Tuesday, February 3, 2009

The minions are revolting. Maybe there is another way – saving not spending

We don’t want no stimulus plan (or, the case against Keynes)

"The reality being repressed is that the western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are groaning under unprecedented debt burdens. Worst of all are the banks. The best evidence that we are in denial about this is the widespread belief that the crisis can be overcome by creating yet more debt." [couldn't have said it better myself!]

Posted by mountain goat @ 02:53 PM (766 views)
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9 thoughts on “The minions are revolting. Maybe there is another way – saving not spending

  • stillthinking says:

    I have this partially formed view that deflation is naturally caused by excess money. Essentially because there is too much money around it ends up being hoarded, and the hoarded money disappears from commerce, so the visible effect is deflation from debt repayments. This also occurs when a large amount of wealth transfer takes place because the wealthy don’t increase spending commensurately with their wealth. In this idea, inflation comes not from excessive money at all, but from inadequate production, and that the monetary consequences of inadequate production can be masked by restricted the money supply, but at the cost of restricting national production.
    That aside,I certainly don’t think we should be borrowing anymore as well.

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  • It is all going to end in tears – if you have got any money, go and buy yourself some gold bullion coins while you still can at a reasonable price……………….History shows how you can preserve what you have. You might think my suggestion is not sensible, that’s up to you.

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  • ST do you have any background in economics or are you just working things out as you go along? Without wanting to blow smoke I am always impressed by the amount of decent thought you put in.

    Anyway struggling with this one, where are you thinking the money is being hoarded?

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  • stillthinking says:

    I have no background at all, and I am indeed attempting to work out a consistent view by myself. I have put quite a lot of time in.
    Money that isn’t spent, is hoarded. Just holding in a UK bank is enough, risks of default aside.
    Please criticise when you disagree bellwether !

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  • stillthinking says:

    OK. Where is the money going, as in which country. You have got me going with your semi-flattering question. I think that if the UK started off 2 years ago with 2:1 on dollar:sterling, and if you could define a sterling collapse as sterling having no value at all, and if you could then imagine that everybody sells sterling and sells and sells and sells, then the price on average would be 1:1, being the mid-point between 2:1 and $:0 . In which case, you could decide that as sterling is currently at 1.40 , then 30% of sterling has been sold off to other currencies. Assuming you treat the dollar as a benchmark currency.
    I think a lot of the excess money has gone abroad, whether to the yen, or dollar, or euro, that is where financially savvy people have put their money. There is also the case of the domestic non-financially savvy savers who just keep their money in the bank and don’t spend it.

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  • Semi flattering indeed!

    You actually remind me that I don’t put enough effort into pursuing ideas, a common tendancy I guess given a lot of contributions on this site!

    I tend to find that I often don’t get your ideas right away but sense they are independant. Anyway the 2 things that really puzzle me and I’m probably not going to address your point directly but just talk about things it makes me think of.

    If the world economy was just a few of villages on an island what was happening would be laid bare. We could see generally when and why things went wrong and (conflict apart) this would usually have to do with a limit to or failure of an imprortant resource. Poverty is in the end always about a lack of basics and this underneath isn’t this all about a battle over poverty

    In a global environment this is much harder to see but I wonder if we must be pusing some kind of limit and there is a struggle about what is limited. Does the recession/depression have to do with an expression/realisation of that limit.

    A second point is diversity. Diversity in nature and economies allow a greater exploitation of a resource, a maximisation of use. Which made me wonder if hoarding in your example of is actually a concentration of money in too limited a variety of enterprises such that there is no maximisation of use – although as in nature there is ultimately a limit to that.

    I have as an image the huge concentration of money and enterprise in the development (huge overdevelopment) of property in say ireland or the uk or dubai, where it was so easy to make money that people didn’t have to innovate. Just build somemore flats or retail parks and sit back and rake it in. Everyone was at it, whatever anyone says this was a boom centered on property or the money that banks could let out on it.

    Actually this just reminds me of the difficulties of this, there are so many ways to try to explain things. Which is the essential one. Is there an essential one?

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  • stillthinking says:

    I agree, there is currently “no maximisation of use of money”, because there is too much, which is often expressed as the excess of debt sentiment, although that implies but never stated the excess of savings. The amount of money needs to fit the economy, but the UK’s real GDP hasn’t expanded sufficient for the expansion of debts taken on for housing.
    Money needs to be sufficient to satisfy the purpose of changing hands, that is all, we have way more than that.
    I also agree that a lot of poverty is from the real world (no water etc), but I don’t think ours is, at least at the moment, ours is purely bad management.

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  • I really don’t think that the article in question has been addressed here. Keynesianism (where government spending is increased to stimulate the economy) is a poor system as it leads to stagflation due to inflation and the crowding out of government spending. However, in a situation where asset values are too high and our consumer led society has ground to a halt increasing the supply of money would erode the value of the debt at the expense of the savers, stimulating spending and thus growth. It is worth mentioning that Keynes only regarded government spending to be used during recessions – not all the time as this country has done. His theory also falls down when it comes to leakages from the economy where the money spent goes abroad e.g. spending on imports from China.

    This would be great if interest rates stay low but the inflation would need be controlled by higher interest rates unless the whole world were to follow the same policy, (unless the currency were to be allowed to collapse as investors would send money abroad e.g. yen, dollars.) It seems the western world has embarked on a simultaneous spending program in order to inflate the debt away at the same time which might work. If the UK were to try and stay competitive then a bail out package must be done otherwise it would be a double whammy of a high exchange rate for exporters and little cash for consumers.

    Also, bear in mund that money saved is kept in …. a bank! The bank of course lends this out 10 times over which would lower borrowing costs. So save your money and give someone else a cheap mortgage, either way it’ll go back into the economy.

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  • landofconfusion says:

    @ 10:20PM 8. Wil1001 said…

    “So save your money and give someone else a cheap mortgage, either way it’ll go back into the economy.”

    Except when people pay back debts and don’t take out any new ones. Our economic system relies on the constant generation of money matched (to some extent anyway) by a proportionate increase (generation) of wealth. If the total amount of debt taken out goes negative (net shrinkage of debt) then we have a problem.

    With regards to inflation, I agree with you here. An increase in the money supply (quantitative easing) without the corresponding generation of wealth will eventually lead to stagflation. This is why I think we are going to see much higher interest rates in the not too distant future.

    Also, I wonder if peoples’ wages will keep up with this increase in the money supply and if so how it will happen, especially given how banks are so unwilling to lend.

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