IMF head Christine Lagarde has flip-flopped twice on the impact of Brexit.
- Ahead of the vote on Brexit, IMF head Christine Lagarde warned of a prolonged period of uncertainty.
- On July 3 Lagarde, said Brexit provides the EU a “Better Opportunity for Reform“
- On July 7, Largarde was worried Brexit would lead to “Disastrous” Trump-Style Protectionism
View number 2 is ridiculous. Yet one can change two characters in the sentence and get things correct.
Stellar Opportunity for UK
The idea that a group of 27 nannycrats are going to agree on needed reforms and implement them is ridiculous.
However, change sentence number 2 to “Brexit provides the UK a Better Opportunity for Reform”, and you have the right idea.
Let the EU Self Destruct
France and Germany want financial transaction taxes. Let em. It will mean more business for the UK, not less.
France insists on agricultural tariffs. Should the UK care now?
The EU does not like Ireland’s low corporate tax rate so much so that the EU is Considering a Minimum Corporate Tax.
Should the EU insist on such silliness, it will drive business to the UK, not away from London.
Trade War the Right Way
The UK should preemptively stick it to the EU by slashing its corporate tax rate to 10%, lower than any country in the EU.
| Country | Corporate Tax Rate % | Highest | Lowest |
|---|---|---|---|
| Austria | 25 | 55 | 25 |
| Belgium | 33 | 48 | 33 |
| Bulgaria | 10 | 40.2 | 10 |
| Croatia | 20 | 20.32 | 20 |
| Cyprus | 12.5 | 29 | 10 |
| Czech Republic | 19 | 45 | 19 |
| Denmark | 23.5 | 50 | 23.5 |
| Estonia | 20 | 26 | 20 |
| Finland | 20 | 61.8 | 20 |
| France | 33.3 | 50 | 33.3 |
| Germany | 29.65 | 56.8 | 29.4 |
| Greece | 29 | 49 | 20 |
| Hungary | 19 | 50 | 16 |
| Ireland | 12.5 | 50 | 12.5 |
| Italy | 31.4 | 53.2 | 31.4 |
| Latvia | 15 | 29 | 15 |
| Lithuania | 15 | 20 | 15 |
| Luxembourg | 29.22 | 40.29 | 28.6 |
| Malta | 35 | 35 | 35 |
| Netherlands | 25 | 48 | 25 |
| Poland | 19 | 40 | 19 |
| Portugal | 21 | 55.1 | 21 |
| Romania | 16 | 38 | 16 |
| Slovakia | 22 | 45 | 19 |
| Slovenia | 17 | 25 | 17 |
| Spain | 28 | 35 | 28 |
| Sweden | 22 | 60.1 | 22 |
| United Kingdom | 20 | 52 | 20 |
| Euro area Average | 24.6 | 36.8 | 24.3 |
| European Union Average | 22.8 | 35.2 | 22.8 |
The above table created from Trading Economics data.
Black Holes
France, Germany, and Belgium are hell bent on sticking it to the UK to make a point.
Recall that the Belgian Premier Warns EU Won’t Help UK Out of “Black Hole”
Ironically, If the UK does things correctly, it will be the EU that falls into the black hole.
Set Example for the World
Shed of inane EU rules and regulations coupled with the freedom to do anything it wants, the UK has a golden opportunity to embrace the benefits of genuine free trade and growth via low taxes.
I have often stated the first country that fully embraces free trade, regardless of what any other country does, will come out stunningly ahead.
The UK now has that chance.
Mike “Mish” Shedlock.
Hi Mish,
Thanks for your excellent blog and particularly your recent coverage of Brexit- its nice to hear some positive views on outcomes for the UK because there is so much negativity in the media at the moment regarding the UKs economic prospects outside of the EU. As ~40% of our exports go to the EU, the prospect of loosing free trade with the EU is an immediate worry on everyone’s mind as this would be quite a gap to fill in our exports. I appreciate that if no free trade agreement were reached, there are limits on tariffs that could be imposed, but I’ve read that the real hurdle wouldn’t be the tariffs, it would be the so called “Technical Barriers to Trade”. What are your thoughts on these technical barriers, and could they really be used to dramatically hit UK exports to the EU?
Will UK take it? That is the question. I hope it does and does well fast. Then you can watch the EU disintegrate.
BTW, if you want to come out of the EU, the first thing you need to get is your national currency (those stuck with Euro unlike UK) going. I hope Le Pen and Grillo have started the work on this. If these two pull out, it is game over.
But given that people have turned out to be sheepies, hoping for EU disintegration might be wishful thinking (but then Brexit gives me some hope that sheepies might bite the bullet some times)
This sounds like the usual extremist corporate tax rate fundamentalism. ie it’s a spiritual belief, not logical, that tax rates should be lowered. How can broke countries with terrible public services (Ireland and UK) and large trade deficits lower their revenue base? If you said Netherlands, Germany, Denmark, all countries with great public services and sound economies, should lower taxes, that would sound like a more reasonable argument. They also all have higher tax rates than UK/Ireland? In light of this where is the logical argument that lowering tax rates will magically boost the economy?
Having said that I appreciate the premise of the rest of the post.
Lowering a tax rate not only makes a country more attractive for those affected by it, hence increasing the revenue base. It also implicitly simplifies it, by making exceptions and deductions less critical.
The latter reduces wasted resources currently directed at minimizing taxes, and at lobbying for more preferential treatment. With a 30+% tax rate, the most important job of any corporation charged with maximizing shareholder earnings, is the job of minimizing the tax burden. Which leads to unproductive waste in the current, and, even worse, over time fills the executive ranks of companies with guys good at dicking around with tax law, rather than at doing something more useful.
