets. Most emerging markets are in big trouble now. I guess I will leave that for the next email. Or maybe you could tell me about it.
That's it for now. I'll try to miss you, as much as you do.
Take care.
http://www.dnaindia.com/report.asp?newsid=1238246
Saturday, February 28, 2009
Niall Ferguson calls for Debt Restructuring
The harsh reality that is being repressed is this: the Western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More important, households are groaning under unprecedented debt burdens.
Average household sector debt has reached 141per cent of disposable income in the US, 156per cent in Australia and 177 per cent in Britain. Worst of all are the banks in the US and Europe. Some of the best-known names in American and European finance have balance sheets 40, 60 or even 100 times the size of their capital. Average US investment bank leverage was above 25 to 1 at the end of 2008. Eurozone bank leverage was more than 30 to 1. British bank balance sheets are equal to a staggering 440 per cent of gross domestic product.
http://www.theaustralian.news.com.au/business/story/0,28124,25115869-643,00.html
Average household sector debt has reached 141per cent of disposable income in the US, 156per cent in Australia and 177 per cent in Britain. Worst of all are the banks in the US and Europe. Some of the best-known names in American and European finance have balance sheets 40, 60 or even 100 times the size of their capital. Average US investment bank leverage was above 25 to 1 at the end of 2008. Eurozone bank leverage was more than 30 to 1. British bank balance sheets are equal to a staggering 440 per cent of gross domestic product.
The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.
With the economy contracting at a rate (excluding inventory accumulation) of minus 5 per cent, we are on the eve of a public debt explosion that the CBO's forecast - $US4 trillion over the next 10 years, but peaking at 54 per cent of GDP - surely understates. The fact that so many other countries are adopting comparable measures means a flood of new issuance is about to hit national and international bond markets.
There is a better way to go, but it is in the opposite direction. The aim must be not to increase debt but to reduce it. In past debt crises - which usually affected emerging market sovereign debt - this tended to happen in one of two ways. If, say, Argentina had an excessively large domestic debt, denominated in Argentine currency, it could be inflated away. If it was an external debt, then the government simply defaulted on payments and forced the creditors to accept a rescheduling of debt and principal payments.
Today, Argentina is us. Former investment banks and German universal banks are Argentina. American households are Argentina. But it will not be so easy for us to inflate away our debts. The deflationary pressures unleashed by the financial crisis are too strong (consumer prices in the US have been falling for three consecutive months; the annualised rate of decline for the last quarter of 2008 was minus 12.7 per cent.)
The solution to the debt crisis is not more debt but less debt. Two things must happen. First, banks that are de facto insolvent need to be restructured, a word that is preferable to the old-fashioned nationalisation. Existing shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalisation after losses have meaningfully been written down. Bondholders may have to accept either a debt-for-equity swap or a 20 per cent "haircut" - a disappointment, no doubt, but nothing compared with the losses suffered when Lehman Brothers went under.
Glasgow-born Ferguson is Laurence A. Tisch professor of history at Harvard University and William Ziegler professor of business administration at Harvard Business School. He is also a senior research fellow at Jesus College, Oxford University, and a senior fellow at the Hoover Institution, Stanford University. His books include The Ascent of Money: A Financial History of the World.
http://www.theaustralian.news.com.au/business/story/0,28124,25115869-643,00.html
Wednesday, February 25, 2009
Doug Casey calls for National Default
The unfunded Medicare liabilities are not going to be funded. They’re going to be defaulted on and, actually, that’s the best thing that could happen. That’s one of the things that should be done now; the U.S. government should default on its debt. This is shocking for people to hear, but it wouldn’t be the first time the U.S. government has done that. It did that almost at its founding in continental days.
This debt represents a tax liability that’s being foisted off on the next generations who have no moral obligation to pay and should not pay. I think as an ethical point, the U.S. should default on this debt. It’s impossible to pay it back, and it won’t be paid back. It’s more honest to acknowledge that bankruptcy now as opposed to pretend it’s going to be paid back. Defaulting even might forestall runaway inflation in the dollar, which would be a catastrophe of the first order. So it’s the smart and moral thing to do, and it’s going to happen eventually anyway. All the real wealth will still be here; a lot of it will just change ownership. The big losers will be those who lent to the State, thereby enabling its depredations, and they deserve to be punished.
http://seekingalpha.com/article/122573-doug-casey-what-to-do-in-the-greater-depression
Wednesday, February 18, 2009
Michael Hudson calls for Debt Write Offs to End Debt Deflation
One would think that politicians would be willing to do the math and realize that debts that can’t be paid, won’t be. But the debts are being kept on the books, continuing to extract interest to pay the creditors that have made the bad loans. The resulting debt deflation threatens to keep the economy in depression until a radical shift in policy occurs – a shift to save the “real” economy, not just the financial sector and the wealthiest 10 per cent of American families.
There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble.
The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.
Instead of doing this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds give the banks – bonds whose interest charges will have to be paid by taxing labor and industry.
As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.
Take the much-vaunted $50 billion program designed to renegotiate mortgages downward for “troubled homeowners.” Upon closer examination it turns out that the real beneficiaries are the giant leading banks such as Citibank and Bank of America that have made the bad loans. The Treasury will take on the bad debt that banks are stuck with, and will permit mortgagees to renegotiate their monthly payment down to 38 per cent of their income. But rather than the banks taking the loss as they should do for over-lending, the Treasury itself will make up the difference – and pay it to the banks so that they will be able to get what they hoped to get. The hapless mortgage-burdened family stuck in their negative-equity home turns out to be merely a passive vehicle for the Treasury to pass debt relief on to the commercial banks.
