As opposed to the "Creative destruction" long heralded as Capitalism's (oxymoronic) driving force we appear to have met Capitalism's opposite and equal (possibly greater?) force - Destructive destruction. While elected politicians (or unelected technocrats) are furtively attempting to "manage democracy" in the quest for sovereign fiscal survival and implementing, brazenly political, social engineering - the financial institutions are betting against them succeeding in a knee-jerk quest for profit. Unfortunately, whatever the governments do the very financial institutions they are attempting to save will manipulate the outcome to their own short-term financial benefit even if this leads to their own eventual, predictable, economic downfall. Free-market theory demands that even when facing the distinct prospect that the world's economic system is collapsing nothing should or can be done to prevent it committing suicide.
Rather than Bulls and Bears what we have is a Mad Dog that won't let go of the bone. The same financial machinations that brought us to the edge of darkness are still out there Trading, Shorting, Hedging and generally trying to find a way to make money at someone else's expense right up to and until the lights go out. A sort of financial "Doomsday" scenario where they keep firing financial missiles until there is nobody alive to claim victory.
Lemmings going over the Free-market cliff.
We're facing a somewhat stark choice. Democracy, Liberal Democratic Capitalism or Managed Democracy, State Capitalism. The present trend is towards the latter duo. Certainly the present Merkel/Sarkosy manifestation of a Euro solution is anything but Democratic and an attempt to save themselves and their banks by denying others their right to choose. By inflicting austerity upon the less fortunate they imagine they'll be able to avoid the same fate themselves. For this the others will pay. Those with the most money to lose will set and impose the rules and woe betide those that don't obey. Somehow I don't think this is going to work. Aren't they missing something here? Haven't they got this backwards? Isn't it those who must obey that can spoil the plan by just saying no more surrender of democratic rights and ask for the UK model - in the EU but out of it. Sadly if the errant, fiscally irresponsible nations (who loaned them the money in the first place?), chose to go for a UK model they'll take the UK down as a result - banks and all. If you were looking to set up a brilliant "can't win" position this is it - a lose/lose situation.
So here we are entrapped by a system that we're trying to save whose very tenets prevent us doing just that - an oxymoron indeed. Or is the true oxymoron "Moral Hazzard"?
Showing posts with label Solution. Show all posts
Showing posts with label Solution. Show all posts
Tuesday, 6 December 2011
Tuesday, 22 November 2011
Theory
There is, of course, one very good reason that no matter who is elected they instantly renege on policy promises and revert to getting as much as they can for themselves and their mates before losing the next election - Theory. Any word in the dictionary can be placed in front of "Theory" and claimed as a best-practice canon of effective thinking on everything, anything and nothing simultaneously. The best thing about a Theory is that you can have one about things that don't exist, don't work and can't happen and win a Nobel prize for it. This is of little benefit to those supposedly living under it's influence. But given that a real insight is lacking it's better to have a Theory than admitting that you don't have the first clue. Theory is an excuse to stop scratching your head - and justify inflicting your opinion on as many people as possible.
There is little or no point in trying to explain a Theory to the vast bulk of the proletariat and even less in trying to explain one to Politicians - to whom complexity and getting elected are incompatible. This results in Cherry-picking simplistic elements of a Theory for public consumption while leaving the bulk of it's content and ramifications hidden from view to all - including themselves. The need for an aristocracy of thinkers is thus required to develop and prosthelytize Theory. Given that you can have a Theory about everything, anything and nothing then if you don't like one you can find thinkers that come up with another one that you do. This eventuates in conflicting Theories all regarded by their creators and supplicants as indisputable. Upon such things are Policy promises based. Sadly upon such things are nations and societies based.
Which brings me to the Theory of using a cow as a cigarette lighter. This would require positioning cows at all those smoking compounds outside bars, restaurants and office buildings - although for reasons of cows' sensitivities, restaurant locations, other than vegetarian ones, might be a little heartless - unless you blindfold them, but this would cause an additional fire hazard. A Piezo Crystal thingy in the nose or up it's ass would provide ignition. I call this "The Big BIC Theory". This Theory would work a treat in India. It would also provide a purpose for cows past their best milk producing years and make "I'm just popping over to the Abattoir for a quick smoke" common parlance. Even if smokers weren't around, to utilise this flame-off, a burning taper sticking out of all cows bums and noses would have a dramatic effect both on the release of methane into the atmosphere and upon the cost of street lighting. Why no political party in New Zealand has adopted this as a policy promise bemuses me.