Ditto for individual income taxes and sales taxes. IOW, activity taxes, where exactly how one gets away with “classifying” an activity, ends up having a greater effect on the activity’s profitability, or even financial sustainability, than whether one performs it efficiently or not. The effect on corporations is just much more obvious, as their accounting is more detailed and available. While individuals tend to just suffer in silence, dealing with the nonsense. Except for the wealthiest ones, who, like corporations, can be relied upon to “spread their wealth” to such useful types as lobbyists and tax deduction specialists.
Most people can’t understand that the current destruction of wealth by government compounds into the future. Wealth creation that is destroyed by present day government actions will not produce any follow-on wealth and that non-existing follow-on wealth will also not create any additional wealth.
I would venture to guess that since the advent of the modern state far more wealth has been destroyed or aborted by government than has ever been created in Man’s history.
Consider two main sources of tax revenues; people and corporations. As a thought experiment, take corporate taxes to 100%. The corporations will pack up and leave, so you get no revenues there. The people become unemployed, so there’s no revenues there either, since they have no income. Raising taxes on corporations sends you in the direction of zero revenues.
Now take corporate taxes to zero. There’s no revenue from corporations in this case either. Instead, the corporations flock to your country to do business and hire everybody in sight. Employment soars, and revenues from people keep coming in. So moving towards zero corporate taxes tends to increase employment and revenue keeps coming in.
Those are the two extreme points, one end is zero revenue and the other end is positive, so you know the general trend in the curve. Higher taxes send you toward the zero end point. There’s probably an optimum value somewhere in the middle. The question is, where?
This is just the simple explanation. Reality has a lot more factors in play, but the end points of the curve stay the same.
Planning 13%
On one hand it looks like government is AGAINST the people instead of government of the people. Globalization is starting to look like a code word for government control of the masses for the benefit of those in control, who profit from either being in control or working for those who are in control. Look at how nobody really cares that Hillary Clinton is a perpetual liar, questionably competent, and more in service to herself than the voters. (Although I suspect that her ‘getting away with it’ is an unconscious motivation for some recent civil unrest. Expect more of the same if I am right.)
On the other hand, massive monetization, interest rate manipulation, and out of control deficit financing is a logical outcome of a population that wants government to provide free stuff forever. Nobody wants to pay their own way if they can get someone else to do it. The rich see monetary printing presses as an opportunity and a right. The EU is just doing what the European people actually want and people who want out are seen as the actual free riders who will exploit the constrains of the remaining EU members.
If the people of the EU didn’t want such horrible government, it wouldn’t be there. It’s been too bad for too long without it being a part of what the citizens of the EU actually want, sad as it may seem. It’s growing into a form of civil war – those who want big encroaching government in order to get free stuff and those who want to be left alone. Seem irrational, but provide an alternate explanation that makes sense and relates to actual behavior over time.
Stockholm syndrome ?
The Government will always be against the people. Always have been, always will be. The most enduring legacy of the American founders, was that they realized this, hence tried to put hard limits on what the government could do. Seemed to work for awhile, too, but within a century, it was back to business as usual, with restrictions put on the people “for the people’s good.” Expensive, and always getting expensiver, to implement ones, of course; with the check payable to the government.
Because, after all, isn’t the chief complaint people have while walking down the street, that they’re just too free? Don’t they really, really want a ruler to take ever more of their livelihood, so he can spend it on placing ever more restrictions on those pesky, horrible freedoms that those mean, nasty dead white males wanted to saddle them with?
What is Man but a social animal wedded to a chain of command hierarchy?
Or brains can handle maybe 100 people socially but a chain of 1x100x100x100x100x100 can give you rule over everyone on earth.
Yes – I’m even more sure now.
People have the government they want. Right now, we are in a kind of world wide civil war –
The parties …
Those who believe in the benefits of big government with respect to the free stuff it can provide. Government is a resource to mine. It can print money and raise asset prices without regard to value or hard work. Politicians see opportunity by using debt that will never be repaid to finance free stuff for the people, none of whom care about diminishing returns as long as the free stuff keeps coming and the printing press keeps running. War is a business opportunity and a marketing challenge.
vs
Those who see benefit in the value of their labors and don’t like to see it stolen by others who just slide by and claim they deserve the free stuff.
I think the big government types will keep winning for a lot longer.
More like “those pulling the cart versus those sitting in the cart”.
Same as it ever was.
Agree CDR.
People want something for nothing is the mood of most country’s of the world. Many people will continue to do their best to eek out a good living. Most though will do their best to climb on the government teat. Why Not get on it? Think about it for a minute. Successful people are being criminalize, property owners in some states are just greedy, you did not make your business successful as the government did because you use their roads, men are being feminized and discounted in all media outlets because we are irresponsible beasts, it takes a village not a wholesome family to raise your children, I could go on and on.
Pittsburg publically posted all the benefits from the government at the state and federal provides to a uneducated single mother and the dollar amount was $57, 767.00. That is why more and more continue to say screw it I will not work. But what many forget there will come a time to pay for all of it and handouts will be cut back. Cut backs are already happening in Europe as they can no longer pay for it. Thus austerity. Of course they are mainly screwing their aging population that paid for this all of their working lives. The career politicians using the media love to point fingers at old folks even though they are the ones responsible for doing this. PSYOPS is working great here in the USA blaming boomers and then blaming millennials and everything in between. Lets pit one generation against the next so they will not look into the real problems. Corporate, financial and excessive bailout for these organizations. Education in the USA is promoting dummies and do not want any critical thinking skills in their children as long as everyone is a winner.
The real reason the federal government wants a 15.00 dollar minimum wage is they see this is happening. They need to get people off the teat otherwise they know in some point in time they will have to cut bennies or it will go bust. The gov forgets people that like their handouts and just cutback their hours. I know several in my bakery wanted their hours cut back so they would not lose their bennies. I had to put out a memo stating you people work the assigned hours or quit and guess what three quit.
I love how the federal government wants to blame business owners and yet their minimum wage is lower then most states. The fed has yet to change theirs. Do not believe me go hit the Davis-bacon site. The minimum wage has not changed for unskilled labor.
