HSBC: The world has no policy tools left in face of possible recession
May 25, 2015 12:54 AM   Subscribe

"The world authorities have run out of ammunition as rates remain stuck at zero. They have no margin for error as economy falters" (Telegraph)

- HSBC chief global economist Stephen King (not that one): "The world economy's titanic problem" (CNN Money's summary)
- China's slowed growth could tip the balance
- King recommends international co-ordination to combat global deflation
posted by cotton dress sock (63 comments total) 23 users marked this as a favorite
 
I for one could live with 2.8% growth, seeing I get 2% growth at the moment.
posted by parmanparman at 1:39 AM on May 25, 2015 [2 favorites]


I trust the Telegraph's finance reporting about as far as I could throw a truck.
posted by Gin and Broadband at 2:01 AM on May 25, 2015 [20 favorites]


I tend to take anything by the author, Ambrose Evans-Pritchard, with a pinch of salt.

He has, as they say in the UK, got some "previous".

Exhibit A: His book on the Oklahoma City Bombing
posted by Mister Bijou at 2:18 AM on May 25, 2015 [14 favorites]


a pinch? more like enough salt for a year's supply of McDonald's fries...
posted by oneswellfoop at 2:40 AM on May 25, 2015 [3 favorites]


Sell HSBC shares right now because apparently their chief economist has not heard of quantitative easing.

Given that the financial news has been dominated by QE for five years, he must be incompetent. Alternatively, he is fear-mongering for profit (in which case, buy? I guess).
posted by anotherpanacea at 2:59 AM on May 25, 2015 [4 favorites]


their chief economist has not heard of quantitative easing.

Er... no. RTFA in OP... or here
posted by Mister Bijou at 3:15 AM on May 25, 2015 [1 favorite]


Sell HSBC shares right now because apparently their chief economist has not heard of quantitative easing.

Actually, if you read far enough, you will find that there is an entire section of the article called "Use quantitative easing." It starts with some historic background on QE in Japan and sorta leads to the following conclusion: "In the absence of conventional policy ammunition, an addiction to QE could ultimately mean that the second great depression was only postponed, not avoided altogether."
posted by sour cream at 3:19 AM on May 25, 2015 [4 favorites]


Jubilee.
posted by TheophileEscargot at 4:39 AM on May 25, 2015 [40 favorites]


We know what helps: get the vast amounts of money out of the hands of those who have no need for it and do not spend it, but just dump it in offshore accounts, and put it in the hands of those who are barely getting by and will spend it as fast as they get it. Food stamps were the best economic stimulus in the US during the "last" recession (the one that never ended where I live). The OP article references the New Deal, but says of course we could never do something like that now. Why the hell not? We are dealing with the same robber barons that Roosevelt was dealing with in the 1930s. Some of them even have the same last names.

The problem is that global financial policy (and financial "journalism") is by and for those with the offshore accounts.
posted by hydropsyche at 4:39 AM on May 25, 2015 [97 favorites]


Much now depends on China, where the economy is starting to look "Japanese".

This might come as a surprise to the Japanese, given that their economy is showing numerous signs of strength following years of slow growth. Consumption remains anemic. But the latest "tankan" survey indicates that "Japanese manufacturers' sentiment improved and the service-sector's mood rose to its highest level in a year . . . offering further evidence of the economy's gradual recovery from last year's recession." Prime Minister Abe's approval numbers are strong, GDP recovery is solid, and the government is on target to raise the consumption tax to ten percent in 2017.
posted by Gordion Knott at 4:59 AM on May 25, 2015 [2 favorites]


Excuse me if I don't take the word of a spokesman for a convicted money laundering operation at face value.
posted by clvrmnky at 5:08 AM on May 25, 2015 [46 favorites]


I trust the Telegraph's finance reporting about as far as I could throw a truck.

The same could be said for anything HSBC says, as well.
posted by TedW at 5:10 AM on May 25, 2015


All this tells me is that the easy solutions are exhausted. Creating more money that ends up in the hands of the same few people doesn't result in more growth.

As during the Depression, the problem is not one of production, it is one of demand. The average joe has seen his purchasing power slowly trickle away to where so little of it is left that we are approaching a period of deflation - despite record amounts of new money being printed.

I would call QE just more supply side nonsense, but it's not more of the same nonsense, it's a whole new nonsense. Supply side economics - pumping invesment into supply instead of demand - was supposed to satisfy the overheated demand which forced the public to suffer through Jimmy Carter and pre-Thatcher double digit inflation. It worked to some extent in taming inflation, because that what it was designed to do.

