Author Archives: The German Perspective

Ad Infinitum → Forever Is Not Better

  By The German Perspective | March 16, 2012 - 02:15 | ,
6 Comments

There are not many things that last forever. Actually despite death (and for a romanticist maybe love) everything else fades over time. Infinity though is mathematically described as continuation forever and without limit of any kind.

When talking about infinity, people often tend to think of eternity, which by definition however is not the same but a part of infinity with no limit of time. Humans further tend to connect eternity with a positive connotation of “what lasts longer is better”. However, this thinking turns out to be tricky – we mix up ever with never. Why should something that lasts longer automatically be better? A life that lasts longer (maybe being artificially prolonged by med tech) does not have to be better, does it? Being “better” can instead be connected to how you spend your lifetime rather than how long it lasts. Thus, often Forever’s Not So Long…

Yet, moving away from philosophical questions of infinity allows us to discuss the financial questions related to it. Today, different sources (Financial Times, BBC, AFP)  report that the United Kingdom thinks of issuing bonds that will run ad infinitum also called “super bonds” or “eternity bonds”. Right now due to the the lowest base rate since the Bank of England was founded in 1694, British gilt yields are at a record low. Thus, HM government thinks that with such perfect conditions (and with a rating downgrade looming) it is now time to, again after e.g. 1751 or 1932, issue bonds with no fixed maturity date.

Thought behind it: The longer the better!

And here it gets tricky again. How much market demand will a bond with relatively low fixed coupons that is never being paid back create? In other words, why should anyone buy a bond that will never mature, pays low interest in an uncertain future with even more uncertain inflation rates?

And again, lasting longer is not automatically better…

Still it seems that the British government tends to think like most political powers nowadays do – they borrow money and time without limit. With “super bonds” they kick the can as far down the road as possible.

And yes, we have to admit infinity is pretty far…but in the end infinity is just a mathematical law. Most things won’t last forever – not life, nor trust or debt.

PS.: I have taken the liberty to alter the Union Jack a bit and hereby suggest it shall be renamed to “Infinity Jack”.

Turning the screw…

  By The German Perspective | March 14, 2012 - 14:07 | , , ,
9 Comments

No question, Germany is one of the most productive countries in the world. We strive for productivity and efficiency, but are we effective?

We have reformed the school system, shortening school times in order for students to study fast and thus work earlier. We have reformed the health system, so that at average a doctor has eight minutes for each patient – whether you have a cold or cancer. We have reformed the retirement system, so that people work longer and can only reach full pension payment at the age of 67. We have reformed the labor market, resulting into about ten million people working at low level wage in temporary work – turning it into permanent work for them.

We are productive beyond all means.

Productivity and efficiency today is Germany’s altar. We pray for, cherish and worship effective measures leading to more output, more revenue, more exports, more employment, more profit, more taxes. This leads to more psychological illnesses, more pollution, more displacement, more class-struggle, more debt, more rescue efforts, more hatred and less living.

We are productive until blood comes.

I have said it before: Germans see life as a machine. The more you oil it, the faster it runs. The more you tune it, the more “perfect” it is. The larger it is, the more comes out of it. Sustainability? None! Like in mechanics a screw can only be tightened once. You keep turning it once it is tight, it will suddenly soften and finally loosen. That’s when you have overdone it. Germany is a small country and many people think we are a “role model”. If just Greece, the Philippines or Madagascar would be more like us… then the world would of course be a better place.

BULLSHIT!  

The more this world strives to be like Germany, the faster all this will come to an end. We can not continue to be ever more productive. We ruin our economies; ruin our environment and finally our lives with it.

Once that screw is overturned we will all be screwed.

Hello, Dave! I’m sorry, Dave…

  By The German Perspective | March 1, 2012 - 02:54 | , , ,
6 Comments

A human crew is traveling through space. On their spaceship they have trusted their well-being and control to a system that has been designed to help, assist and support mankind. Yet, during their journey through the endlessness of the ever growing universe, the crew has to realize that something is flawed with the system as it begins to misbehave. Instead of functioning as intended it starts to venture out on self-interest and thus begins hurting and killing people instead.

