Us Credit Shrinks At Great Depression Rate Prompting Fears Of Double-dip Recession

[interestrateripoff]

Thats if the economy grew 5,000 times by increasing say coal plants by 5,000 times. But economic growth can take many forms. I see people running around with £400 cell phones and paying like £80 a month on their expensive cell phone plans. Yet the physical materials in the cell phone are quite small.

People are also spending money on software and monthly software subscriptions which take nearly no physical resources. Another is medical innovation.

Not quite true, to run the software requires a computer, normal business cycle of a PC is 3 years. MS love upgrading the OS and ensuring it won't run on old equipment.

Even if you exclude the equipment from the equation to run your software requires power and power generating consumers lots of physical resources.

Are you saying medical innovation consumes no resources? Scientists going to and from work, the power to light labs etc....

[aa3]

Not quite true, to run the software requires a computer, normal business cycle of a PC is 3 years. MS love upgrading the OS and ensuring it won't run on old equipment.

Even if you exclude the equipment from the equation to run your software requires power and power generating consumers lots of physical resources.

Are you saying medical innovation consumes no resources? Scientists going to and from work, the power to light labs etc....

Agree especially in terms of energy use. I think there is a rising efficiency coeficient in there, but still no doubt such an economy would require vastly more energy.

I have a prediction that virtually everyone thinks will be completely wrong. In 2000 I predicted global electricity use will be 14 times higher in 2100 than in 2000. Which requires a 2.4% a year increase. So far from 2000 to 2010 we are ahead of schedule.

Every year people keep predicting why we can't do it, yet every year we tack on another couple percent increase.

Edited September 17, 2009 by aa3

[interestrateripoff]

Agree especially in terms of energy use. I think there is a rising efficiency coeficient in there, but still no doubt such an economy would require vastly more energy.

I have a prediction that virtually everyone thinks will be completely wrong. In 2000 I predicted global electricity use will be 14 times higher in 2100 than in 2000. Which requires a 2.4% a year increase. So far from 2000 to 2010 we are ahead of schedule.

Every year people keep predicting why we can't do it, yet every year we tack on another couple percent increase.

Interesting prediction.

Could that be achieved without clean power? Is your prediction even with more advances in energy efficient goods?

[aa3]

Interesting prediction.

Could that be achieved without clean power? Is your prediction even with more advances in energy efficient goods?

Thanks, yes the prediction is just at the level of electrical production. Presumably we would be using each kilowatt/hour more efficiently on average as well.

In the last decade a lot of the rise has been coal. New hydroelectric in China has been a big part too, and natural gas all over the place.

I look at nuclear as the clean power, because it has a shockingly small footprint physically and in terms of waste.

[Thread Killer]

Very interesting... why is M1 shrinking? Shouldn't this be (more or less) fixed in "normal" times or growing when using QE?

I am not surprised that M3 is shrinking though, as I think people/companies are saturated with debt and worried about taking on any more. As existing debt is repaid, M3 will shrink.

IMO, QE isn't about retaining the current situation, but more about managing the deflation. Credit must deflate as we are suffocated with it, but a deflationary collapse could be very harmful too. As has been said in this thread already, it could be a long, drawn out process.

Recapitalising the banks and then enforcing stiff reserve ratios (and hopefully capital adequacy requirements too) should attempt to stop the situation reoccurring again, but it suggests (to me) that rampant FRB is flawed either way. A free banking model (and better still, competing bank currencies) would be a better solution.

I am partly in agreement with AA3 too, although some credit deflation (at least 50% for, say, property prices) would be healthy too. Beyond that, and prices would start to get a bit surreal. I think going back to 70s/80s prices would kill off almost any business with a loan. Although the infrastructure could be reallocated (via liquidation), there would be a period of very high uncertainty, which would be bad in general.

People need to remember that credit inflation has debased the currency already. Replacing credit with fiat just puts a floor under deflating prices at some point. Unless you start printing more narrow money (M0+M1) than the banks are "loaning" in broad money (M3), then you aren't going to increase the money supply (credit is money, as far as the real economy is concerned). So, they cap the reserves for banking to, say, 50%, then print say, £250bn and let asset prices fall by, say, 60% and we would be approaching equilibrium... we would have M1 £300bn, M3 £600bn (down from £1.5tr), resulting in 60% off asset prices, with solvent (and restrained) banks. Ok, it's back of fag packet stuff, but I hope it makes my point (and it's not to say that 60% credit deflation wouldn't hurt - it's needed though).

M1 is not narrow money - it is still broad money along with M2 and M3. Generated by banks credit creation.

Only M0 is narrow money - the combination of notes, coins, and balances that financial institutions have in their account with the bank of England.

[Traktion]

M1 is not narrow money - it is still broad money along with M2 and M3. Generated by banks credit creation.

Only M0 is narrow money - the combination of notes, coins, and balances that financial institutions have in their account with the bank of England.

Thanks, I stand corrected - I think it is different in the US, but here M0 alone is narrow. I think the point of the post remains though.