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Fresh Thinking Needed On Debt

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http://www.telegraph.co.uk/finance/comment...ed-on-debt.html

Debt WILL be our legacy. Much of it that caused the credit crisis has yet to be written off and a lot of it is underwritten by taxpayers, be it bank or government liabilities. A by-product of the policy solution, low interest rates and quantitative easing, could be high inflation.

The rescue of the financial system has also caused severe moral hazard: big banks know they can keep profits, but offload losses on to taxpayers.

These factors are likely to dominate economic and political life for years. If we don’t tackle them, economic growth will be weak, undermined by a less dynamic but more volatile economy. But what to do?

Author and trader Nassim Nicholas Taleb and his colleague Mark Spitznagel have come up with a suggestion: convert most of the debt in the system into equity. The idea is intended to be provocative, but it gets at the heart of the matter: it is the massive mountain of debt taken on over the past decade which caused the crisis.

But simply shifting it onto someone else’s balance sheet doesn’t solve the problem.

Taleb’s suggestion is unrealistic. So far debt-for-equity conversions have happened as and when companies have neared collapse; to impose this on entire sectors could be crippling for confidence. But the direction of travel is right in as much as it suggests a radical rethinking of our relationship with debt.

Yep the bankers have learned there is no risk for them, too important to fail achieve big losses and the taxpayer underwrites all the losses.

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People don'tlike being in debt, but it's the only way to have money in our current system.

Save and invest is a better plan.

Forget about that new Mondeo too. It's just a drain.

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Save and invest is a better plan.

Forget about that new Mondeo too. It's just a drain.

You can't save and invest meaningfully when magic banks make money from thin air and then hand it out apparently at random nine or ten times.

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You can't save and invest meaningfully when magic banks make money from thin air and then hand it out apparently at random nine or ten times.

true, so what we need is no more mugs to lend these special bits of paper too. unfortunately, we still have monkeys wanting to borrow magic paper because they must have that new Corsa or Ikea kitchen.

A sad world, but there you go. :rolleyes:

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You can't save and invest meaningfully when magic banks make money from thin air and then hand it out apparently at random nine or ten times.

injin, for someone of your intellectual ability, you are pretty misguided about banking.

take a fresh look. banks are just businesses that borrow money and invest it. just because government is screwing around with the system, doesn't make commercial banking a 'bad' thing. banking is an honest enterprise - or it would be, if we had sound money to begin with.

please take the time to have a think about this. i know you are a smart guy, but you are a bit off the rails with this one in my opinion.

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injin, for someone of your intellectual ability, you are pretty misguided about banking.

take a fresh look. banks are just businesses that borrow money and invest it. just because government is screwing around with the system, doesn't make commercial banking a 'bad' thing. banking is an honest enterprise - or it would be, if we had sound money to begin with.

please take the time to have a think about this. i know you are a smart guy, but you are a bit off the rails with this one in my opinion.

:rolleyes:

Banks don't just borrow money and invest it. Anyone can do that.

Banks create money, thus expanding the overall supply and diluting the value of existing money. That's why there are special rules for them.

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injin, for someone of your intellectual ability, you are pretty misguided about banking.

take a fresh look. banks are just businesses that borrow money and invest it. just because government is screwing around with the system, doesn't make commercial banking a 'bad' thing. banking is an honest enterprise - or it would be, if we had sound money to begin with.

please take the time to have a think about this. i know you are a smart guy, but you are a bit off the rails with this one in my opinion.

I agree that banks could be that. The ideal bank is a warehouse, in fact, just as they started off being.

Currently they are not. Banking is currently a series of misdirection frauds that's backed by the state so people can't argue with it.

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Let's not forget that in the act of creating money and thereby inflating prices, they are reducing the value of assets of anyone who does not borrow from them, which is a kind of theft.

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http://www.telegraph.co.uk/finance/comment...ed-on-debt.html

Yep the bankers have learned there is no risk for them, too important to fail achieve big losses and the taxpayer underwrites all the losses.

I don't think the debt-for-equity swap will work at all.

Why would the banks want to pay over-the-odds for equity in housing when clearly it is depreciating each year, and that will compound it's losses.

If the banks were forced to do the swap then they will incur losses, which will affect either the taxpayer or shareholders (i.e. pensions).

The "free lunch" remains the thing of science fiction movies.