But here? QE is just propping up equity values. It does not create demand where no demand exists. Why invest in supply when there is no demand?

OP article references the New Deal, but says of course we could never do something like that now. Why the hell not? We are dealing with the same robber barons that Roosevelt was dealing with in the 1930s. Some of them even have the same last names.

The Great Depression was ended by the stimulus package called WW2. Roosevelt's signal economic achievement was getting the US involved in two World Wars at the same time - one in Europe and one in the Pacific - which revived both short term and long term demand. (Taking down the "robber barons" with well-known last names was Germany's approach and it didn't end so well for them.)

It is becoming clear that nothing but grief will come from this low-interest rate competition between central banks, but perhaps there is a better outcome to be had than launching a fresh world war. If there is I don't know what it could be, but I hope the Chinese figure it out real quick like.
posted by three blind mice at 5:12 AM on May 25, 2015 [4 favorites]


There's a guy in a support group I attend who has been going on and one lately about how the world economy is going to crater this fall in a way that will make the Great Recession look like a minor accounting error. He also listens to a ton of conservative and conservative-christian talk radio, and rails against any foods that aren't home-grown, or healthcare that isn't utterly naturopathic.
posted by Thorzdad at 5:14 AM on May 25, 2015 [1 favorite]


The world economy could probably live off of fining HSBC for money laundering and fraud.
posted by srboisvert at 5:15 AM on May 25, 2015 [17 favorites]


As during the Depression, the problem is not one of production, it is one of demand. The average joe has seen his purchasing power slowly trickle away to where so little of it is left that we are approaching a period of deflation - despite record amounts of new money being printed.

To what extent is lack of access to credit (which I think is a good thing) part of this equation? I'm thinking that demand from the average joe is down, partly because it's harder for the average joe to get into debt than before (unless they are taking out student loans).
posted by carter at 5:23 AM on May 25, 2015


QE skeptics are boring. They have made wildly divergent predictions about its bad effects, been disproven again and again, and keep claiming that sometime soon (soon!) the terrible parade of horrors they predicted will all come home to roost simultaneously in an awful deflation/hyper-inflation/bond vigilante/Grexit/currency war Mad Max nightmare.

Yawn.
posted by anotherpanacea at 5:37 AM on May 25, 2015 [11 favorites]


Part of the issue with economic prognostications, especially about the current financial situation, is that this time around, the situation is completely unique. The Fed jumped into completely uncharted waters in 2008 and arguably, they've been trying to understand the ramifications and policy implications of those decisions ever since.

All we really know right now is that 2008 was caused by too much leverage and too little regulation. Unfortunately, we fixed the problem with too little regulation and lots of cash - that flowed right back to the very people who caused the problem to begin with.

If you're wondering why the top 1% are doing so well since 2008 and the rest of us are just treading water - that's really all you need to understand.

However now we have a big matzoh ball hanging out there called China, whose growth is moderating. Look no further than the panic right now at GM and Volkswagen, the two biggest automakers in China, who have for the first time started slapping 30-40% discounts on their cars (relative to prices charged in other parts of the world). They're still arguably profitable, but both companies have banked heavily on big margins in China to help bolster otherwise lackluster profitability elsewhere. Volkswagen's saving grace in recent years has been the profitability of Audi, Bentley, Lamborghini - where profit margins range from 9 - 15%. Conversely, 'the peoples' car' brand is returning a measly 2.2-2.8%.

QE may have saved the world from imploding in 2008 but I think that the genie which was released from that bottle has been running amok in ways both small and large, since then. Anyone trying to predict what will happen when the next systemic shock hits is really just tossing ideas against the wall. Anything is plausible at this point in time. What might be the trigger? Chinese deflation? Greece exiting the Euro? Russian aggression? Terrorist attack? Janet Yellen farting? Who knows.

All we really know is that traditional policy tools won't have much influence, especially if interest rates stay where they are.
posted by tgrundke at 5:59 AM on May 25, 2015 [9 favorites]


On the contrary, the EU is currently operating below the zero bound, and there's a good amount of proof that it's actually helping. We might not be quite yet at Bernanke's cash helicopter yet, but it's a proposal that's being taken seriously in various quarters.
posted by Punkey at 6:05 AM on May 25, 2015 [3 favorites]


However now we have a big matzoh ball hanging out there called China, whose growth is moderating.

