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Daily Digest - Jan 20

Monday, January 19, 2009, 8:18 PM
  • Did Inflation Really Dry Up Last Year?
  • Global Banking Sector Struggles
  • YTD Job Losses (2009 Chart)
  • Worst Performing S&P 500 Stocks (YTD 2009 Table)
  • NOVEMBER LOWS -- BACK SO SOON
  • Jan. 1934: The Gold Reserve Act (Video is slow if you let it play and then replay it it works great)
  • Volker Recommendations FINANCIAL REFORM A Framework for Financial Stability
  • EU Recession Gets "Official" Status
  • Brazil loses 654,000 jobs in December amid crisis
  • MSNBC Warren Buffett Interview (Video Economy/Obama)
  • The Next Threat To The Financial System: Corporate Default
  • Spending the Deficit 
  • Bush's Economic "Legacy" (Bloomberg Video)
  • Financial Sense News Hour 12/20/2008, 3rd Hour Year End Review (Possible Repost, Very Good)

Economy

Did Inflation Really Dry Up Last Year?

A mathematical oddity in Friday's consumer price index means you can claim with some statistical backing that inflation last year was either 0.1% or 3.8%.

Measured on a December to December - or calendar year - basis, the consumer price index only grew 0.1% in 2008, according to Labor Department figures, the smallest gain in over 50 years and well below the 4.1% gain in 2007.

But when the annual average of the CPI for all of 2008 is compared to the average for 2007, the increase was much higher, 3.8%. That was actually up from 2007's rate.

"It's unusual for there to be this big of a difference," said Labor Department analyst Stephen Reed. The two series sometimes line up exactly, and usually when there's a gap it's only a few tenths of a percentage point.

But when there's a lot of volatility, like in 2007 and 2008, they can diverge a lot. Think of it this way: if the price of gasoline stays at $1 all year, then there's obviously no inflation there. If it rises quickly from $1 to $2 per gallon and stays there for the first 10 months of the year and then falls quickly back to $1 in December, then on an average annual basis inflation would be higher than on a calendar year basis, where it would still be flat.

When it comes to assessing near-term trends, economists prefer calendar-year changes, which is why Wall Street research notes universally mentioned the 0.1% figure, and not the 3.8% one.

The two series should even out over time, and in 2009 the calendar-year increase will probably be much higher than the average annual increase given the low base that the CPI index is starting at this year. -Brian Blackstone

Global Banking Sector Struggles 

The following chart (hat tip Paul @ Infectious Greed) details the percentage of companies in the banking sector that are on negative watch (per Fitch) by country as of now (January 2009) and then (January 2007).

YTD Job Losses (2009 Chart)

Worst Performing S&P 500 Stocks (YTD 2009 Table)

NOVEMBER LOWS -- BACK SO SOON 

If the Dow were to close at its current level, the only prior close that would be lower since the October 2007 peak would be the November 20th low. It's not looking good for the bulls who thought we wouldn't see the Dow with a 7 handle for some time. 

Jan. 1934: The Gold Reserve Act (Video is slow if you let it play and then replay it it works great)

Volker Recommendations FINANCIAL REFORM A Framework for Financial Stability

EU Recession Gets "Official" Status 

The EU finally owned up to what everyone already knew. It will face its first recession since it was formed over ten years ago. It was nothing more than a fantasy that it could dodge the fates of the US and UK. 

The forecasting arm of the European Commission said GDP within the region would drop at 1.9% this year. The number seems optimistic.

According to Bloomberg, "The overall outlook is grim," European Union Monetary Affairs Commissioner Joaquin Almunia told reporters in Brussels today. "In 2009, we are forecasting negative growth for 11 out of the 16 euro-area members."

The news from the EU actually sends ripples all the way around to the other side of the world. The regions to which China exports most of its goods have now all officially said the 2009 will be a year of economic contraction. Japan admitted its troubled some time ago, The UK and US have seen the light in the last 60 days.

China can no longer count on any substantial part of the consuming world to exhibit an increased demand for the products that its factories send out around the globe. That makes it near certain that the world's most populated nation faces negative GDP before the end of the year. 

