You simply cannot make this up. I found a section of this priceless commentary from the Reserve Bank of Zimbabwe via Marc Faber’s latest newsletter (hat tip reader Dean), and had to verify it. The original provides an even richer mine of material.
From the Reserve Bank of Zimbabwe (boldface theirs):
As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.
That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.
Yet there are telling examples of the path we have…For instance, when the USA economy was recently confronted by the devastating effects of Hurricanes Katrina and Rita, as well as the Iraq war, their Central Bank stepped in and injected life-boat schemes in the form of billions of dollars that were printed and pumped into the American economy.
Yves here. The authorities here would counter that the Katrina-related stimulus was appropriate in light of the macro shock, while Zimbabwe has taken a good construct beyond the breaking point. Billions, after all, are not a big deal in a $14 trillion economy. A difference in degree is a difference in kind.
Back to the Reserve Bank:
….the USA economy confronted a severe mortgage crisis… The USA Central Bank again responded by injecting over US$160 billion between December, 2007 and March, 2008…. leading central banks in the global economy are bailing out troubled economic sectors to achieve macroeconomic and financial stability….the Bank of England… providing a £50 billion lifeline to the UK’s banking sector.
Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multi-lateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what’s good for goose is not good for the gander….
As Monetary Authorities, we commend those of our peers, the world over, who have now seen the light on the need for the adoption of flexible and practical interventions and support to key sectors of the economy when faced with unusual circumstances.
The operating assumption behind US policy now is seeing the US situation as parallel to that of the US in the Depression, and taking the view, based on the fact that the US seemed to finally shake off the slump with the demands of wartime production and the unprecedented budget deficits that accompanied them. But there were considerable worries in 1946 that the US would fall back into Depression. The conventional view is that pent-up demand carried the US through, after a sharp but very short downturn in 1946.
However, would this strategy have worked in a peacetime setting? The US also emerged from its slump to a world with a tremendous amount of industrial production destroyed by the war. Thus, the US, whose problem in the late 1920s (which didn’t look like a problem at the time) was that it was a huge exporter, to the point where it sucked up so much gold as to be destabilizing to the financial system, could with 50% of world GDP, revert to its preferred old role with less damaging side effects. Had the rest of the world gone into wartime levels of stimulus along with the US, without the loss of productive capacity, would there ever have been an end of the beggar-thy-neighbor trade policies of the 1930s? International trade didn’t just fall, “collapsed” is not an uncommon characterization of the degree of contraction.
I am not saying my line of thinking is right, but the US remedy worked (or appeared to work) in a particular set of circumstances very different from the ones on offer (we hope, at least, I don’t think anyone outside the Rapture crowd would advocate another world war as a remedy to the slowdown).
Similarly, as we have said before, the US was a world-dominating exporter, as China is now, and had the biggest gold reserves, as China now had the largest FX reserves. Thus it is China that needs to undergo a huge-scale stimulus program to make up for the loss of demand from the US. Keynes, in the 1930s, advocated that the US make up for the demand loss rather than expecting the US’s overindebted European trade partners to continue overconsuming. (Note that China’s recently announced $500 billion plus stimulus package is less than meets the eye. Analysts have estimated that 1/3, some say as little as 1/6, is spending not already planned, and most of that occurs in the second year of this two-year program).
Yet what is being advocated as a Keynesian remedy is in fact the opposite of what Keynes called for in his day. Keynes’ prescription then would lead to a global rebalancing, with the US depending more on internally generated demand and less on its foreign partners (who were defaulting on their government debt). But if it were successfully deployed in the US now, it wold lead to a continuation, of our excessive consumption and China’s underdevelopment of its internal demand.
So why don’t we lean on China harder? A few quick thoughts:
1. China does not take well to being told what to do, particularly when we their biggest borrower is looking a tad wobbly and not a particularly good model of fiscal and economic management
2. China becoming a consumer-led economy will not come about via a big stimulus program, no matter how much money is thrown at it. This is a twenty-year transformation.
First, China’s leaders are afraid of giving up its wage differential advantage, Workers would need to be paid a lot more to be able to consume more (recall this was Henry Ford’s great insight” by paying factor workers well, he was creating buyers for his products). I don’t have a ready citation, but the wage share of China’s economic expansion is very low.
Second, China needs much more extensive social safety nets for workers to be willing to save less. With a one-child policy, no health care insurance, no unemployment or welfare, savings are the old good fallback.