More background on GM's woes in China: The Great Unraveling of Globalization
posted by dephlogisticated at 6:11 AM on May 25, 2015 [1 favorite]


Arg, the frustration of realizing you have so much more to say immediately after you hit "Post Comment".

Quantitative easing and dropping the interest rate (and the aforementioned airdrop of cash that would probably be more like a "check cut to everyone in $COUNTRY") does boost demand, but the effects of the first two mostly apply to people that, you know, get big loans and own bonds. And as effective as just cutting everyone in the US a check would be to boost consumer demand, it'd be a one-time shot in the arm, while adjusting interest rates and quantitative easing programs operate over the longer-period spans of time you need to bring an economy back up. Now, a national "wage" or general increase in minimum wage would also work (and be more along the lines of what that helicopter drop of cash is meant to represent), but if we put on our "realm of possibility" hats, it's pretty obvious that there's no way in hell such legislation would pass Congress.

The inflation rate remains one of the best and most direct measures of economic growth, and with it still well below the 2% "healthy" range, I think it's pure and simple timidity and the limits of their powers that keeps economic policy makers from really going nuts with below zero bound interest rates to drive that rate up. In effect, going below that zero bound means that for every dollar over the reserve requirements a bank holds, they actually get charged money for keeping it. That's a pretty strong incentive for banks to loan out every single penny they have before it gets scooped up by interest rates, and drives money out of the banks and right back into the economy. Of course, with a few prominent economic schools of thought calling for Gloom and Doom if we even approach the zero bound, let alone go through it, having the fortitude to hit it and keep going, foot to the floor, isn't exactly common (we can only have Paul "convinced Ronald Reagan to raise interest rates to cause an economic crisis to save us from stagflation and hater of bank deregulation" Volker be Chair of the Federal Reserve so many times).
posted by Punkey at 6:24 AM on May 25, 2015 [2 favorites]


There's a guy in a support group I attend who has been going on and one lately about how the world economy is going to crater this fall in a way that will make the Great Recession look like a minor accounting error. He also listens to a ton of conservative and conservative-christian talk radio, and rails against any foods that aren't home-grown, or healthcare that isn't utterly naturopathic.

I know a guy who must read the same news sources. The funny thing is that I end up half agreeing that things are pretty well fucked and on a path to unhappiness, but from the opposite direction (I blame the structural issues leading to inequality, for example). In the US, looking at the likely presidential candidates in both parties does not give me any additional confidence, either, except in getting more of the same.

He is convinced that stockpiling guns and gold is a viable solution, but I'm not convinced.
posted by Dip Flash at 6:28 AM on May 25, 2015 [2 favorites]


He is convinced that stockpiling guns and gold is a viable solution, but I'm not convinced.

See, that's the wrong strategy. Stockpile food and ammo - while the goldbugs and gun hoarders are trying to eat their shiny yellow metal and are reduced to having fifty AR-15-shaped clubs, I'll have plenty to eat and guns that still go bang.
posted by Punkey at 6:31 AM on May 25, 2015 [4 favorites]


"As for plausible recession triggers, we highlight four major risks: a rise in US wages which leads to a falling profit share and a major equity decline; ..."

It's strange that a rise in wages, moving surplus from stockholders to workers, is a "major risk." Shouldn't a rise in wages be thought of as a good thing, especially given recent stagnation there? Or is this just a sign that too much of the economy's health is being vested in stock prices, which then have to stay high for everyone to be happy, even non-stockholders?
posted by zittrain at 6:33 AM on May 25, 2015 [9 favorites]


I'd say it's more a sign that this guy has a few really poorly formed assumptions. He's assuming that "More Wages" equals "Less Money For Corporations", because obviously people just take every penny they get and stuff it in financial institutions oh wait that's just rich finance people
posted by Punkey at 6:36 AM on May 25, 2015 [6 favorites]


QE skeptics are boring. They have made wildly divergent predictions about its bad effects, been disproven again and again,

And all the promoters of QE can say "it would have been worse without it" and by that they mean shareholders and banks would have been worse off, but no one can explain for me why a supply side policy like QE makes any sense at all in the current deflationary trend.