Brazil loses 654,000 jobs in December amid crisis 

SAO PAULO, Brazil (AP) - Brazil's Labor Ministry says the country lost 654,000 jobs in December as the international financial crisis slammed Latin America's largest economy.
The loss for the month was the worst on record since May 1999. The hardest hit sectors were industry, agribusiness and construction. 

Labor Minister Carlos Lupi said Monday that the job losses were a direct impact of the global crisis.

The data measures the number of formal jobs in Brazil's economy. Brazil added 1.6 million workers for all of 2008 despite the December job losses. 

MSNBC Warren Buffett Interview (Video Economy/Oboma)

The Next Threat To The Financial System: Corporate Defaults (NYT)(CHTR)(LVLT)(SIRI) 

The next big threat to bank earnings may be corporate defaults on debt, much if it originally supplied by the banks themselves. The irony is that the problem could be solved by the banks, if they won't open their vaults and provide more capital to companies who are in the process of refinancing. 

But, they won't. At least not without being forced to do so by the government. Banks don't want to put their earnings in greater trouble by offering more risky loans on top of the ones they already have issued. As the recession deepens, they have no reasonable way to evaluate whether they will be paid back.

For debt which is rated junk, the reluctance of the banks is understandable, but the issue reaches far beyond firms with highly risky credit profiles., The New York Times reports that "This year alone, more than $700 billion in corporate loans will come due, according to Standard & Poor's. "

A number of large American companies are left without access to capital by the trend. These include The New York Times (NYT) itself, which has $400 million in debt due at the middle of this year. Other corporations from Sirius (SIRI) to cable giant Charter (CHTR) to large telecom firm Level 3 (LVLT) may be forced into Chapter 11 or liquidation because they cannot tap funds that would have been readily available two years ago.

When companies are able to borrow, they are paying interest rates of 10% or higher. Servicing that debt requires a large part of operating income which means that the money borrowed may solve short-term problems but it robs money from operations as time passes. High debt service costs become a boat anchor in and of themselves.

The trend makes it more likely that the US will have to do what the UK has announced that it will do. The Treasury may have to step directly into the corporate debt market and sponge up paper from private enterprises to take the credit obligations of American corporations out of the hands of financial institutions. It is a hell of a way to fix the credit crisis, and its eventual consequence is that the federal government does not just end up owning big pieces of banks. It ends up owning pieces of companies across a wide spectrum of industries.

In the final analysis, the government becomes the source of capital for the engines of private enterprise. 

Spending the Deficit 

Spending the Deficit

The Congressional Budget Office announced last week that the federal deficit for 2009 would be $1.2 trillion-as a share of the economy, the largest since World War II. Responding to that staggering sum, President-elect Barack Obama warned that without decisive action, "trillion-dollar deficits will be a reality for years to come."

How much is $1.2 trillion?

To put the deficit in perspective, we thought of a few unrealities that carry a similar price tag:

For the sake of our children: 4.8 billion Nintendo Wiis.
What really does the body good: 300 billion gallons of milk.
Love thy neighbor: everything produced in Canada in one year.
Monopolize: purchase Exxon Mobil, General Electric, Microsoft and Wal-Mart.
IS our children learning?: fund the entire education system, Kindergarten through college, for one year.
Second time's a charm: pay for the entire War in Iraq twice over.
At the pump: free gasoline for all Americans for the next five years.
At the box office: one free movie ticket for every American, every single day.
I.O.U.'s: pay back all the money we owe to China and Japan.
Reverse the Ponzi: compensate all of Bernard Madoff's defrauded investors with a 2000% rate of return.
A recent article in The Christian Science Monitor provides some additional spending scenarios. For example, according to CSM:

"If the sum were calculated as a traditional 30-year fixed-rate mortgage, Uncle Sam would have to write a monthly check for $6.7 billion. That would be enough to pay the mortgage on about 10 percent of the nation's homes each month."

PGPF's Manager of Research & Analysis Matthew Helm told CSM that "another way to view the $1.2 trillion deficit is in terms of citizens and households. It works out to $4,000 per citizen, or $10,000 per household." 

