The rest of the story: http://bit.ly/tXcbKf
Monday, 26 December 2011
Sunday, 4 December 2011
Musings on the Financial Meltdown
The whole mess can be distilled into a surprisingly simple observation, and it is deeply disturbing that this has not understood and acted upon by those that we have elected to represent us.
There is another more sinister explanation - that they have been manipulated into agreeing to abolish the Glass-Steagall Act and allow an unregulated financial free-for-all.
Anyway - here goes: If debt increases faster than value creation value gets destroyed. Simple.
This I seem to remember was understood by us as undergraduate students in 1970!
One cannot escape the suspicion that the financial industry have wilfully constructed a structure where increasingly fancy "products" have been invented where enough fees are paid up front to make it look suspiciously like a ponzi scheme.
Let us take a household as an example. The situation is analogous on a national level.
If we wish to invest and consume in excess of our income, we must borrow. This implies that we use resources in advance of having created the value - hence the value must be created later. This implies risk.
This works if the assets we invest in increase in value, and if our income grows making debt repayment easy.
This is fine on an individual level in a growing economy. If, however, you get systemic debt expansion to finance investment and consumption over extended periods, asset values will expand to levels where new entrants will be unable to fund new investments and the bubble will burst.
The ensuing collapse in asset values will cause an economic contraction, reducing the ability of households to maintain debt repayments and a stable level of consumption. This is what is happening now.
In Norway, also known as "Cloud ptarmigan land", all interest payments are tax deductible for personal tax payers. The state subsidizes the property asset bubble and our mad consumerist frenzy. Our 20 % credit card interest is tax deductible. Amazing!
If we replace the interest tax deduction with a single, simple deduction equivalent to your "dignity income" that will fix it. That gives the individual freedom to determine how to manage their disposable income without artificial stimulants.
Equally important and not well appreciated is the poverty trap created by the state by loading those on the bottom of the income pyramid with too many costs and complexities. This causes economic and psychological anxiety and is a major contributor to the spiralling social and medical costs we are experiencing.
At the macroeconomic level, however, Norway is a shining example of probity and fiscal discipline Hat off for that!!
Governments in the post Reagan - Thatcher era, inspired by monetarists and economic liberalism with blind faith in "free" markets, deregulation and complete freedom for financial institutions to create weird and wonderful financial "products" are in the process of destroying society as we know it.
At a national level in many other countries, politicians have borrowed big time for infrastructure, welfare and "social consumption" Fine in the short term, and a winner if you want to get back in office.
The wanton borrowing frenzy by Greece is probably the most glaring example here.
Low interest rates have been a major contributor.
Getting out of this mess will be tough as hell and will take a long time.
Enough for now.
There is another more sinister explanation - that they have been manipulated into agreeing to abolish the Glass-Steagall Act and allow an unregulated financial free-for-all.
Anyway - here goes: If debt increases faster than value creation value gets destroyed. Simple.
This I seem to remember was understood by us as undergraduate students in 1970!
One cannot escape the suspicion that the financial industry have wilfully constructed a structure where increasingly fancy "products" have been invented where enough fees are paid up front to make it look suspiciously like a ponzi scheme.
Let us take a household as an example. The situation is analogous on a national level.
If we wish to invest and consume in excess of our income, we must borrow. This implies that we use resources in advance of having created the value - hence the value must be created later. This implies risk.
This works if the assets we invest in increase in value, and if our income grows making debt repayment easy.
This is fine on an individual level in a growing economy. If, however, you get systemic debt expansion to finance investment and consumption over extended periods, asset values will expand to levels where new entrants will be unable to fund new investments and the bubble will burst.
The ensuing collapse in asset values will cause an economic contraction, reducing the ability of households to maintain debt repayments and a stable level of consumption. This is what is happening now.
In Norway, also known as "Cloud ptarmigan land", all interest payments are tax deductible for personal tax payers. The state subsidizes the property asset bubble and our mad consumerist frenzy. Our 20 % credit card interest is tax deductible. Amazing!
If we replace the interest tax deduction with a single, simple deduction equivalent to your "dignity income" that will fix it. That gives the individual freedom to determine how to manage their disposable income without artificial stimulants.
Equally important and not well appreciated is the poverty trap created by the state by loading those on the bottom of the income pyramid with too many costs and complexities. This causes economic and psychological anxiety and is a major contributor to the spiralling social and medical costs we are experiencing.
At the macroeconomic level, however, Norway is a shining example of probity and fiscal discipline Hat off for that!!
Governments in the post Reagan - Thatcher era, inspired by monetarists and economic liberalism with blind faith in "free" markets, deregulation and complete freedom for financial institutions to create weird and wonderful financial "products" are in the process of destroying society as we know it.
At a national level in many other countries, politicians have borrowed big time for infrastructure, welfare and "social consumption" Fine in the short term, and a winner if you want to get back in office.
The wanton borrowing frenzy by Greece is probably the most glaring example here.
Low interest rates have been a major contributor.
Getting out of this mess will be tough as hell and will take a long time.
Enough for now.
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