I very clearly see this money keeping equity prices high (and bond prices low), but where is the trickle down if there is no demand to pull it?
posted by three blind mice at 6:42 AM on May 25, 2015


See, that's the wrong strategy. Stockpile food and ammo - while the goldbugs and gun hoarders are trying to eat their shiny yellow metal and are reduced to having fifty AR-15-shaped clubs, I'll have plenty to eat and guns that still go bang.

I recently learned from him that you can order ammunition by the pallet. I like shooting, but a pallet of even .22 would take me a couple of lifetimes to use up, never mind a bigger caliber that isn't as much fun to shoot. (Also, that people are buying pallets of ammunition helps explain why there are still shortages of many calibers in stores and have been for years.)

The stockpiling thing is just a sidenote, though, of the general pessimism I hear from friends of all political persuasions. It's vanishingly unusual to hear someone being optimistic about the economy and political system, and things like the persistently low interest rates seem to be part of that.
posted by Dip Flash at 7:07 AM on May 25, 2015


Didn't the US already do a kind of 'helicopter money' thing with the stimulus checks in 2009 or 2010 or whenever it was?
posted by snuffleupagus at 7:15 AM on May 25, 2015


The problem of that was that it was only given to people that filed taxes - which meant that the lowest-income people missed out.

As for the low-interest-rate paranoia, that's another mistaken concept - low interest rates are great for consumers. Lower loan rates, lower APR on credit, it allows for consumers have greater buying power and especially allows for them to increase their equity. Of course, you have to be adults about using it and have good consumer protections (yay CFPB). If nothing else, super-low interest rates encourage banks to stop simply sitting on their money and making more off the interest rate and puts it back into the economy, priming that economic pump.
posted by Punkey at 7:20 AM on May 25, 2015


I recently learned from him that you can order ammunition by the pallet.

9mm 115 gr.
Pallet of 50,000 rounds
Price:$9,969.50


This is not exactly the type of thing I need to see on Memorial Day morning but on the other hand this is exactly the kind of inside dope I never had access to before the Internet.

I wonder what the percentage of firearms enthusiasts have fired off 50 000 rounds in their whole life? If you went to the range 2X a week and fired 200 rounds per trip that is like a two and a half year supply.
posted by bukvich at 7:54 AM on May 25, 2015


After 50,000 rounds you would probably need a new pistol.
posted by Steely-eyed Missile Man at 8:47 AM on May 25, 2015


After 50,000 rounds you would probably need a new pistol.

And better aim.
posted by Thorzdad at 9:03 AM on May 25, 2015 [11 favorites]


and a new barn
posted by pyramid termite at 9:31 AM on May 25, 2015 [9 favorites]


i've been hearing rumors out in wacko-land that the next step is negative interest rates combined with the outlawing of paper money
posted by pyramid termite at 9:33 AM on May 25, 2015


Fiscal policy-- a new WPA would be a start. Nah, we have robots to build our roads and scientific facilities, stage our plays, paint murals, develop mathematics, and protect arable land.

Clearly today robots and information technology can provide us with:
5,900 new schools; 9,300 new auditoriums, gyms, and recreational buildings; 1,000 new libraries; 7,000 new dormitories; and 900 new armories. In addition, infrastructure projects included 2,302 stadiums, grandstands, and bleachers; 52 fairgrounds and rodeo grounds; 1,686 parks covering 75,152 acres; 3,185 playgrounds; 3,026 athletic fields; 805 swimming pools; 1,817 handball courts; 10,070 tennis courts; 2,261 horseshoe pits; 1,101 ice-skating areas; 138 outdoor theatres; 254 golf courses; and 65 ski jumps.
Link
Actual human labor? Obsolete, other than coding for the robots that build our stuff. Sorry, surplus population. Maybe if we're feeling generous we'll throw you a basic income.
posted by wuwei at 9:42 AM on May 25, 2015 [7 favorites]


I used to look forward to these posts because Mutant would sweep in and explain why the author might be right or might be wrong but he's disappeared and so now these threads just scare the crap out of me.
posted by photoslob at 9:51 AM on May 25, 2015 [14 favorites]


Basic Income on Reddit

I like the idea of Universal Dividend rather than Basic Income, though they are similar ideas. It is all of human history that has created the world that no longer requires everyone to work for progress to be made; the people currently in charge of the capital shouldn't be the only ones to receive the dividends..
posted by GregorWill at 9:53 AM on May 25, 2015 [5 favorites]




i've been hearing rumors out in wacko-land that the next step is negative interest rates combined with the outlawing of paper money

You don't need to outlaw paper money at any plausible negative interest rate. Any amount of physical currency worth worrying about has non-trivial carrying costs.
posted by PMdixon at 10:04 AM on May 25, 2015


Just give everyone a tax credit for like, $20,000 and then adjust the rest of the tax rates. If you didn't make any money, you get a $20,000 refund when you file your taxes. You could even setup automatic filing of 1040EZs if nothing has been filed by April 15th.