Bush's Economic "Legacy" (Bloomberg Video)

Financial Sense News Hour 12/20/2008, 3rd Hour Year End Review (Possible Repost, Very Good)

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17 Comments

joemanc's picture
joemanc
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Re: Daily Digest - Jan 20

Davos - We need a U.S. National debt clock/ticker somewhere on the site. I guess the question is, where do we start it at, $53 trillion, 54 trillion? Eh, a government rounding error!

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Re: Daily Digest - Jan 20

joemanc said:

"Davos - We need a U.S. National debt clock/ticker somewhere on the site."

Such a device would use up all the remaining 1's and 0's in the universe, thus leaving nothing to represent our deep insights...;)

 

Lee

 

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Re: Daily Digest - Jan 20

http://www.economicpopulist.org/?q=content/gm-using-bail-out-money-invest-brazil

This is just flabbergasting these same jokers who sat in congress with the begging bowl!

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Re: Daily Digest - Jan 20

All of that economic growth that occured during the bush presidency was created by expanding credit, right ?

 And that isn't real growth, correct?

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Re: Daily Digest - Jan 20

"Clouding Skies" "Stormy Weather" "Chilly Waters" "Dying Camp Fires." Obamas speech wreaked of hardships coming our way.

And as he spoke, the dow broke the 8000 point barrier that has been protected all year long like a yacht full of virgins.

Next stop 6000...All Aboard!

 

 

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Re: Daily Digest - Jan 20

Hello JoeManC:

Man that is an awesome idea, I'll include that suggestion from you when I email Chris the blog this evening...I'd advocate the 53-54 off balance plus the current 11....

Take care, 

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Re: Daily Digest - Jan 20

way off topic but i thought this might be of interest to the readers of this site

 

i just read through the GAO's (government accountability office) report on the nations long term fiscal outlook.

 http://www.gao.gov/new.items/d0994r.pdf

this report, which is laid on the desk of every senator, congressman, president, media outlet in washington, outlines the dangerous road we are headed down. it's a quick read even though it is 15 pages and all the realities exposed on this site by chris and others is plainly characterised here in this report. at one point the report assumes that to make up the medicare and soc sec shortfall our economy over the next ten years would have to grow annually by 22% or taxes would have to be increased by 47%, and this assumes all things being equal!

i'm waiting for the entitilement deficit report to come out. this year should be good and will include fannie and freddie, the TARP, and previous debt outstanding

 

steve

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Mike Pilat
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Re: Daily Digest - Jan 20

Yeah, the interesting thing is that I am starting to hear from a number of people that they don't expect to get any social security. Interestingly enough to me, I'm hearing a few voices from the Baby Boomer generation, and even those that seem to otherwise have a lot of faith in the political system. It's gotten to the point where the long term insolvency of social security and medicare/caid are beginning to be open secrets. There isn't wide acknowledgements, but people are starting to realize.

I've always wondered what's inside the "politician's playbook." Obama, Bush, etc. are not so dumb as to think this is only a tiny problem. But there must be some sort of political plan into how to address or avoid the issue in the most careful way possible. I'd be equally intersted in seeing how the other economic and war problems are truly viewed by a politician at the very top...wishful thinking. 

I think it was David Walker or Peter G. Peterson that said that the responsibility is ultimately dependent on We The People. We must make it political suicide to NOT address the long run financial, monetary, economic, and resource problems that we face. But that would require that the masses are well educated and don't even get me started on that...

Mike

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The Arab royal who's going off oil

<http://www.guardian.co.uk/environment/blog/2009/jan/20/energy-oil-abudhabi>

The Arab royal who's going off oil

Oil-rich Abu Dhabi breaks ranks with its petro-giant neighbours and
commits to a sustainable energy future at the World Future Energy Summit

* Terry Macalister <http://www.guardian.co.uk/profile/terrymacalister>
* guardian.co.uk <http://www.guardian.co.uk>, Tuesday 20 January
2009 11.59 GMT

Abu Dhabi announced at a summit of world leaders on renewable
<http://www.guardian.co.uk/environment/renewableenergy>energy
<http://www.guardian.co.uk/environment/energy> yesterday that it would
become the first petro-driven economy to make a significant commitment
to renewables – and it is partly thanks to Prince Charles. Sheikh
Mohammed bin Zayed Al Nahyan, crown prince of Abu Dhabi, has decreed
that 7% of power will come from green energy sources by 2020. The Middle
East nation holds around 8% of the world's oil
<http://www.guardian.co.uk/business/oil> reserves and derives the vast
bulk of its national income from fossil fuels, but while other OPEC oil
cartel members see renewables as a threat, it has taken a different view.

