Received an interesting post from a good friend, after reading this I realized a lot of people may have similar thoughts.
Readers also feel that their own life is not perfect and they prefer not to read my doom and gloom…. Economics nor economy in general, or Governments they are not interested in.
You get this, I have opened my eyes but I cannot force other people to take notice.
On that score I offer those readers this tribute, to Pierre’ my detailed response is below:-
Pierre’s email, my comments in italics….and apologies for the lengthy reply, it is brief but not brief enough.
With Respect, I disagree that Debt is the Problem. My argument albeit in brief is:
Well I disagree, as you are aware, debt is only good so far as you have to capacity to repay principal and interest, as agreed between the parties. In other words borrow for productive capacity, the debt problem worldwide now is that the current debt load is not being put to a productive use. Further the situation is compounded by investors seeking a positive return on capital to provide a future cash flow. Zero interest rates reduce earning capacity fullstop.
Debt can be subjected to Jubilee and accordingly, this is in the full risk market philosophy of free capitalistic markets (which is supposed to be that the USA is about; but isn’t)
Agree, any debt, especially from the Government can be subject to a jubilee, this type of debt relief is the partial or total forgiveness of debt, or the slowing or stopping of debt growth (the debt and interest restructured over say 50 years or indefinitely), owed by individuals, corporations, or nations.
Alternatively a Bad Bank, whereby the bad loans are transferred through to this Bank and the investors, quid quo pro are the shareholders.
All these individually or collectively is a default.
One reading this should bear in mind that debt forgiveness has been around since ancient times… Further reading if you wish http://en.m.wikipedia.org/wiki/Debt_relief
What one must bear in mind though, is that their are a number of parties to the transaction, principally the Government (and taxpayers) and the Lender. I will not go into the insurance, reassurance, bankers, borrowers and derivates at this point.
By a jubilee, yes the Government will be reprieved of the debt burden in the short term, but the lender also is subject to an asset loss (either a loss of principal or earnings through interest). So these two parties have opposite views which must be recognized. There has to be give and take and only in extreme circumstances.
The problem is who benefits, not the original investor and here is the problem. The borrower, regardless of who or what he is, has to acknowledge and undertake a few things, first to operate within the financial capacity and restraint of his existing means and being capable of continued repayment of the restructured debt plus a moratorium on future borrowings.
The lender has to take a loss. A physical reduction in hard currency. On this point the lender/investor is not necessarily a Bank, an investor can be a Central Bank, Bank, Insurance, Pension Fund etal…including individuals. Not only a physical loss of hard currency, but also an income loss of the interest foregone.
Herein is the problem, the butterfly effect on both sides. For the borrower an act of bankruptcy, default and the lender loss of physical capital. Both have to operate on restricted cash flow and make this work within their individual means.
Assuming that the borrower is a Government, then the repercussions are enormous. To get into this situation one has to look at Government spending and taxes raised to meet these costs. Austerity does not work, simple fact of history. The politicians themselves are always sitting pretty, they spent the monies, they invested or malinvested into infrastructure or public works, yet they always get paid.
The taxpayer is the loser, in that they have to do without, cough up more taxes, reduce their expenses and there is a reduction in overall Government services (or alternatively a far greater cost for the basic necessities) and also a reduction of social security benefits net. These instances are a repressive attitude on the population and usually occur during a recessionary climate, impact of which is higher unemployment and a lower tax revenue. Therefore when one looks at the Government, the costs of bureaucracy, then one would presume that this would be reduced to fall into line with a restructured debt arrangement.
Therein lies the problem, politicians are disingenuous when it comes to reducing bureaucracy, their bureaucracy, their constituents. This together with lower revenues, the population demographics and the additional costs for a social security net.
A classic example is Greece, I have written plenty about Yanis, the new Finance Minister in this blog. The country technically has been bankrupt for 30 years and ‘technically’ in a Bondholders default only 5 years ago. Additional loans then raised, after the investors haircut, were technically to cover debt and interest, with austerity measures introduced. The then Government and successive Governments have done nothing to address the real problems on a domestic front. Government spending continues, tax evasion high and taxation in general has not been overhauled, nor retirement age and sale of any assets were at a low valuation due to a recessionary climate.
Anyway to the point, the debt is the problem, one Country, Bank, Company, individual in isolation is not a problem.
Iceland went bankrupt in 2008. All investors lost monies, the Government reviewed restructured and the economy is surviving nicely at present. Same as with individuals, no debt, ability to earn money and start again. That was 2008.
The world problem now is that ALL Governments interfered with that 2008 financial crisis, the debt then was huge (like looking into an abyss) and the Governments ignored the ability for Governments and Companies to go bankrupt, Central Banks got involved and are continuing to get involved with this debt market, which has only compounded the original situation. So debt is the problem as the original problem was not addressed, figuratively they kicked the bucket down the road and the problem now, is that it is a 44 gallon drum full of concrete and to make matters worse, the world is entering a global recession.