Back to the subject of time travel - to a time when cows were pre-industrialised. Why bother? What's the point of arriving in the past and immediately catching Cholera, TB or the Plague and being referred to as "yee" - even if you can't expire. Do you have to take your own toilet paper with you? Anyway time as a continuum is only .... you've got it - a Theory. If it were available time travel would put an end to the retirement age dilemma and reduce health-care costs immeasurably as you'd be constantly sent back to a time when you were healthy and could work for a lower wage - or alternatively sent into the future and be dead. The Time Machine would be called the "See Ya" and located in every hospital, unemployment office, airport, police station and bank thus dealing with any and all social inconveniences at the push of a button.
If everybody had a time-machine would there be anybody left?
Now the Euro. How much would it cost to build a time machine - a few hundred billion, a trillion, ten trillion - certainly a lot less than saving the present financial system. Then we could all keep going back to 2006 and avoid the Global Financial Crisis. Despite the absence of time travel our politicians are attempting to do it by pretending it still is 2006 and using your money to wipe out the intervening years. So here you have two Theories, both of which claim that you can travel back in time, neither of which exist, work or can happen.
There is little or no point in trying to explain a Theory to the vast bulk of the proletariat and even less in trying to explain one to Politicians - to whom complexity and getting elected are incompatible. This results in Cherry-picking simplistic elements of a Theory for public consumption while leaving the bulk of it's content and ramifications hidden from view to all - including themselves. The need for an aristocracy of thinkers is thus required to develop and prosthelytize Theory. Given that you can have a Theory about everything, anything and nothing then if you don't like one you can find thinkers that come up with another one that you do. This eventuates in conflicting Theories all regarded by their creators and supplicants as indisputable. Upon such things are Policy promises based. Sadly upon such things are nations and societies based.
Which brings me to the Theory of using a cow as a cigarette lighter. This would require positioning cows at all those smoking compounds outside bars, restaurants and office buildings - although for reasons of cows' sensitivities, restaurant locations, other than vegetarian ones, might be a little heartless - unless you blindfold them, but this would cause an additional fire hazard. A Piezo Crystal thingy in the nose or up it's ass would provide ignition. I call this "The Big BIC Theory". This Theory would work a treat in India. It would also provide a purpose for cows past their best milk producing years and make "I'm just popping over to the Abattoir for a quick smoke" common parlance. Even if smokers weren't around, to utilise this flame-off, a burning taper sticking out of all cows bums and noses would have a dramatic effect both on the release of methane into the atmosphere and upon the cost of street lighting. Why no political party in New Zealand has adopted this as a policy promise bemuses me.
Back to the subject of time travel - to a time when cows were pre-industrialised. Why bother? What's the point of arriving in the past and immediately catching Cholera, TB or the Plague and being referred to as "yee" - even if you can't expire. Do you have to take your own toilet paper with you? Anyway time as a continuum is only .... you've got it - a Theory. If it were available time travel would put an end to the retirement age dilemma and reduce health-care costs immeasurably as you'd be constantly sent back to a time when you were healthy and could work for a lower wage - or alternatively sent into the future and be dead. The Time Machine would be called the "See Ya" and located in every hospital, unemployment office, airport, police station and bank thus dealing with any and all social inconveniences at the push of a button.
If everybody had a time-machine would there be anybody left?
Now the Euro. How much would it cost to build a time machine - a few hundred billion, a trillion, ten trillion - certainly a lot less than saving the present financial system. Then we could all keep going back to 2006 and avoid the Global Financial Crisis. Despite the absence of time travel our politicians are attempting to do it by pretending it still is 2006 and using your money to wipe out the intervening years. So here you have two Theories, both of which claim that you can travel back in time, neither of which exist, work or can happen.