Quantitative easing is fine. I think the problem is that it should be complimented by fiscal policy. It makes a good opportunity to re-build and upgrade infrastructure. Especially all of those things with social benefits that will allow more and better economic growth when things recover.

The "what" part of economics isn't very hard. It's all the other details that are hard to get right (how much, who gets it, how does it get spent, etc.).

The problem is that it would take an act of Congress to actually do it which they won't do because the folks at the top are doing just fine using the just the tools we have now (QE).
posted by VTX at 10:11 AM on May 25, 2015 [1 favorite]


The problem of that was that it was only given to people that filed taxes - which meant that the lowest-income people missed out.

It was a refundable credit for earned income. People that wouldn't usually file could file to get the credit.

IRS FAQ.
posted by jpe at 10:15 AM on May 25, 2015


Nouriel Roubini wrote in March: The Negative Way to Growth?, I found it via Ian Welsh: A negative interest rate world? Why?
posted by the man of twists and turns at 10:25 AM on May 25, 2015 [1 favorite]


Excuse me if I don't take the word of a spokesman for a convicted money laundering operation at face value.

You don't have to, because there were no prosecutions and no convictions.

I suspect you are referring to the 2012 allegations that HSBC actions enabled drug cartels to launder $881 million. HSBC admitted to a willful failure to maintain an effective anti-money laundering program. The bank entered into a deferred-prosecution agreement and paid a fine equal to five weeks worth of profits.

this guy has a few really poorly formed assumptions

Indeed. The HSBC report predicts that the next recession may be caused by rising wages, because it will result in decreased corporate profits, which reduces household confidence. In other words: "Hey! I'm getting paid more! The economy must really suck!"
posted by compartment at 10:30 AM on May 25, 2015 [8 favorites]


"In the absence of conventional policy ammunition, an addiction to QE could ultimately mean that the second great depression was only postponed, not avoided altogether."

Obviously taking the HSBC executive's talking points with a grain of salt, and I'm definitely not an economist, but this seemed intuitively true to me back when QE started and I still haven't seen a convincing argument that it isn't the case.

low interest rates are great for consumers. Lower loan rates, lower APR on credit, it allows for consumers have greater buying power and especially allows for them to increase their equity. Of course, you have to be adults about using it

People aren't "adults about it", which is a big part of why real estate prices are super bubbly again, even in a lot of the same places in the US that were hit hard by the last bust.
posted by junco at 10:46 AM on May 25, 2015


low interest rates are great for consumers.

Funny that, because I see functionally no difference between retail lending rates at a 2.5% base rate and at a 0.25% base rate. It's just an extra bunch of margin for the bank.
posted by ambrosen at 10:49 AM on May 25, 2015 [2 favorites]


Jubilee!
posted by eustatic at 11:40 AM on May 25, 2015 [1 favorite]


More on the concept of debt jubilee.
posted by emjaybee at 12:06 PM on May 25, 2015


I'm getting a little tired of conservative reappraisals of the accomplishments of FDR's New Deal. Yeah, WWII was a boon to economic recovery (and then some!), but just the idea that some rich and powerful people had concern for the well-being of humans very much not rich and powerful was an almost incomprehensible tidal mind-shift in American politics, comparable to the mitigating effects of the rise of Christianity in the often mind-numbingly cruel Mediterranean civilizations. Conservative thought always seems to have one arrow in its quiver: Let's chicken-bone things to death! Yay, us!
posted by Chitownfats at 12:28 PM on May 25, 2015 [4 favorites]


Interesting how "mature capitalism" looks a lot like "infant capitalism". Guess that middle part was merely a weird anomaly.
posted by telstar at 12:31 PM on May 25, 2015 [1 favorite]


Now the Bank of England needs to deliver QE for the people[*]
With fiscal policy off the table, and existing monetary tools exhausted, we propose that the government legislates to empower the Bank of England with the ability to make payments directly to the household sector – QE for the people. With this tool the Bank would be equipped to mitigate any sharp slowdown in the economy, caused by domestic or external factors, such as a deflationary shock from a Chinese or US recession, or a continued slump in the eurozone...

