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Economics Without Greed

Lukey

Senator
"Secret sauce of prosperity" or "Achilles's heel of finance-based growth":
http://store.counterpunch.org/wp-content/uploads/2015/08/Killing-The-Host_PDF_V7.pdf(p. 32)

"The moral is that the economy’s ability to produce and earn enough of a surplus to pay exponentially rising interest charges is limited. The more it is stripped to pay creditors, the less able it is to produce and pay as a result of unemployment, underutilization of resources, emigration and capital flight.

"In the two thousand years since the birth of Christ, the European economy has grown at a compound annual rate of 0.2 percent, far lower than the level at which interest rates have stood. Yet financial fortunes have crashed again and again – in part because interest payments have absorbed the revenue that otherwise would have been available for new direct investment.

"The inability of productive investment opportunities to keep pace with the expansion of credit is the Achilles heel of finance-based growth.

"How can compound interest be paid?

"Who will end up paying it?

"Who will receive it, and what will they do with it?

"If banks and a creditor class receive this money, will they spend it domestically to maintain balance, or will they drain the economy’s income stream and shift it abroad to new loan markets, leaving the economy strapped by the need to pay interest on the growing debt?

"If the state accrues this money, how will it recirculate it back into the economy?"
I agree that debt based growth is sub optimal. At least when we're pursuing sound money policies the temptation to write excessive amounts of debt is kept under control. And it is more likely to be used for production and infrastructure investments rather than speculation.
 

georgephillip

Governor
I agree that debt based growth is sub optimal. At least when we're pursuing sound money policies the temptation to write excessive amounts of debt is kept under control. And it is more likely to be used for production and infrastructure investments rather than speculation.
Do you believe it's accurate to say the financial recycling of interest receipts into new lending is the driving force of the business cycle? In the sense that the exponential growth of debt makes business conditions more risky since there are not enough assets to meet creditor demands and keep business moving at the same time?
 

Lukey

Senator
Do you believe it's accurate to say the financial recycling of interest receipts into new lending is the driving force of the business cycle? In the sense that the exponential growth of debt makes business conditions more risky since there are not enough assets to meet creditor demands and keep business moving at the same time?
Nope! As I said, when sound money policies are pursued, debt is more likely to be predominantly used to fund additional production that is sustainable. It is only when excessive easing is employed by the central bank that we tend to see the "exponential" growth of credit that drives speculative investments that ultimately can't be sustained and the result is the recessionary phase of the business cycle.
 

georgephillip

Governor
Um, no. I hope you were joking. I mean the original intent for the Fed - to maintain "stable" value for the currency (not 2% minimum inflation, not "full employment").

http://www.zerohedge.com/news/2016-02-22/peter-schiff-warns-feds-nightmare-scenario-becoming-reality
Thanks, I think, for the blast from the past:
http://www.zerohedge.com/news/2016-02-22/peter-schiff-warns-feds-nightmare-scenario-becoming-reality

"In the past I argued that even a tiny, symbolic, quarter point increase would be sufficient to prick the enormous bubble that eight years of stimulus had inflated. Early results show that I was likely right on that point. The truth is that the economy may be entering a period of 'stagflation' in which very low (or even negative) growth is accompanied by rising prices. This creates terrible conditions for consumers whereby prices rise but incomes don’t. This leads to diminished living standards."

Stagflation???

:eek:
 
There are plenty of assets available to fund investment but they are locked in and not liquid. One way to do this is a death tax that truly does force the inheritors to liquidate all inherited assets. Another way is to tax the incomes and gains over a certain level at very high rates approaching 100%. This is how we did it for decades and it worked both as a way of preventing some of the inheritances to last forever and as a means of forcing companies to reinvest rather than take gains as income.
 

georgephillip

Governor
There are plenty of assets available to fund investment but they are locked in and not liquid. One way to do this is a death tax that truly does force the inheritors to liquidate all inherited assets. Another way is to tax the incomes and gains over a certain level at very high rates approaching 100%. This is how we did it for decades and it worked both as a way of preventing some of the inheritances to last forever and as a means of forcing companies to reinvest rather than take gains as income.
Do you believe there is a more fundamental problem stemming from the "magic of compound interest?"
"The problem lies in the way that savings and credit are lent out to become other peoples’ debts without actually helping them earn the money to pay them off.

"To the financial sector this poses a banking problem: how to prevent losses to creditors when loan defaults occur. Such defaults prevent banks from paying their depositors and bondholders until they can foreclose on the collateral pledged by debtors and sell it off.

"But for the economy at large, the problem is bank credit and other loans loading the economy down with more and more debt, 'crowding out' spending on current output.

"Something has to give – meaning that either creditors or debtors must lose.

"Politicians thus face a choice of whether to save banks and bondholders or the economy.

"Do they simply reward their major campaign contributors by giving banks enough central bank or taxpayer money to compensate losses on bad loans?