Wednesday, 16 November 2011
Return of the Gooh Gooh
The exchange rate is the least of it. Protectionism and all the monetary constraints of economic collapse ensue. But the gist of your argument is that, as with the UK, Sweden and Denmark, you're better-off out of the Euro so why then propose an expensive (unworkable, unaffordable) solution to save it? You're knocking down your own argument. Rather than a single economic zone the Euro is an economic chimera of smoke and mirrors developed from an original treaty designed for the benefit French farmers.
The UK's economic performance is abysmal - so unfair to Sweden and Denmark to compare their performance based solely on a shared ability to flex exchange rates. The only thing that keeps the UK out of an Italianesque tradgedy is, as you say, that it is fortunately not in the Euro - as a result, they are able to devalue against it - the saving grace along the way is the US Dollar weakness - already ending as American money heads for home in panic. This does not mean that the UK economy is doing any better or that their banks aren't just as vulnerable as the likes of France's when debtor nations try to repay loans with garbage currencies - however they are aligned. By the way, aligned to what?
When you devalue your Mickey Mouse currency against the Euro you can't buy as much in Euros (or anything else) as you used to which then impacts on all those that remain in a real currency - badly if enough countries revalue - so they have to try to hold down the value of their real currency. This can't happen. Result Mickey Mouse inflates.
Usually the country invents a name for it's new Specie (I've always liked "Gooh, Gooh" - as in the Italian Gooh Gooh or the Spanish Gooh Gooh) and defaults on any debt not marked in that currency - basically declare bankruptcy without the discharge. Their economies immediately go into several years of ass tightening and reappear when enough time has passed for everybody to have gotten over being stiffed by them. Of course, up to now, this hasn't included the likes of Italy - new territory indeed.
What we have here is a problem that can't be solved within the Box of present economic theory - why? - because the Box is a mirage with vaporous walls of synthetic debt. A faith based belief economic system with one commandment - growth. The only requirement to be a supplicant is to have "confidence". No lasting solution can be found within the confines of this thinking - just more of the same. Given the all-pervading nature of the present belief system an alternative can not be found in time to prevent an economic equivalent of The Rapture, slash, End of Times. If the Box is an illusion then there is no "outside the Box" to think in. As Weed used to say to the Flowerpot Men - "Time to go home" - or was that the Wooden-tops?
Germany's biggest advantage is that it's labour costs have remained reasonably flat (they started high in line with their productivity) while the others' shot up by 30% with little or no increase in productivity - who in their right mind drinks Retsina. Italy has gone nowhere in a couple of decades thanks to Berlusconi and a peculiarly Italian version of the free-market. One of the few things that sets Italy apart from the other failing economies was the lack of a property bubble. This is of little consolation.
I advise that in order to come up with a successful solution to the Euro shenanigans you might resort to recreational narcotics, hallucinogenic drugs or go into a trance - an induced coma might be a better long term condition.Which is what the likes of EC Commissioners and The ECB must have been in when they allowed Greece in.
The UK's economic performance is abysmal - so unfair to Sweden and Denmark to compare their performance based solely on a shared ability to flex exchange rates. The only thing that keeps the UK out of an Italianesque tradgedy is, as you say, that it is fortunately not in the Euro - as a result, they are able to devalue against it - the saving grace along the way is the US Dollar weakness - already ending as American money heads for home in panic. This does not mean that the UK economy is doing any better or that their banks aren't just as vulnerable as the likes of France's when debtor nations try to repay loans with garbage currencies - however they are aligned. By the way, aligned to what?
When you devalue your Mickey Mouse currency against the Euro you can't buy as much in Euros (or anything else) as you used to which then impacts on all those that remain in a real currency - badly if enough countries revalue - so they have to try to hold down the value of their real currency. This can't happen. Result Mickey Mouse inflates.
Usually the country invents a name for it's new Specie (I've always liked "Gooh, Gooh" - as in the Italian Gooh Gooh or the Spanish Gooh Gooh) and defaults on any debt not marked in that currency - basically declare bankruptcy without the discharge. Their economies immediately go into several years of ass tightening and reappear when enough time has passed for everybody to have gotten over being stiffed by them. Of course, up to now, this hasn't included the likes of Italy - new territory indeed.