Few news stories have made this clear, but the Financial Times spelled the details buried in small print. It added that the Treasury has not yet decided whether to write down the debt principal for the estimated 15 million families with negative equity (and perhaps 30 million by this time next year as property prices continue to plunge). No doubt a similar deal will be made: For every $100,000 of write-down in debt owed by over-mortgaged homeowners, the bank will receive $100,000 from the Treasury. Government debt will rise by $100,000, and the process will continue until the Treasury has transferred $50,000,000 to the banks that made the reckless loans.
There is enough for just 500,000 of these renegotiations of $100,000 each. It may seem like a big amount, but it’s only about 1/30th of the properties underwater. Hardly enough to make much of a dent, but the principle has been put in place for many further bailouts. It will take almost an infinity of them, as long as the Treasury tries to support the fiction that “the miracle of compound interest” can be sustained for long. The economy may be dead by the time saner economic understanding penetrates the public consciousness.
In the mean time, bad private-sector debt will be shifted onto the government’s balance sheet. Interest and amortization currently owed to the banks will be replaced by obligations to the U.S. Treasury. Taxes will be levied to make up the bad debts with which the government is stuck. The “real” economy will pay Wall Street – and will be paying for decades!
Calling the $12 trillion giveaway to bankers a “subprime crisis” makes it appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into trouble by insisting that these public-private institutions make irresponsible loans to the poor. The party line is, “Blame the victim.” But we know this is false. The bulk of bad loans are concentrated in the largest banks. It was Countrywide and other banksters that led the irresponsible lending and brought heavy-handed pressure on Fannie Mae. Most of the nation’s smaller, local banks didn’t make such reckless loans. The big mortgage shops didn’t care about loan quality, because they were run by salesmen. The Treasury is paying off the gamblers and billionaires by supporting the value of bank loans, investments and derivative gambles, leaving the Treasury in debt.
Let’s first dispose of the “foundation myth” of the idea still guiding the United States and Europe. Free-market economists pretend that prices can be brought into line most efficiently with technologically necessary costs of production under capitalism, and indeed, under finance capitalism. The banks and stock market are supposed to allocate resources most efficiency. That at least is the dream of self-regulating markets. But today it looks like only a myth, public relations patter talk to get a generation of increasingly indebted voters not to act in their own self-interest.
Industrial capitalism always has been a hybrid, a symbiosis with its feudal legacy of absentee property ownership, oligarchic finance and public debts rather than the government acting as net creditor. The essence of feudalism was extractive, not productive.
Today it is easier to see that the Western economies cannot go on the way they have been. They have reached the point where the debts exceed the ability to pay. Instead of recognizing this fact and scaling debts back into line with the ability to pay, the Obama-Geithner plan is to bail out the big banks and hedge funds, keeping the volume of debt in place and indeed, growing once again through the “magic of compound interest.” The result can only be an increasingly extractive economy, until households, real estate and industrial companies, states and cities, and the national government itself is driven into debt peonage.
The alternative is a century and a half old, and emerged out of the ideals of the classical economic doctrines of Adam Smith, David Ricardo, John Stuart Mill, and the last great classical economist, Marx. Their common denominator was to view rent and interest are extractive, not productive. Classical political economy and its successor Progressive Era socialism sought to nationalize the land (or at least to fully tax its rent as the fiscal base). Governments were to create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation. So today’s neoliberalism paints a false picture of what the classical economists envisioned as free markets. They were markets free of economic rent and interest (and taxes to support an aristocracy or oligarchy). Socialism was to free economies from these overhead charges. Today’s Obama-Geithner rescue plan is just the reverse.
http://counterpunch.org/hudson02172009.html
There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble.
The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.
Instead of doing this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds give the banks – bonds whose interest charges will have to be paid by taxing labor and industry.
As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.
Take the much-vaunted $50 billion program designed to renegotiate mortgages downward for “troubled homeowners.” Upon closer examination it turns out that the real beneficiaries are the giant leading banks such as Citibank and Bank of America that have made the bad loans. The Treasury will take on the bad debt that banks are stuck with, and will permit mortgagees to renegotiate their monthly payment down to 38 per cent of their income. But rather than the banks taking the loss as they should do for over-lending, the Treasury itself will make up the difference – and pay it to the banks so that they will be able to get what they hoped to get. The hapless mortgage-burdened family stuck in their negative-equity home turns out to be merely a passive vehicle for the Treasury to pass debt relief on to the commercial banks.
Few news stories have made this clear, but the Financial Times spelled the details buried in small print. It added that the Treasury has not yet decided whether to write down the debt principal for the estimated 15 million families with negative equity (and perhaps 30 million by this time next year as property prices continue to plunge). No doubt a similar deal will be made: For every $100,000 of write-down in debt owed by over-mortgaged homeowners, the bank will receive $100,000 from the Treasury. Government debt will rise by $100,000, and the process will continue until the Treasury has transferred $50,000,000 to the banks that made the reckless loans.
There is enough for just 500,000 of these renegotiations of $100,000 each. It may seem like a big amount, but it’s only about 1/30th of the properties underwater. Hardly enough to make much of a dent, but the principle has been put in place for many further bailouts. It will take almost an infinity of them, as long as the Treasury tries to support the fiction that “the miracle of compound interest” can be sustained for long. The economy may be dead by the time saner economic understanding penetrates the public consciousness.