Third, because of the great wage differential, China’s present manufacturing capacity in many cases cannot easily be repurposed to make goods that would appeal to domestic workers (even with China’s low by Western standards capital intensity of manufacturing, production today in general is more specialized than in the 1930s. Think of the long supply chains, for instance).
So having the US engage in stimulus instead is arguably a best-available option, but it looks perilously like a desperate attempt to create status quo ante, but with more debt and credit risk sitting on government balance sheets.
And those who would dispute the claims of Dr. G. Gono, chairman of the Zimbabwe Reserve Banks’ claims of comradeship can also point to this factoid:
….the monetary base… increased by 72 percent from September 10 to November 19 of this year. We should also note that the money supply – whether measured by M1 or by MZM – has increased by less than 1 percent.
One can characterize this pattern as either that the Fed has done the right thing by combatting deleveraging or that the Fed is pushing on a string. But either way, the assumption is that all of the central bank’s efforts to pump prime will finally take hold and we’ll get some good old fashioned reflation, and the Fed can mop up the excess liquidity. But will it be able to move fast enough? How bad might the overshoot be? The Fed is presumably going to be reluctant to put the brakes on too quickly for fear of putting the economy back into a contraction, so the worry about inflation when the upswing kicks in, particularly with more countries on the stimulus program than in the 1930s, is not nuts.
Dr. Gono is glad to have company. We can only hope that his comparison is erroneous.
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Wow. Yves, you’re absolutely right — NO ONE could make this up.
That’s both the funniest and most terrifying thing I’ve read all day…
“I need to get on a more normal schedule.”
On this blog? My guess is you’ll lose all your followers if you become ‘normal’.
Hey 24/7 or bust! Plenty of places still open, and parkings pretty easy this time. I need at least 6 new animal photos by sunrise. From six different species!
I think Zimbabwe actually made these comments some time ago, but they only ring more true now.
I am not saying my line of thinking is right, but the US remedy worked (or appeared to work) in a particular set of circumstances very different from the ones on offer (we hope, at least, I don’t think anyone outside the Rapture crowd would advocate another world war as a remedy to the slowdown).
It’s not just the resolution that was different. It’s also the preconditions, as you note.
I’m beginning to wonder whether we aren’t misinterpreting a collective lack of solvency as a liquidity trap. We made the same mistake with the original seizures in financial markets and banking institutions.
The market data in favor of solvency fears is obvious in the CDS (60 on 10 year T’s), and only marginally less obvious in the 5-year TIPS. They have a real yield of 4.17% right now, as compared to a 1.93% yield on the underlying 5-year T-bond. That makes no sense because TIPS can’t pay a negative coupon and they are guaranteed to at least yield par. The only way the pricing makes any sense is if there’s an enormous liquidity premium, or a risk premium. I don’t think a liquidity premium that large makes sense.
There is also no shortage of fundamental reasons why we’d be insolvent. The maximum NPV in real terms you can get out of perfect monetary inflation is 0.4x GDP, according to Buiter’s calculations. Besides the Fed’s obvious issues, there was a pre-existing $65.9 trillion cumulative fiscal gap according to the OMB/Treasury. A lot of those liabilities are implicitly or explicitly indexed, such as pay to government workers, Social Security, Medicare, etc. Kotlikoff goes into detail. That’s before off-balance-sheet guarantees such as the Fed’s intervention, the FDIC, the PBGC, etc…
If this were an insolvency issue, we could expect further interventions, largely unprofitable since the private sector is unwilling to deploy its newfound $600B in excess reserves to investing in them, to raise real interest rates through both portfolio crowding out and rising risk premiums until you hit the snapping point. Even if we hit that snapping point where the base is finally deployed, it’s not eminently clear to me that we’d end up in the black anyway.
So why don’t we lean on China harder? A few quick thoughts:
I don’t think China can afford to revalue. They’re being squeezed on one side by major readjustments in their real economy. On the other side, if they revalue the yuan upwards, the PBoC goes from sitting pretty to bankrupt overnight. Its assets are in dollars, and its liabilities in yuan. It would have to recapitalize itself through taxation. I don’t think that would sit well domestically.
Their original plan was almost certainly to revalue through inflation and seigniorage, and I see no reason why that plan would be affected by current events or a failure to work.
