tag:blogger.com,1999:blog-7321229718141307911.post8238325628168996202..comments2023-10-24T01:44:59.579-07:00Comments on Newshoggers Archive: One step forward, one step backRon Beasleyhttp://www.blogger.com/profile/04442030471061531104noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-7321229718141307911.post-9523162889910753502011-10-23T19:10:42.000-07:002011-10-23T19:10:42.000-07:00John Ballard has defined precisely the flaw in our...John Ballard has defined precisely the flaw in our modern economic model, in which 70% of our GDP is consumer spending, otherwise known as <i>"consumption."</i> When consumption is greater than production, the payment for goods exceeds the payment made to producers of goods, and the only way that can continue is either the continued buildup of debt or the creation of cash out of thin air. Since the former eventually reaches a limit, a point at which debt reaches an amount which cannot be repaid, we have adopted the latter, but in a ficticious manner by simply treating debt as if it were an asset. The mind games which went into that, which wound up with the unbelievably ridiculous term of <i>"toxic asset"</i> being coined, is simply astonishing, but somehow our financeers managed to do it.<br>Bill H.http://billsandiego.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-7321229718141307911.post-16257093926797246902011-10-23T05:54:46.000-07:002011-10-23T05:54:46.000-07:00Good Comment John,To quickly touch on one point, t...Good Comment John,<br>To quickly touch on one point, that old-fashioned method of dealing with sovereign debt by devaluing currency is at the heart of the Eurozone crisis. Iceland isn�t exactly a good example, since their debt crisis was more about refusing to back bank losses with sovereign credit, but they and another Nordic country, Sweden, do offer some lessons. Both are outside of the Eurozone, and so they were both able to use the old-fashioned method of a devalued currency to lower the value of whatever debt was held in said currency, increase the price of exports, and lower the cost of domestically-produced goods, thus helping shift trade balances into their favour and sparking local growth. As such, both Iceland and Sweden are now recovering nicely.<br>The biggest problem facing Greece and the other PIIGS is that they�re all on the Euro, which they can�t deflate to deal with their local insolvency issues because its value is more closely tied to the more prosperous European core countries. They�ve basically been robbed of their safety valve and so have no way of getting out from under the massive debt they find themselves with. Dealing with the implications of this is pretty much what the whole crisis in Europe is now about.<br>BJ Bjornsonhttp://profile.typepad.com/bjbjornsonnoreply@blogger.comtag:blogger.com,1999:blog-7321229718141307911.post-27003932471609474572011-10-23T05:27:35.000-07:002011-10-23T05:27:35.000-07:00That word "restructuring" covers a multi...That word "restructuring" covers a multitude of sins, doesn't it? I'm retired from the food business and if there is anything I know about it's baloney. And that's baloney no matter how you slice it.<br>Credit once meant debt that was expected to be repaid over time in accordance with easy to grasp terms. But somewhere along the way credit has actually become another mechanism for creating cash. I think it started with credit <i>cards</i>. As long as retail vendors carried their own accounts receivable they always knew how much actual revenue they received from goods and services. Bookkeeping was straightforward. Among the earliest credit cards were department stores and others who soon discovered they could make as much or more by charging interest on the debts of their customers as they made on the markup difference over wholesale and other costs. Wow! That made sales more impressive than ever as the "profit" shifted from markup to interest on debt.<br>Finally the day came when national credit cards replaced the store cars and immediately all credit transactions stopped being treated as receivables and shifted to cash sales. Voila! Cash got created with every transaction. From a monetary standpoint it was like planting yeast in bread dough. The loaf starts to rise as the sugar gets eaten and soon the size of the loaf is twice what it was at first. No extra weight, of course, but much bigger and a lot more appetizing.<br>Thanks to the magic of modern banking variations on this illusion seems to know no limit. Credit creates money from nothing from the banking level, up through the investment and even national levels... then one day the bell rings and the world hits a big "oh-shit" moment as all at once everybody realizes there isn't any real money. Only debt. The amount of real money turns out to be minuscule compared with how much debt is outstanding.<br>That realization is behind the desperate measures on the part of those at the top to amass as much as possible. At some level they realize that the "greater fool theory" is reaching critical mass and they are running out of fools. The credit nets being cast are coming in as empty as fishing boats after an oil spill. An mammoth economic catastrophe is unfolding and no one wants to face it.<br>At the global level the old-fashioned way to deal with debt was to repay it with inflated dollars. The international impact was minimized by currency values that rose and fell as this or that country socked it to this or that foreign creditor.<br>That last feature of global banking has been largely eliminated by imaginative measures such as quantitative easing and exquisitely crafted international trade agreements.<br><a href="http://www.ft.com/intl/cms/s/0/9a5b3216-c70b-11de-bb6f-00144feab49a.html#axzz1bccoYUWQ" rel="nofollow">Carry trading</a> was and continues to be big business as currency traders skim small fortunes from what remained of international currency variations as a variety of fiscal policies have been aimed at keeping inflation down.<br>But even that goose is about to stop laying eggs. <a href="http://www.google.com/search?rlz=1C1SKPL_enUS414US446&aq=2&oq=iceland+default&gcx=w&sourceid=chrome&ie=UTF-8&q=iceland+default+recovery" rel="nofollow">The jury is still out on Iceland,</a> but that little country may illustrate the best way back to the old days before the global economy was so interdependent. What we now call "sovereign debt" once popped up all over the world like fireworks on a holiday display. What the world is facing now, thanks to modern banking, is more like an IED about to explode.<br>Go ahead. Restructure. Let's see what happens...<br>John Ballardhttp://profile.typepad.com/john_ballardnoreply@blogger.com