Nearing the precipice?

richardj

There has been no comment from the man who saved the world and put the end to boom and bust since his removal from SW1.

Martyn Rowe

Tyler Durden tried the latter option in Fight Club.

james

A radical solution is needed e.g. an end to Fractional-reserve banking & government debt write-off, see:
http://www.cobdencentre.org/2010/05/the-emperors-new-clothes-how-to-pay-off-the-national-debt-give-a-28-5-tax-cut/

TomTom

Reinventing Collapse by Dmitri Orlov is clearly the road map Western politicians have been following. It is frankly unbelievable what damage they have wrought in just a few years. Bush had the USA on Stimulus Packages his whole term through defence spending and tax cuts. No Government taxed to fund its spending at the peak of the cycle - it was all deficit financed....everywhere

stephen

Good stuff lets hope you are right!

One thing the Stoopid Europeans don't understand is that its Markets, Markets and Markets that matter despite all Merkel's huffing and puffing it was the Chinese today who seemed to have stabilised the Euro at least short term! Until the Euro zone adopts a business model more like the UK why should the Chinese add to their Euros and indirectly support French farmers in particular producing food at below world prices. Is this all a bit simplistic? proabaly yes but its all about Markets Stoopids!

denis cooper

Given that one man's debts are another man's assets, a universal debt amnesty would wipe out many of the non-tangible assets held by savers and investors.

You may think that that you've been prudent by putting money on deposit with a bank or building society, but when they're relieved of their liabilites that's your savings gone.

Similarly bonds held in a pension fund would become worthless and provide no more income with which to pay the pensions.

It might be better news for those holding tangible assets, and also shareholders - but although shareholders' equity would expand dramatically when companies shed their debts, as all bank deposits would have evaporated there would be few people with money to buy them and push up the prices to reflect that.

So if it seems that a universal debt amnesty is in the offing, probably the best thing to do is to borrow as much as you can and buy tangible assets such as land, and also stocks of food and weapons with which to defend yourself from the angry starving mobs.

The Athenian statesman Solon had a bit of embarrassment along those lines back in the 6th century BC:

http://en.wikipedia.org/wiki/Solon

According to Plutarch:

"While he was designing this, a most vexatious thing happened; for when he had resolved to take off the debts ... he told some of his friends ... that he would not meddle with the lands, but only free the people from their debts; upon which they ... made haste and borrowed some considerable sums of money, and purchased some large farms; and when the law was enacted, they kept the possessions, and would not return the money ... "

Naomi Muse

@stephen Merkel does not want to admit that German Banks own £37bn of Greek sovereign debt and that was perhaps reckless or stupid lending in the first place. The German banks are to blame for that but all they do is blame Greece.

Likewise Sarkozy does not want France or its banks to admit to the equivalent of sub-prime lending to Greece and, more to the point to Italy to a huge amount. About 20% of Italian annualised economic output is owned by French banks as Italian sovereign debt.

Admission of their having these debts festering inside their bank vaults but not using QE to lessen the damage seems daft, but so does blaming the countries they lent money to.

Most of the problems have been caused by the EU and the Euro, as they had a false sense of security by all using the same currency, without having the stabilising mechanisms in place to ensure it was safe.

So, Angela Merkel proposes legislation against hedge funds that have absolutely nothing to do with Greek sovereign debt making up a large part of German banks 'investments'. It's displacement activity and will not do anything to help.

Naomi Muse

denis cooper - fascinating. So it brings the numbers down to zero everywhere.

What happens next...?

Ian C

'fraid it will be the big deflationary depression that was kicked into the long grass, and made all the more inevitable by, the 'keynesian squared' response to the Lehmans panic.

That is all it was and it was the foretaste (sort of altitude training) of what is yet to come. Ironically, Britain is in a far better place to survive and that is the one legacy of Brown's worth remembering - keeping us clear of the Euro.

If Cameron does as Redwood says today in the Times, he will unshackle us further from the continet drowning in American, Eatern European and its own sub-prime sovereign debt. New markets will be needed for us though.

of course, this won't happen until Japan disappears up the rear end of its own impossibilities. But that will probably be by the end of the year, in all likelihood. And people are using the Yen as a 'flight to safety' currency. So the shock when that happens will be that much greater.

Have a pleasant dinner. And sell into the current rally.