We might inspire one more bout of disinflation, but that leaves us only with higher debt ratios and a worsened consumption versus investment picture given the pressure from China. This seems like a messy ending at some point.
YS:
I knew this was coming. I’ve called “Him” Zimbabwe Ben for months. Gono has made every one of his countrymen a billionaire! Isn’t that great monetary policy? See my comments at http://skepticaltexascpa.blogspot.com/2008/07/we-are-all-billionaires-now.html.
Also, you can see very clear leaps up in the real interest rate resulting from both the BSC and LEH incidents. Another poster elsewhere asked me earlier whether that was the result of financial system strains or a direct effect. I didn’t know, but solvency fears accommodate both explanations.
Again, I really don’t know if I’m right or not. I’m definitely against the grain here, and there is some counterevidence. Solvency fears would not necessarily be visible in nominal T’s due to deflation, but they are also not reflected right now in currencies or commodities. That might be because of strict collateral requirements in CDS contracts and other widespread derivatives. I don’t know the contractual wording. At the same time, various deleveraging effects, including abrupt changes in margin requirements seem to have helped the dollar a lot.
If I am wrong, and this is just a vanilla(heh) liquidity trap, our greater interventions should close the output gap rapidly. It still leaves us with few bullets to fight inflation, but it’s better than being broke.
ndk,
Yes, if you click through to the document, it is from April, but Dr. Gono’s praise seemed more of a stretch then than now.
Yves,
for the ready citation on China
http://siteresources.worldbank.org/INTCHINA/Resources/Quarterly_December_2008.pdf
Wages make just over 40% of GDP (graph on the top of page 14).
Yes, if you click through to the document, it is from April, but Dr. Gono’s praise seemed more of a stretch then than now.
Yep, sorry, I’m a lazy commentator and only read your post since I was familiar with the source already…
I should finally make explicit before bed that quantitative easing likely only worsens insolvency issues, because it either converts our fixed liabilities(repurchases of Treasury debt) into floating current liabilities, or exposes the Fed to even more credit risk if it chooses to go after private sector debt at prices nobody else will pay.
On that cheery note, sweet dreams, everyone. :D
He’s best known for his mixed metaphors … rather like Bushisms …
We have stopped announcing mere intentions or things in a long pipeline, preferring instead, to announce a “bird” that is already in hand and delivered or ready for delivery.
We need to take necessary pain directed at the many legs and arms amputating in our economic system that now thrive on nothing else but “deals” and a speculative mentality.
Using a fish bone analysis that treks the routing of the veins and tentacles of parastatals and local authorities, it is quite apparent that this sector has an economy wide impact.
Unfortunately, for us Zimbabweans, Superman or Superwoman who can perform miracles on our behalf is yet to be born.
We are tempted to destroy all that we have suffered to build, in the false hope that we can treat our economy and country like an omelet, forgetting that omelets and countries are two different creatures.
We can never stop the birds of misfortune from flying above our heads but guess what, we can stop them from building nests and laying their eggs on top of our heads.
The work of inflated insinuations, combined with the sinister invisible hand seeking to drive Zimbabwe’s economy down the cliff, therefore, explains the vast discrepancy between the guesses and reality.
We should, therefore, not mourn and beat ourselves into extinction, failing to see the silver-linnings and achievements we have collectively registered as a People albeit in the midst of seas of global adversity.
Yes, our inflation is the highest in the world, but this should not tempt us to sweep our blemishes under the carpet.
We see the arrows and spears as they seek to shoot our economy, and in defence, have been and will continue to deploy extraordinary interventions to meet the extraordinary circumstances we are in.
Where a swarm of bees shuttles and breezes back and forth, honey typically comes about in the end.
The reason why we have few tombstones of failed parastatals at the corporate graveyards is not because parastatals are immune to death, no, its only because most of you are on perpetual oxygen and life support systems in the form of fiscal support.
The day the fiscal nurses go on leave as one day they will, most of you (parastatals) will not survive one day longer!
Zimbabwe’s corporate graveyards are full of victims of ill-designed turnaround plans which were either designed without a vision or which were badly implemented and led to corporate measles, kwashiorkor or some such child-killer diseases that they failed to survive.
I have also learnt that as policy-makers we have to be more like valleys – where all things flow into.
In order to clearly appreciate these common forces that brew macroeconomic instability and, hence, threaten to negate the noble aspirations of economic growth and development, there is need to first visualise the economy in its key three-behavioral-dimensional-space.