What we have here is a problem that can't be solved within the Box of present economic theory - why? - because the Box is a mirage with vaporous walls of synthetic debt. A faith based belief economic system with one commandment - growth. The only requirement to be a supplicant is to have "confidence". No lasting solution can be found within the confines of this thinking - just more of the same. Given the all-pervading nature of the present belief system an alternative can not be found in time to prevent an economic equivalent of The Rapture, slash, End of Times. If the Box is an illusion then there is no "outside the Box" to think in. As Weed used to say to the Flowerpot Men - "Time to go home" - or was that the Wooden-tops?
Germany's biggest advantage is that it's labour costs have remained reasonably flat (they started high in line with their productivity) while the others' shot up by 30% with little or no increase in productivity - who in their right mind drinks Retsina. Italy has gone nowhere in a couple of decades thanks to Berlusconi and a peculiarly Italian version of the free-market. One of the few things that sets Italy apart from the other failing economies was the lack of a property bubble. This is of little consolation.
I advise that in order to come up with a successful solution to the Euro shenanigans you might resort to recreational narcotics, hallucinogenic drugs or go into a trance - an induced coma might be a better long term condition.Which is what the likes of EC Commissioners and The ECB must have been in when they allowed Greece in.
Tuesday, 15 November 2011
Debt, Banks, Growth - pick any two
Your scenario of a new 2 speed European Economic Union of is wholly dependent on it creating growth - as in economic expansion permitting debt to reduce as a proportion of GDP. Unfortunately a return to assorted devalued national currencies will achieve the opposite as historical sovereign debt will still be measured in Euros and exports from the few remaining Euro countries (especially Germany) will be too expensive and trade will shrink not grow. The knock-on effect on China's exports would be significant - spreading the grief.
You can tackle sovereign debt, bankrupt banks and growth only by picking two of them to tackle at once not all three. There isn't enough money. Especially as regulation permitted European Banks to loan to European Community countries at leverage rates of up to 250:1 under the now miasma of "they couldn't default". Meaning banks are incapable of surviving either a default or a devaluation of currency by any of it's debtor nations (the equivalent of default). So given a choice of two out of the three the logical pick is to tackle sovereign debt and adopt policies for growth not austerity and let the Banks go under. Government then will have to cover the lost customer deposits up to a fixed value and not assume leveraged debt of untold trillions. This could be between 40 to 250 times cheaper than bailing out the banks. The retail divisions of the Banks would be nationalised to keep the branch doors open.
Alternatively, you could just run the printing presses and inflate your way out. This would, of course, destroy the personal wealth of the elite which is why we'll hang-in with the present fallacy as long as possible while they sort out a plan B. Primarily time to move their wealth into something or somewhere less likely to evaporate. Taxpayers will be milked to extend the transfer period of their wealth to a safer haven. France will not be one of those havens - nor, probably, would it be a first team selection to remain in the new Euro given it's bank's exposure to Italy et al. The Irish, Portuguese and Greeks will sensibly default on their debts immediately they are relegated to the second division of Europe. This leaves you with Spain and Italy as the lead weight around the neck of Europe - sadly no matter what stroke they adopt the rest of Europe is likely to sink with them unless they cut them free.
However you cut it there is no elegant solution. The unpalatable fact is that we're in a Depression - a creeping one. Country by country until the tilting point is reached. Why anyone is surprised by this astounds me. We knew when the Global Financial Crisis struck that hundreds of trillions of debt were out there in the form of CDO and CDS and other assorted toxic, exotic, financial instruments conjured-up by banks looking to increase leverage to historic (lunatic) levels in the pursuit of profit and bonus - recklessly stoked by the Fed's cheap money window. Now we're looking to leverage sovereign wealth to historic levels to bail banks out of their atrocious bets, aka investments. Seeing that countries are vilified for debt at 1.2 to 1 then their ability to leverage at up to 250 to 1 to cover their banks' debt is less than nil. As is the belief that the solution to gargantuan quantities of debt is yet more debt. Pay off your credit card with another credit card.