Some readers may now think I am giving a wrap-up of Arthur C. Clarke’s science fiction saga 2001: A Space Odyssey well-known from Stanley Kubrick’s movie of 1968. But NO, I am rather talking about all mankind traveling on Earth through space and a financial system that initially was intended to assist humans and deliver services that make life easier – yet, instead this system has gone rogue and starts making life tougher most of us.

Just like the killer computer, HAL 9000, in Clarke’s book it all started with a little twitch that only some system users realized. From there a string of more, more and more problems arose until the first wave of major malfunction rushed through the spaceship. People suddenly were severely harmed by the financial system. In panic mankind tried to pull the plug yet only partly understood that something was really wrong with the system that until recently seemed to work perfectly. Some bold crew leaders proclaimed that “with enough political will” everything could be solved and thus after a close review of the problem and a strict implementation of even stricter regulations things would be all good again.

However, the system has proven otherwise and misbehaved again. Not only have some strict regulators lost their political lives on the way, no also the system shows severe reluctance to reviews and regulations being put in place.

Instead, just like HAL 9000, the financial system decides to continue the journey through space alone and determined to succeed. People will only be in its way and thus it’s only purpose is to serve itself. It took only a short time until the system had pressured the crew and suddenly crew leaders proclaimed that the system was “systemic”, “too big to fail” and actually wasn’t faulty at all but “stood for peace”.

Therefore instead of reviewing, regulating and fixing it, they decided to serve and worship it. So let’s praise the financial system: All hail, System, hail to thee! 

Buying time and spending millions, billions, trillions of resources on it. The system itself realized quickly that it had much more power to blackmail and it used its power well in order to demand what had to be done to serve it even better. So, all these steps just made the system more powerful while the malfunctions persisted and even worsened.

Thus, it is just a matter of time until the next wave a major system failure runs through the spaceship and this time hopefully enough of the crew learns from the shock in order to follow Arthur C. Clarke’s hero Dave Bowman and switch the system OFF, reducing it to its minimum doing what it was supposed to do – serve the people and nothing else.

No Payin’ No Gain!

  By The German Perspective | February 12, 2012 - 04:37 |
13 Comments

It’s been some years already since European politics unsuccessfully perform traditional political trickery in order to solve an unseen economic crisis. The “leaders of the free world” try to trick investors, voters, taxpayers and finally physics.

The “substantial solution” to our debt problem is like trying to square the circle. The idea is to settle the balance of payments without somebody actually paying for it. Summit after summit and failure after failure has proven that this approach is mathematically impossible and just does not work.

Like a pair of scales the balance between debt and wealth is in equilibrium. One side’s debt is the other side’s nominal wealth. Thus, if debt is cut, eliminated or reduced this will cut, eliminate or reduce wealth it the same size and instant. We can see from this example that wealth as long as it is stored in paper of debt is nominal and utmost relative.

That’s how nature, physics and the universe work – no matter what politicians negotiate behind closed doors and running microphones…

Reality will always win over talk.

It is thus not possible that the political strategy will prove successful in the long run. Neglecting the reality will thus keep turning things upside down and old formulas do not work. In the end somebody will pay for our overleveraged system and there is NO WAY around that fact. Without paying the bill and balancing the sheet things will not settle and stability will not come back.

So, without payin’ no gain! Otherwise – Laughter, tears, curtain.

Update:
The video above was first published on Friday. It shows German finance minister Wolfgang Schäuble talking to Portuguese finance minister Gaspar about working out a solution for Portugal after the Greece problem is solved. It took German public media more than 48 hours and until Sunday to report about this little conversation. While Schäuble’s office was of course busy to deny any report that the finance minister had given a commitment for extra financial help for Portugal…We have thus reached the grotesque point where politicians are recorded saying something to other politicians and later claim that they have not said it…

We Know The PRICE But Not The VALUE!

