Debt, unemployment and escape routes

Interesting observation by Steve Keen: unemployment correlates closely with the amount that debt contributes to demand in the economy.

Let me try to reason out the consequences, however inexpertly.

So, as everyone scrambles to cut spending and get out of debt, unemployment will soar. Since there is a great deal of international trade, the hit will be felt internationally.

Then government finances will come properly unravelled, especially in countries that have generous social welfare provisions. Worldwide, sovereign states will look for anyone who has real money to lend.

This should result in higher interest rates, but that would make the cost of debt, and its sustainability, extremely difficult, both for states and for corporations (and the burden on the latter will tend to result in even more unemployment and more claimants on the government). A rise in rates would also hit holders of long-term government debt, which may be one of the reasons the Chinese have been swapping that for shorter-dated Treasuries. A collapse in bonds will affect the capital value of pensions and investments, oh dear.

Another way out is default on debt. But who will be hit by that? Not just foreigners, but our pensions and managed investment funds.

A third way, which given that we have history to learn from doesn't seem likely, is the true hyperinflation approach. Germany in 1923, Hungary, Argentina, Zimbabwe... do you really see this happening here?

Then there's the downgrading of debt, with corresponding falls in the traded value of the currency. We've seen some of that - what, 20% off the pound? - so maybe there's more to come from that direction. Except other countries may follow suit. In 1922, if you were a far-sighted German, I suppose you might have sold marks and bought dollars; what currency would you buy now?

Or there's "more of the same" again - talking up the economy and pumping in cash until you spend because you daren't leave it to rot in the savings account.

Which way will it go? Where will it all end?

Housing (and the stockmarket) bear rally

For more, see Smith's redoubtable blog.

More on Al-Megrahi

Should an innocent man stay in jail to assuage our feelings about Colonel Gaddafi? A member of the Scottish Parliament thinks not.

And the total number of visitors to Professor Robert Black's blog has leapt 50% in the last week. They also serve, who only stand and wait.

The world may not be flat, but the universe is... or maybe not

(picture source)

Does dark energy exist? And if it doesn't, what about dark matter? These two are supposed to constitute 96% of the universe - and we get to see the other 4%. Or is it 5%. Or maybe not.

I'm sticking to Marmite. Though even there, theological problems rage.

Credit contraction is outpacing monetary stimulus

"... the Eurozone, the UK, Japan, and essentially every county on the planet is all attempting some sort of stimulus plan or other. This is bound to cause a major distortion at some point, as no country has anything remotely close to an exit strategy for this. What kind of distortion and when cannot be certain because we are indeed in uncharted territory, worldwide."

- Mish.

The more I read around, the more uncertain I become. All I have is my instinct, that things are out of control and we're being told fairy stories to lull us.

Mish's argument is that "The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model." If he's right, it's cash is king, for a long time to come.

Freedom and healthcare

I've just watched Daniel Hannan's address to Americans on the dangers of a nationalised healthcare system. I, too, want America to carry on holding up the torch of freedom and democracy that is being doused here in the UK, so that one day we'll be able to re-light ours from theirs.

But it seems to me that if you want private solutions for problems which all have (or will have), but not all can afford, then you must address the question of inequality of resources.

Peter Rogers, co-creator and producer of the Carry On film comedies, once remarked he would 'do anything for my actors except pay them.' Similarly, so much is done for us in the UK, perhaps so badly, in the way of health and education (to name but two functions), when it might work so much better if we had the money personally and could make our own decisions.

We are witnessing a concentration into ever fewer hands on both sides the Atlantic, not only of power but of economic wealth. Every dollar and pound is a vote in the daily election of goods and services. To use the terms of the French national motto, if we wish for liberty but mistrust fraternity, then perhaps we should contemplate some redistribution of wealth to restore a greater degree of equality.

For example, how about some form of credit card (funded from general taxation and directed to individual accounts) that can only be spent on defined areas of need, but the holder to determine how to use his/her budget to best effect? Something like the educational voucher idea, but radically extended?

New fiction website

I've set up a new blog for fiction with a topical twist. The first story is about the euthanasia debate. The site is called Future His Story. I hope you like it; if you do, thanks for reading it and please let others know.