Americans in particular want to go with a winner and this is killing us. Media portrays Clinton as the savior and Trump as the killer of the American Dream. Even though Hillary has lied and was caught on live TV interviews stating such lies, people ignore facts. I am not saying Trump will be any better but at least he is not an outright criminal. There pundits nothing to come and comment about during the election cycle. I honestly get tired of all the paid commenters on so many sites treating people like shit because they do not agree with them. What is even funnier is will Hillary lose access to classified information like every other person that committed these greaveous acts regarding classified information. This alone should disqualify her for election.
American now worship at the altar of consumerism and even the fed is blaming us for the screwed up economy. Of course they forget taxes, Obamacare, zero interest rates, bailing out the banks and oh 125 corporations including European banks using swaps, all the while we pleebs continue to be squeezed for every last cent.
As we posture for war and if one does indeed kick off all gloves are off when it concerns handouts. The only thing left to do is study history and you will find every empire collapsed when they went down this road and we headed down this road in 1971.
“Most though will do their best to climb on the government teat.”
Civil servants included.
I know quite a few. TO THE PERSON they have no clue how good they have it. All say the same thing about how hard they work, taxpayers getting their moneys worth, etc. But their compensation (imo) out of whack with the private sector. Budget shortfalls leading to RIF usually handled by attrition and hiring freeze … not actual pay cuts / firings. Most workers have to deal with nothing worse than a wage freeze.
Virginia facing budget shortfall of 1.5% for FY2016 (+1.7% increase in rather than forecasted +3.2%) leading to no wage increase for employees. The horror (compared to private sector).
https://finance.virginia.gov/news/newsarticle?articleId=15845
“Government is a resource to mine.”
Government is a substitute for the bounty of Nature in the mindset of a hunter-gatherer.
I have often stated the first country that fully embraces free trade, regardless of what any other country does, will come out stunningly ahead. Mish Shedlock
That might be true with roughly equal asset ownership by all citizens in a country since what workers lost in wages they might make up in dividends (yuck!) or capital gains.
But the UK doesn’t have roughly equal asset ownership so inexpensive imports are bound to hurt the incomes of workers.
But you’ll say “But the cost of living of workers will be lower.” Except price deflation is a hell of a way to try to foment economic growth since:
1) Debt is priced in nominal, not real terms.
2) Risk-free money hoarding should not be rewarded since progress requires taking risks, not “burying one’s talent in the ground” (Matthew 25:14-30).
But this is a fine opportunity for the UK to eliminate deposit insurance and other privileges for the banks and allow all UK citizens to have inherently risk-free accounts at the BoE itself.
“Risk free money hoarding”, is called savings. It’s a good thing. The more you save today, the more you have tomorrow. Government stealing people’s savings under childish pretext’ like the above platitude, otoh, is not at all a good thing. Theft never is.
Stealing people’s savings, are a boon to governments, though. As not only does it give them money for hookers and blow and their usual obsession, self aggrandizement. But it also renders the populace destitute enough to wag their tails like good progressive puppies, every time massa government promises to throw them some food scraps off the table.
“Risk free money hoarding”, is called savings. It’s a good thing.
Do as you please but don’t expect the money supply to not grow so you can steal from the young via deflation.
Government stealing people’s savings under childish pretext’ like the above platitude, otoh, is not at all a good thing. Theft never is.
One can steal by deflation as well as by inflation. You gold-bugs (I assume you are one) conveniently forget that.
I doubt anyone is advocating stealing by deflation. Also known as stealing others people’s money and burning it. Or other people’s gold and turning in into lead, or whatnot.
What you want, is neither systemic deflation, nor ditto inflation. But rather, a stable money supply. Gold, by now, would fulfill that role pretty well, although total supply is still mildly inflating, as it is still being mined, and is so bloody stable that deflating existing supply would really take some serious effort.
Depending on how broad of a money supply metric you are willing to use, a gold (or bitcoin, or any other “commodity” that is not just a theft-by-debasement vehicle for whomever happens to be in charge) base system can temporarily experience either inflation or deflation. Or stability. During manias, like over tulips, internet stocks or cheesy McMansions, any money broader than base, will inflate. Only to deflate back when the boom turns to bust, clearing up and reversing the previous excesses in the process.
As regards “the young”, assuming you mean young as in “starving student” asset poor, rather than as in heir to a Wall Street fortune, are exactly the ones being harmed by debasement theft. Ask anyone working their butts off for the “privilege” of living the cockroach lifestyle anywhere in the San Francisco bay Area. Just so that a bunch of e never-done-a-lick ex hippies can pretend they are “making” money by having the foresight to “invest” in a Haight Ashbury dope den, in the decade preceding the dollar’s decoupling from gold.
Inflation / debasement creates the chimera of added wealth, by transferring a society’s total purchasing power and influence; away from those having to work to receive compensation, for the benefits of those idly sitting on scarce assets. Even in upside down Australia, that is hardly benefiting the typical young person.
“I have often stated the first country that fully embraces free trade, regardless of what any other country does, will come out stunningly ahead.”
What metric?
Owners of capital getting richer? Sure
Gini coefficient? If you think the country’s number will improve … I’ll take the other side of your bet.
Big government dopes like Lagarde are terrified of Trump putting people back to work instead of sitting on welfare like Lagarde
If Trump would also stop the big government police state nonsense, he would be unstoppable.
Whatever Trump’s campaign platform does, Lagarde should shut up and get a real job
It’ all about the free shit… on both sides of the argument, that prevents the EU from getting permanently trashed.
Your whole argument , and that of the brexiters, works only if you buy into the argument that the uk got rich because of its innovative political, scientific and military strengths and could do it again if needed.
In other words- history will repeat itself.
But what if the history you have read up on is wrong?
Only time will tell.