Sultan Al Jaber, chief executive of the state-owned future energy
company Masdar
<http://www.mubadala.ae/en/about-mubadala/investments/masdar-abu-dhabi-future-en\
ergy-company.html
>,
which will oversee the green drive, said at the World Future Energy
Summit in Abu Dhabi that it was natural tomove into this new sector. By
doing so Masdar would "provide a comprehensive solution to the world's
energy challenges and maintain Abu Dhabi's position as a leading
supplier of energy to the world." The Gulf state, a part of the United
Arab Emirates, also wants to differentiate itself from neighbour Dubai,
and diversify its economy, believing a "green" infrastructure will help
its image as a new tourist destination.

Abu Dhabi has already put itself forward as a possible location for the
headquarters of a planned International Renewable Energy Agency being
promoted by Germany. "Many [Opec members] see renewables as a threat but
the crown prince sees them as an opportunity," said a source close to
the Abu Dhabi state. "He knows that the oil will eventually run out and
he wants to ensure there is something left for future generations," he
added.

Prince Charles, who has close links to the Gulf royals, has been
actively encouraging the green initiative behind the scenes, the source
added, explaining that the Masdar executives had been invited to
Buckingham Palace last year.

Prince Charles is already a patron of the Masdar City project
<http://www.guardian.co.uk/environment/2008/jan/30/carbonemissions.climatechange\
>
which aims to build the world's first carbon-neutral city in Abu Dhabi.
He made an appearance by holographic video link at the first World
Future Energy Summit <http://www.worldfutureenergysummit.com/> held in
the Gulf state last year. Prince Andrew has also become involved and was
present at the meeting in the throne room at Buckingham Palace.

Masdar expects to mainly use solar energy to reach its 7% targets but is
also looking at wind <http://www.guardian.co.uk/environment/windpower>
and even geothermal power, where heat from the ground is used as a power
source. Masdar has already built links to Britain by investing with E.ON
of Germany and DONG of Denmark in the London Array wind farm project of
the coast of Kent
<http://www.guardian.co.uk/environment/2008/oct/19/renewable-energy-greenhouse-c\
arbon-emissions
>
which is tipped to be the biggest of its kind in the world.

The Abu Dhabi state stepped in when Shell pulled out of the £1bn
project. The Anglo-Dutch oil group said it was concentrating its wind
investment in the US, a move followed by BP. Masdar has $15bn worth of
state-funding and has already started to build up its solar power
<http://www.guardian.co.uk/environment/solarpower> business through a
joint venture with Germany, a leader in the photovoltaics field. A new
company, Masdar PV, will build manufacturing plants in both Germany and
Abu Dhabi that will serve the growing demand for solar power, which is
beginning to compete on a cost basis with traditional energy sources,
even without subsidies.

Dutch solar firm Econcern claimed today at the summit that prices of
solar panels would half in the next five to six years. It claimed the
global industry had already met the International Energy Agency's target
of 10GW of installed power by 2020.

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Crude Oil Market Needs More Speculators, Deutsche Bank Says
Crude Oil Market Needs More Speculators, Deutsche Bank Says
By Margot Habiby

Jan. 20 (Bloomberg) -- The crude-oil market needs more speculators
to help stabilize prices six months after the traders were blamed for
pushing the commodity up to a record $147.27 a barrel, Deutsche Bank
said in a report.

A lack of liquidity is distorting prices, particularly for near-term delivery, amid an oversupply of oil at Cushing, Oklahoma, said analysts led by Paul Sankey in New York in the Deutsche Bank report dated yesterday. This is sending the “wrong” price signals to refiners and producers.