In the mean time, bad private-sector debt will be shifted onto the government’s balance sheet. Interest and amortization currently owed to the banks will be replaced by obligations to the U.S. Treasury. Taxes will be levied to make up the bad debts with which the government is stuck. The “real” economy will pay Wall Street – and will be paying for decades!
Calling the $12 trillion giveaway to bankers a “subprime crisis” makes it appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into trouble by insisting that these public-private institutions make irresponsible loans to the poor. The party line is, “Blame the victim.” But we know this is false. The bulk of bad loans are concentrated in the largest banks. It was Countrywide and other banksters that led the irresponsible lending and brought heavy-handed pressure on Fannie Mae. Most of the nation’s smaller, local banks didn’t make such reckless loans. The big mortgage shops didn’t care about loan quality, because they were run by salesmen. The Treasury is paying off the gamblers and billionaires by supporting the value of bank loans, investments and derivative gambles, leaving the Treasury in debt.
Let’s first dispose of the “foundation myth” of the idea still guiding the United States and Europe. Free-market economists pretend that prices can be brought into line most efficiently with technologically necessary costs of production under capitalism, and indeed, under finance capitalism. The banks and stock market are supposed to allocate resources most efficiency. That at least is the dream of self-regulating markets. But today it looks like only a myth, public relations patter talk to get a generation of increasingly indebted voters not to act in their own self-interest.
Industrial capitalism always has been a hybrid, a symbiosis with its feudal legacy of absentee property ownership, oligarchic finance and public debts rather than the government acting as net creditor. The essence of feudalism was extractive, not productive.
Today it is easier to see that the Western economies cannot go on the way they have been. They have reached the point where the debts exceed the ability to pay. Instead of recognizing this fact and scaling debts back into line with the ability to pay, the Obama-Geithner plan is to bail out the big banks and hedge funds, keeping the volume of debt in place and indeed, growing once again through the “magic of compound interest.” The result can only be an increasingly extractive economy, until households, real estate and industrial companies, states and cities, and the national government itself is driven into debt peonage.
The alternative is a century and a half old, and emerged out of the ideals of the classical economic doctrines of Adam Smith, David Ricardo, John Stuart Mill, and the last great classical economist, Marx. Their common denominator was to view rent and interest are extractive, not productive. Classical political economy and its successor Progressive Era socialism sought to nationalize the land (or at least to fully tax its rent as the fiscal base). Governments were to create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation. So today’s neoliberalism paints a false picture of what the classical economists envisioned as free markets. They were markets free of economic rent and interest (and taxes to support an aristocracy or oligarchy). Socialism was to free economies from these overhead charges. Today’s Obama-Geithner rescue plan is just the reverse.
http://counterpunch.org/hudson02172009.html
Monday, February 16, 2009
Boris Sobolev recommends Mortgage debt forgiveness
Another financial analysis pointing out the obvious necessity of debt write-downs:
http://seekingalpha.com/article/120770-gold-now-demonstrating-trust-in-obama
One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.
In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:
Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.
There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.
http://seekingalpha.com/article/120770-gold-now-demonstrating-trust-in-obama
One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.
In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:
Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.
There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.
Sunday, February 8, 2009
The Insane Effect of Debt on State Government
This is truly insane. In CA, available tax income is going towards education and debt payments, while other services are shut down. That is completely irrational, but that is the type if irrationally destructive behavior that debt leads you to. These broke state governments can't stop paying debt, because then they could no longer borrow. A never ending mind-fuck of debt insanity. In a time of mass unemployment, rending the very fabric of healthy and peaceful society, literally threatening the existence of the political unit called the state of California, they are cutting essential services of everything except debt payment.
This is the easy-button solution: cancel the debt, balance the budget, no need to borrow. WTF??? Are our financial experts and leaders really this stupid??? WAKE UP, AMERICA!!!! Time for Jubilee!
from : www.dailyherald.com/story/?id=269994&src=109
Facing an ever-growing pile of bills, crushing debt and less tax money flowing into the state treasury, Illinois is broke. But could the state climb out of its nearly $9 billion budget hole by declaring bankruptcy? No, say tax and budget experts. Federal law permits individuals, businesses and local governments to file for bankruptcy reorganization and sometimes debt forgiveness. States are not covered by the law. No U.S. state has ever declared bankruptcy. "A state is not going to just shut down," said Elizabeth McNichol, a state budget specialist at the Center on Budget and Policy Priorities, a nonpartisan Washington, D.C., think tank. "As bad as things are, no state is going to have zero revenue coming in," McNichol said. "It's really just a matter of choices." So, rather than having a court restructure its finances as in a bankruptcy filing, a state would have to reorganize its spending and debt on its own.
This is the easy-button solution: cancel the debt, balance the budget, no need to borrow. WTF??? Are our financial experts and leaders really this stupid??? WAKE UP, AMERICA!!!! Time for Jubilee!
from : www.dailyherald.com/story/?id=269994&src=109
Facing an ever-growing pile of bills, crushing debt and less tax money flowing into the state treasury, Illinois is broke. But could the state climb out of its nearly $9 billion budget hole by declaring bankruptcy? No, say tax and budget experts. Federal law permits individuals, businesses and local governments to file for bankruptcy reorganization and sometimes debt forgiveness. States are not covered by the law. No U.S. state has ever declared bankruptcy. "A state is not going to just shut down," said Elizabeth McNichol, a state budget specialist at the Center on Budget and Policy Priorities, a nonpartisan Washington, D.C., think tank. "As bad as things are, no state is going to have zero revenue coming in," McNichol said. "It's really just a matter of choices." So, rather than having a court restructure its finances as in a bankruptcy filing, a state would have to reorganize its spending and debt on its own.
