How to fix the Economic Crisis: A Modest Proposal.

Liam Byrne

Cathal O wrote: »

Liam Byrne wrote: »

Sounds great.

That's the same hotelier who couldn't pay the butcher originally because he didn't have €50 ?

What did he pay the German back with ?

but the hotelier is back in debt since they don't have the €50..

Yes its the same one, but now the hotellier isnt in debt by 50 euro as he paid back his debt of the imaginary 50 euro.
I know its complicated and i probably wrote it down wrong, but in my head it works haha

No. If the hotelier didn't have €50 to give the butcher, he won't have it to give the German. So he is in debt by €50.

It did solve the other debts, I'll give you that.

But it only works because the German isn't a local that owes someone else local and now can't pay because the hotelier can't refund him.

Tonyandthewhale

Liam Byrne wrote: »

No. If the hotelier didn't have €50 to give the butcher, he won't have it to give the German. So he is in debt by €50.

It did solve the other debts, I'll give you that.

But it only works because the German isn't a local that owes someone else local and now can't pay because the hotelier can't refund him.

But the hotelier can refund him, because someone already paid the hotelier 50 he was owed so he's got that 50 floating around to give to the German. The problem with this scenario is that there's no room for growth in this hypoteical local market since there's no capital available. An even bigger problem is that it isn't at all applicable to the Irish situation since no one (or at least no one solvent) owes us the 100 or so billion euro that we owe in soverign debt so what's the point in discussing the German and the hotelier?

Liam Byrne

Tonyandthewhale wrote: »

But the hotelier can refund him, because someone already paid the hotelier 50 he was owed so he's got that 50 floating around to give to the German.

Whoops! Missed that completely!

Tonyandthewhale wrote: »

The problem with this scenario is that there's no room for growth in this hypoteical local market since there's no capital available.

Define "growth", though.......it's always stunned me the way that inflation is somehow seen as a good thing. All it does is ensure that the same money doesn't go as far.

e.g.

1981 Ford Fiesta : £4,500 or approx €5,500 (now €14,000)
1981 Bag of Tayto : 10p or 12c (now 75c)

Car inflation : 300%
Tayto inflation : 600%

So basically any wage increases are, in real terms, non-existent.

Ally Dick

Good idea OP. But the Indians are buying up all the gold in vast quantities as we speak. They can see that a huge crash is coming for China, as well as the US, and they want to have all the gold, when currencies go tumbling....

Chuck Stone

Define "growth", though.......it's always stunned me the way that inflation is somehow seen as a good thing. All it does is ensure that the same money doesn't go as far.

e.g.

1981 Ford Fiesta : £4,500 or approx €5,500 (now €14,000)
1981 Bag of Tayto : 10p or 12c (now 75c)

Car inflation : 300%
Tayto inflation : 600%

So basically any wage increases are, in real terms, non-existent.

That's interesting^^.

I thought it was primarily money supply which causes inflation but it seems that this is an 'Austrian view'.


http://en.wikipedia.org/wiki/Inflation

Liam Byrne

Liam Byrne wrote: »

Whoops! Missed that completely!



Define "growth", though.......it's always stunned me the way that inflation is somehow seen as a good thing. All it does is ensure that the same money doesn't go as far.

e.g.

1981 Ford Fiesta : £4,500 or approx €5,500 (now €14,000)
1981 Bag of Tayto : 10p or 12c (now 75c)

Car inflation : 300%
Tayto inflation : 600%

So basically any wage increases are, in real terms, non-existent.

A debt based monetory system can't exist without growth, otherwise the debt created when the money was loaned into existance will never be repaid with interest.

No growth, no money available to repay debt = interest on debt spirals out of control. Sound familier....

Chuck Stone

Deleted User wrote: »

A debt based monetory system can't exist without growth, otherwise the debt created when the money was loaned into existance will never be repaid with interest.

No growth, no money available to repay debt = interest on debt spirals out of control. Sound familier....

