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 paper wealth of nationsThe bailing out of Cyprus the 10th EU bailout has made me want to bring this discussion back to the fore. The interesting thing is that Cyrpus government are going to take between 6.75% to 9.9% of all savings from the general population as part of their bail-out plan www.bbc.co.uk . Concerning thing is that this is not the first time this has happened and we really don't want to make this a precedent. Most of the Western world's governments are running a deficit or annual paper loss of between 5-10% per annum. So what they do is print more money (quantitative easing) or issue more debt (government bonds). It is my view we should apply the scientific method to economics of causality and effect when addressing real world debt. To understand government economics today is a highly complex field, to use an analogy its a great big elephant and if you were a hunter on person can't take down an elephant in one, its too big and you don't know where to start, you need to take it apart piece by piece (a business term called breaking down the elephant). So let's go back to when economics was a much simpler and focus on 3 Scots who were the fathers of modern economics who were all born in the 1700's. William Paterson, en.wikipedia.org) the creator of the bank of England a coffee shop share trader and who came up with the idea for a world trading empire. He was an inventor but his invention was changing how money could be made via investment and returns. This gave rise to the South Sea Bubble en.wikipedia.org as system which allowed the traders to make large profits before any real world events happened. This was the first real instance of traded futures (ie I am betting on the future) which also gave rise to derivatives (ie I will bet on variety of elements of the future value). With all the futures and derivatives people lost count of what the real value of their investments were, there was also shady trading of reselling the same futures again and again so some ships were oversubscribed by 3 times and the real value of the goods and returned were vastly over-inflated, but the brokers did not care as they were making the money by selling the contracts and had no vested interest in the return. The result was an overinflated market, paper futures being worth very little if not nothing and a market collapse. The market reacted by putting in the royal exchange and eventually the stock exchange which could better regulate trading activities and at least make sure brokers could not oversell the same product when it was already fully subscribed but this never really solved the real value of futures or derivatives, by their very nature they are a bet. About a century earlier the same problem of futures value had presented itself with the tulip bubble en.wikipedia.org There are many parallels of these humble beginnings from a humble coffee shop traders to the world of finance today. When people do not understand the relative value of what they are buying. While a lot of people do not think they are involved in these markets if you have life or pensions then you are, as all major life and pensions firms invest your money in the capital markets. A lot of this is pure paper wealth, nominative values based on financial mathematical models. This brings us nicely along to John Law en.wikipedia.org) . Now what John did was become the chancellor regulator and chief economist for France. We lowered interest rates and created massive economic regeneration with the issuing of paper wealth. The trouble was there was no real value in the economy he created so eventually it collapsed and went back to its relative value. Remind you of the EU? Countries values increasing in relative value over 10-15 years by 20-80% then requiring a bailout? Adam Smith talked about the creation of wealth en.wikipedia.org but Adam always maintained there must be a moral and physical substance to the wealth of nations. We seem to have lost sight of what economics is. The basis of economics is maintaining productivity and a healthy balance sheet. Governments seem to have lost sight of this as if they did they would maintain a healthy balance sheet and operate within their means. The greatest problem in the world today is servicing of legacy debt. Traditionally this was very much an African and South American problem, where the Western banks and government gave large loans to these countries at high interest rates and to a great extent kept them in debt and stopped their economies developing as the GDP was spent servicing the debt rather than improving the countries. The very same thing that happened in the 60's and 70's in LATAM and Africa is now happening in the West. Where the debt of the government and banks becomes greater than their ability to repay the debt. Its a debt spiral that is very hard to reverse. How governments operate is very similar to how an individual should operate summed up very humorously by Feloniouas Munk www.youtube.com. The trouble is this is not being addressed in the US or in Europe, the politicians talk a good game about economic recovery but are doing nothing about their balance sheets, they are getting worse year on year. They are a growing concern that's why the ratings agencies are downgrading countries. So my solution is looking at this there is no way that most countries (with the exception of a few Arab and Asian countries) can repay their debts in a medium or short term and that the money they have to pay to service the debt stops economic regeneration. Why not cancel all government debt. Start them from scratch, press the reset button if you will. If this did happen the world would not stop revolving, far from it you would suddenly find that most countries would suddenly be generating a economic surplus and that all those people within the nations would get better services and become riches provided they stick to the laws of economics and governments need to live within their balance sheet. You may say that's impossible what would happen to all the people that are owed the money from the countries. Well to be perfectly Frank the people that are owed most of the money is actually us, the money that is in our life and pensions investments, sure a few billionaires or very rich sovereign funds might take a 30% hit on their balance sheet but for the greater good of the world this is possible and with the extra money and investment opportunity I am sure they would make it back soon enough. |
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calyspo 23-Mar-13, 19:22 |
And once you have a World Bank, the next logical step would be an (official) World Government .. not something any of us would like to see, I don't think. I wonder if it could be made to work using so-called 'fiat' currencies .. whereby governments introduce their own national currencies? Like the old American 'greenbacks'? Personally, I think that in the long run, the only way to drag the dogs back in their cages, is something like Referism .. autonomousmind.wordpress.com .. whereby the people have more of a say in national budgets. It's OUR money after all. Jo |
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world bank The whole idea of currency is interesting but as we all grow up with it its very hard to see how to change it or how a different system could be effective. The current system is almost hard wired into us from birth. American and different states used to have different currencies, this idea has taken off again in the UK with local currencies. en.wikipedia.org. To the government this currency has a 0 value but to those that use it, it has a 1-1 ratio. They key thing something is only worth the value we attribute to it. Just like art, property or fine wine. This is what John Law figured out. |
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new breakthrough on this topic This week, economists have been astonished to find that a famous academic paper often used to make the case for austerity cuts contains major errors. Another surprise is that the mistakes, by two eminent Harvard professors, were spotted by a student doing his homework. It's 4 January 2010, the Marriott Hotel in Atlanta. At the annual meeting of the American Economic Association, Professor Carmen Reinhart and the former chief economist of the International Monetary Fund, Ken Rogoff, are presenting a research paper called Growth in a Time of Debt. At a time of economic crisis, their finding resonates - economic growth slows dramatically when the size of a country's debt rises above 90% of Gross Domestic Product, the overall size of the economy. |
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