But should state finances became especially dire, Illinois could keep going by not paying back money it has borrowed. Such a move is unlikely and the consequences of default would make the state's financial situation worse. That's because it would greatly hinder the state's ability to borrow in the future. Plus, the people Illinois owes money to could go to court to force the state to pay. "It's not something you want to do because when you want to borrow in the future you'll have to pay a lot more interest because you're a higher risk," explained Beverly Bunch, an associate professor of public administration at the University of Illinois at Springfield. But if the state manages to muddle through, the future could get pretty bleak. California's current $41 billion budget crisis is a preview of what Illinois might have to do to stay solvent.
California has been borrowing to pay its everyday bills. But facing a $346 million shortfall just for February, California Controller John Chaing this week stopped writing checks for nearly everything other than education and debt payments. That means spending on state agencies, including public safety, payments for state purchases and tax refunds will be delayed until at least March.
The Illinois Constitution says state pensions cannot be "diminished or impaired." But money for schools, public safety, and payments to cities and counties are offered no such protection and could all be delayed. The trickle-down effect of stopped payments in the Golden State is busting the budgets of cities and counties across California. Riverside County, located between Los Angeles and San Diego, is going to court for permission to stop providing state mandated services if the county does not receive state funding.
Tuesday, February 3, 2009
Jubilee Would Not Destroy the Economy
Fundamentally, debt is currently destroying our economy. Specifically, speculative debt. Jubilee would excise the cancer of debt from our economy.
Jubilee would not destroy the money supply. Jubilee means that all moneys currently on deposit, would stay there. Money, even in the form of a credit deposit, would not be destroyed. Jubilee just means that you would not have to pay it back.
Your house, free and clear.
Your car, you own with no need for another payment.
The stuff you bought with your credit card, yours with no need for repayment.
The line of credit given to you stays in your account.
But doesn't that wipe out the banks? No, obviously not. Your savings account is still sitting there, in trust with your bank. Same with your IRA, your 401K, and your pension. In our modern Jubilee, they will all be backed, secured by the government.
That is the part that people have the hardest part understanding. They just don't get that in our paper money system, the only guarantee of the money is the government itself.
Jubilee just means freedom! All assets in the whole country, owned free and clear. That simple. Business can continue on, just as before.
Some minds immediately wonder: "But what about all the money people owe me? My business can't continue unless I get that money!" But upon deeper consideration, that is simply not true.
All business is immediately given a start-over pass, with NO OUTSTANDING LIABILITIES! Business will have to be conducted on a sustainable basis: out of savings and cash flow. If your business generates cash flow, it will survive. If you need a loan, as a money-making venture, banks will give it to you. But it will be done out of real wealth based on accumulated savings, not false wealth based on speculative debt. Your business will also have a nice cushion, as its rent and other credit payments just dropped to zero.
Jubilee means a reset of the economic system: generate cash flow and you will be just fine.
There is only one class of economic activity that will be wiped out by a Jubilee: that of the economic parasite. Specifically bankers and landlords. Many of them will have to find something actually productive to do, rather than live off the sweat and toil of others. Both would exist after a Jubilee, no doubt to eventually increase their power again, but Jubilee would hit them hard, and rightly so.
Jubilee would not destroy the money supply. Jubilee means that all moneys currently on deposit, would stay there. Money, even in the form of a credit deposit, would not be destroyed. Jubilee just means that you would not have to pay it back.
Your house, free and clear.
Your car, you own with no need for another payment.
The stuff you bought with your credit card, yours with no need for repayment.
The line of credit given to you stays in your account.
But doesn't that wipe out the banks? No, obviously not. Your savings account is still sitting there, in trust with your bank. Same with your IRA, your 401K, and your pension. In our modern Jubilee, they will all be backed, secured by the government.
That is the part that people have the hardest part understanding. They just don't get that in our paper money system, the only guarantee of the money is the government itself.
Jubilee just means freedom! All assets in the whole country, owned free and clear. That simple. Business can continue on, just as before.
Some minds immediately wonder: "But what about all the money people owe me? My business can't continue unless I get that money!" But upon deeper consideration, that is simply not true.
All business is immediately given a start-over pass, with NO OUTSTANDING LIABILITIES! Business will have to be conducted on a sustainable basis: out of savings and cash flow. If your business generates cash flow, it will survive. If you need a loan, as a money-making venture, banks will give it to you. But it will be done out of real wealth based on accumulated savings, not false wealth based on speculative debt. Your business will also have a nice cushion, as its rent and other credit payments just dropped to zero.
Jubilee means a reset of the economic system: generate cash flow and you will be just fine.
There is only one class of economic activity that will be wiped out by a Jubilee: that of the economic parasite. Specifically bankers and landlords. Many of them will have to find something actually productive to do, rather than live off the sweat and toil of others. Both would exist after a Jubilee, no doubt to eventually increase their power again, but Jubilee would hit them hard, and rightly so.
Monday, January 26, 2009
Brink of Debt Disaster
Here is a great quantitative description of the sheer massive size and irresistable weight of debt we are facing. Communicating the enormity of the problem is the first and crucial step in telling people about a modern Jubilee Year. Until someone realizes that our debt cannot be paid off, their programmed minds will resist the radicalness of the Jubilee Year. Once someone realizes the magnitude of the debt problem, Jubilee becomes perfectly common sensical.
