Majority think they know what money is, but after reading this, they understand they were wrong. Essential reading (including the links). Via Golem XIV.
There is a particular scene in the film “It’s a wonderful life” in which the hero of the story is trying to prevent a run on the Bailey Savings and Loan. In an effort to calm the anxious savers wanting to withdraw their money George Bailey cries out “you’ve got it all wrong, the money’s not here, well your money’s in Joe’s house, that’s right next to yours, and the Kennedy house and Mrs Maitland’s house and a hundred others”.
As films go it is a genuine classic. But unfortunately it has perhaps unwittingly perpetuated a whopping misrepresentation of how banks actually work; a little white lie that the IMF have recently just driven a sledgehammer right through.
Their working paper, titled “The Chicago Plan revisited”, seems to have slipped under the mainstream media attention (and most of ours!) during the summer lull. That is until Ambrose Evans-Pritchard of the Telegraph picked it up a few weeks ago. At the core of the IMF paper is a deep seated analysis of how banks actually function in the economy and their role in the money supply. It is nothing short of revolutionary in that the paper gives full acknowledgement of, and support for, an intellectual movement that has doggedly criticised the very nature of money. Criticism that has so far been completely ignored and dismissed by mainstream economics.
Another day in Europe. Euro-area finance ministers gave Greece two extra years to wrestle down its budget deficit, pledging to plug the resulting financing gaps in order to keep the country in the single currency and prevent a renewed flareup of the debt crisis.
We say no more, IMF is delivering a rather gloomy outlook of the worlds economy. Weakening is the word. From IMF.
The International Monetary Fund (IMF) presented a gloomier picture of the global economy than a few months ago, saying prospects have deteriorated further and risks increased. Overall, the IMF’s forecast for global growth was marked down to 3.3 percent this year and a still sluggish 3.6 percent in 2013.
In its latest World Economic Outlook, unveiled in Tokyo ahead of the IMF-World Bank 2012 Annual Meetings, the IMF said advanced economies are projected to grow by 1.3 percent this year, compared with 1.6 percent last year and 3.0 percent in 2010, with public spending cutbacks and the still-weak financial system weighing on prospects.
Growth in emerging market and developing economies was marked down compared with forecasts in July and April to 5.3 percent, against 6.2 percent last year. Leading emerging markets such as China, India, Russia, and Brazil will all see slower growth. Growth in the volume of world trade is projected to slump to 3.2 percent this year from 5.8 percent last year and 12.6 percent in 2010.
Greece has disappointed its creditors yet again. Now its government plans to ask for more time — and needs billions more in aid. But Greece’s euro-zone partners are unwilling to provide any more help, meaning that the only hope now is to admit defeat and let the country make a fresh start.
Officially, at least, everything is going according to plan. In September, officials with the troika — made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) — are planning to travel to Athens to check on the progress that Greece has made with its cost-cutting program.
Our story begins on November 14, 2011 in a nondescript hotel room in the hills above the Chinese city of Chongqing – roughly 850 miles north-west of Hong Kong – where a British businessman, 41 year-old Neil Heywood, was found dead.
After an extremely basic autopsy, the initial cause of death was listed as ‘excessive alcohol consumption’ and a rather hasty cremation took place in China with Heywood’s family being in- formed of his demise by telephone.
The story barely made the news either in China or back home in the UK.
Heywood wouldn’t have been the first British businessman abroad to overindulge in the bars and nightclubs of a foreign land and, if one were predisposed to finding a suitable ‘accident’ to befall an enemy who fit that mold, then drink- ing himself to death would have ordinarily been a fairly plausible cover story – but in this case, there was something that didn’t quite fit the of- ficial story – Heywood was teetotal.
The Greek “Deal” shouldn’t be viewed as a deal. It has flaws, it is not a deal, and Greece should default instead of prolonging this agony. This so called deal is full of loose ends and is impossible to grasp. Nobody wants signing this no deal anyway, so one can but wonder, why can’t anybody just do the right thing, let Greece default, and stop throwing good money after bad money? Don’t be surprised to see this deal blown off sooner than later. Some insight from Spiegel today;
Greece is bankrupt and will need a 100 percent debt cut to get back on its feet. The bailout package about to be agreed by the euro finance ministers will help Greece’s creditors more than the country itself. EU leaders should channel the aid into rebuilding the economy rather than rewarding financial speculators for their high-risk deals.
When you are bust you must tell the obvious. “Forget your money, it ain’t coming back”. Greece must do the inevitable, irrespective of the incalculable consequences. From Reuters;
“The consequences of disorderly default would be incalculable for the country – not just for the economy … it will lead us onto an unknown, dangerous path,” Deputy Finance Minister Filippos Sachinidis said.
In an interview with the newspaper Imerisia, he described the catastrophe he believes Greece would suffer if it failed to meet debt repayments of 14.5 billion euros due on March 20.
“Let’s just ask ourselves what it would mean for the country to lose its banking system, to be cut off from imports of raw materials, pharmaceuticals, fuel, basic foodstuffs and technology,” he said.
Since the last Global Financial Stability Report (GFSR), risks to stability have increased, despite various policy steps to contain the euro area debt crisis and banking problems. European policymakers have outlined significant policy measures to address the medium-term issues contributing to the crisis, and some of these have helped to improve market sentiment, but sovereign financing remains challenging and downside risks remain. If funding challenges result in a round of deleveraging by banks, this could ignite an adverse feedback loop to euro area economies. The United States and other advanced economies are susceptible to spillovers from a potential intensification of the euro area crisis, and some have homegrown challenges to the removal of financial tail risks, including overcoming political obstacles to achieving an appropriate pace of fiscal consolidation. Developments in the euro area also threaten emerging Europe and may spill over to other emerging markets. Further policy actions are needed to restore market confidence. This effort will require building larger backstops for sovereign financing, assuring adequate bank funding and capital, and maintaining a sufficient flow of credit to the economy, possibly by establishing a “gatekeeper” charged with preventing disorderly bank deleveraging.
We have almost forgotten about the Greek Dilemma. With all focus on LTROs, Spanish and Italian bond auctions, Greece has certainly lost focus. Today the Troika & Co are back in Athens in order to try fixing the Greek mess. With all the political interest, sometimes we tend to forget what austerity means for the average Joe. Austerity sucks. From Ekathimerini;
So this is what it’s come down to. The negotiations over wages in Greece due to take place over the next few days will be a defining moment of this crisis, not because a reduction in the minimum wage or cuts to private sector salaries will make a huge difference to the economy but because it is a test of whether those involved in the process – labor unions, employers, the government and the troika – are prepared to face the truth. It is test of whether someone is willing or able to step forward with some kind of coherent plan.
It doesn’t take long to think of several good reasons why reducing private sector wages during a deep recession seems a suicidal idea. They include the fact that it would further undermine withering domestic demand and likely precipitate the closure of more businesses on top of the 38,000 that have shut down over the last two years. The more fiscally minded might point out that lower wages means lower tax revenues, which has a heightened relevance at the moment given that recent figures showed Greece raised 50 billion euros in revenues in 2011 compared to 50.8 in 2010 despite imposing a raft of new taxes.