Your whole argument, and that of the EU, is that prosperity rests on lots of lazy bureaucrats eating 5-star meals, driving around in chauffeured limousines, flying in private gulfstream jets, taxing everyone who does actual work — all the while giving really stupid “advice”.
What if that is the stupidest argument of all? We don’t have to wait for time to tell, we already know its stupid.
When the Eurocrats pay taxes and WORK a full day like everyone else (WORK does not mean punching a time clock while eating 5-star meals at a bureaucrat conference) — then we’ll talk. until then, shut up
Touche Frank Touche!
Mish, I’m sad to say that Leadsom pulled out of the PM race. May was against the Britain exit and having her in that position could potentially put them back to square one within the EU again. Unless I’ve misread about May.
http://www.upi.com/Top_News/World-News/2016/07/11/Leadsom-quits-Britains-prime-minister-race-May-now-only-candidate/8011468237867/
In less than a week, England identified TWO qualified females — and by qualified I mean neither of them has committed treason or perjury. They also found however many males, who also have not committed treason or perjury.
Meanwhile, in the US the democratic “party” is claiming that out of millions of members (half of whom are female) – they can only find one female able to run. And that one female has committed treason and multiple cases of perjury over decades (from Whitewater to e-mails).
England, with 1/5th the population, comes up with two law abiding female candidates on less than a weeks notice. After years of notice that Hilary is a lying crook, the US can’t even come up with one?
In any organization, those with less scruples wrt doing whatever it takes to climb to the top, will beat those with more of them. It simply cannot be any other way. The scummiest of all available scum, will always take the tops spot. Followed by the second scummiest, and so on. All the way down to the patsies spending their lives trying to be good by doing the best ostrich impression like their scummier “leaders” have taught them. Pretending things are somehow deeferent theez tiiime
Mish I hope you have communicated the same to the appropriate people in the UK.
NRN
While it is true “a bubble can stay inflated longer than you can stay solvent” that’s only if you’re levered to the non existent growth that backs these things up. The real truth is once these bubbles burst there is no recovery for decades afterwards. I think The Bubble™ just blew Great Britain out of the EU…but with the massive devaluation of the Pound and the now precarious security situation of the entirety of the Continent of Europe that the bubble will be the one that pays.
“Nannycrats” don’t pay…that’s just a fact. The cash has all been spent, the defaults are now going Supernova.
“The real truth is once these bubbles burst there is no recovery for decades afterwards.”
Exactly. But to take it another step, when bubbles burst, politicians convert the outcome from economic discomfort to political suffering. Sometimes quite severe.
The cash has all been spent,
Except the UK is monetarily sovereign and can easily create some more fiat.
The problem then is distributing it justly and that’s easily accomplished via something similar to Steve Keen’s “A Modern Jubilee”.
If there’s no recovery for decades the fault will be with those who ignore justice in favour of gold standard type thinking.
Justice only comes when the general population has the political capability to enforce it. That rarely exists in the world, and usually only follows after enough pain is dealt to the general population. Then the elite have to give back some level of justice so as to not find themselves being strung up on a light pole.
We are not there yet. Might be a decade or two out. But it is coming.
Then the elite just wait a generation or two. The general population starts getting wealthy and lazy. They give up their labor unions, high paying jobs, and stop realizing that only by working together can they hold their own. They start believing the elites are the job creators, the mighty John Gault’s upon whom they should bestow their trust. And the cycle starts over.
Since a debt jubilee paying off the billions of unsustainable debt that George Soros and friends took out to buy every asset in the world; while leaving their ownership of the world intact, is such a positive outcome and all……..
Printing cash doesn’t create wealth. Ever. All it does, is steal existing wealth, from those with less debt, to those with more. And for those who haven’t noticed; in the latter stages of debt fueled dystopias, “those with more debt” is nothing but another word for those who own all the assets debt can be written against. While “those with less debt,” are those too destitute to get even a minute of a banksters time.
Good, old fashioned, centuries-to-milennials old bankruptcy traditions, have always and everywhere worked well to sort out overindebtedness. You took out too much and can’t pay? Don’t pay, you are now debt free. BUT, the “assets” you acquired ownership to as a result of your debt binge, reverts to others as well.
As an example, let’s say a guy named George Soros ( poor guy. At least he gets well paid for his job as Chief public Scapegoat ) takes out a quadrillion of debt and buys every piece of property on planet earth (within reasonable roundoff, what he and a few of his buddies have done since the Dollar/Gold split was made final). So new, everyone else is stuck paying him rent, and have each racked up their credit cards and any other measly means of financing, just to make ends meet. Then, here comes the “debt jubilee.” Everyone’s debt gets paid off by The Great Father in Washington With The Orange Toupee. Cool, no more credit card debt! Ain’t orange hair wonderful… But, oops, my rent just doubled, due to all the extra money floating around…. And now that old George’s stuff has no debt against it, he can borrow against it again, this time to buy everybody’s kids kidneys as well, to add to his portfolio. And sit back until the next “debt jubilee” makes him the debt free owner of everybody’s kids’ kidneys…
Debt Jubilees, for them to work as the naive (Non Soros buddies) intend, must necessarily also be paired with asset redistribution. Which means nationalization. Which doesn’t really have a history of desirable outcomes.
Printing cash doesn’t create wealth. Ever. All it does, is steal existing wealth, Stuki Mo
Obviously you don’t understand how the government-privileged banks steal by simultaneously cheating savers and driving the population into debt.
The reversal of theft is NOT stealing; it’s restitution.
Learn about banking before you dare pontificate about theft. You’re clueless till you do and worse a tool of the banks and the rich, the most so-called creditworthy.
Andrew, you are the one who is clueless. If giving away money made people wealthy, let’s give everyone $1 trillion dollars. We would all be trillionaires but you are nuts if you think you would be wealthy.
Mish
All it does, is steal existing wealth, from those with less debt, to those with more.
Steve Keen’s “A Modern Jubilee” would give equal amounts to non-debtors. Pray tell, how that is stealing from them?