The United States and the United Kingdom stand on the brink of the largest debt crisis in history.
While both governments experiment with quantitative easing, bad banks to absorb non-performing loans, and state guarantees to restart bank lending, the only real way out is some combination of widespread corporate default, debt write-downs and inflation to reduce the burden of debt to more manageable levels. Everything else is window-dressing.
From the 1970s onward, the economy has undergone two profound structural shifts. First, the economy as a whole has become much more indebted. Output rose eight times between 1975 and 2007. But the total volume of debt rose a staggering 20 times, more than twice as fast. The total debt-to-GDP ratio surged from 155 percent to 355 percent. Second, almost all this extra debt has come from the private sector [as the following chart shows].
read more:
http://globaleconomicanalysis.blogspot.com/2009/01/brink-of-debt-disaster.html
The United States and the United Kingdom stand on the brink of the largest debt crisis in history.
While both governments experiment with quantitative easing, bad banks to absorb non-performing loans, and state guarantees to restart bank lending, the only real way out is some combination of widespread corporate default, debt write-downs and inflation to reduce the burden of debt to more manageable levels. Everything else is window-dressing.
From the 1970s onward, the economy has undergone two profound structural shifts. First, the economy as a whole has become much more indebted. Output rose eight times between 1975 and 2007. But the total volume of debt rose a staggering 20 times, more than twice as fast. The total debt-to-GDP ratio surged from 155 percent to 355 percent. Second, almost all this extra debt has come from the private sector [as the following chart shows].
read more:
http://globaleconomicanalysis.blogspot.com/2009/01/brink-of-debt-disaster.html
Wednesday, January 21, 2009
Soros Sees Depression, Recommends Debt Cancellation
Soros is of course correct that we need radical and unorthodox policy measures, focused on cancelling debt. We disagree only on the recapitalizing banks part. I think the Jubilee should wipe out debt first, then let the market fill the coffers of the bankers after resetting the system, with government recapitalization as needed only for the transition phase to prevent business closures.
The stimulus plan the U.S. government is currently considering is necessary to help American citizens, but it will likely not reverse the country's economic decline, hedge fund manager and billionaire philanthropist George Soros said on Monday. "It is not enough to turn the situation around," Soros told the U.S. Conference of Mayors about the $850 billion proposal to increase spending and cut taxes. The plan, which was introduced in the U.S. House of Representatives last week and will likely be passed by next month, will help state and local governments balance their budgets and preserve important social services, Soros said.
Soros said the United States needed "radical and unorthodox policy measures" to prevent a repeat of the Great Depression of the early 20th century that include recapitalizing banks and writing down the country's accumulated debt. Also, he said, it should create more money to offset the collapse of credit and then rapidly pull that cash out of the system when inflation emerges. The government would have to be very nimble in the timing of such moves, he said. "If they are successful...the deflationary pressures will be replaced by the specter of inflation and the authorities will have to drain the excess money from the economy almost as quickly as they pumped it in. Of the two operations the second one is going to be, politically, even more difficult than the first," he said.
At the same time, the $700 billion financial bailout known as TARP for Troubled Assets Relief Program had been carried out in a "haphazard and capricious way" and "without proper planning," he said. "Unfortunately it was misused and the way it was done has poisoned the well. It has created tremendous ill will toward putting up more money," Soros said. For more than a year, the United States has been crippled by a recession that was triggered by a housing market downturn. Last summer, financial institutions with exposures to securities backed by bad mortgages began to buckle. The government stepped in with the TARP to inject liquidity into struggling firms. Last week, President-elect Barack Obama requested Congress release the second half of the funds.
Soros advocated using bailout money to recapitalize banks, but said the $350 billion would not be enough. He said such a move would take more than the entire $700 billion. The bursting housing bubble "acted like a detonator that exploded a much larger bubble," he said. "The economies of the world are falling off a cliff. This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger," he said.
http://www.reuters.com/article/businessNews/idUSTRE50I4XZ20090119?feedType=RSS&feedName=businessNews
The stimulus plan the U.S. government is currently considering is necessary to help American citizens, but it will likely not reverse the country's economic decline, hedge fund manager and billionaire philanthropist George Soros said on Monday. "It is not enough to turn the situation around," Soros told the U.S. Conference of Mayors about the $850 billion proposal to increase spending and cut taxes. The plan, which was introduced in the U.S. House of Representatives last week and will likely be passed by next month, will help state and local governments balance their budgets and preserve important social services, Soros said.
Soros said the United States needed "radical and unorthodox policy measures" to prevent a repeat of the Great Depression of the early 20th century that include recapitalizing banks and writing down the country's accumulated debt. Also, he said, it should create more money to offset the collapse of credit and then rapidly pull that cash out of the system when inflation emerges. The government would have to be very nimble in the timing of such moves, he said. "If they are successful...the deflationary pressures will be replaced by the specter of inflation and the authorities will have to drain the excess money from the economy almost as quickly as they pumped it in. Of the two operations the second one is going to be, politically, even more difficult than the first," he said.
At the same time, the $700 billion financial bailout known as TARP for Troubled Assets Relief Program had been carried out in a "haphazard and capricious way" and "without proper planning," he said. "Unfortunately it was misused and the way it was done has poisoned the well. It has created tremendous ill will toward putting up more money," Soros said. For more than a year, the United States has been crippled by a recession that was triggered by a housing market downturn. Last summer, financial institutions with exposures to securities backed by bad mortgages began to buckle. The government stepped in with the TARP to inject liquidity into struggling firms. Last week, President-elect Barack Obama requested Congress release the second half of the funds.