"Or do they restructure debts downward, imposing losses on large bank depositors, bondholders and other creditors by writing down bad debts so as to keep debt-strapped families solvent and in possession of their homes?"
http://store.counterpunch.org/wp-content/uploads/2015/08/Killing-The-Host_PDF_V7.pdf (p.36)
 
Do you believe there is a more fundamental problem stemming from the "magic of compound interest?"
"The problem lies in the way that savings and credit are lent out to become other peoples’ debts without actually helping them earn the money to pay them off.

"To the financial sector this poses a banking problem: how to prevent losses to creditors when loan defaults occur. Such defaults prevent banks from paying their depositors and bondholders until they can foreclose on the collateral pledged by debtors and sell it off.

"But for the economy at large, the problem is bank credit and other loans loading the economy down with more and more debt, 'crowding out' spending on current output.

"Something has to give – meaning that either creditors or debtors must lose.

"Politicians thus face a choice of whether to save banks and bondholders or the economy.

"Do they simply reward their major campaign contributors by giving banks enough central bank or taxpayer money to compensate losses on bad loans?

"Or do they restructure debts downward, imposing losses on large bank depositors, bondholders and other creditors by writing down bad debts so as to keep debt-strapped families solvent and in possession of their homes?"
http://store.counterpunch.org/wp-content/uploads/2015/08/Killing-The-Host_PDF_V7.pdf (p.36)
It is a problem but only if the loan is used for asset speculation or silly consumerism. If it is used to invest in something that can tangibly improve the economy then it is a good investment. All money is debt btw, always has been, always will be. If you like this subject, check out Steve Keen on youtube, he covers your point in depth.
 

georgephillip

Governor
It is a problem but only if the loan is used for asset speculation or silly consumerism. If it is used to invest in something that can tangibly improve the economy then it is a good investment. All money is debt btw, always has been, always will be. If you like this subject, check out Steve Keen on youtube, he covers your point in depth.
Thanks for introducing me to Keen:
"Most of Steve Keen's recent work focuses on modeling Hyman Minsky's financial instability hypothesis and Irving Fisher's debt deflation.[3][4]

"The hypothesis predicts that an overly large private debt to GDP ratio can cause deflation and depression.

"Here, the falling of the price level(???) results in a continually rising real quantity of outstanding debt.

"Moreover, the continued deleveraging of outstanding debts increases the rate of deflation.

"Thus, debt and deflation act on and react to one another, resulting in a debt-deflation spiral.

"The outcome is a depression.

"Steve Keen argues that the current global economic crisis is the result of too much private debt."
https://en.wikipedia.org/wiki/Steve_Keen#Financial_instability_and_debt_deflation

What "falling price level" is this analysis referring to?
 
Thanks for introducing me to Keen:
"Most of Steve Keen's recent work focuses on modeling Hyman Minsky's financial instability hypothesis and Irving Fisher's debt deflation.[3][4]

"The hypothesis predicts that an overly large private debt to GDP ratio can cause deflation and depression.

"Here, the falling of the price level(???) results in a continually rising real quantity of outstanding debt.

"Moreover, the continued deleveraging of outstanding debts increases the rate of deflation.

"Thus, debt and deflation act on and react to one another, resulting in a debt-deflation spiral.

"The outcome is a depression.

"Steve Keen argues that the current global economic crisis is the result of too much private debt."
https://en.wikipedia.org/wiki/Steve_Keen#Financial_instability_and_debt_deflation

What "falling price level" is this analysis referring to?
I can't answer that off the top of my head, you have to watch him do presentations instead of just interviews. He is a big supporter of MMT and has very interesting things to say on a wide range of economics. He and Krugman had a big spat a couple years ago...check him giving a lecture, its all on youtube.
 

georgephillip

Governor
I can't answer that off the top of my head, you have to watch him do presentations instead of just interviews. He is a big supporter of MMT and has very interesting things to say on a wide range of economics. He and Krugman had a big spat a couple years ago...check him giving a lecture, its all on youtube.
"The Keen-Krugman debate
STEVE KEEN 26 February 2014
The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking - and why it was so ill-equipped to handle, let alone predict, the crash of 2008.
https://www.opendemocracy.net/ourkingdom/steve-keen/keen-krugman-debate
 

georgephillip

Governor
"Forbes contributor Adam Sarhan wrote the followingearlier this year (2016):

“Over the past 7 years, we have seen unprecedented action from global central banks all aimed at keeping stock prices up. It’s normal to see global central banks adjust monetary policy, up or down, based on economic conditions. But it is not normal to see global central banks print gobs of money every day to stimulate markets and it is definitely not normal to see them buy stocks outright. I’m not a lawyer but it raises the question: Is it even legal? I’m sure the BOJ is not alone in this questionable activity. The U.S. Fed refuses to be audited. One is compelled to ask: Why?”
http://wallstreetonparade.com/2016/08/swiss-central-bank-holds-5-3-billion-in-amazon-apple-google-facebook-and-microsoft-stocks/
 
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