Globalisation has exacerbated all this as with Lehman Brothers. Everybody cheated, either by borrowing more than they could repay or lending more than they could expect to get back. The choice is clear. Accept that the present financial structure has imploded and needs colonic irrigation or drown in an ocean of debt. Whatever the outcome we're not going to avoid walking around shoulder deep in shit for a long time to come. Although this may be more palatable than the present position of standing on your head in knee deep excrement.
You can tackle sovereign debt, bankrupt banks and growth only by picking two of them to tackle at once not all three. There isn't enough money. Especially as regulation permitted European Banks to loan to European Community countries at leverage rates of up to 250:1 under the now miasma of "they couldn't default". Meaning banks are incapable of surviving either a default or a devaluation of currency by any of it's debtor nations (the equivalent of default). So given a choice of two out of the three the logical pick is to tackle sovereign debt and adopt policies for growth not austerity and let the Banks go under. Government then will have to cover the lost customer deposits up to a fixed value and not assume leveraged debt of untold trillions. This could be between 40 to 250 times cheaper than bailing out the banks. The retail divisions of the Banks would be nationalised to keep the branch doors open.
Alternatively, you could just run the printing presses and inflate your way out. This would, of course, destroy the personal wealth of the elite which is why we'll hang-in with the present fallacy as long as possible while they sort out a plan B. Primarily time to move their wealth into something or somewhere less likely to evaporate. Taxpayers will be milked to extend the transfer period of their wealth to a safer haven. France will not be one of those havens - nor, probably, would it be a first team selection to remain in the new Euro given it's bank's exposure to Italy et al. The Irish, Portuguese and Greeks will sensibly default on their debts immediately they are relegated to the second division of Europe. This leaves you with Spain and Italy as the lead weight around the neck of Europe - sadly no matter what stroke they adopt the rest of Europe is likely to sink with them unless they cut them free.
However you cut it there is no elegant solution. The unpalatable fact is that we're in a Depression - a creeping one. Country by country until the tilting point is reached. Why anyone is surprised by this astounds me. We knew when the Global Financial Crisis struck that hundreds of trillions of debt were out there in the form of CDO and CDS and other assorted toxic, exotic, financial instruments conjured-up by banks looking to increase leverage to historic (lunatic) levels in the pursuit of profit and bonus - recklessly stoked by the Fed's cheap money window. Now we're looking to leverage sovereign wealth to historic levels to bail banks out of their atrocious bets, aka investments. Seeing that countries are vilified for debt at 1.2 to 1 then their ability to leverage at up to 250 to 1 to cover their banks' debt is less than nil. As is the belief that the solution to gargantuan quantities of debt is yet more debt. Pay off your credit card with another credit card.
Globalisation has exacerbated all this as with Lehman Brothers. Everybody cheated, either by borrowing more than they could repay or lending more than they could expect to get back. The choice is clear. Accept that the present financial structure has imploded and needs colonic irrigation or drown in an ocean of debt. Whatever the outcome we're not going to avoid walking around shoulder deep in shit for a long time to come. Although this may be more palatable than the present position of standing on your head in knee deep excrement.
Thursday, 6 October 2011
Immoral Hazard
Just wondering if you've got an elegant solution to the world's economic problems - because somebody has to or we're all toast - the smoke alarms are squealing.
The world's most erudite financial gurus have exhausted their usual panoply of platitudes and recklessly thrown our fiscal survival into the embrace of politicians. There is a flaw in this as politicians are local and the problem is global - so any solution from them will be more about re-election that resurrection. What makes this even more unlikely is that politicians don't know the full extent of what they're dealing with. As a result they are having a panic attack. Prior to being pressed to assume the mantle (stress position) of economic saviours politicians were told to "get off out of it" by the very same financial professionals that are now demanding that they take over.
Is this because the money-men know the size of the problem and their inability to solve it or another attempt to have the public purse bail them out of losses on innumerable bad investments and protect their bonuses? How, one may ask, does a bank that passed the health check "Stress Test" a few months ago suddenly find itself close to bankrupt - if they were telling the truth? Certainly a few billion for Greece wouldn't bring the world's economy to the suburbs of Armageddon were it not for the other tens of trillions of morally hazardous toxicity out there. The political terror that it is all about to collapse has led to a reluctance to save nobodies' banks but our own - it may be dirty, underhand and morally hazardous but it's our dirty, underhand, moral hazard.