Of course it’s stealing. Inflation is theft. The losers in this scheme are the prudent with little debt.
It is impossible to give away free money and have everyone come out a winner.
But, oops, my rent just doubled, due to all the extra money floating around…
A valid concern EXCEPT Steve Keen’s proposal would limit new credit creation TOO.
And since the repayment of credit DESTROYS deposits and purchasing power then the fiat distributions can be coordinated with the new credit restrictions for NO NET INCREASE IN PURCHASING POWER.
Debt Jubilees, for them to work as the naive (Non Soros buddies) intend, must necessarily also be paired with asset redistribution.
The proper abolition of government-provided deposit insurance and other privileges for the banks would result in huge asset redistribution since the banks would have to liquidate their assets to obtain the necessary reserves and it could be contrived that the population had those reserves via equal fiat distributions to all adult citizens.
AA.
Two people live on an island.
They trade with paper money, they started with 10 each in an accord, and tend to round up the week on an even account.
The second person decides he wants to own the only house on the island, the shared shack they built together after being wrecked there.
Now the first person does not like the idea of sleeping under a palm, but he has an idea. He will sell his share of the house for 10, and with that he will pay the second to help build another shack for himself.
However the second does not like the idea as he will not have any money left to trade with the first for a breakfast, the custom being that the second trades a supper to balance accounts. So he asks the first to lend him 5, and the deal is done.
Days go by and the first has 15, the second 5, and the first asks the second to help him build a shack for pay…but the second has found out that he can trade his week quite happily with the first with only 5, and he enjoys, in a somewhat disturbing way, the privilege of being the only one around with a shack, and he feels no reason to do the extra work to help build a shack.
So the first starts to get a little peaved, and threatens to call in the five of debt of the second and watch him go without breakfast, and then offer to buy back his original share of the shack… fair is fair.
But the second… do you know what the second suggested???
That is right… ‘ Oooooh, times are haaaard that it should come to this, our poor little economy is threatened with ruin. RUIN !!! ‘
And then he suggests ‘ Let us accord a further 5 to each other, it could not be fairer, and all will be made good’
Do I need to continue…. ?
It is impossible to give away free money and have everyone come out a winner. Mish,
I assume you know that “loans create deposits”? Then what does loan repayment do? It destroys deposits.
Steve Keen’s “A Modern Jubilee” includes restrictions on new credit creation. Restrictions on new credit creation would be deflationary by themselves as existing credit was repaid with insufficient new credit to replace it.
So new fiat distributions can be metered to just replace the net deposit destruction that would result from restrictions on new credit creation for no increase in net purchasing power.
Of course, involuntary credit restrictions would be difficult to enforce but we could/should make deposit/liability creation by the banks much more dangerous by:
1) Allowing all citizens, their businesses, etc. inherently risk-free accounts at the central bank.
2) Abolishing government-provided deposit insurance.
3) Eliminating all other privileges for the banks.
Do I need to continue…. ?
What does your little island where “loanable funds” theory applies have to do with our world where government-privileged usury cartels are the rule and it doesn’t apply?
In the real world, with government-privileged usury cartels, “loans create deposits” but largely only VIRTUAL liabilities wrt the population.
So how can we have honest accounting with liabilities that are a sham wrt the population? We can’t and haven’t and thus intelligent restitution is called for.
Andrew,
the overriding, insurmountable problem with your jubilee theory, is that as long as money created out of thin air as debt, was used by those with preferential access to it (banksters, the previously wealthy) to buy up all existing valuable assets; as in every piece of land, every productive factory, every valuable patent, copyright or other piece of IP, every drop of water and every molecule of air; no amount of printing paper pieces and handing it “equally to everyone” will restitute, for those who didn’t have preferential access to the debt, what the illicit debt runup stole from them in the first place. Soros will still own everything on the planet. Except for a few measly paper pieces. And, post jubilee, Soros will own it all debt free, hence with no risk that he can ever loose it.
All the printing will do, is leave everyone with more worthless paper notes with which to bid against each other, for the right to take another breath of Soros’ scarce air molecules. Soros will still own every valuable piece of anything in the whole world. Now debt free. And not because he did anything in particular to deserve it. But rather, he just happened to have unlimited access to free money, with which he could buy it all.
Bankruptcy solves this problem, by restoring symmetry (to some extent), by divesting those who gained access to scarce resources as a result of having preferential credit access, of the assets they purchased with that debt. Putting the assets back into circulation again. Now at fire sale prices. Meaning, prices affordable to those who have to work for a living. While in the process serving as a reminder to posterity, that going deep into debt, isn’t just a one way panacea, but carries risk as well.
Which is why bankruptcy has been a process used in every society, formally or informally, to resolve over indebtedness, for centuries to millennia. While “debt jubilees” have never risen above the immature dreams of believers in hocus pocus. Or, at best, has been pressed into service by various Caudillos, using it to make themselves look like Dear, Big Hearted Leaders. Inevitably of dystopian backwaters in the midst of a free fall towards something even more dystopian.
no amount of printing paper pieces and handing it “equally to everyone” will restitute, for those who didn’t have preferential access to the debt, what the illicit debt runup stole from them in the first place.
It will at least eliminate a lot of private debt and if it can be done without increasing total purchasing power then why not?
I.e. How can rents go up if total purchasing power does not?
Also, the proper elimination of government-provided deposit insurance would cause the banks to divest themselves of their assets to buy the needed reserves from the population who would receive them via equal fiat distributions.
So we could at least redistribute bank owned assets to the population by doing what we should do anyway – eliminate privileges for the banks.
So why not do what we should do anyway FIRST? And not wait for unjust deflation to “cure” unjust inflation?
Bankruptcy solves this problem, by restoring symmetry (to some extent), by divesting those who gained access to scarce resources as a result of having preferential credit access, of the assets they purchased with that debt. Putting the assets back into circulation again. Now at fire sale prices.