Consistent with operational independence of the Bank of England, the size of payments and their timing should be solely under its control, and subject to the inflation target. Parliament needs to equip the Bank with the infrastructure to administer payments, and determine in advance the recipients. An equal payment to all households is likely to be the least controversial rule. It would have an immediate impact on spending and it is transparent and fair – favouring neither borrowers nor savers, rich nor poor, nor one demographic over another.

Some will object that this is fiscal policy, and should not be the remit of the monetary policy. This is misleading. If the distinction between monetary and fiscal policy hinges on the latter involving redistribution, then the Bank is already a fiscal policymaker insofar as changing interest rates redistributes between banks, savers and borrowers. If the distinction rests upon the risk of the Bank making losses on its balance sheet, then QE has already broken that line.
also btw...
-Is Finance Parasitic?
-Social Costs of the Financial Sector
-The top 25 hedge fund managers earn more than all kindergarten teachers in U.S. combined
-What Do Rich Countries Have in Common? Big Government
-Big Business Is Getting Bigger
-The Revolt of Small Business Republicans
-1776: The Revolt Against Austerity
-Tangles of pathology
posted by kliuless at 12:34 PM on May 25, 2015 [6 favorites]


listening to an economic report by a large bank is like getting horse-betting tips from someone who's 10 grand in at the race track. the only question is what bets HSBC have made at what odds. You can probably work backwards from this "report" and make an educated guess...

alternately, if HSBC is making more money of more traditional banking activities, it's a question of working backwards on what HSB wants it's clients to do.

either way...
posted by ennui.bz at 1:01 PM on May 25, 2015 [2 favorites]


Speaking of previous form, just a reminder that the Telegraph is an arm of HSBC's PR department.
posted by pascal at 2:26 PM on May 25, 2015


I trust the Telegraph's finance reporting about as far as I could throw a truck.

Probably mentioned numerous times already, but the bastards at HSBC basically call the tune at the Telegraph.
posted by Nevin at 2:35 PM on May 25, 2015


You don't need QE for the people, you don't need Helicopter money, you don't need any clever fiscal monkeying about.
It's very easy to fix the economy.
Tax the people with a lot of money, tax capital gains the same as labour gains.
Pay generous welfare, invest in public healthcare, infrastructure, education, police (all the things that a government is supposed to actually do anyway)
Fixed bam.

What they are saying is that they don't have any any policy tools which keep the banks rich, because having all the wealth flow upwards into a tiny concentrated black hole is obviously unsustainable.
posted by Just this guy, y'know at 3:14 PM on May 25, 2015 [11 favorites]


Governments need to spend and take on debt. Germany needs to run some inflation to ease deflation in Southern Europe. The answers here are pretty straightforward. But northern Europeans are having too much fun tut-tutting at Southern Europe while inflicting a Great Depression on them.
posted by persona au gratin at 3:23 PM on May 25, 2015 [3 favorites]


The US did the equivalent of launching some model rockets with pocket change in 08-09. The stimulus was about half the size it needed to be, with much more money needed for state and local governments to keep them from laying off tons of people. Also, immediately after the ARRA, we turned to 'fiscal discipline.' Just as FDR did in 1937, with similar results.
posted by persona au gratin at 3:27 PM on May 25, 2015 [4 favorites]


bukvich: “If you are the deranged, Keynesian archon at the centre of all this mess, the idea of inventing a whole new currency that you control entirely and then totally control whatever everyone does with it just… makes sense.”
Where do people come up with junk like this?
posted by ob1quixote at 4:21 PM on May 25, 2015 [1 favorite]


Idiots who think that calling something "Keynesian" is the ultimate, argument ending insult.
posted by wuwei at 8:51 PM on May 25, 2015 [1 favorite]


Guys guys, it's all cool.
Check it - we can totally start another bubble with some financial "innovation"! (meet the new innovation, same as the old innovation)
posted by symbioid at 10:39 PM on May 25, 2015 [1 favorite]


I think it's terribly revealing that the idea of spraying newly minted cash from a helicopter is "humorous", while creating new money via mechanisms designed to keep it safely in the hands of the already incredibly rich somehow isn't.
posted by flabdablet at 7:27 AM on May 26, 2015 [2 favorites]


There are a number of things which need to be adressed, I've been thinking.