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A social credit system exclusively through QE funding of the national deficit, would use the national debt as the other side of the accounting entry to peoples savings. It would never need to be paid back, just its rate of increase adjusted as the need for new money in the economy changed.(aka controlling inflation)

Japan in some ways is going to this as Japanese no longer seem to borrow money, so their fractional reserve system isn't working very well. The Japanese national debt is now nearing 200% of gdp. They have a stated government policy to QE $18 billion a month worth every month now. Yet they fall further into deflation, so imo need to big time increase QE.

Edited by aa3

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A social credit system exclusively through QE funding of the national deficit, would use the national debt as the other side of the accounting entry to peoples savings. It would never need to be paid back, just its rate of increase adjusted as the need for new money in the economy changed.(aka controlling inflation)

Japan in some ways is going to this as Japanese no longer seem to borrow money, so their fractional reserve system isn't working very well. The Japanese national debt is now nearing 200% of gdp. They have a stated government policy to QE $18 billion a month worth every month now.

We'd all starve to death within 18 months under such a system.

Communism doesn't work.

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I agree that banks could be that. The ideal bank is a warehouse, in fact, just as they started off being.

Currently they are not. Banking is currently a series of misdirection frauds that's backed by the state so people can't argue with it.

Agree.

When they do provide funds just look at the dross those funds have been provided to. A banking system is only useful if it directs money that oils the general growth of the economy. If anything the polar opposite has been the case, money has been destroyed, so has the economy and many of the companies working in it who have actually been starved of cash and investment which the bankers chased the latest bubble and ignored everything else. Some of the debt loading of companies is nothing short of a controlled demolition job, hijack the commission and run off.

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I'll give you some fresh thinking on debt:

The problem is not that people should borrow less and pay off their debts. The problem is that 50% of people and banks are so in debt they can never pay it off. And the other 40% of the people think they have assets (in banks, stockmarkets etc) which are only worth a quarter of what they think.

The question is: how can you reduce by half people's assets (while trying to make the numbers add up) without so losing people's confidence that they want nothing to do with your currency game? And how do you keep people paying when they can see it's hopeless?

The answer so far is: by a mixture of the following: convincing them it's an act of god (deflation of some assets), devaluing the currency (inflation of others), and ultimately, by preventing them putting their assets out of your reach (co-ordinated international action).

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If the problem is debt, then the problem is the monetary system. Fiat currencies and banking do nothing but generate debt.

We need a radical rethink on both.

Unlikely to happen though.

+1 ( but I think we'll see monetary reform sooner or later ).

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That doesn't follow

He means because in our system debt is money. Get rid of the debt and the money disappears too, causing hyperdeflation. Thats why every western society has to perpetually go further into debt as our ability to produce increases with technology.

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He means because in our system debt is money. Get rid of the debt and the money disappears too, causing hyperdeflation. Thats why every western society has to perpetually go further into debt as our ability to produce increases with technology.

I can give you money by writing out a promise to pay in the future (putting myself into debt) This would be an aspect of any system of trade that didn't expressly forbid it

The reason we can't get out of the debt hole is that the land costs of producing are being raised with rising productive ability, so that those who are producing do not see the benefit of their extra production and have to get into debt to remain productive.

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I can give you money by writing out a promise to pay in the future (putting myself into debt) This would be an aspect of any system of trade that didn't expressly forbid it

The reason we can't get out of the debt hole is that the land costs of producing are being raised with rising productive ability, so that those who are producing do not see the benefit of their extra production and have to get into debt to remain productive.

Repeal the legal tender law and stop the boe's monpoly and this current malaise would be over by teatime tomorrow.

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I can give you money by writing out a promise to pay in the future (putting myself into debt) This would be an aspect of any system of trade that didn't expressly forbid it

Ya but if I didn't have the money to lend you I couldn't deposit it into your account. You could give me the promise to pay note, and I could try to find someone with money who would trade it.

The reason we can't get out of the debt hole is that the land costs of producing are being raised with rising productive ability, so that those who are producing do not see the benefit of their extra production and have to get into debt to remain productive.

I mainly agree with this, but instead of getting out of debt, imo its why the average person isn't seeing a rise in their standard of living, instead it going to the few the landowners. At least in cities like London where land is in short supply, causing it to spiral upwards. Its very different in a city like Dallas, Texas where there isn't limits on the land.

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Are you saying allow people to create their own XYZ-backed money, in addition to the current system?

Yep.

let anyone who wants to make pounds stering, dollars, whatever they want.

All debts would be repaid by teatime and then we could all go do something sane.

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