“We clearly have a fundamentally imbalanced market, with far too
much crude, that needs to be resolved,” the analysts said. “We need
more market activity to correct these issues, but for technical,
political and financial reasons, the liquidity of the market has dried
up and the long-term price of oil is partly distorted.”

Supplies at Cushing, the delivery point for New York futures,
reached the highest in at least four years in the week ended Jan. 9, as
inventories climbed 2.5 percent to 33 million barrels, according to the
Energy Department. It began keeping records for the location in 2004.

Oil futures for delivery in March cost about $8.14 a barrel more
than for delivery in February last week, allowing traders to profit by
buying and holding oil, if they have the ability to store it. The
differential was $5.06 a barrel at 11:23 a.m. New York time.

Oil for delivery a year from now cost $19.67 a barrel, or 53 percent, more than for February 2009.

‘Bust Cycle’

“We are now in an over-supplied bust cycle, and we need lower prices
either to encourage demand or decrease supply,” the analysts said.
Production cuts by the Organization of Petroleum Exporting Countries
haven’t helped enough because lower oil prices haven’t spurred an
increase in demand.

The International Energy Agency, an adviser to 28 nations, said last
week that oil demand will fall for a second year in 2009, the first
back-to-back contraction since 1983, as a deepening recession erodes
consumer spending.

Crude oil for February delivery rose 92 cents, or 2.5 percent, to
$37.43 a barrel at 11:23 a.m. on the New York Mercantile Exchange.
Futures touched $32.70 earlier today, the lowest since Dec. 19. Prices
are down 59 percent from a year ago.

Floor trading was closed for the Martin Luther King Jr. holiday
yesterday. Electronic trades will be booked today for settlement. The
more-active March contract fell 8 cents to $42.49 a barrel.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

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All together now…
Alan Kohler

Central banks in lock-step

The simultaneous burst of hope and despair as 2009 begins is almost too much to bear, a historic sensory overload.

The
inauguration of Barack Obama tonight collides with a new phase in the
devastation of global banking and the aftermath of the destruction of
Gaza.

With last night’s measures,
Britain continues to lead the world in dealing with bank bad debts that
are too large for the continuation of banking itself, partly because it
must, because its banks have behaved worst, and partly because the
Labour government is less frightened of nationalising them.

The US government has so far been intent on avoiding the recapitalisation
of banks using ordinary equity (that is, state ownership). The outgoing
Bush Administration still talking about creating an “aggregator”, or
“bad bank”, to hold the toxic assets, without any clues as to how it
will be capitalised.

Presumably that will change soon after President Obama takes office.

The
process of dealing with the global banking collapse seems chaotic and
subject to wild and unexpected announcements each day – such as last
night’s $61 billion loss from Royal Bank of Scotland and a new bank
bail-out scheme from the UK government.

But
with the benefit of hindsight we can see that a pattern of action has
emerged: central banks are cutting official rates to zero, or close to
it; governments are borrowing to provide various kinds of fiscal
stimulus; governments are recapitalising the shattered banks; “bad
banks” are being established to hold toxic assets so the institutions
don’t have to mark them to market, thereby reducing the need for new
capital.

And because it has been a
while since there has been a genuine scare – as opposed to the
humiliation of a big loss and a government bail-out – some tentative
signs of confidence are returning to financial markets.

Benchmark
short-term lending rates around the world (Libor and bank bill swap)
have fallen sharply and housing mortgage rates are also falling.

The
only market that remains entirely closed or too expensive now is
corporate term debt: the only long-term institutional borrowers at
present are governments.

Global
recession is now locked in: governments and central banks are working
to prevent something worse – a Depression, with 25 per cent
unemployment – that would be caused by another phase in the feedback
loop between the collapsing banking system and the real economy that
dominated 2008.

That could be caused
by two things: a dramatic worsening of the business and sharemarket
landscape because of falling consumer spending and asset values, or
problems with the credit-worthiness of governments.

Who will buy the bonds they must issue to finance their fiscal deficits and the recapitalisation of the ruined banks?

Can all of the funds really be provided by central banks printing money and buying bonds?

Maybe
it can, as long as everyone does it together. If all of the world’s
governments print money at the same time, perhaps no currency will
collapse and no country’s citizens will be ruined by hyperinflation.