Soros advocated using bailout money to recapitalize banks, but said the $350 billion would not be enough. He said such a move would take more than the entire $700 billion. The bursting housing bubble "acted like a detonator that exploded a much larger bubble," he said. "The economies of the world are falling off a cliff. This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger," he said.
http://www.reuters.com/article/businessNews/idUSTRE50I4XZ20090119?feedType=RSS&feedName=businessNews
US Banks Insolvent
Well, this certainly does simplify things doesn't it? The sooner we internalize the fact that our whole banking system, the sooner we come to the obvious conclusion: Jubilee! We can either do this the easy way (Jubilee) or the hard way (deflationary depression).
Roubini: US Banking System Insolvent, Another $2.5 Trillion Of Losses Coming
Henry Blodget | Jan 20, 09 10:05 AM
A couple of years ago, when Nouriel Roubini predicted that US financial-system losses would total $1 trillion, everyone thought he was insane. He has since revised his estimate. Now he's looking for $3.6 trillion:
Bloomberg: U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.
President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.
Roubini: US Banking System Insolvent, Another $2.5 Trillion Of Losses Coming
Henry Blodget | Jan 20, 09 10:05 AM
A couple of years ago, when Nouriel Roubini predicted that US financial-system losses would total $1 trillion, everyone thought he was insane. He has since revised his estimate. Now he's looking for $3.6 trillion:
Bloomberg: U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.
President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.
Friday, January 16, 2009
Short-Circuit the Credit Crisis
Our whole economy is jammed up because we have fictional debts that are tied to assets that are no longer worth their book values. In reality, we are as wealthy as we were last month, last summer, or last year, but our economy is no longer functioning because of accounting rules that declare the debts greater than the assets, and thereby prevent banks from fulfilling their function of lending money. The still-collapsing housing prices continue to wreak havoc on the financial industry, by introducing a general deflation into the economy. This deflation is sending everyone's balance sheets further upside-down, since those balance sheets are based on debt that is tied to an inflated asset price.
Everyone sees that we are in a short circuit, an ever-widening crash, but no one can grasp how to break the cycle. The original idea of the bailout was to use government money to buy distressed assets. Then the idea has morphed to wholesale cash injections into troubled companies and industries. Now the Fed is buying and backing debt securities, basically saying to the banks, yes, we know the debt is bad, but we'll cover all your losses. Congress and the new President are floating new rounds of economic stimulus packages, cash gifts to the population, based on government IOUs.
But none of these measures can work. We have already crossed over the event horizon into a deflation, and that deflation is still picking up steam. There is no going back to the artificial boosts of inflationary spending. Extra money put into the system now is unable to bridge the gap between deflated asset value and the debt book value. The banks themselves are unable to release the extra money, because their asset levels are continually falling and they need the extra money to shore up their reserve requirements. Extra money given to consumers in an economic downturn only gets hoarded, not spent, thus preventing any stimulus from happening. Further, because most of our productive economy is based overseas, it is not clear how much the American economy would benefit much from the increased spending, as the stimulus would mainly benefit some foreign country's productive output. And, as we have seen, government redistribution does not increase real wealth anyway, so how does that help? If not redistributing wealth, the government has to rely on more debt spending, which is the source of the problem to begin with!
There is only one way to end the financial short circuit, to get us out of the destructive black-hole void of debt. The solution to our current crisis is quite simple really: cancel the debt itself. All debt, credit cards, car notes, mortgages, the national debt, all of it. Hit the reset button on the financial system. We have reached the blue screen of death, the system is totally locked up. The negative effects of the financial melt down are now negatively affecting the real productive economy. We have already entered a worldwide recession, this is getting really serious.
By releasing all debt, people will get a fresh slate, and can start saving again. Banks, whose only assets are completely fiction -- they call debt an asset -- would take a big hit, but so what? Banks don't contribute to national wealth anyway. Their only utility is to enable real productivity, and in that basic function, they have completely failed, and are in fact, counter-productive right now.
Despite having most of their assets (our debts) completely liquidated, the banking system would quickly recover anyway, because we could use our incomes to start saving again. The productive economy would be truly stimulated and bank accounts would fill up quickly, because all the money we currently use to pay off debt would go into savings, investment, and consumption. Imagine not having to pay all that money every month to your mortgage or car payment. All that money is going to go somewhere, either spent or saved. Given that financing life through credit would no longer be an option, people would begin saving in earnest again.
In short, everyone is given clear title to all their assets that banks currently have liens on. Instead of having to spend thousands of dollars on their mortgages and car payment and credit cards every month, the families of America would be able to save and spend that money. The people who lost their jobs in the financial industry would be able to find new employment quickly in the productive economy.
The American economy resets, the banks reset, we start from scratch, with all of our wealth freed from the fictional burden of debt. From this point forward, people, businesses, and governments are forced to spend only out of their savings, leading to the always-rising standard of living that America experienced for its first 150 years.
Everyone sees that we are in a short circuit, an ever-widening crash, but no one can grasp how to break the cycle. The original idea of the bailout was to use government money to buy distressed assets. Then the idea has morphed to wholesale cash injections into troubled companies and industries. Now the Fed is buying and backing debt securities, basically saying to the banks, yes, we know the debt is bad, but we'll cover all your losses. Congress and the new President are floating new rounds of economic stimulus packages, cash gifts to the population, based on government IOUs.