It’s simply a question of the old adage “who was going to bell the cat.”
Others:
While this roadmap has all the ingredients for getting us a pot of honey, time will tell whether individually and collectively, as a nation we are prepared and ready to “be stung by the bees”! – March 2004
There has been and continues to be an increasing number of self-proclaimed “experts” who are bent on derailing the momentum of the economic recovery drive through proliferation of thump-sucked, and overtly pessimistic trajectories on the country’s economic performance in the future – May 2004
Our ultimate objective is to drive the economy into an economically nutritious and productive summer season, where prosperity for all Zimbabweans is assured – Sept 2004
We in the Bank strongly believe that now is the “beginning of the end to the proverbial seven years of famine” and this prophecy is real for some of us” – July 2006
As your Central Bank, we urge the authorities, to initiate the necessary bilateral frameworks to comprehensively uplift and confer Mutare as the country’s true gateway to the high oceans.
Allow me to end by saying one of the greatest quotes I have ever cherished:
• “He who dares to be a central banker should never stop learning.”
Under Zimbabwe’s turnaround strategy, failure is never an option.
Zimbabwe?
Give it time, we’ll get there.
I find it just a bit curious that in Rubin’s own words “Nobody was prepared for this” yet they are all now miraculously prepared for the solution. Worse still we stand around cheering them on offering tweaked versions of their prescribed insanities while rationalizing that if we don’t the world will end. You know the refrain “to big to fail”. Interestingly that’s not what the market has been saying about GM these last twenty years. But who trust the markets? Who’s that stupid!
You may laugh but our version of the new board game “Zimbabwe Rules” will probably be on shelves by Xmas. Got to perk up those predicted dismal sales!
The inmates have taken over. Remember where you stand on all these “plans”. Those will be the valuable individual lessons going forward as the infamous Rubin also prophetically quipped “if you look back from now, there’s an enormous amount that needs to be learned.”
Finally Bob you got something right besides your bank account. It always come back to mistaking a bull market for brains.
Great post. I agree 100% that the US has done almost as much as it can and it’s time for China to pick up their end of the burden by stimulating their own domestic demand. A US fiscal stimulus will largey go towards deleveraging and what little is spent will be on imports, and so will not be as effective as hoped. On another note, the ECB and BOE need to cut rates significantly as well.
One other thing that struck me – “But will it be able to move fast enough? How bad might the overshoot be? The Fed is presumably going to be reluctant to put the brakes on too quickly for fear of putting the economy back into a contraction” – this is exactly the position the Fed found itself in during 1931 – after 2 years of easing it was forced to tighted to prevent a run on the dollar and a huge outflow of gold.
Anonymous – those quotes are superb.
The Fed and US politicians want their fraud back. Not much different from Zimbabwe where I sit. Rip off the citizens threw infaltion so they can keep spending.
Yves ~
I can’t believe this headline! So much so, I can’t even get past it…I have to just let it sit there and dance and pirouette around on the tip of my brain!
@ Yves “One can characterize this pattern as either that the Fed has done the right thing by combatting deleveraging or that the Fed is pushing on a string. But either way, the assumption is that all of the central bank’s efforts to pump prime will finally take hold and we’ll get some good old fashioned reflation, and the Fed can mop up the excess liquidity. But will it be able to move fast enough? How bad might the overshoot be? The Fed is presumably going to be reluctant to put the brakes on too quickly for fear of putting the economy back into a contraction, so the worry about inflation when the upswing kicks in, particularly with more countries on the stimulus program than in the 1930s, is not nuts.”
The Fed will certainly be loathe to mop up the excess liquidity too quickly (as Greenspan iterated in his December 2003 minutes and which was echoed on numerous other occassions). The composition of the Fed and its leanings have not changed measurably in the past 5 years regardless of the exogenous shock.
And then there is the other problem of reflation: namely, that it can be kick-started without an economic recovery, which will only postpone monetary policy further from mopping up the excesses. This was certainly the case in the jobless recovery of 2003-2004. And even when jobs began showing up on the radar in April 2004, did the Fed act? NO, instead they demurred not to change policy until the “slack in labor resources” had been fully absorbed. Which in 2006 terms meant 4.5% UE rates.