All together now…

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Re: Daily Digest - Jan 20

kemosavvy said:

"this report, which is laid on the desk of every senator, congressman, president, media outlet in washington, outlines the dangerous road we are headed down."

and Mike said:

"It's gotten to the point where the long term insolvency of social security and medicare/caid are beginning to be open secrets. There isn't wide acknowledgements, but people are starting to realize."

And then Obama gives a speech that has "depth of warning," if you're one of us--or look like one of us...

I have to think that Obama's speech probably baffled a good portion of the crowd (on site and off). Especially if you're the average viewer of that Republican commercial that goes by the sadistically misleading name of Fox News; in that case, Obama had to sound outright "Negative dood! Man, we don't want to hear that shit! What the hell is he whining about? Sacrifice? Sacrifice this! Where's the remote, honey buns? Get Hannity back on there...." Now that fate, being a regular Fox viewer, is, of course, the worst case, tragic-waste-of-human-potential scenario, and it essentially is the long-sought-after proof that there is no God, for to subject innocent beings to Fox...? Crusades and inquisitions, OK, but Fox?

What about the average Joe that doesn't really have any interest in all the stuff that gets clumped together as news--stuff that resides at those channels you have to skip to get to Wrestlemania or  Monster Truck vs. Bambi? (And who can blame people for needing these escapes when the alternatives are...well, you read a lot.)

We've all had that experience of re-reading a book and finding things (concepts and connections) that didn't speak to us the first time. Well, those of us who come here, if I can generalize my own experience, are about X times more inquisitive than most people who listened to Obama today; we are better exposed to, and critical consumers of, a variety of perspectives. I'm not really tooting our collective horns, I'm just generalizing from my own experience, which is one in which I don't even really know anybody who doesn't have at least a B.A., and nine out of ten of those educated people I know didn't really hear what Obama said today; that is to say, it was their "first reading"; they weren't ready for the concepts and connections that a serial reader might have drawn. However, this is a "book" that is going to be stuffed in their faces again and again in the coming months.

Thus, imagine if (when?) large numbers of people start to read more into the "required reading" as more of their neighbors and relatives can be found watering the lawn at noon on weekdays (I think this is where Albert Bartlett or bacteria could provide some prescient predictions).

Any good parent knows that when you want your child to do something, you don't spring it on them. You have to build in expectations; even in the case of those spontaneous needs that arise around the house. A typical example, if your five-year-old is outside throwing rocks through the neighbor's windows, you'd be better off to go outside and give a two-rock warning rather that say "Stop that and get in here now." It just makes everything go so much better for the rest of the evening--or as long as the tyranny is remembered in the young distractable mind.

I heard Obama give a "two-rock warning" today. He was greasing the skids with a very toned-down version of what, if heard today, would be shocking, seem tyrannical, and would be opposed by that natural human momentum that every five-year-old demonstrates so readily;  IMO, Papa Obama was gently preparing to drag a heavy, fiesty load down a long track...

If all this sounds obvious, it's not. It's obvious to you. My point is, today's speech was actually just the beginning of awareness for a great many people out there--and they don't and can't know that yet.

I think we are soon going to witness one of Albert Bartlett's exponential explosions, where the exponent of the function is "a," and the base is some letter such as "v."

 

 

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Re: Daily Digest - Jan 20

Yeah Nonzeroone.  I'd guess that over 90% of the folks who heard President Obama's speeches today only heard "Oh goody, Barack is gonna take care of all this for us."

What a shame. 

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A Better Way to Make Money


A Better Way to Make Money

Here’s how we could solve the credit crunch without giving anything to the banks.

By George Monbiot. Published in the Guardian, 20th January 2009

In Russell Hoban’s novel Riddley Walker, the descendents of nuclear
holocaust survivors seek amid the rubble the key to recovering their
lost civilisation. They end up believing that the answer is to
re-invent the atom bomb. I was reminded of this when I read the
government’s new plans to save us from the credit crunch. It intends -
at gob-smacking public expense - to persuade the banks to start lending
again, at levels similar to those of 2007. Isn’t this what caused the
problem in the first place? Is insane levels of lending really the
solution to a crisis caused by insane levels of lending?

