Turner's warning of a secular stagnation for the UK is nothing compared to his grim diagnosis for Europe. The threats Turner identifies from extremely high household debt levels in the world's advanced economies are small beer in comparison to the dangers he thinks is facing Europe's currency union. And Germany is a huge part of the problem.…
Although I have huge respect for what Germany is as an economic success, a very strong political system…. And I entirely understand their fears of high inflation, etc., I think the predominant German attitude to macroeconomics is simply wrong. There’s a failure to deal with the fallacies of aggregation that are at the core of macroeconomics. It is not possible for the whole world to succeed in the same way that Germany succeeds. We cannot all be export led economies. We can’t all run surpluses unless we find another planet.Business Insider
Adair Turner: Germany Is Wrong About Economics And 'Terrible Things' Threaten Europe Because Of It
Mike Bird
3 comments:
The people like Turner (and Ann Pettifor) who run around deploring high debt levels, are the same people who advocate retention of the existing banking system, which involves taxpayer support for and subsidies for debt creators / money lenders / banks. For example several trillion dollars of public money was used over the last 5 years to rescue private banks.
You subsidise something, and you'll get more of it (revelation of the century).
In contrast to the existing or "fractional reserve" banking system, there is full reserve or 100% reserve. That system never needs state support or subsidies.
And the rules of full reserve are being imposed on money market funds right now, so full reserve is perfectly feasible. See:
http://www.forbes.com/sites/keithweiner/2014/07/26/will-new-money-market-rules-break-money-markets/
If you increase the amount of state spending/tax cuts in the existing system and restrict what banks can lend on by banning lending in certain cases, then you get to exactly the same situation you do with sovereign money systems.
But somewhat better - because the price change in a sovereign money system doesn't prevent lending on stupid things that blow asset bubbles (and nor does it stop endogenous behaviour or the 'creation' of money).
Full reserve is a myth. The existing banks are already full funded (because deposits leak to National Savings and to Government Bonds) and operate in precisely the manner that any full reserve or sovereign money system would require.
The whole of the full reserve idea relies upon the myth of bonds - precisely the same idea that says government bonds do something magical. They don't. It is based upon a misunderstand of the dynamics of the system and the way people behave.
To rescue the banking system you need to narrow it by banning certain categories of lending (and preferably de-collateralising), not by messing about with price and believing that will magically sort things out.
Far as I'm concerned Neil's comment is basically meaningless. But if anyone can explain any of it to silly old me, I'd be grateful.
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