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Demand 'Stimulus' Has Not Worked - It's Time To Tell The Truth About Debt
Telling The Truth About Debt
Last month I referred to the recent opinion of George Bompas QC that IFRS accounting criteria do not meet the statutory obligation for UK and EU financial statements to give a true and fair view. I also noted that IFRS 9, the latest attempt of standard-setters to endow loan-loss provisioning with a requisite degree of prudence and objectivity, hardly improves matters because it allows management to assess, subjectively, the probable loss on impaired loans over the following 12 months.
And not just banks: sub-prime lender Cattles Plc was pushed into administration with huge irrecoverable losses in its loan portfolio that were not reflected in its accounts under IFRS accounting rules. Its claim on behalf of unpaid creditors against auditor PwC has now been settled on confidential terms.
A multi-million pound compensation claim has been brought against former directors of Lloyds TSB (now Lloyds Banking Group) by more than 6,000 former shareholders, alleging that the HBOS loan book was vastly overvalued when Lloyds took it over in 2009 – again due to flawed accounting that failed to provide for losses. This issue will not go away until the rules require lifetime provisioning at a loan’s inception.
A case study in economic disintegration
Debt management is the order of the day at all levels. Bankers have to lend money in order to make money – even in Greece, where most self-employed business people live on credit and spend a high proportion of their income on debt servicing.
But since basic lending criteria are stymied by untrustworthy credit data, tax evasion being the norm, Greek banks have had to devise their own “correction” model for estimating real (rather than reported) income.
Greece is a case-study in economic disintegration. Its government is even considering enforced use of credit cards, just to be able to trace the money. Yet co-operating with officialdom is impossible when government itself is perceived to be corrupt, officials demanding bribes before performing any ordinary duty. Even tax enforcement officials have a “bribe schedule” which shows the size of bribe required to get a tax liability reduced.
It is no wonder that the digital currency Bitcoin has become so popular in Greece: its embedded characteristic of absolute anonymity is a charter for money launderers and tax evaders.
The Greek breakdown sounds a clear warning of the inescapable consequences when (a) legal tender laws compel traders to adopt a currency susceptible to debasement by bureaucrats holding the money-printing levers; (b) purposeless regulation drives enterprise into an administrative straitjacket; and (c) penal tax levels are arbitrarily assessed and collected.
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Demand stimulus has not worked
Repeated dosages of quantitative easing to kick-start economic recovery have proved totally ineffective everywhere. Yet central bankers are talking about doing it again – in larger amounts. Vast billions of counterfeit do nothing for the wider economy. The beneficiaries are those in financial sectors who get their hands on the new money before its ink is dry, and cannot wait to blow it – extravagant cars, yachts, private planes, and (quoting Prospero) all those “cloud-capp’d towers andgorgeous palaces” – not to mention stock value bubbles in those sectors.
Benighted economics gurus will try anything before they recognise that production – not demand – holds the key: with low taxes, low regulation, sound money and free trade, who would need demand stimulus?
The obsession with spending rather than saving has led governments everywhere to suppress interest rates to near zero. Under this destructive economic model governments are the worst offenders. In their craze to spend cheap money they allocate resources blindly into projects of dubious viability, for which there was no public demand in the first place. Result: huge taxpayer-borne losses.
Empty EU-funded three-lane motorways with exorbitant toll-charges; state-of-art airports that no airline flies to; China’s disintegrating “Ghost” cities, erected in the desert at unimaginable cost, providing no observable benefit beyond advancing the careers of bureaucrats boasting that they are on track for the next five-year plan.
All of it, warns Prospero, “shall dissolve and, like this insubstantial pageant faded, leave not a rack behind.”
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Don't overthink this, we are 40+ years since the last currency was detached from something real... ...and we have in fact seen the outcome of such a "let the majority eat cake" monetary experiment. This time will end no differently.
This article is bullshit. Bankers/financiers no longer have to "lend money to make money". There is no longer any REAL fucking collateral requirements for creating money in the first place you stupid fuck!! banks no longer face REAL RISK with The Fed PUT and NIRP/ZIRP!!!!
What a disengenuous fucker. Hell, now that money creation no longer requires any real work, let everybody print assfuck!
get long sharecropping and guillotines.
The Fed's role model is now the Old Man of the Sea from Arabian folklore. The Fed will hold on tightly to its control of the U.S. economy until America is in such a deep debt hole that there is no way out. And there is not a Sinbad in sight.
Wikipedia: The Old Man of the Sea in the Sinbad tales was said to trick a traveller into letting him ride on his shoulders while the traveller transported him across a stream. However, the Old Man would then not release his grip, forcing his victim to transport him wherever he pleased and allowing his victim little rest. The Old Man's victims all eventually died of this miserable treatment, but Sinbad, after having got the Old Man drunk with wine, was able to shake him off and kill him.
