Huh? Japan's banks were essentially bankrupt - but the reason they took decades is that they DIDN"T allow them to just go bankrupt and flush the debt out of the system! They let them stagger on... and on...
To wit, a bus driver buying an apartment for 1.5 million? Just stupid an not particularly productive. http://forums.silverstackers.com/topic-12213-today-tonight-property-plunge.html
But what would be the effect of letting them go bust? You clear all the bad debt out of the system, but you clear everything else out of it as well. No business loans, individuals' savings all gone. Everybody has to start over from scratch. Do pensioners and self-funded retirees deserve to be cleaned out because the bankers wanted to make a few percent more on their loan books? Or do we have the government cover all the losses and spread the damage out equally amongst the whole base of taxpayers?
That's a false dichotomy. Most governments have depositor insurance schemes in place - it would have been cheaper and more effective to let the banks go bust, pay out the deposit insurance claims and then have a new bank created from the assets that were still viable and were bought in the bankruptcy proceedings. Yes, your pensioners and self-funded retirees that owned bank shares would have lost out, but that's a risk you take when you buy shares.
Agreed. I was responding to the suggestion that "the traditional method of flushing out bad debt would have taken decades". In contrast, I believe that it would have been flushed out already!
True - there is no such thing as a free lunch. Bad debts have to be paid for by somebody, whether it's via writeoffs or inflation.
Have you heard of the concept of freegold? It solves the problems of a classical gold standard. FOFOA has practically written a book on it. Some further reading: http://fofoa.blogspot.com/2009/11/freegold.html http://fofoa.blogspot.com/2011/01/freegold-foundations.html https://docs.google.com/document/pub?id=1YKVMTJpGApL33bdIBXc-DxiNyOV4QA_DzOYeoxkDA_g&pli=1 - This is a very useful FAQ/guide on freegold compiled by someone else.
We've heard it all before here, greenlatern, I'm sorry. As much as I like the inert metal; it doesn't solve shit overall. The reasoning against freegold is twofold ... 1) it doesn't work and 2) it won't happen anyway. The Freegold system is essentially a modified global financial system with fiat currencies floating against the reserve asset of physical gold, which trades independently of the credit system and solely as a "store of value" for savers, rather than a medium of ...exchange. ...and this... Freegold's argument for gold as a limitless "store of value" in the capitalist system is based on the "marginal utility theory of value", which was discussed and debunked in Part II - The Evolution of Value. Practically, an objective approach to complex economic evolution means that Freegold is unlikely to occur because the concentration and centralization of capital is a process that irreversibly undermines economic growth in the financial capitalist system, and it cannot simply be overcome through a process of either "easy money printing" or re-capitalization with "hard money". A new global and stable "wealth reserve" will not aid the system in replenishing aggregate demand and maintaining economic growth. Some may argue that inflating away currency-based debts will alleviate the present burden of insufficient demand in both consumer and investment markets, by freeing up much more money for people to spend and invest. For example, the theory of Freegold argues that a process of dollar hyperinflation ("HI") will inevitably occur soon, during which a new global financial system and gold-based monetary order will arise. The physical gold will allegedly recapitalize the major banking sectors and governments of the world, and that will then allow businesses and consumers to continue financing productive investments in their regional or national currencies. [Deflation or Hyperinflation?]. It is presumed that economic growth will once again be left unencumbered after a relatively short period of major monetary transformation. Even assuming this process actually did occur, we must still ask ourselves how it would realistically affect the dynamics of Marx's "realization problem". The financial capitalists unconditionally require an expanding circuit of capital, in which monetary capital produces greater exchange-values over time (remember, the use-value of money = its ability to produce future exchange-value), and a portion of such values are continuously monetized for profits. The value of gold under the Freegold system would be inherently constrained, since it is meant to sit still and absorb some excess currency wealth, while the majority of people in the world still find themselves with tiny scraps of wealth to save, spend or invest in the first place. http://theautomaticearth.blogspot.com/2011/06/june-1-2011-future-of-physical-gold.html
I think Keen's idea might have merit although I won't pretend to fully understand the implications. (I might add that some posters who dismiss the idea out of hand don't realise their lack of social success isn't likely to change if civilisation collapses -- hoping Armageddon will gift you a house is stoopid.) Regarding Keen's likely failure as a bond trader, my economics reading this year included 3 excellent books: Lewis's "Boomerang", Das's "Extreme Money", and Taleb's "The Black Swan". All of these authors have "real world" experience, and I suspect all would say the key characteristic of a successful bond trader is simply luck (even if in chess it's said, "Good players are always lucky").
Can anyone who is for Keen's method tell me why it won't lead to hyperinflation? Look at the effects that QE have had. You print money and people start to lose faith in the currency. There is a tipping point at which the velocity of money increases that it becomes worthless and hyperinflation ensues. Why won't this happen under Keen's plan? Further, what about those who know beforehand about any significant handouts? They can reap the rewards by buying gold and silver before the paper hits the market. Or they could leverage up on property and then when the handouts arrive they have effectively got the property for much less due to the significantly devalued money. Either way a small group in the know (politicians and friends) can be significant beneficiaries. Or let's say it does work as intended. Won't people think afterwards, "hey, if we all leverage to the max, it will cumulatively cause another debt problem and the govt will bail us out with printed money", thus undermining capitalism. Where will it end?
hi hawkeye I expect giving everyone $10 million would lead to hyperinflation, and giving everyone $10 would just marginally slow deflation. The specific amount given would be critical and I don't know what amount would be best for various countries (or even if this is a good idea, I'm open to being convinced otherwise). And yes, inside traders would do well but that's just business as usual. Recent years have been painful for people in the world's more indebted countries so I doubt if there'd be a rush to repeat the experience in the hope of eventually getting a handout. I suspect people will be more cautious about debt for many years.
I'm just highly doubtful it can be scientifically determined as Keen intimates. To me, he is just one more central planner thinking they can successfully fix problems by printing money. I don't see how that's any different than what the current central planners do. That's their solution too. Just the recipients are different. But if people see money being printed like it's out of fashion, and giving people thousands of dollars each, which is what be required to get debt down to manageable levels, that would lead people, I think, to conclude that the money just isn't worth that much, as indeed there would be a precipitous drop in value due to much greater supply, and they might all start to rush to get rid of it, similar to what happened in Weimar Germany. Actually, the more I think about it, the more this scenario begins to look like a strong possibility. Absolutely it's been painful. But if ultimately those who are in the most debt then get relieved of much of that debt, thereby getting the benefits, will they really be more cautious about debt?
Keen's theories only work in the lecture hall. In the real world, things don't always follow theory, and politicians change the rules mid game. Keen is a smart guy but he should tone down the rhetoric. He continues to make bold predictions that are dependent on certain rules being followed. Then the rules change, his prediction fails, he loses credibility, and the property bulls have a field day at his expense. For example..... Steve Keen Did Not Predict the GFC If Keen hadn't given such definite timeframes and detailed predictions (ZIRP by 2010 etc) then he wouldn't have copped so much flak.