The PIIGS (note the extra I for Italy) go under and the BRICS hoard money while I'm particularly amused by the choice of terminology for an economic disaster prognosis - as in "hard" or "soft" landing. It strikes me that if you are going to end up dead it hardly matters. This brings to mind the advice given if the parachute fails to open - "Cross your right leg over your left leg as it is easier to screw you out on a left hand thread".
Now is about time to eviscerate the hubris of economists - a delusional sense of esteem best illustrated by the self-bestowal of a Nobel Prize. It is not one of the Nobel prizes established by Alfred in 1895. Economists invented this one for themselves in the 1960's - they must have regarded themselves as too important to be left out. So they got the money from a bank, appointed their own committee of economists, and gave themselves prizes for coming up with ideas that looked good on paper but demonstrably haven't worked. Were it not for the prestige of the Nobel name most if not all of these ideas might have met the abortive fate they deserved. There should be a reverse Nobel Prize in Economics committee that takes back these awards based on performance and the whole groundless aggrandisement immediately abandoned. I too would like a Nobel Prize, in what hardly seems to matter, unfortunately it would be hard to find a bank able to cough-up the dough right now.
The world's most erudite financial gurus have exhausted their usual panoply of platitudes and recklessly thrown our fiscal survival into the embrace of politicians. There is a flaw in this as politicians are local and the problem is global - so any solution from them will be more about re-election that resurrection. What makes this even more unlikely is that politicians don't know the full extent of what they're dealing with. As a result they are having a panic attack. Prior to being pressed to assume the mantle (stress position) of economic saviours politicians were told to "get off out of it" by the very same financial professionals that are now demanding that they take over.
Is this because the money-men know the size of the problem and their inability to solve it or another attempt to have the public purse bail them out of losses on innumerable bad investments and protect their bonuses? How, one may ask, does a bank that passed the health check "Stress Test" a few months ago suddenly find itself close to bankrupt - if they were telling the truth? Certainly a few billion for Greece wouldn't bring the world's economy to the suburbs of Armageddon were it not for the other tens of trillions of morally hazardous toxicity out there. The political terror that it is all about to collapse has led to a reluctance to save nobodies' banks but our own - it may be dirty, underhand and morally hazardous but it's our dirty, underhand, moral hazard.
The PIIGS (note the extra I for Italy) go under and the BRICS hoard money while I'm particularly amused by the choice of terminology for an economic disaster prognosis - as in "hard" or "soft" landing. It strikes me that if you are going to end up dead it hardly matters. This brings to mind the advice given if the parachute fails to open - "Cross your right leg over your left leg as it is easier to screw you out on a left hand thread".
Now is about time to eviscerate the hubris of economists - a delusional sense of esteem best illustrated by the self-bestowal of a Nobel Prize. It is not one of the Nobel prizes established by Alfred in 1895. Economists invented this one for themselves in the 1960's - they must have regarded themselves as too important to be left out. So they got the money from a bank, appointed their own committee of economists, and gave themselves prizes for coming up with ideas that looked good on paper but demonstrably haven't worked. Were it not for the prestige of the Nobel name most if not all of these ideas might have met the abortive fate they deserved. There should be a reverse Nobel Prize in Economics committee that takes back these awards based on performance and the whole groundless aggrandisement immediately abandoned. I too would like a Nobel Prize, in what hardly seems to matter, unfortunately it would be hard to find a bank able to cough-up the dough right now.
Rather than have the New Zealand Symphony Orchestra and the New Zealand Choral Federation go to the trouble of learning all the Rugby World Cup participating nations' National Anthems - given the economic condition of most of them - it would have been easier, and possibly more appropriate, to have learned only Meatloaf's "I want my money back". This, at least, would more accurately reflect the attitude of the players who are complaining that there's not enough money for them in it. So little in fact that the NZ All Blacks might not show up for the next one. Not much of a threat as a team of NZ economists could find a bank to pay them to form their own team. Global Rugby looks to be heading the same way as Global Finance - Money Rules, OK - except when there isn't any.
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