First of all is of course the 'too big to fail' bollocks: what should have happened is to let these banks fail. Let the national (non-private) banks take over all accounts up to the national insurance amount and buy up the infrastructure of the fallen banks. This would have fixed banking for 90% of the populace (if not more!) as they will not lose any money due to financial guarantees. All it would mean would be a massive re-branding (extra jobs! PR, graphic design, production in print, cards etc etc etc!) and a movement of personell from dead banks to the government. They might not even have to move at all, because it would be a paper mopvement; all assets and personell would remain in place, just be under government auspices. A 'run on the banks' would not have happened as long as money kept on flowing from the ATM: no-one would have cared. Except of course the people who had more than the insured amount in one bank ... so a fix would have to have been provided for real businesses. And the screaming rich? Well, if their accountant had done their jobs, they'd have money in different banks, money overseas, buildings, stocks etc etc etc. They'd still get to eat everyday.

But, what happened instead? The BANKS got bailed out. And here we are now. What could also have happened (and I have NEVER heard of this option even being discussed, but it is so obvious) is that the PEOPLE could have been bailed out. Had all that bailout money been lent to the people, yes, even the bad loans, you could have had 20 million households outright own their own houses. The government of the people, for the people would have done something for the people.

The banks would get their money, those loans would be backed by the government who could restructure them instead of throwing people out of their homes and businesses going into bankruptcy because even though they were solvent, had orders coming in etc, they couldn't make payrol because the banks wouldn't loan them anything.
Now, of course, this would mean the government had some bad loans and defaults (but less, because they would not operate like banks would due to not having to make a huge profit). So to pay for this you do the obvious: you shave the one with the most hair. Income tax, tax on investments and stocks; back to the good old days when life was actyually better for everyone. The rich might not be able to buy that third island, but equality was high, more people worked real jobs which paid the bills. It has been done before and the success is proven.

And the most obvious: a tax on stockmarket transactions. The stockmarket is necessary. But making money betting on stocks (every trader knows this and admits to it: it IS gambling! Just with other people's money and they always get paid), just transferring stocks a few times ... this is FICTIONAL WORK. Above a certain frequency needed for liquidity and fluidity, it doesn't produces ANYTHING. High frequency trading is an INSANE construct, yet we have allowed it to make so much money that entire skyscrapers in Manhatten close to wallstreet have been gutted from the inside out and instead of being filled with tennants, they are filled by serverracks so that HFT's can trade a millisecond closer to Wall Street.

And this is the curious thing: the banks have power because they have money. They earn this money doing essentially worthless things which we have allowed them to do. And it is so easy to stop it, to make banks be what they were; to make it so much less sexy and bring it back to what banking used to be: boring accountancy which allows people to store, save, manage and borrow money. A simple accounting service with some as-stable-as-possible mostly risk averse investment which we let go to shit because we decided they are allowed to gamble.

So make them divest the gambling arm and if seperate entities still want to gamble, fine, but let them pay a tax ever time they want to gamble. It is something we, as a society, just have to choose to do. But so far we have chosen not to. Yet.

Oh, my, what a rambling post. And I haven't even come to the root cause of all of this. The fact is that we have this absurd notion that there are no limits to growth. If we are to solve the root cause, we need to admit that, after a new tech has been introduced and everyone has access to it, growth stops. Once everyone has a house, a fridge, water, electricity, food, a means of transportation, a computer, we are GOOD. The economics of it will only grow again once something new comes along which people need (or, tbh, want even if there is no need). But because we need growth, we get built in obsolescense instead of fridges which last thirty years and can be repaired (but the cost! people will say, to which I say bollocks, the cost is marginal for a lot of objects and easily defered over the lifetime of the object [see Grimes' theory of the cost of boots]).

Crap, I really have to do some work, so I apologise for not fully fleshing out the last paragraph and linking consumerism to banking to governments ... but this post is WAY too long already and I think the second paragraph as it stands is open to too many holes which I haven't the time to fix for now. To all who read this far: wow, not easily bored, are you? Thanks for making it this far!
posted by MacD at 10:39 AM on May 26, 2015 [5 favorites]


You don't need QE for the people, you don't need Helicopter money, you don't need any clever fiscal monkeying about.