But none of these measures can work. We have already crossed over the event horizon into a deflation, and that deflation is still picking up steam. There is no going back to the artificial boosts of inflationary spending. Extra money put into the system now is unable to bridge the gap between deflated asset value and the debt book value. The banks themselves are unable to release the extra money, because their asset levels are continually falling and they need the extra money to shore up their reserve requirements. Extra money given to consumers in an economic downturn only gets hoarded, not spent, thus preventing any stimulus from happening. Further, because most of our productive economy is based overseas, it is not clear how much the American economy would benefit much from the increased spending, as the stimulus would mainly benefit some foreign country's productive output. And, as we have seen, government redistribution does not increase real wealth anyway, so how does that help? If not redistributing wealth, the government has to rely on more debt spending, which is the source of the problem to begin with!
There is only one way to end the financial short circuit, to get us out of the destructive black-hole void of debt. The solution to our current crisis is quite simple really: cancel the debt itself. All debt, credit cards, car notes, mortgages, the national debt, all of it. Hit the reset button on the financial system. We have reached the blue screen of death, the system is totally locked up. The negative effects of the financial melt down are now negatively affecting the real productive economy. We have already entered a worldwide recession, this is getting really serious.
By releasing all debt, people will get a fresh slate, and can start saving again. Banks, whose only assets are completely fiction -- they call debt an asset -- would take a big hit, but so what? Banks don't contribute to national wealth anyway. Their only utility is to enable real productivity, and in that basic function, they have completely failed, and are in fact, counter-productive right now.
Despite having most of their assets (our debts) completely liquidated, the banking system would quickly recover anyway, because we could use our incomes to start saving again. The productive economy would be truly stimulated and bank accounts would fill up quickly, because all the money we currently use to pay off debt would go into savings, investment, and consumption. Imagine not having to pay all that money every month to your mortgage or car payment. All that money is going to go somewhere, either spent or saved. Given that financing life through credit would no longer be an option, people would begin saving in earnest again.
In short, everyone is given clear title to all their assets that banks currently have liens on. Instead of having to spend thousands of dollars on their mortgages and car payment and credit cards every month, the families of America would be able to save and spend that money. The people who lost their jobs in the financial industry would be able to find new employment quickly in the productive economy.
The American economy resets, the banks reset, we start from scratch, with all of our wealth freed from the fictional burden of debt. From this point forward, people, businesses, and governments are forced to spend only out of their savings, leading to the always-rising standard of living that America experienced for its first 150 years.
Saturday, December 13, 2008
Save Our Economy: Cancel Our Debt
Our whole economy is jammed up because we have fictional debts that are tied to assets that are no longer worth their book values. In reality, we are as wealthy as we were last month, last summer, or last year, but our economy is no longer functioning because of accounting rules that declare the debts greater than the assets, and thereby prevent banks from fulfilling their function of lending money. The still-collapsing housing prices continue to wreak havoc on the financial industry, by introducing a general deflation into the economy. This deflation is sending everyone's balance sheets further upside-down, since those balance sheets are based on debt that is tied to an inflated asset price.
Everyone sees that we are in a short circuit, an ever-widening crash, but no one can grasp how to break the cycle. The original idea of the bailout was to use government money to buy distressed assets. Then the idea has morphed to wholesale cash injections into troubled companies and industries. Now the Fed is buying and backing debt securities, basically saying to the banks, yes, we know the debt is bad, but we'll cover all your losses. Congress and the new President are floating new rounds of economic stimulus packages, cash gifts to the population, based on government IOUs.
But none of these measures can work. We have already crossed over the event horizon into a deflation, and that deflation is still picking up steam. There is no going back to the artificial boosts of inflationary spending. Extra money put into the system now is unable to bridge the gap between deflated asset value and the debt book value. The banks themselves are unable to release the extra money, because their asset levels are continually falling and they need the extra money to shore up their reserve requirements. Extra money given to consumers in an economic downturn only gets hoarded, not spent, thus preventing any stimulus from happening. Further, because most of our productive economy is based overseas, it is not clear how much the American economy would benefit much from the increased spending, as the stimulus would mainly benefit some foreign country's productive output. And, as we have seen, government redistribution does not increase real wealth anyway, so how does that help? If not redistributing wealth, the government has to rely on more debt spending, which is the source of the problem to begin with!
There is only one way to end the financial short circuit, to get us out of the destructive black-hole void of debt. The solution to our current crisis is quite simple really: cancel the debt itself. All debt, credit cards, car notes, mortgages, the national debt, all of it. Hit the reset button on the financial system. We have reached the blue screen of death, the system is totally locked up. The negative effects of the financial melt down are now negatively affecting the real productive economy. We have already entered a worldwide recession, this is getting really serious.
By releasing all debt, people will get a fresh slate, and can start saving again. Banks, whose only assets are completely fiction -- they call debt an asset -- would take a big hit, but so what? Banks don't contribute to national wealth anyway. Their only utility is to enable real productivity, and in that basic function, they have completely failed, and are in fact, counter-productive right now.
Despite having most of their assets (our debts) completely liquidated, the banking system would quickly recover anyway, because we could use our incomes to start saving again. The productive economy would be truly stimulated and bank accounts would fill up quickly, because all the money we currently use to pay off debt would go into savings, investment, and consumption. Imagine not having to pay all that money every month to your mortgage or car payment. All that money is going to go somewhere, either spent or saved. Given that financing life through credit would no longer be an option, people would begin saving in earnest again.
