Eurozone debt crisis

[Euler]

Breaking news on CNBC, S&P to downgrade US government debt.

[Iron]

Breaking news on CNBC, S&P to downgrade US government debt.

Next week should be interesting.

I hope George Osbourne and David Cameron are enjoying their holidays. Who needs leadership at a time like this?

Jeff

[Iron]

Apparently S&P made a 2 trillion dollar error in its calculations!

If true, it's almost unbelievable! You'd have thought they'd have learned to double-check their figures after what happened the last time their got their sums so badly wrong...

Jeff

[Euler]

This is an interesting debate at the LSE: -

http://www.bbc.co.uk/programmes/b012wxyg

Both sides have partially valid arguments IMHO. I think that makes me a Kayak?

[Iron]

It was an interesting debate.

I think the Keynesians basically take the view that, if the government pours money into a stagnant economy, that stimulates investment, which brings about growth. That argument doesn't ring true IMHO.

If I'm a widget manufacturer, and I get a surge in orders because the goverment has poured lots of money into the economy, I might invest in machinery that can boost my output. Or I might think 'This increased demand is just temporary, as the fiscal stimulus won't go on forever, so it's not worth it'. And even if I do buy the machinery, it's not going to bring new money into the economy unless money is coming in from abroad (and my new machinery allows me to meet orders that I otherwise wouldn't have been able to meet). Meanwhile, because taxes have been raised to pay for this stimulus package, it makes it more expensive for me to take on new staff, so I take on fewer staff than I would have done.

It all just seems a bit speculative to me, particularly in light of the recent Keynesian 'experiment' in the US...

Jeff

This is an interesting debate at the LSE: -

http://www.bbc.co.uk/programmes/b012wxyg

[Euler]

I think the Keynesians basically take the view that, if the government pours money into a stagnant economy, that stimulates investment, which brings about growth. That argument doesn't ring true IMHO.

I went through a spell, many years ago, of being fastinated by the 30's depression and that led me to Keynes. I think he was partially right in that government funded infrastructure projects would stimulate growth and deliver long term benefits. But I don't think just pumping money into the system does much on it's own. Also these two economists were around in a very different economy, so yes, lets learn from their thought processes but adopt them wholesale probably isn't correct.

If you run a trade deficit then it seems to me that you are just exporting your stimulus?

[Iron]

I think he was partially right in that government funded infrastructure projects would stimulate growth and deliver long term benefits.

Even if we assume, for argument's sake, that Keynesian stimulus does deliver growth (taking into account the opportunity cost), then you may still be worse off long-term if you have to borrow money to fund that growth, in light of the interest you need to pay.

There's a proposed road near where I live that, according to a study, would bring something like £5 into the local economy for every pound spent on it. If money is spent on projects like that, which provide a genuine benefit to the economy, that's one thing. But if money is spent on things that aren't an investment in Britain's economy (like building tunnels under the road for the benefit of turtles!), then I'm not at all sure the expenditure is in the public interest...

If you run a trade deficit then it seems to me that you are just exporting your stimulus?

Agreed.

Jeff

[Euler]

There's a proposed road near where I live that, according to a study, would bring something like £5 into the local economy for every pound spent on it. If money is spent on projects like that, which provide a genuine benefit to the economy, that's one thing. But if money is spent on things that aren't an investment in Britain's economy (like building tunnels under the road for the benefit of turtles!), then I'm not at all sure the expenditure is in the public interest...

Completely agree. When Brown did the stimulus plan I nearly died. It created jobs by errr creating jobs, it didn't do anything to leave a positive legacy at all, just a burden. I am sure some of it went to the right places but I don't think much did.

[proteas]

Hello

I like this kind of conversation, there are a lot that can be said, i have also investigated what happen in some previus financial crisis and all that found are not so optimistic. Seems that after Europe gave their money printing machines to European Central Bank a lot of problems occured to Europe.

One problem is that you get what you would have got before but now instead of printing the money some one loans you the money at the cheap interest of 4-10%. Dont know if i am right but actions speak louder than words. After the European governments have begged to give their curency printing machines to the Central Bank they all sort of have gone bankrupt. It seems that paper was so expensive and that they had to lower the cost . Simple it is, basicly is to simple to believe it. Now the Greek gonverment begs to be saved,now the saviors they will buy all the land just to print them some money to pay the sallaries, and the problem will be worse after some time especially with the increase in the interest rates of European Central bank. What a logical desicion, now that Europe has so much money pls make money more expensive.

Anyway i dont speak for a conspiracy here since i dont speak for the things i dont know plus i dont do predictions. What i say is that the cricis has a name and it is called Euro, Dollar and Pound all controled by the same bank cartel. If the governments do huge cut in expenses usually the country will go on depresion and that is what they chose to do.

For me there is one fact some years after European countries joined the euro almost all have gone bankrupt and since they all on the same boat there is nowhere to catch. "Its like putting your eggs on the same basket".

If you want to laugh a bit plus to give me your opinion watch this video its funny,dont know if it is true though

http://www.youtube.com/watch?v=tGk5ioEXlIM


Hope Peter solve his issue with betfair.
Respect

[superfrank]

Jeff, Euler,

At the moment new money is created by banks via fractional reserve banking (a banking licence is literally a licence to print money), and recently by QE (BoE buying bad assets and government debt with non-existent funds).

There is an argument that any new money that an economy can sustain should be spent into existence by governments (on infrastructure) which creates better conditions for business and the economy to flourish.

Fractional reserve banking wasn't such a problem when banks where investing in real business - manufacturing etc., but when they use it to blow up bubbles for short-term profits (recently via property - reckless lending to individuals and developers) it fails miserably. Bankers trouser the profits from the unsustainable lending leaving the rest of society to foot the bill. Even Meryvn King said that if you designed a banking system you couldn't do worse than the present one.

[Iron]

Are you referring to the fact that (unless I'm mistaken), banks currently borrow at a lower rate of interest from the Bank of England than that paid by the B of E on gilts, meaning they can make a risk-free profit?

Jeff

At the moment new money is created by banks via fractional reserve banking (a banking licence is literally a licence to print money),

[Iron]

BTW, I see that the ECB will be holding talks later about buying up Italian debt: http://www.bbc.co.uk/news/world-europe-14434831

IMHO, they are whistling in the wind - Italy might be too big to fail, but it's also too big to rescue (unless you engage in a massive money printing operation, but the consequences of that could be catastrophic).

Jeff

[superfrank]

Are you referring to the fact that (unless I'm mistaken), banks currently borrow at a lower rate of interest from the Bank of England than that paid by the B of E on gilts, meaning they can make a risk-free profit?

Jeff

At the moment new money is created by banks via fractional reserve banking (a banking licence is literally a licence to print money),

No. That's just another indirect bank bailout.

Fractional reserve banking means that a bank can lend out money it doesn't have - that new money then becomes an asset on the bank's balance sheet (and obviously a liability for the borrower).

http://en.wikipedia.org/wiki/Fractional-reserve_banking

[Iron]

Thanks Frank

Thanks Frank

Whoever wrote the Wikipedia article clearly doesn't think much of reserve banking!

Fractional-reserve banking is a type of banking whereby the bank does not retain all of a customer’s deposits within the bank. Funds received by the bank are generally lent to other dumb customers. This means that available funds (called bank reserves) are only a fraction (called the reserve ratio) of the quantity of deposits at the bank. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to be commiting the crime of create [sic] money.

BTW, it's good to see that our great leader has been on the ball during the last few days: http://www.dailymail.co.uk/news/article ... n-one.html

Jeff

[superfrank]

Debunking Money
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