Monday, July 13, 2015

And yet some other news

Yeah apparently there's a debt deal re Greece as of this morning. Or at least we all will think there is til it gets voted down by the Greek parliament, because no European drama ever bloody ends.

Thank god it's earnings season again: maybe the Americans will start paying attention to the economy and quit trading based on Europe being as must a disaster as it always was.

Anyway, here's some more of the weekend's reading for you:

New Deal Demoncrat - weekly indicators for July 6-10. Still nothing to worry about really.

John Quiggin - balancing the books. Forgotten by most debt-scolds is that governments also have assets:
Curtis Pitt’s big announcement was a rearrangement of debt and equity in Government Owned Corporations, increasing their borrowing and transferring the resulting equity to the general government balance sheet. The result is a $4 billion reduction in general government debt, part of a program to bring the debt/revenue ratio down to around 70 per cent.

A transfer like this doesn’t make any difference to the state’s net financial position. Bu it makes the point that publicly owned assets are assets, not liabilities, and the fact that we own them makes the state’s position stronger.
But you try splainin' that to your average neocon university economics professor and they'll look at you like you have an alien busrting out of your chest. And that's because many profs tend to be a little dumb and susceptible to kleptocrat propaganda.

Simon Wren-Lewis - the non-independent ECB. Oh boy! A thought experiment!:
Imagine that the Scottish National Party (SNP) had won the independence referendum. The SNP starts negotiating with the remaining UK (rUK) government over issues like how to split up national debt. On some issue the negotiations get bogged down. Rumours start circulating that this might mean that rUK will not form a monetary union with Scotland, and that Scotland might have to create its own currency. People in Scotland start withdrawing money from Scottish banks.

Now it is almost the definition of a private bank that if everyone who has an account at the bank wants to withdraw their money, the bank will run out of cash and go bust. That is why bank runs are so dangerous. It is also why one of the key roles of a central bank is to supply an otherwise solvent private bank with all the cash they need, so they will never deny depositors their money. (To be a lender of last resort.) If they did not do this, anyone could start a rumour that a bank was insolvent, and as people withdrew their cash just in case the rumour was true, the bank would run out of money and go bust anyway.

So in my hypothetical story, as people started withdrawing cash from Scottish banks, the Bank of England should supply these banks with all the cash they need. Except suppose it did not. Suppose it put a limit to the amount of cash it would supply. The Scottish banks would protest - you agreed we were solvent before independence, they would say, so why are you rationing our liquidity? The Bank of England replies that although they might have been solvent before independence, if there is no agreement solvency is less clear. The Bank of England says that the limit on cash will remain until the Scottish and rUK government come to an agreement.

This announcement of course leads everyone in Scotland to try and get their money out, and the Scottish Banks have to close. The Scottish economy begins to grind to a halt. The English media report that Scotland is running out of money because the Bank of England will not ‘lend’ any more to the Scottish banks. The Scottish government is forced to agree to the rUK’s terms. The English media say look what happens when you elect a radical government. In Scotland they call it blackmail. What would you call it?

If it sounds to you like the Bank of England is taking sides and putting impossible pressure on Scotland, then you will know what it feels like in Greece right now.
Which we already knew, but it's not really about government finance or monetary-union economics: it's all about power and control. - silver to hitch ride on solar growth. Yes, that's why it's collapsed down to $15. It's all because of high demand.

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