Now, if we flip back to the 1930’s for a moment, the entire decade was one of a jobless recovery even with the WPA “we-poke-along” programs and such. The jobless rate in the 1930’s oscillated roughly somewhere between 14% to 25%.
But Yves is right to point out the distinction that the US debt-financed consumption country in 2008 is not the exporter-to-the-world US of the 1920’s. So, what we end up with in the US post 2008 is a country much like Great Britain in the 1930’s (as suggested by Richard Kline) which experienced a rise in the UE rate to 20% of the insured workforce by the end of 1930. The number of jobless rose 150% from 1m to 2.5m. Assuming a similar 150% increase in joblessness in the US, the UE rate will roughly approximate 11% before cresting.
Now, flipping back to GB in the 1930’s, it is important to note that some pockets of GB experienced severe recesssions, while other pockets experienced depressions. The industrialized areas were the hardest hit, with 30% of Glasgewians unemployed in 1933.
Indeed, Great Britain was a divided nation of uneven depressions and recessions (and even some pockets of prosperity in London and Southeast of England) in the 1930’s. The GB experience of the 1930’s is roughly what Richard Kline said he expects in mid-Oct that we will experience in the US “if we are lucky” he notes!
Funding for the 1911 mandated unemployment and health insurance schemes dried up as a result of the mass UE in the 1930’s GB.
By Aug 1931, the 1911 insurance scheme was replaced by a govt funded UE benefit system.
Recovery in GB did not take place until rearmament began in 1937 in response to and in preparation for the rise of Nazi Germany.
@ Patrick: the new board game “Zimbabwe Rules” could be the next real blockbuster board game to follow Monopoly. It should be noted that Monopoly was patented in 1935, and as such acted as an escape mechanism into a fantasyland of sorts where all the players begin the game “Liquid” and “Solvent.” With each pass around the board there were also random injections of cash along the way, sort of like the so-called “beneficent hand” of the FDR New Dealers or like the Fed today keeping all the inefficient flawed players in the game longer today (C, AIG, et all financial …come foremost to mind)
Perceptive. Very good.
Lets add a few additional points.
In a post-Soviet world, a significant portion of sovereign economies were integrated into the global market economy, not only Russia, East Europe, but also speeding up the marketization of China.
As this developed, neo-liberalism and financialization (US primarily) were already well underway. In grossly simplistic terms, the West became the financier while China, etc., became the world’s workshop. The US was the importing/consuming agent, the East the exporting/producing agent.
Out of this we witness not only over consumption in the US, but too much manufacturing capacity and overproduction in the East. Reserve imbalances is simply the effect of such developments, not the cause.
Financialization, while an agent, was also the byproduct of a global shift in capital movements structuring a global trade system of import/export dependency.
Any solution that might engender greater US domestic production and internal Chinese consumption would take many years to unfold. In the meantime, the US (and China, which is trying to beef up its export-centric economy), is attempting to find its solution by increasing domestic consumption by way of re-starting the credit/debt engine.
The failure in this will become all the more apparent once it becomes increasingly clear that the credit/debt crisis is itself a byproduct of global overcapacity and overproduction/over consumption that is misaligned.
Focusing on effects rather than causes will delay global deterioration but it will not reverse it . . . simply postponing the “inevitable.”
The US re-inflation premise is based on an outcome in which this attempt at re-starting credit/debt consumption (aligned as it is with the success of China, etc., in maintaining ever expanding exports), leading to the re-start of US economic expansion.
I find it remarkable that in such a short time – since the US announced it’s $800bn program to buy consumer debt), the debate has shifted away from deflation to inflation. This outcome assumes success in the US program (combined with Obama’s anticipated stimulus package), in cutting short the recession to turn things around leading to economic expansion.
Should it fail, and I suspect it will, then deflation will continue.
@ ndk:
no biggie, but the 5 and 10 year treasuries are called notes and the 30 year a bond
Great catch, great post.
>> Similarly, as we have said before, the US was a world-dominating exporter, as China is now, and had the biggest gold reserves, as China now had the largest FX reserves.Thus it is China that needs to undergo a huge-scale stimulus program to make up for the loss of demand from the US. … So why don't we lean on China harder?
The US is is no position to lean on anyone. As you say yourself — the US is the debtor and China the creditor. When has the debtor ever been in a position "to lean on" the creditor?
China will do what's in China's interests to do. For now, it seems, China feels it is China's interest to prop up the treasury market. But as someone famous once said: Something that cannot last forever will one day stop.
