5′s make things work~!

  By Mystic | August 4, 2012 - 08:03 | ,

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Written by: Mystic on August 4, 2012.
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  • lgrinaker

    I followed that very well, Mystic (and it’s nice to see it come around to the 5s again, ;-)).

    Yes, and after making the post I did above regarding Steve and Joe, this is reminding me that for Keen, it’s not even necessarily borrowing that’s a problem.  For he would see the lending within your example as a *non-speculative* act of borrowing/investment.  Or at least it can be – if the two folks who purchased their bicycles didn’t do so with the goal of selling them later for a profit, ;-).

    For Keen, I think I’m coming to better and better understand, first and foremost, it’s about speculative investing.  And that can happen with or without borrowing.  Then, if borrowing is added to speculative investing, that augments the boom/bust nature of speculative investing.  And that, in turn, can happen with or without borrowing from the govt. (specifically, from a govt. that can create money, and so, is without the constraint of running out, such as is the case for the U.S. at this time).  If borrowing from a govt. can happen, which can add still far, far more money into the building of a ponzi scheme (of speculative investing), then it’s simply a heck of a lot more fuel added to the fire.

    But the original fire that Keen sees as dangerous is that of speculative investing – which can begin with or without borrowing, although with more borrowing comes more fuel for the fire, so to speak.

    Linda

    • lgrinaker

      Holy moly – the spacing between paragraphs held!  (That’s the first time in a few weeks that I didn’t have to go in a 2nd time to edit for spacing.  I never had to do that for posting a blog entry, but I did when commenting.  Not today, however! ;-)

      Linda

      • http://overthepeak.com/wordpress/ Mystic

         We were running `Disqus 2012` for a while, (but have now gone back to `old Disqus`.

    • http://overthepeak.com/wordpress/ Mystic

       Minsky’s instability hypothesis.
      Borrowing is really at the heart of it.

  • windslice

    OK, all good. Although I think it is easier to completely separate the loan making process from the banking transaction process. And also easier to get the message across by treating thebanking system as one bank.

    But now we have hopefully got through that.

    So here’s something to introduce, the velocity of money.

    If, instead of delaying payments, if everybody started paying instantly with cash, would that affect the gdp?

    Here’s the latest scheme from the BoE, which slipped in quietly under my radar.

    http://www.bankofengland.co.uk/markets/Documents/explanatory_notefls120713.pdf 

    and an example here

    http://www.bankofengland.co.uk/markets/Documents/fls-workedexample.pdf 

    “The Scheme will complement other policy actions.  The Monetary Policy Committee has responded to the weakness of demand in the economy, and the risk that inflation may fall below the target in the medium turn,  by maintaining interest rates at a historically low level and increasing the size of its asset purchase programme (known as ‘Quantitative Easing’).  This policy action has helped to increase the amount of money circulating in the economy and raised the prices of assets such as bonds and shares, boosting the value of wealth and lowering the cost of finance for those firms who can access capital markets.  But it has not been able to deal directly with the problem of elevated bank funding costs.”

    “Over the eighteen months to the end of January 2014 – the ‘drawdown period’ – the Bank of England will lend UK Treasury Bills to banks and building societies (hereafter ‘banks’).  These will be lent for up to four years, for a fee.  As security against that lending, banks will provide collateral – in the form of loans to businesses and households and other assets – to the Bank of England.   
    This type of transaction is known as a ‘collateral swap’.  When the loans from the Bank of England mature after up to four years, the collateral will be swapped back again.  This arrangement ensures that the risk from the loans remains the responsibility of the originating bank. 
    Banks can use the Treasury Bills they access in the Scheme to borrow money at rates close to the expected path of Bank Rate.  Taking that rate together with the fee paid to the Bank of England gives the cost of funding for a bank using the Scheme.”

    This is an attempt to drive down the interest rates again, trying desperately to get the peeps borrowing at even lower rates.

    I wonder how on earth the BoE expects to get out from lowering the interest rates from almost zero to a sliver above zero. This would destroy all the bond and share price increases, which I suspect is the only reason why pension schemes and insurance companies are above water.

    Truly now in Japanese mode, without the backing of massive savings.

    • http://overthepeak.com/wordpress/ Mystic

       They must curse those dumb prols …….. stopping borrowing like that  …… I mean …….  what are they thinking~!?

      • windslice

        They are finally thinking for and of themselves.

        Which goes against the requirements of the economy.

        Another example of the “Tragedy of the Commons”?

        I think the massive problem is we now now have TPTB that think they must solve the problems. So intervention and more intervention, resulting in a market that is utterly distorted.

        Either this ends badly or it is bad without an end.

        • http://overthepeak.com/wordpress/ Mystic

           Somewhere along the line, them’s with the credits are going to have to admit such large losses, that faith in the old system will be lost (but probably not forever).

          *And a note to say ………. We ain’t finished with them fives yet awhile~!!)

          • windslice

            Could run for a number of years yet before we get to that point.

            The BoE has now pushed it at least four years down the line. I suspect the Eurozone will do the same.

            But watch the currency exchange rates. They will be the release valve for all the pressure building up. A fictional and economically malfunctioning system cannot continue. Real production and mineral extraction will prevail.

            But back a step I am looking forward to seeing how the “mobile unit of banking accounting” will enhance our understanding of the system. Maybe more fives are heading in this direction?

            • http://overthepeak.com/wordpress/ Mystic

               I don’t know where `fives` are heading~!
              You talk of currencies.  These `currencies` are the `mobile units of a countries bank accounting system`.
              Faith in that `accounting system` will be at the bottom of it, (whether people recognize this or not).
              U.K. has still got cred from its ancient cred pile (surprisingly).