  By The German Perspective | February 8, 2012 - 11:00 | , , , ,
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A mobile phone, an aircraft carrier, a replacement seal for the refrigerator door or a plumber fixing your heating these days – we all know or can estimate the price of the above products or services. The price of a certain good thus is a decisive factor and expressed in currency units. Not only will it determine whether consumers will buy a product or not, no, the price in economic terms has an indicator or signal function as well. According to economic theory the price of a good signals its scarcity – yet, what economics fail to consider is the value of it.

Just like the currency in which they are expressed, prices are nominal, go up or down and frequently change, often without the good priced changing at all. Prices are quite relative and unreliable when it comes to express the value of a certain good or service. Those of you who invested at the stock exchange, into an apartment in Miami Beach, a brand new car, gold or a lifesaving heart surgery will know what I mean.

As already discovered in 1945 by Tibor Scitovsky, it is in our own nature that we attribute more qualitative value to things that cost more. In other words if I’d show you two glasses of water which are absolutely alike, one priced at 1 Euro and the other costing 1,000 Euro, which will your brain tell you to be “better”? You know the answer.

So today’s approach to pricing can trick our value perception. We often assume that something that is pricey automatically is valuable. History has proven otherwise. It shows that some things are valuable although they have a low to no price, while others are less valuable although they have a very high price. So much for that signaling function…

Following down this string of thoughts leads you to a valuation of goods rather by their use and perception in the people’s minds than by price. Where is the difference in value between the heart surgery for 100,000 Euro and the new Mercedes S-Class for the same price? You know the answer.

Value is created and distinguished by human perception and nothing else. Value is not intrinsic in the goods themselves but rather in the heads of the people. This then explains why prices are going up and down while products stay the same.

And finally if you ever had serious health issues or enjoyed a beautiful sunset on a warm summer evening you know that some things are just priceless.

Citius, Altius, Fortius – When enough is not enough…

  By The German Perspective | February 6, 2012 - 14:29 | ,
2 Comments

We live in multidimensional and highly dynamic times which from a variety of angles seem to slip into disaster. These different angles though are getting well visible if someone wants to see. One interesting development is that it is human nature that we never have enough, we always want more, yes we are greedy.

In the last years there has been much writing, talking, reporting about greed and how bad it is. What we however lack to understand that greed in today’s world is not only related to monetary terms, it is in a way more integrated into every fiber of human life than most of us can imagine.

Citius, Altius, Fortius – Higher, Faster, Stronger (is the motto that originated in 1894 from Pierre de Coubertin, the founder of the modern Olympic Games).  This motto somewhat matches up with our nature and so today each and every one of us somewhat lives by that motto.

The people, governments, businesses, social institutions, religion and even you and me. We all want more and more:

  • More taxes,
  • More income,
  • More growth,
  • More control,
  • More austerity (for Greece),
  • More debt,
  • More revenue,
  • More profit,
  • Bigger houses, bigger cars, bigger boats…
  • etc.

We do it because in the past we could. The past seemed to have proven that things always tend to grow. A more and more was well possible allowing the conclusion that it will always be like this. However, our recent inability to get control of the broad and multidimensional crisis happening around us slowly triggers questions in whether growth might come to an end…

As humans we only seem to have no limits and so we fail to understand that we are living in a natural environment that physically does not allow endless growth. No tree ever grows to the sky – although they have had millions of years to try. Where should our eternal believe in growth finally end in? Total wealth? Total profit? Total government control? Total taxation? None of it.

There will be a day when we will have to admit the truth and that things are over. Admit that Greece is bankrupt, that economies can’t grow for ever, that government can not have total control or 100% tax and finally that we can not keep blowing up our lifestyle from generation to generation. This may hit our human ego, it will have severe implications for our habits, but it will happen.

One day enough just is enough – whether we want it or not…