I'm pretty sure that truth will be outlawed due to causing the special snowflakes to uncontrollably shit their pants.....
The Stimulus worked, the .000000000000001% are rich beyond their wildest dreams. Now they have total control, which after all was the plan!....
B of Rights
Too many decimals
No fiat = no money to support "the empire" that is the answer stimulating demand has nothing to do with it.
and no money to support the Fed (interest) and its member banks with the 6% divy/repos (same interest) etc..
We can only have “demand” stimulus if working people have more purchasing power, which can only come from higher employment and wages. Central banks- US FED, ECB and BOJ have been flooding banks with taxpayer funds- QE, which as inflated assets (stocks and real estate) inflation and propped by car purchases via sup-prime auto loans. > 90% of “new” jobs in the US are temp positions- low pay, no benefits or job security. Thus demand continues declining and the world economy continues to stagnate/ decline. Expect this to continue.
How does stimulus given to producers produce increased demand? Artifical stimulus to producers produces increased supply that reduces profits.
Reduced profits is followed by reduced wages and employment leading to reduced demand.
Honestly the next stimulus needs to be a straight up tax holiday for citzens. because that is only stimlus that will produce new Demand.
"Given to producers" is a misnomer in any economic stimulus. Unless that money was saved by the owner of the company or given to them- most of the time, that money is supposed to be LOANED to them. And the lenders are supposed to care whether or not they will be paid back. In the course of subsidies- we're helpless as our government adheres to no quality control that a transactions from a private sector enforced through laws and collateral; would implement better business matters.
Producers consume.
The vendors receive revenue which they use to consume.
And the beat goes on.
Result: huge taxpayer-borne losses.
When you have loses on insurance risk, the losses are borne by increased premiums. When you have defaults on trading promises (i.e. debt) you have increased interest collections.
We have a grossly mismanaged medium of exchange (MOE) . People taking risks through debt enjoy gains when they are successful. Yet others are damaged when they fail. It's the first law of OPM (other people's money). It's improper MOE management.
Defaulters are subdued by a properly managed MOE process through interest collections. Chronic defaulters are ostracized from the marketplace automatically.
" Bankers have to lend money in order to make money"
That's not precisely true either for fractional reserve commercial banks or for central banks.
It would be more correct to say that Bankers must lend currency in order to create currency.
Specifically Central Banks place a unit of debt onto their Asset Sheet and use it to back the creation of currency on their liability sheet. Currency is essentially a check that draws upon the value of a debt as the checking account.
Commercial banks essentially do the same in reverse. They take a unit of deposit (which is usually someone else's debt) and put it on their liability sheet, and then they issue debt in multiples against it across the banking system...multiplying the currency.
Currency disappears in the reverse of this transaction, when someone pays back a debt, or when they refuse to, causing the transaction that created the currency to be closed.
Since the value of the currency is wholly discretionary based on debt with a limited lifetime, and given the interest, which is impossible to close using only the values present at the time of the debt's creation, the currency must eternally grow such that each successive round of debt is large enough to cover both the principal and interest of the previous round. To avoid deflation, the debt must eternally grow. Because the debt carries an interest rate, the debt must eternally grow faster than the currency...leading to a situation like the present.
I use the word currency, because currency created and destroyed in this manner has at best a notional utility as a store of value...which is why countries that adopted it created social safety nets such as social security at the same time...because you can't save much in real terms in a systematically depreciated currency.
The process of printing money systematically in this way redistributes existing income - as a claim on current production - away from those who produced it to those who did not. Since the recipients of the newly printed money need not allocate a portion to economic renewal and funding the next round of production, they have very different spending habits than producers.
But the ultimate achilles heel is that in so doing it distorts prices - the relative value of things. In distorting prices, whole industries servicing only recipients of printed cash grow...and those who produce die.
Yet the entire system is one of redistribution, not production. So, essentially, all things being equal you get an eternally shrinking economic pie, which eventually cannot service the debt necessary to keep out of deflation.
This is a real problem for governments and central bankers, because they cannot tell the 'Real' economy from that which exists only to service redistribution. Stated another way, they cannot recognize bubbles. And that is one reason why they try to stimulate demand...
And here we are. We have arrived.
Printing more money, which requires larger debts, simply raises the cost of servicing the amassed debts even more, distorteds prices even more, and draws more productive resources from the real economy to the redistributive economy who service the lucky recipients of printed money.
It is people like you that makes reading comments interesting and informative. I learned something valuable and that was your doing. Thank you
QE is SUPPLY stimulus you moron, that's exactly why it's not working, supply stimulus has never worked.
Correct supply stimulus only works in a begger your niegbors export economy model where you create new supply in order to take production from other places,
In a global syncronized world this model simply doesn't work if everyone does it.
"QE is SUPPLY stimulus you moron, that's exactly why it's not working, supply stimulus has never worked."