Yes, I know that without money there’s no business, and without
business there are no jobs. I also know that most of the money in
circulation is issued, through fractional reserve banking, in the form
of debt. This means that you can’t solve one problem (a lack of money)
without causing another (a mountain of debt). There must be a better
way than this.

This isn’t my subject and I am venturing way beyond my pay grade.
But I want to introduce you to another way of negotiating a credit
crunch, which requires no moral hazard, no hair of the dog and no
public spending. I’m relying, in explaining it, on the former currency
trader and central banker Bernard Lietaer.

In his book The Future of Money, Lietaer points out - as the
government did yesterday - that in situations like ours everything
grinds to a halt for want of money(1). But he also explains that there
is no reason why this money should take the form of sterling or be
issued by the banks. Money consists only of “an agreement within a
community to use something as a medium of exchange.” The medium of
exchange could be anything, as long as everyone who uses it trusts that
everyone else will recognise its value. During the Great Depression,
businesses in the United States issued rabbit tails, seashells and
wooden discs as currency, as well as all manner of papers and metal
tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil,
kick-started the economy of the city and solved two major social
problems by issuing currency in the form of bus tokens. People earned
them by picking and sorting litter: thus cleaning the streets and
acquiring the means to commute to work. Schemes like this helped
Curitiba become one of the most prosperous cities in Brazil.

But the projects which have proved most effective were those
inspired by the German economist Silvio Gessell, who became finance
minister in Gustav Landauer’s doomed Bavarian republic. He proposed
that communities seeking to rescue themselves from economic collapse
should issue their own currency. To discourage people from hoarding it,
they should impose a fee (called demurrage), which had the same effect
as negative interest. The back of each banknote would contain 12 boxes.
For the note to remain valid, the owner had to buy a stamp every month
and stick it in one of the boxes. It would be withdrawn from
circulation after a year. Money of this kind is called stamp scrip: a
privately-issued currency which becomes less valuable the longer you hold onto it.

One of the first places to experiment with this scheme was the small German town of Schwanenkirchen. In 1923, hyperinflation had caused a credit crunch of a different kind. A Dr Hebecker, owner of a coalmine in Schwanenkirchen,
told his workers that if they wouldn’t accept the coal-backed stamp
scrip he had invented - the Wara - he would have to close the mine. He
promised to exchange it, in the first instance, for food. The scheme
immediately took off. It saved both the mine and the town. It was soon
adopted by 2000 corporations across Germany. But in 1931, under
pressure from the central bank, the ministry of finance closed the
project down, with catastrophic consequences for the communities which
had come to depend on it. Lietaer points out that the only remaining
option for the German economy was ruthless centralised economic
planning. Would Hitler have come to power if the Wara and similar
schemes had been allowed to survive?

The Austrian town of Wörgl also tried out Gessell’s idea, in 1932.
Like most communities in Europe at the time, it suffered from mass
unemployment and a shortage of money for public works. Instead of
spending the town’s meagre funds on new works, the mayor put them on
deposit as a guarantee for the stamp scrip he issued. By paying workers
in the new currency, he paved the streets, restored the water system
and built a bridge, new houses and a ski jump. Because they would soon
lose their value, Wörgl’s own schillings circulated much faster than
the official money, with the result that each unit of currency
generated 12 to 14 times more employment. Scores of other towns sought
to copy the scheme, at which point - in 1933 - the central bank stamped
it out. Wörgl’s workers were thrown out of work again.

Similar projects took off at the same time in dozens of countries.
Almost all of them were closed down as the central banks panicked about
losing their monopoly over the control of money (just one,
Switzerland’s WIR system, still exists). Roosevelt prohibited
complementary currencies by executive decree, though they might have
offered a faster, cheaper and more effective means of pulling the US
out of the Depression than his New Deal.