Sounds like a ponzi scheme

Chuck Stone

Chuck Stone wrote: »

Sounds like a ponzi scheme

It is! As big as the planet, but it can't get any bigger!

aligator_am

Chuck Stone wrote: »

Here's what we do.

We take every last cent in 'bailout' money and buy gold with it. Just gold.

Then on the following day we announce to the world that we are pulling out of europe and will be using gold as our currency.

We also anounce that we will be moving to 5% corporate tax rate.

The value of the euro would collapse and people would run to gold and it's price would triple overnight so we'd be increasing our wealth threefold.

Money and business would flood into the golden isle and we'd all live like kings.

Y'all got any ideas?

Your plan has merit, but gold now is about $1600 per ounce and likely to keep increasing as the dollar keeps deflating, it was about $250 per ounce in 2001 and has been going up ever since.

There's a chance that America could experience hyper inflation, if that happens then gold and surprisingly seeds could be major barter items.

Chuck Stone

aligator_am wrote: »

There's a chance that America could experience hyper inflation, if that happens then gold and surprisingly seeds could be major barter items.

Actual stuff with real world value. Unlike those little bits of paper we place so much trust in.

Michael 09

aligator_am wrote: »

Your plan has merit, but gold now is about $1600 per ounce and likely to keep increasing as the dollar keeps deflating, it was about $250 per ounce in 2001 and has been going up ever since.

What makes you think it's gonna stop any time soon. Buying a stock/commodity on the floor is almost impossible to predict. Buying on the way up is the most profitable way.

Old Chinese saying 'never try to catch falling swords'

bnt

Cathal O wrote: »

This shows that with one 50 euro how a hotelier, a butcher, a shopkeeper and a builder can have all their debts cleared in a local economy, i dont know what im trying to say here, but surely something like this could work over the country?

That's already happening, but backwards: see "kicking the can down the road". The "parable" describes a "liquidity crisis": the value is already in existence, it's just not where it needs to be - so shuffling it around solves the problem.

But that's only one kind of economic crisis: the other main kind is a "solvency crisis", where debts are more than the value of assets. An example is someone who takes out a huge mortgage on a house: the house has a value as an asset, more than the value of the mortgage debt: so you're still solvent. However, as we now know, houses in Ireland were severely overvalued, and so the new valuation on the same house can suddenly be a lot less than it used to be. The mortgage debt is bigger than the new value, and once you factor in all your other assets and debts, you can still be "in the red" i.e. insolvent or bankrupt.

So far, so obvious, but the same situation can apply to other kinds of assets ... and it can apply to a whole country. Is Ireland in this situation? Yes, and shuffling money around internally is not going to change that. The underlying value is not there any more - if it ever was.

If you want to get technical: there's already a way of measuring the total value produced by a country, versus what it owes, and it's called the current account. (Not to be confused with your "current account" at the bank.) A country with a current account deficit is producing less value than it loses in any period, and as that build up over time it becomes a current account debt. Moving money around as Cathal describes doesn't change the current account, because there is a loss for every gain i.e. it all balances out internally.

What is Ireland's current account like? According to these guys, Ireland's current account deficit for the first quarter of 2011 was just over €1 billion. (There's a more detailed explanation of the current account at the bottom of that page.) The really scary chart is this one: the ratio of Ireland's total debt versus Gross Domestic Product, which is approaching 100%. If it's any consolation: the USA is in a similar situation, except that the numbers involved are much larger.

Suryavarman

Chuck Stone wrote: »

That's interesting^^.

I thought it was primarily money supply which causes inflation but it seems that this is an 'Austrian view'.


http://en.wikipedia.org/wiki/Inflation

I believe the Monetarists believe that inflation is caused by increases in the money supply.

Milton Friedman: "Inflation is always and everywhere a monetary phenomenon."

The Austrian view is that the increase in the money supply is the inflation and a rise in prices is just a result of inflation.