Perhaps then Zimbabwe can give us some more advice.
The Fed will certainly be loathe to mop up the excess liquidity too quickly (as Greenspan iterated in his December 2003 minutes and which was echoed on numerous other occassions).
It’s not just loathe, john. It might not be capable. We normally mop up excess money by selling off T’s, but a funny thing happened to our T’s on the way to the forum. We sold or repo’ed many of them for a grab bag of securities, long-dated securities that generally have a fixed coupon and will lose value in an inflationary spiral. If we put those back out in the open market, either the Fed takes another loss, or we re-screw the banks.
Yves,
As you know …”Anna Schwartz wrote the book on the last great banking crisis. That book was called ‘A Monetary History of the United States,’ and it was co-authored by the far more famous Milton Friedman. She says the bailout would have worked if it forced banks to take serious write downs on junk assets and allowed imploding banks to fail. Unfortunately we’re doing the opposite.” Source (Clusterstock/WSJ)
To judge the efficacy of present government intervention, we can look at the CDS price on 10-Year Treasuries which has risen about 28x from below 2 bps in July 2007 to 56 bps last Wednesday intra-day approaching that of Italy and higher than Germany, Finland, or Norway. Source
“Once a regional economic powerhouse and food exporter, Zimbabwe now relies on humanitarian food aid. Its towns and rural roads are lined with threadbare children in rags, or barefoot men.
With inflation running at 100,000 percent, President Robert Mugabe recently announced that prices would remain fixed at February levels. But after printing trillions of Zimbabwean dollars to fund 700 percent pay raises to civil servants and gifts of cars and tractors to rural chiefs, the government has been unable to deliver on that promise.
Independent economists say inflation now has risen to 200,000 percent and predict it could rise to 500,000 percent by May.” SourceGod help them & us!
NDK,
Hang onto that thought that the Fed might not be capable of mopping up the excess money.
I can betcha the fed is betting on a convergence of events conspiring out along the time continuum…specifically tying the mop up to labor resources and the reflating of toxic asset values.
If the Fed drags its feet about mopping up excess dollar reserves until the “the slack in labor” is absorbed, which as we know could be a decade from now short of another world war…. the valuations of the majority of those toxic assets will have been largely reconstituted (to use a Richard Kline word)
At that point, the Fed can coerce a cram-down of these toxic assets back onto the balance sheets of the banks who owned them originally. Then the haircut the banks take won’t be so armageddon-like. It won’t be screwing the banks, it will be obligatory of them to take them back onto their balance sheets.
The Fed certainly need not lose when that convergence of asset reflation and slack in labor resources occurs.
But by that time, rest-assured, this trajectory of this path is a bubble-blowing event, and we will be well down the path towards the next bubble crisis.
In all likelihood, when we come out on the other side of this we will find the dollar being destroyed. For the Fed’s sake, they might not want to be holding so many dollar reserves on their balance sheets at that time. Swine and other forms of chattel might be better on their books than dollar liabilities.
Yves, this is great stuff. I like a 24/7 fix as well as the next addict, but do it at your own pace.
And a very solid analysis by you of the stimulus issues, though I think it errs a bit by directing attention to international debt and away from CDS debt. I would add that after WWIII the USA gave Europe the Marshall Plan which I think cancelled a fair amount of their debt. Now we need a Marshall Plan. Will China give us one?
Probably not because that is not who most of the debt is owed to. Most is owed by banks to each other!
I see no way out other than repudiation of that debt, either by massive inflation or more direct means. If our government would stop loading the banks’ CDS debt on the taxpayers, then it would be the banks repudiating, and that’s where the blame belongs. If the government loads that unpayable debt (on the order of 50 trillion from rough estimates I have seen) onto us, we cannot, will not and should not pay.
Great Blog!
Any monetary system is a belief system – I’ll lend you $10 only if I believe I’ll get paid back – my simple view of money.
The U.S. and world re-inflation numbers have gotten to large that they are dizzing.
At some point lenders will no longer believe that they will get their money or return (i.e. keeping their economy afloat). back.
My question – How can I measure whether there is enough available investor liquidity in the world to absorb the upcoming world debt issues? Certainly then numbers are large but how much “real” investment is available to by these upcoming “toxic” treasuries and bonds?
Like CDS and other derivatives where OTC transactions have masked reality – can the world reliably even know?