No one is suggesting that we replace official currencies with local
scrip: this is a complementary system, not an alternative. Nor does
Lietaer propose this as a solution to all economic ills. But even
before you consider how it could be improved through modern information
technology, several features of Gessell’s system grab your attention.
We need not wait for the government or the central bank to save us: we
can set this system up ourselves. It costs taxpayers nothing. It
bypasses the greedy banks. It recharges local economies and gives local
businesses an advantage over multinationals. It can be tailored to
the needs of the community. It does not require - as Eddie George, the
former Governor of the Bank of England, insisted - that one part of the
country be squeezed so that another can prosper.

Perhaps most importantly, a demurrage system reverses the ecological
problem of discount rates. If you have to pay to keep your money, the
later you receive your income, the more valuable it will be. So it
makes economic sense, under this system, to invest long-term. As
resources in the ground are a better store of value than money in the
bank, the system encourages their conservation.

I make no claim to expertise. I’m not qualified to identify the
flaws in this scheme, nor am I confident that I have made the best case
for it. All I ask is that, if you haven’t come across it before, you
don’t dismiss it before learning more. As we confront the failure of
the government’s first bail-out and the astonishing costs of the
second, isn’t it time we considered the alternatives?

www.monbiot.com

References:

Bernard Lietaer, 2001. The Future of Money. Century. London.

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Daily Digest - Jan 20

Good call Nonzeroone.  I've heard the speech three times now (there has NEVER been this much fuss over a new US Pres in Australia...)

What struck me was how the speech was couched in inuendos, inuendos which as you rightly point out only people educated in the CC (or similar) would 'get'.  Like when he said challenges would "be met".  He didn't say overcome. now did he?  Maybe he's smart enough (and I think he's VERY smart) to know we're screwed.... or that at least the problems cannot be overcome...  so WHAT might his agenda be?  Let's face it, if you're THAT smart, if you KNOW the info in the CC (more or less), then you MUST KNOW that major major changes are going to be needed, except of course, they won't get you elected!

So, what if he's decided to get himself elected using traditional politics....  KNOWING he's going to have to do something completely different?

Mike 

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eternal sunshine
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Posts: 50
Re: Daily Digest - Jan 20

Nonzeroone and Damnthematrix

I interpreted the Obama speech exactly the same way. I hope to god you are right about this being a primer for the massive changes that we urgently require.

I for one am feeling slightly more optimistic about Obama since hearing the speech, but hey I'm British and I remember getting excited about Tony Blair, and look how badly I called that one.

For good or ill Obama is who we have to lead us through this, so let's all hope he's as smart as  Damnthematrix says and has the balls to match, he's going to need them.

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Headless
Status: Gold Member (Offline)
Joined: Oct 28 2008
Posts: 363
Re: Daily Digest - Jan 20

Damnthematrix,

Only under our current government would there be a "solution" the equivalent of that drawn from fiction; replace "bomb" with "U.S. dollar," and the story is utterly readable and modernized...

As for Monbiot, I, for one, often squirm in my seat when I watch him interview people, and if he weren't so right in his points of attack, I would probably just hit the power button. This is such a poignant articulation of what's happening; something that might be helpful in communicating Chris' points.

 As for "alternative forms of money," do you yourself think there is any valid proposal to be made? This is a rhetorical question in my view (feel free to disagree), but of course it is rhetorical within the context of assuming that millions of people aren't going to die off before it would be implementable; that is to say, as it is now, and in great contrast to as it was then (let's say, during the Great Depression), most people would have no claim on any newly agreed to medium of exchange because, IMO, in any world in which such a device becomes necessary, the value of most things people own and of the "services" they provide would become negligible--even if the mechanics of the scrip could be worked out. We are too far removed from a sufficient knowledge of survival skills (farming, canning, bravery), and too far removed from the "land" to allow for the simultaneous occurence of "local scrip" and "don't kill thy neighbor..."

 As Monbiot continues,

"No one is suggesting that we replace official currencies with local scrip: this is a complementary system, not an alternative."

Perhaps there are locales (rural places full of farmers) where the partial substitution might work (the peaceful implementability being directly proportional to the average level of "survival skills"). What do you imagine happens to the U.S. dollar in a situation where partial substitutions occur?

Boy...as I write this, which is pretty much why I write here at all, the inherent complexity and the attempt to begin to address it strikes me like a fart in church... 

I laugh as I hit the "Post Comment" button...

Lee

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