Sunday, Feb 15, 2009
David Smith is in deep - what will bring him back to life?
Times: In deep — what will bring us back to life?
Smith starts the article by saying that economists got it wrong (the reasoning being that there's safety in numbers I suppose). He then goes on to reason that printing more money 'done properly ... could make a difference and because of that it is worth a try.' Dear oh dear. I'm sure that Mugabe would concur, after all quantitative easing made a big difference over there ...
Posted by paul @ 11:09 AM (707 views) Add Comment
6 Comments
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1. stillthinking said...
Surely the point is that easing won't work as intended, and will come down to purely who gets given the "fresh" funds. After all, we are not talking about funds for infrastructure, we are talking about purchasing assets from banks at below market value. Should the banks end up nationalised then you could argue that doesn't make any difference in the end, but of course, if a taxpayer without savings is subsidising a taxpayer with savings then there is a clear transfer of wealth.
If the banks capital is exhausted, then the government, short of allowing bank failure, has no option but to replace the reserves if they can, including the losses on foreign debts (being more sizeable than domestic UK lending). So easing will have resurrected the banks.
Does it follow from this that lending resumes? I don't think so. Keeping the existing banks going is a barrier to the creation of new banks with non-government funding. Also, "recapitalisation" of the banks will involve money over and above their capital+ losses. Will that encourage lending? No. If there was a market and a profit in lending then the situation would sort itself out. There are no profitable loans to be made. Assets are fallling, there are an excess of companies, wages are falling, employment is falling. Who could you lend money to?
Should there be a psychological shift against borrowing then the UK government will not be able to stand in as a sufficient substitute.
Perversely, although a failing company with a 4 million debt, should be sold to a new enterprise with say 2 million down, and a 2 million debt, to do so would expose the banks books. Hence the idea of zombie companies in Japan.
Easing will not rescue the economy and is purely a solution to bankrupt banks, and will not restart lending, and will not restart credit demand, and is required because the UK government itself is so in debt, it looks as though they will not be able to fund themselves.
When you consider that money is printed to fund government goals then yes, it is the same as Zimbabwe.
Also, I read on a comment somewhere, that given the volume of outstanding gilts and bonds being huge (of course huge because a decade of overborrowing), then there is a danger that perversely easing will accelerate the credit contraction.... step one the government starts to print, step two all debt holders get scared and look to sell, step three the resulting collapse in the price of debt exceeds the quantative easing value. Result, more contraction than before. A complete disaster.
2. hpwatcher said...
I have no idea why anyone takes notice of the absolute idiot David Smith...he had been wrong so, so many times.
Throughout history, printing money sooner or later has always, always, always led to inflation.
3. mountain goat said...
More subdued than usual David Smith. Reality starting to undermine his ignorant views. It will be interesting to read these Times journalists as the policies they cheered take the UK further into trouble.
4. jackas said...
David Smith has been exposed as a fraud. He is not an expert. He is an idiot. He should STFU and go and get a job he can actually do.
5. denzil said...
One of the primary reasons I buy a newspaper is for the business section.
I gave up buying The Times years ago as Smith is incredibly out of touch and consistently wrong. His predictions have passed through the amusment phase and become tedious. When Smith says something will happen, I would bet a large amount of money on whatever he is predicting doing the opposite. I have little time for Kaletsky also, but at least he had the balls to admit he was wrong we he predicted "the worst of the credit crunch is over", about 12 months ago.
http://business.timesonline.co.uk/tol/business/columnists/article3182286.ece
The Times are not alone, there has been a total dumbing down of any investigative reporting for a number of years. The papers comprise cut 'n' paste articles released from various PR companies and VI's.
6. Neo-serf said...
David Smith has blood on his hands.
Many of his readers will have made decisions based on his drivel.
Woefully inept.