In short, everyone is given clear title to all their assets that banks currently have liens on. Instead of having to spend thousands of dollars on their mortgages and car payment and credit cards every month, the families of America would be able to save and spend that money. The people who lost their jobs in the financial industry would be able to find new employment quickly in the productive economy.
The American economy resets, the banks reset, we start from scratch, with all of our wealth freed from the fictional burden of debt. From this point forward, people, businesses, and governments are forced to spend only out of their savings, leading to the always-rising standard of living that America experienced for its first 150 years.
Today's problem solved, Great Depression 2 averted.
Spread this idea to everyone you know. Talk about it with your family until you can understand it and explain it. Take it to your Representative and Senator and begin introducing them to the idea, because they are going to have to be the ones who pass the law to make it happen.
Let's get it done now, before it is too late.
Everyone sees that we are in a short circuit, an ever-widening crash, but no one can grasp how to break the cycle. The original idea of the bailout was to use government money to buy distressed assets. Then the idea has morphed to wholesale cash injections into troubled companies and industries. Now the Fed is buying and backing debt securities, basically saying to the banks, yes, we know the debt is bad, but we'll cover all your losses. Congress and the new President are floating new rounds of economic stimulus packages, cash gifts to the population, based on government IOUs.
But none of these measures can work. We have already crossed over the event horizon into a deflation, and that deflation is still picking up steam. There is no going back to the artificial boosts of inflationary spending. Extra money put into the system now is unable to bridge the gap between deflated asset value and the debt book value. The banks themselves are unable to release the extra money, because their asset levels are continually falling and they need the extra money to shore up their reserve requirements. Extra money given to consumers in an economic downturn only gets hoarded, not spent, thus preventing any stimulus from happening. Further, because most of our productive economy is based overseas, it is not clear how much the American economy would benefit much from the increased spending, as the stimulus would mainly benefit some foreign country's productive output. And, as we have seen, government redistribution does not increase real wealth anyway, so how does that help? If not redistributing wealth, the government has to rely on more debt spending, which is the source of the problem to begin with!
There is only one way to end the financial short circuit, to get us out of the destructive black-hole void of debt. The solution to our current crisis is quite simple really: cancel the debt itself. All debt, credit cards, car notes, mortgages, the national debt, all of it. Hit the reset button on the financial system. We have reached the blue screen of death, the system is totally locked up. The negative effects of the financial melt down are now negatively affecting the real productive economy. We have already entered a worldwide recession, this is getting really serious.
By releasing all debt, people will get a fresh slate, and can start saving again. Banks, whose only assets are completely fiction -- they call debt an asset -- would take a big hit, but so what? Banks don't contribute to national wealth anyway. Their only utility is to enable real productivity, and in that basic function, they have completely failed, and are in fact, counter-productive right now.
Despite having most of their assets (our debts) completely liquidated, the banking system would quickly recover anyway, because we could use our incomes to start saving again. The productive economy would be truly stimulated and bank accounts would fill up quickly, because all the money we currently use to pay off debt would go into savings, investment, and consumption. Imagine not having to pay all that money every month to your mortgage or car payment. All that money is going to go somewhere, either spent or saved. Given that financing life through credit would no longer be an option, people would begin saving in earnest again.
In short, everyone is given clear title to all their assets that banks currently have liens on. Instead of having to spend thousands of dollars on their mortgages and car payment and credit cards every month, the families of America would be able to save and spend that money. The people who lost their jobs in the financial industry would be able to find new employment quickly in the productive economy.
The American economy resets, the banks reset, we start from scratch, with all of our wealth freed from the fictional burden of debt. From this point forward, people, businesses, and governments are forced to spend only out of their savings, leading to the always-rising standard of living that America experienced for its first 150 years.
Today's problem solved, Great Depression 2 averted.
Spread this idea to everyone you know. Talk about it with your family until you can understand it and explain it. Take it to your Representative and Senator and begin introducing them to the idea, because they are going to have to be the ones who pass the law to make it happen.
Let's get it done now, before it is too late.
Thursday, November 27, 2008
National Default a Topic of Discussion
Leave it to conservative pillar Pat Buchanan to be the first one to discuss the inevitability of national default in his newest commentary. His logic is unimpeachable. As this blog has also pointed out, there are no other options.
If we cancel our debt now, at least our economy will still have a chance, and we can avert a Greater Depression.
If we put it off, we will be driven ever more inexorably towards the necessary fact of total default, but we will be living in an economic hellhole by then, when a default might actually be destructive.
Defaulting now, while the dollar is still the world reserve currency, while our military might is still unchallenged, before our demographic collapse occurs, while our economy can still recover, NOW IS THE TIME!
Waiting until there is widespread social unrest, when the dollar is worthless, when the economy is in shambles, when our enemies are ever stronger, that is not the time. But unless we use some common sense, that is when we will end up doing it.
Let us declare our Jubilee Year now!
See Buchanan's insightful article on our economic predicament here.
If we cancel our debt now, at least our economy will still have a chance, and we can avert a Greater Depression.
If we put it off, we will be driven ever more inexorably towards the necessary fact of total default, but we will be living in an economic hellhole by then, when a default might actually be destructive.
Defaulting now, while the dollar is still the world reserve currency, while our military might is still unchallenged, before our demographic collapse occurs, while our economy can still recover, NOW IS THE TIME!
Waiting until there is widespread social unrest, when the dollar is worthless, when the economy is in shambles, when our enemies are ever stronger, that is not the time. But unless we use some common sense, that is when we will end up doing it.
Let us declare our Jubilee Year now!
See Buchanan's insightful article on our economic predicament here.
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