That theory led to the Great Depression and ignores that government privileges for private credit creation have driven people into debt with their own legally stolen purchasing power.
Your solution is equivalent to looting one set of victims, debtors, in order to compensate another set of victims, non-debtors.
The proper solution is to bail out both sets of victims equally in a manner that does not increase or decrease total purchasing power and which causes the banks to have to divest* assets to the general population.
*To purchase the needed reserves for transfers to inherently risk-free accounts at the central bank as government-provided deposit insurance is progressively abolished.
AA
The current monetary/banking system is grossly distorted , I think we all agree on that . Efforts to reform it are inevitably going to include those distortions simply because they use it as a starting point .
For example , you talk of restitution , in a somewhat global sense maybe . However you will find that, legally speaking, banks have generally used the means allowed them , that the population did not have debt forced on it (except public debt) , that savers were not obliged to save with banks .
That is to say that those who agree to enter into debt do so for the advantage it seems to offer them . Granted that that very advantage is often a product of inflationary monetary policy itself ,but it makes them no less complicit in its enactment .
Those who do not partake in it , who refused that ‘advantage’ , are left behind as assets are snapped up by those who do .
True restitution cannot happen because all that exists is people’s agreements as to what means what and to who by whatever method is understood as effective at that point in time . It is all make believe , but people will defend the understandings that they deem most necessary to their survival , those that they trust for whatever reason .
…………….
… so to continue :
The two inhabitants of this island are in mid conversation , when on a piece of flotsam arrives … you guessed it , Government and Banker .
Government looks kind of organized and likes to carry a stick around at all times , Banker has the habit of rubbing his hands together , maybe he is trying to clean them .
Anyway , Government says ‘ I am Government , thank you for putting me in charge , my usu … my banker will from now on make sure that your 20 currency pieces are put to optimal use . Any questions ? ‘ … as he beats his stick in the palm of his hand .. ‘Good!’ .
Banker pulls up a log as a table and starts his business … his loan deposit business, ‘ Leave your money with me , I will make lots of it ‘ he says ‘and you might too if you join in’ .
The second person chips in his 5 straight off , the first is a bit reluctant .
‘Look’ says banker ‘ with me it is safe … you see Government over there with his big stick ? I thought so .’
And so the first person deposits his 15 .
Well you can guess what happens next … the second person starts borrowing , comes away with the shack and more . Banker never seems to run out of money and the first person is busy saving away 10s of his currency … the loan deposit circle you describe , with the Banker VIRTUALLY liable for mismatch .
Then one day the first person looks and thinks ‘ Errr , how come I have saved 50 if we only ever had 20 ? Errr ..’
He starts to get suspicious and asks Banker for his 50 … ‘See Government with his big stick over there , ask him , he takes care of it all ‘
Government looks like he is in a bad mood that day so he decides to ask later … maybe tomorrow .
That night the first person, lying under his palm tree , hears a lot of talking going on over at the shack throughout the night . In the morning the three others stumble up to him , bleary eyed , and Government says ‘ Carte.. Banker here and second person have got it all mixed up , Banker has been a bad Banker and second person a bad debtor . As I am Government I will make it right. Both you and second person will be given 35 extra FOR FREE . Goodnight ‘ .
And lo and behold , first person is handed his 35 extra AND his 50 in deposit . He is RICH they tell him . Second person finds his debt reduced to zero , though he still has an old original IOU of 5 to first person tucked away somewhere , and the shack is his still and all that he borrowed and spent is written off .
IT IS THE SAME DIFFERENCE .
…………………..
Now how much are those 85 first person has worth , any more than the original 20 ?
It is obviously much more complex in the real world but the above moral stands . There is no restitution , only a way to balance accounts to within a manageable means so as to be able to reform the system .
In principal , as a principled stance , the existing laws must be executed as the whole system of accounting is loyal to them . The fractional system of banking is in its own way fraudulent , and maybe there is no fair transition possible to one which is more acceptable .
That being said , individuals DO have the freedom to avoid using the banking system , they would be exchanging disadvantages and advantages , for something else .
that the population did not have debt forced on it
Wrong since negative real interest rates, especially in housing, preclude saving as an alternative to borrowing from a bank. The population WAS forced into debt.
(except public debt) ,
The problem with the National Debt is that it pays interest, not that it exists.
that savers were not obliged to save with banks .
Currently, people can use unsafe, inconvenient physical fiat (bills and coins ) but is that any real option to what we all should have by right*, inherently risk-free accounts at the central bank itself?
*Since fiat is the money of the citizenry – not just banks and other depository institutions.
Negative real interest rates were caused by people going into debt to chase prices , by depositors leaving their money with banks to gain interest on that debt . The banks are intermediaries to that . Saving cash or even depositing it (especially to purchase housing) became a poor idea (except for those that missed a crash obviously due to delaying) , but no one was forcefully included into taking debt , they were fraudulently excluded from participating without doing so .
Repayment of national debt is forced on the individual , interest or not .
Savings do not have to be in currency . People seem to have this fixation that a currency should be the reference to all , that prices should revolve around it , that it should be a fixed guarantee to future services , future wealth . Granted we tend to look to create stability and security , but to expect that from a currency means pegging the economy and a resulting immobility . The economy is no one’s to peg , and go too far down this path and we end up with a centrally managed dud .
On the other hand a currency which has its own life invites caution , understanding and prudence as it is not manipulated beyond being what people hold it for , and they tend to hold it because it retains a meaning . A currency whose meaning is too artificial (overly hypothecated) will not be held , not just because its value is continuously diluted , but because it is sensed as something trivial.
A risk free account at the central bank ?
Why not , as long as that account is not invested in any risk .
A risk free account at the central bank ? Crysangle
Not “a” risk-free account but hundreds of millions of individual citizen, their businesses, State and local governments, etc. inherently risk-free accounts at the Federal Reserve.