Are Blu-ray players still $1,000 and unaffordable to the average person?
Obviously, supply stimulus worked.
In a world of things that move in cycles, nothing works 100% of the time. However a flat line is, 100% of the time.
Who gives a shit how much a Blu Ray costs? QE is supposed to stimulate growth, hiring, innovation, and production bla bla by the companies, by reducing their borrowing costs. It's been proven that they have spent the vast majority of this discounted money on buybacks and M&A instead. Why should companies grow or hire when nobody has the money to buy their products and services? Demand stimulus would be the better emergency response.
"Repeated dosages of quantitative easing to kick-start economic recovery have proved totally ineffective everywhere. Yet central bankers are talking about doing it again"
BERNANKE KNEW THAT IN 1988.
Of coarse it proved totally ineffective- except for the bankers and corporate CEO's. The trickle down was to the 1% or less.
Why oh why did we get here?
We accepted it!
You get what you accept.
ALL THE DULY ELECTED THAT HAVE SIGNED ON TO THIS DEBT NEED TO PAY IT BACK!
Go back to Carter and any living politician that signed on to it. Hell...catch up with Reagan's estate and heirs....he was the first major proponent of this crap.
Confiscate all their property, all the benefits from medical to retirement. Leave them with a monthly welfare stipend for a year to help them get "back on their feet".
Total failure of fiduciary responsibility.
Debt is hell.
Libertarians make the mistake by ignoring INCOME. Reagan had income. He had investments. I cannot be a libertarian because I do not think that monetary policy is the cause of either good or bad. They're really marginal in their effectiveness unless legislative and fiscal matters were resolved legitimately.
I'm a proponent of effective FISCAL policy and holding the boomers accountable for their voting power, reckless speculation and just being reckless with their voting/fiscal power.
Milennials are the voting majority now. We have more to work with now. You can keep rehashing history to spare irresponsible baby boomers of accountability- and fix absolutely nothing. In other words, I have no idea why you exist.
And so it begins...
Krugman and Laffer enthusiast snake oil salesmen got the causation backward. THere's no healthy point of "inflation" without the multiplier effect.
Without the propensity to consume, what is stimulating the economy?
The narrow range of individuals who have 99% of the nations' wealth cannot create that multiplier to stimulate anything. Without spending power for people, what is inflation? STAGFLATION. Lack of jobs and decline in the value of the currency.
The politicrats and the lame stream media and PR tools WILL confuse this. THey don't know that there's a difference between a money multiplier and just a multiplier.
The money multiplier is basically the circulation of money that is held at banks on reserve.
Since the cost of living index has been excessive IN ADDITION to the reduced wages and purchasing power/wage, the marginal propensity to save is non-existant for very many Americans but the spending WILL be conservative.
Narcissistic ideologues (especially "experts" bought off with a conflict of interest against the public good)-they are very dangerous people.
Show these to the deceived people!
http://showrealhist.com/yTRIAL.html
“Killing the Host” by Michael Hudson is a must read book for anyone who wants to understand the dire consequences of unleashing the powers of finance.
The power of finance is the power of debt.
Debt is jam today and penury tomorrow.
Tomorrow is here, the repayments are due and the world has reached max. debt.
The power of debt to give the illusion of wealth, the housing booms and busts in progress around the world:
Same houses, higher prices, higher mortgages, less purchasing power for home owners
Bankers have a ready market for their debt products during the boom, but from all other aspects the housing boom is bad news.
Fictitious wealth is generated during the boom that disappears during the bust.
All that is left are the interest payments to the bankers, draining the economy.
Pretty much the same as every other asset bubble.
A chance for bankers to shift their debt products and little else.
The underlying problem is that the global monetary system has failed with too much debt in existence.
The current monetary system has the following characteristics:
1) It is debt based, new money can only be created from new debt
2) It uses compound interest
Compound interest is an exponential function that, without prudent lending, will run away to infinity at some point.
When money creation lies with banks, there is always the over-whelming desire to increase profits by lending out more than would be prudent (their profit comes from the interest received).
The temptation of jam today, makes borrowers forget about the penury tomorrow.
The system relies on prudent lending by bankers who are purveyors of the debt products, e.g. loans, mortgages, etc ...
The temptation to increase profits though increasing interest payments and debt was too much and they developed ways to take no responsibility for repayment of loans through things like securitisation and complex financial instruments. In the sub-prime fiasco we saw NINA (no income, no asset) loans as no one cared if the money got paid back.
Individual players can post profits and collect bonuses by issuing bad debt but their actions together will bring down the debt based monetary system as the compound interest repayments overwhelm the system.
For the last seven years we have seen rock bottom interest rates, the last ditch attempt to keep the compound interest mounting up under control.
For all intents and purposes the global monetary system has failed already, the FED rate rise will show us once and for all if we really have maxed. out on debt and cannot take even a 0.25% rate increase.