John Richardson

Mr Martyn Rowe 5:03pm.

You seem to have forgotten the first rule.

You 'beautiful unique snowflake' you.

Grenville

Oh ffs go away and stop worrying. Everything will be fine. Go to bed and sleep it off: stop trying to justify your job by scaring everyone into the very situation you don't want to happen.

Or do you want it to happen?

paul holdstock

back to the barter system it is then.
anyone know where i can get change for half a goat?

Fed_up

If we hypothesise that the Euro collapses, then the UK could clean up. I doubt if there are Billions of Drachma, Pesatas, Lira etc lying about in bank vaults waiting to be issued. Even if there were, I can't imagine the markets getting a hard on over that currency. So, a number of European countries would need a viable currency in short order. Step forward GBP, an off-the-shelf currency that is in (reasonably) good standing in the markets. The irony of the euro-zone countries joining Sterling rather than visa-versa would be magnificent.

Snowman

The Germans erred not allowing Greece to re-schedule her debt. Big mistake that, we may yet see it being done, one hopes. It’s not the final solution, but it would buy time to sort things some more. Re-scheduling to a point where the Greeks could service their debt would have a calming effect on the markets greater than the massive emergency package of money injection and guarantees.

The Treasuries in the countries that are under suspicion should force the banks under their jurisdiction to come clean, if only in confidence, on what sovereign debt they have on their balance sheet. It’s uncertainty about the shite the markets fear, not the shite itself. The financial wizards can cope provided they know what to cope with.

The key to it all is the resumption of economic growth, and the scaring stories are unlikely to install confidence in the great unwashed. Consumer spending is by far the largest component in every country’s economic activity. If the hoi polloi pull back, we truly are finished.

Snowman

and another things:

when in not that distant past Governments were in urgent need of funds their Treasuries were more ingenious in raising it. In Britain, War bonds issued to the public formed a sizeable chunk of the finances raised for the military effort. Today’s financial elites, natured in the years of real or imaginary wealth creation seem to have lost the capacity to think outside the box. A convertible bond, or one with warrants attached on attractive terms may not do the whole trick, but it would be fairer than clobbering small investors with a 50% CGT.

Snowman

Ian C @ 6.15:

Unshackling us from the Continent, the Americans, the Slavs, hmmm? You forgetting that it was a global game we’ve played. You may be amazed what paper your bank, and the other high street banks hold, and the pension funds, and the insurance companies, the investment trusts. Am afraid we are all in the deep, and we either swim or sink together.

Snowman

James @ 5.24:

Have read the piece on the site you suggested. It’s nonsense. It cannot work. It’s akin to witnessing a massive pile up on motorways due to excessive speed of many cars, thousands dead, many more injured. How to respond? Baxendale’s solution seems to be ‘let’s go back to horse driven carriages’, all orderly, low speed, fewer casualties. And it’s true, but what of the other consequences of switching from cars to the old mode of transport, ha?

Look at some of the African countries, they struggle not because there isn’t enough people willing to have a go, or because they lack natural resources. They struggle because they haven’t got well established financial infrastructure capable of credit creation.

The massive boost to the wealth in the West in the past half century or so in which all share, albeit not equally, has been due to credit. What has gone wrong wasn’t the principle of credit per se, but the excesses in credit creation.

Moraymint

Where does one place a bet on the outcome of this dilemma?

I know it takes a worried man to sing a worried song, but my money is on the failure of our political caste to overcome the laws of economics and the will of a justifiably angry mob.

As one George Dubbyah once said, "This sucker could go down." Wrong George. This sucker is going down; it's just the timing we're not too sure about.

Are you prepared?

http://tinyurl.com/ytrq8t

http://tinyurl.com/mfvtzf

Major Plonquer

I agree 100%. In fact, I'm banking on it - literally. From now on I'm going to eat like John Prescott and spend, spend, spend like Gordon Brown. Like there was no tomorrow - for maybe there isn't. There's a great chance HSBC will go down the pan and I'll never have to worry about my credit card bill again.

Now we can all see the incredible intellect and financial genious of Gordon Brown and Ed Balls. They were smart enough to understand that if they ran up enough debt the entire sovereign 'system' would collapse, debts would be universally forgiven and we'd never have to pay the bill.

This they called 'post-neoclassical endogenous fiscal incompetence theory'. What geniuses these Socialists are.