Such accounts would constitute an alternative payment system to the one that must work through banks and other depository institutions and thus the economy would no longer be held hostage by the banks, etc.
Said accounts, being risk-free, would pay no interest nor would the Federal Reserve do any lending so additional infrastructure and personnel needs should be minimal.
Sounds like what a central bank should be , sure some might object if it lends credibility to an institution that also works in other ways they do not like , or wary that it centralizes too much information or ability , but of itself it would seem simple , transparent and effective .
Have never thought through the idea to be honest .
Sounds like what a central bank should be , Crysangle
Yes, just a risk-free fiat accounting and transaction service that pays no interest and makes no loans and is available to all citizens, their businesses, etc. The only fiat it would create would be for the monetary sovereign, eg. US Treasury. Open Market Purchases, currency swaps, the Discount Window and all other fiat creation would cease.
Have never thought through the idea to be honest .
The idea is nearly unthinkable to most and I congratulate you on your rapid apprehension of it.
But it’s rather obvious, in retrospect, that a monetarily sovereign government should provide such a service to all citizens and not leave them to the mercy of private depository institutions, aka “banks.”
It’s also obvious, in retrospect then, that we’ve never really had “free banking”, at least not in the US, since we’ve never had such a service to any significant extent. So it can’t be said that the “free banking” experiment has failed, at least not in the US.
“It will at least eliminate a lot of private debt…..”
And why is it a good thing that if I borrow a million from you to buy a house, that this private debt is just randomly eliminated? Nice for me to get a free house on your tab, I guess? In reality, a more apt description would be; nice for the banksters to get the world for free on everyone elses tab.
” and if it can be done without increasing total purchasing power then why not?”
For one, it can’t. The so called “problem” the debt jubileers claim to solve, is that the need to service all the debt is crushing purchasing power. Secondly, unless the debt jubilee is made permanent, as in; all future debt are also, from now on, noncollectable; once people own anything debt free, they will again borrow against it.
And thirdly, even if, in some Loopyland “total purchasing power” is held constant, whatever that may mean; all the jubilee has achieved, is handing all purchasing power to the banksters. Wealth does not arise from ownership of random paper pieces. But rather from ownership of real, valuable assets. Once Soros has ran up unsustainable debt and used it to buy anything valuable in the whole world, all a debt jubilee will accomplish, is cement his ownership of all of it forever. Some schlub, no matter how many paper pieces he is “awarded” by Dear Leader, will still own exactly nothing of value.
“I.e. How can rents go up if total purchasing power does not?”
For the same reason the price of water will likely “go up” if the owners of the few water wells in a dessert, no longer need to sell any to service debt, and can use it to keep their tulip garden irrigated instead. And this is not simply contrived. For a bit of a real world example of debt jubilees, look at bubbly city (San Francisco, Los Angeles and elsewhere) residential real estate. The Fed has essentially debt jubileed private mortgage holders. Over and over. Which has allowed them to afford concerning themselves more with how their tulip gardens and “neighborhoods” look, than with getting a return on their assets by renting them to those who can make use of them to create actual economic value. Resulting in the perversity that the more valuable a square foot of land is, the less densely it is populated.
“Also, the proper elimination of government-provided deposit insurance would cause the banks to divest themselves of their assets to buy the needed reserves from the population who would receive them via equal fiat distributions.”
No problem with that. Just do it without any further ado. No need to pay off Soros’ debt to do so.
So we could at least redistribute bank owned assets to the population by doing what we should do anyway – eliminate privileges for the banks.
That redistribution, of assets banks have acquired with printed money, AND assets non banks have acquired by similar means, is exactly why going through time honored, but fast tracked and simplified, bankruptcy procedures, is the preferable solution.
So why not do what we should do anyway FIRST? And not wait for unjust deflation to “cure” unjust inflation?
Deflation IS the cure for Inflation. Just as a diet is the cure for obesity. There is nothing “unjust” about it. There’s nothing fundamentally “unjust” about inflation either, as long as it’s confined to higher order money supply metrics. When people are exuberant and confident, they’ll be willing to accept higher order money (scrip, private bank issued claims, debt notes) as payment at relatively low discount, since they have good faith in the promises represented being honored. So you end up with inflation. But then, once the manias overextend, people start getting worried, and won’t accept anything but base currency/gold. So the Net Present Value of all the created-out-of-thin-air drops, hence with it the operational money supply, and you get deflation. Neither the inflation nor the deflation is in any way “unjust.”
“Unjust”, only enters into the picture once some people is given preferential access to modify the base, so that there is no longer any anchor which holds everyone equal. Once that happens, the result is, always and everywhere, that no matter how “good” and altruistic those with preferential access claim to be, society’s wealth and purchasing power starts slowly but surely, then faster and faster, to drift in the direction of those closest to the guys with the power to much around with the base. Until we are where we currently are.
A good, quick, if very temporarily chaotic, solution, would be to re key the dollar to gold. At the $20/ounce that prevailed in the early days. It would, of course, immediately blow up all debt, since there’s not remotely enough gold to go around. but it would also blow up all salaries, since a minimum wage guy at McDonalds would be owed 1/2 ounce an hour. Make bankruptcy, as is currently custom, honor salaries before creditors, and you’ll get a Gini friendly resolution that should appeal to many who are fed up with the crazy high rich/poor divide that always result from unchecked inflation. BOOM! Excesses flushed out fast and hard. And with sufficient finality to ensure noone would be dragging their feet quarreling about the “fairness” of the treatment they get, hence have no choice but to get busy getting the economy growing again.
Another alternative is a, tah-dah, debt jubilee. A Somali style one. The complete repudiation of any and all government that could possibly lay claim to be able to enforce debt contracts, does obviously work. As it’s how most of humanity lived for pretty much forever. But it’s a solution I suspect Americans in general is less prepared and suited for, than the average Somali.