The problem is the Banking System that has hard wired into all versions of Economic Theory that ‘debt must be paid’. It’s a cynical fallacy that grows from the Banking system demand – for itself, a Risk Free environment. Risk Free environments distort and contort markets.
This is an easy cop-out. It is complicated (worse than dealing with an ex wife)… It is not the Banks ‘per se’ at fault.
Banks only lend to regulations, politicians set or repeal legislation. Politicians in the US blindly repealed Glass Steagall and for their own benefit, yes it benefited the Banks during this period, yet the bucks stops at the politicians. Do not blame the players if a politician is morally and ethically bankrupt.
If you said the Central Banks were the problem, then I would partially agree. Throughout history the Central Banks attempts at controlling economies only leads to bigger bubbles and bigger blow offs. Without Central Banks, business cycles would still be in operating, but not as severe as when policy is set by these Bankers.
In context, politicians first, Central Bankers second. As to Banks in general, their incompetence in maintaining lending standards is self destructive. What has transpired since 2008 though is that Banks are not lending, a credit crunch is in process, unless of course the asset is a fixed asset, which has value.
On this point, when Countries default, bubbles burst, the butterfly effect is spread to other Countries, Banks, Companies, Pension Funds, Investors and individuals. This is a contagion and this financial contagion has no borders, no one is exempt.
In other words, the Banking System forces us to think falsely and Subjectively about the Banking System, while we should be thinking Objectively for the benefit of the whole of civilization.
Yes, well Solon had something to say about that. Debt relief does not get initiated by Banks. Banks lend money, collect monies via interest, debt relief creates problems for both the lender and the borrower. On today’s debt level one would say that both have to be liquidated, financially that is as I know what you are thinking.
This is political and those in the executive have the powers. They do not get involved or regulate as it is in their better interests not to. That is the problem!
It does get complicated and I agree with debt relief, one can see that it has to be forced upon politicians and World Bank and IMF in particular, to actually do something.
Would a Jubilee hurt? Yes, Parts of Society would immediately need reform and rebuilding but I see that as a positive. Let the dead fruit fall from the branches and let the rot, rot. Too much you say? What has been the cost of wars over the last 10 years? over the past 20 years?
Agree in Jubilee, who can go against the word of God, or the Qu’an?
The problem is Country demographics, and the socialist economic system employed by politicians. These bloody politicians are my whipping post Pierre’ as they allow everything to transpire over generations, they are afraid for their livelihood and profession so they acquiesce to the people that have money.
If politicians were incorruptible then there would not be a problem, would there?
There is a definite advantage in a Global Jubilee.
Yes, we can agree with this, however to appease the masses why not section off all debt, issue debt value (with the secured assets, if available) as equity to the investors. Then freeze everything. Allow those who want to go into liquidation, bankruptcy do so, they lose their assets secured in the process, as malinvestment a bad reward for borrower and investor stupidity.
But where does this end with our current debt structure globally?
From a golden jubilee everyone still suffers, the recession/depression cannot be avoided as there is the paradox of the pendulum. . .
But who would administer and govern such a Jubilee today, given circumstances and the available and emergent Capital? Of course, the Bankers and Cronies would be in charge and hence, a Jubilee is not the solution but then Debt is not the Problem.
Partially answered this above, section debt off and allow the lenders/investors to democratically look after the process, if this fails then they only have themselves to blame.
The problem is the instilled fear in those who control and rule as well as the Banking System, behind which the unchangeable nature of Human Behaviours – in fear – manifest their own demise.
You have it in one, controlled fear, throughout the human gene pool, plus name any other of the deadly sins with which we indulge.
Politicians are where the buck stops, but they do not want to admit this. Their fear enables regulations to be loosened for their benefactors.
It is our (populations/peasantries) fear that we ‘do the right thing’. In our western / Christian valued gene pool regardless of the arguments.
Pity that Governments did not heed the need to not covert thy neighbors goods, income taxes makes serfs of us all, but there I go taking about the deformed gene pool of politicians again.
Indeed, there is no problem. But lessons from the coming events must be learnt and applied to the future. Today’s elite “leadership” must be sanitized and replaced.
hmmmm, glad to see that you started with Bankers and come around to the politicians
And this is achieved by changing the levels of morality and ethics which is a start but, more to the point, as human behaviours are a constant, the systems must be changed not to ever allow what has happened, to occur again. Notwithstanding, no new system going forward will ever be able to withstand the onslaught of the deviate human intelligence which is, a priori, destructive and infinite.
I fear without revolution nothing will change!
What is coming will be a crash and burn economic scenario, with very very few survivors. The impact will be complete financial devastation, but I fear that a totalitarian financial system will be introduced by the G7 countries before the ‘shit hits the fan’, which will totally devastate society as we know it.
With the PISS idiots out their I can see that they will believe the Government rhetoric and vote for a worse Government, with far greater draconian powers to dictate to the masses…