while i'm practically agnostic[*]
Where will the money come from? Dirty secret number three: It doesn't matter. Print it. Borrow it. Tax it from the super-rich, in whose coffers it's merely sitting idly. It does not matter one bit. It's a second order question. If the U.S. doesn't invest in public goods, it will not prosper; and if it doesn't prosper, it cannot pay off the debts it already has.
i guess in some sense i'm for whatever politically can make a beachhead against the status quo -- unions, minimum wage, expanded EITC, basic income, job guarantee, new new deal, carbon tax, cap and trade, negative income taxes, negative interest rates, etc. -- but as mentioned above i also think we're in uncharted waters, which in a larger sense is the whole problem so it behooves us to better understand the current situation more comprehensively to figure out what works in the present context rather than just what is politically expedient.

like, for example, i think political expediency has gotten us a military industrial complex that not only uses up huge amounts of resources but is ineffective if not downright damaging to our national/global strategic interests (unless you consider it a work program for the violently minded -- socialism for Republicans -- speaking of Keynesianisms...)

anyway, so the strategy i think is to work from first principles (develop mathematics!) -- taking a page from elon musk :P -- and experiment from there, drawing on comparative past experience and contemporary alternatives. however, evolving functional 'institutional design' isn't so much an engineering project as a teleological exercise involving competing visions of the future (that can be taken much too far as the bloody histories of the 19th and 20th centuries can attest).

what then are some 'first principles' that we can start from? from a physical sense i think technological revolutions in energy and communication drive political revolutions (v.broadly: prehistoric-tribalism --> agrarian-feudalism --> industrial-nationalism) which i believe everyone is pretty well aware of. given the sense that we're now undergoing something of a similar transition perhaps as solar/battery (and genome sequencing/editing?) costs come down and moore's law rolls on in computation, memory, networking and sensors, what does that mean for productive and political organization?

ronald coase and cybersyn seem prescient regarding first principles from a social perspective, but if a price system remains critical to the organization of society i'm not sure a lot of people have a solid grasp of what money is -- bits of paper and electronic keystrokes? -- and how it functions, particularly judging by our current discourse, especially by our present political leaders (and perhaps even our technocratic ones?) altho obviously we all have an intuitive understanding of how money works -- what it does and how to get it (beg, borrow and steal) -- once you start digging into the weeds of balance sheet operations and liquidity/maturity/credit transformation, nevermind the origin and history of central/shadow banking, it's easy to get lost pretty quickly...

suffice it to say that mediating complexity while sometimes useful is easily abused whether by information asymmetry, willful obscurantism and/or regulatory capture. raising public awareness and knowledge then is the first step to transparency and accountability -- like tackling TBTF or implementing tobin taxes, etc. -- maybe even opening the door to radical simplification of the financial system.

part of that, i'm convinced, is for public institutions to reassert control over the money supply:
...the functions of money and credit are separated and assigned to the public and the private spheres, respectively... public authorities would retain control of money creation, but credit creation would become fully disintermediated. [...] But how do you prevent the formation of inside money [shadow banking] given that even non-financial firms are making strides in this capacity?

In the authors' opinion it's all down to accounting standards. Their key proposition, consequently, is to redefine what constitutes technical solvency as... The total value of financial assets of a company has to be less than or equal to the value of its equity. As they explain: "This reading highlights that companies have to back assets that are someone else's liability with their own funds, that is, equity. Companies cannot finance credit with someone else's credit."

Over in the public outside-money world, meanwhile, the authors propose that money issuance be fully digitised so that policymakers are able to charge both liquidity fees (negative interest rates) or to distribute unconditional income as and when needed for price stability reasons. As they conclude, in this way the intimate link banking creates between money and credit is broken: "It assigns the current payment function exclusively to money. The monetary authority can exert full control over the quantity of money in circulation, because credit can no longer be transformed into money. Under a systemic solvency rule, credit creation does not lead to money creation."
everything else -- "Pay generous welfare, invest in public healthcare, infrastructure, education, police (all the things that a government is supposed to actually do anyway)" -- then becomes a lot easier! (taxation being the reverse operation in MMT ;)

what else can be done? check out "After Piketty," 12 policy proposes to reduce inequality of outcomes[*] & Green Party Policy[*]

also btw... posted by kliuless at 2:03 PM on May 26, 2015 [5 favorites]


Where do people come up with junk like this?

I think his source for that was ZeroHedge. Leading German Keynesian Economist Calls For Cash Ban. It is odd that people who are in favor of easy monetary policy can be described as Keynesians but maybe that is a language evolution past prescriptivist
phenomenon.
posted by bukvich at 5:10 AM on May 27, 2015


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