And why is it a good thing that if I borrow a million from you to buy a house, that this private debt is just randomly eliminated
It isn’t eliminated, even in real terms since purchasing power would not increase.
Instead, you’d be more likely to be able to pay me off.
It’s really simple conceptually which is why I suspect you don’t understand banking but here it is again:
1) Bank loans create deposits.
2) Bank loan repayment destroys deposits.
3) Therefore a reduction in new bank lending beyond that necessary to replace existing loans as they are repaid is deflationary.
4) Therefore new fiat can be equally distributed to the population to counter that deflation with no net increase in purchasing power.
It’s that simple.
Besides, are you going to trust the gold-loving, deflation loving, misery loving Austrians when they proven they don’t understand banking since their now muted predictions of hyper-inflation if the monetary base were greatly increased have proven false?
“It isn’t eliminated, even in real terms since purchasing power would not increase.”
So, I get more money. you get more money. But purchasing power would not increase????? Obviously, simple arithmetic dictates then, that someone would get less purchasing power. Simply saying that the Fed handing a billion tom everyone will be done in a way so that purchasing power does not increase, does not make it so.
“Instead, you’d be more likely to be able to pay me off.”
Because I have been given more purchasing power.
“It’s really simple conceptually which is why I suspect you don’t understand banking but here it is again:
1) Bank loans create deposits.
2) Bank loan repayment destroys deposits.
3) Therefore a reduction in new bank lending beyond that necessary to replace existing loans as they are repaid is deflationary.
4) Therefore new fiat can be equally distributed to the population to counter that deflation with no net increase in purchasing power.
It’s that simple.
”
1.Banks loans may or may not create deposits. Plenty of precedence for people keeping gold in chests at home.
2.Again, may or may not.
3.Neither lending nor repayment has any effect on the BASE money supply in a non-rigged monetary system. Only higher order out-of-thin-air-based-on-faith money is lent into existence by the banking system. In fiat systems, the sovereign and banksters have rigged it so, that there is no way at all to discern between solid, non manipulateable base money, and money created by themselves, but that is only because it benefits them asymmetrically to arrange it that way. In almost all of history, physical gold was money. No amount of neither lending nore repayment, no matter if one of the parties arbitrarily called himself a bank or not, neither created nor destroyed gold as if by some weird process of alchemy.
4. Of course “new fiat” can be distributed to any schmuck the sovereign wants to placate and keep from rebelling. It’s cost less for the sovereign to make. Meaning, instead of in a proper money system, where if I have to perform a year’s worth of work for someone elses benefit for $50,000, I can expect someone else having to perform an equivalent amount of work for me to obtain the same. Not just sit by and have me work my rear off, while he just runs a cheap printer.
Besides, are you going to trust the gold-loving, deflation loving, misery loving Austrians when they proven they don’t understand banking since their now muted predictions of hyper-inflation if the monetary base were greatly increased have proven false?
The correct term is Freedom Loving, as pertains to Austrians. only a well indoctrinated progressive hack, would conflate freedom with misery. By making sure the powerful in banks and government have to play by the same rules as everyone else to obtain purchasing power (i,e. perform work for it, or get on their knees digging it out of a quarry), it keeps the powerful in check. In a fiat system, the government/Fed and those closest to that nexus, gets to play by different rules. As in: You work a year for me, I run the printer for a minute, and we’re even.
Fair, means everyone playing by the same rules. Or, at least used to back before Newspeak became the language of the land.
Freedom loving?!
One can’t be for needlessly expensive fiat (eg. a gold standard) and be freedom loving since such puts the taxation authority and power of government behind, for example, someone’s favourite shiny metal.
Thus the Austrians are revealed to be frauds to the extent they favor a gold standard.
only a well indoctrinated progressive hack,
Actually, I give Progressives fits by insisting on the abolition of government-provided deposit insurance and other privileges for the banks*.
But because Progressives are wrong doesn’t mean Austrians are right.
Brexit was a referendum. The expression of opinion. And the close/split outcome of the “vote” was not a mandate. The end result, as usual, will be TPTB over riding the opinion of the people under the auspices; the people were not informed enough to make such a decision. As always, the State will get it’s way. It’s that, or they shut off the money/free shit spigot.
The EU, at this point is too big to fail. It will take a devastating economic rout to break it up. Devastating,,,not recession lite, trimmed with a little disinflation and a lot of redistribution, as in these last 8 years.
And placing hope in politicians to somehow “get it right” is futile. They are all nothing but Foxes who are put in temporary charge of Hen Houses, while promising the farmers it will be different this time.
“Every election is a sort of advance auction sale of stolen goods.” Mencken
All said, I figure we continue this charade for some time yet, until enough wake up to it, and decide to pull their money from the system,,,just to see if they can. Then, just as hope sprang eternal for generations, despair will set in for much longer than most thought possible. But, alas, that event could be years away. Normalcy Bias is a tough nut to crack.
You seem to forget that England IS reverting to normalcy — England has been a country for centuries. The EU isn’t a country at all, its not even a government — its a trade agreement gone berzerk with bureaucracts greedy for power.
The close/split number is not a mandate to submit to unelected bureaucrats, even if the oligarchs somehow rig the next referendum. Every single “Bremain” politician expected the vote to be very very close.
There is no mandate to join the EU, never was. So England will revert back to what was “normal” for the previous 500+ odd years
Its just a matter of time before the other countries revert back to their pre-EU status as well.
I’m curious – how would the UK accomplish a full embrace of trade agreements if the country is out of the EU? There are going to be new barriers if anything. One of the major reasons the UK voted to cut ties was to stop the flow of migration. But without the free flow of workers, full free trade becomes impossible. No?
There can be no “free flow” of “workers” as long as there are “free” benefits to them. They will flow to the place with the most benefits. That is why all the migrants wanted to get to Germany and not Greece.
Pingback: Meet The BOE’s Mark Carney——-Another Central Banker Wrecking Ball | David Stockman's Contra Corner