This headline and lead paragraph in the Times (of London) deserves a sort of award:
Thrifty families accused of prolonging the recession –
Anxious families are repaying debts instead of spending in the shops, amid concern over the uncertain economic outlook. The share of income saved in banks and building societies has risen to its highest level in more than a decade, heightening fears that faltering consumer demand could prolong the recession.
This is a sort of reflexive crude Keynesian message at work; the laziness of the assumption that recessions are ended by people spending more – never mind where the money comes from – continues to hold a grip on the MSM. In fairness, maybe what the writer is trying to say is that saving is a good thing but if everyone saves “too much” (however one can define that), then in the aggregate, it drags everything down. But that does rather ignore the situation that has built up over the years, and the disruption to the economic system caused by excessively cheap credit. People who try to reduce their debt, save more and decide to forgo spending money they haven’t got are not “prolonging the recession” beyond some point that can be marked down on a graph. The current economic Snafu was caused – as the author of this newspaper item must be dimly aware – by a country hooked on the drug of cheap credit, beguiled by the idiotic notion that whenever the drug wore off and the hangover kicked in, that that nice Dr Greenspan and friends would administer yet more of the drug, to get yet another high. That way lies the equivalent of liver poisoning.
It may seem a Scrooge-like message for this time of year to point out that you cannot spend money that you don’t have; businesses cannot invest money that has not been already saved, and that interest rates must reflect the balance of supply and demand for savings. The “Austrian” economic insight that money is a claim on resources, and that two people cannot hold the same claim on a resource at the same time, needs to be relentlessly rammed home.
The best way to end a recession is to unravel the massive misallocation of resources caused by printing money as soon as possible, to let labour markets clear, to cut public spending and cut taxes, and where necessary, recapitalise banks speedily. (Check out this paper for a good course to steer). Such a process is inevitably painful. In the short run, the pain is worse than the sort of dragged out situation we have now. But ask yourself this question, dear reader: what is the more compassionate policy – a short, sharp recession and closure of failed banks, followed by a rapid 1921-like recovery, or a Japanese-style multi-decade of stagnation?
On that note, this makes a good Christmas present for those interested in economic affairs, if you still have the time to get it shipped.
If there is a conflict between the interests of “society” and the interests of the individuals making up that society, you have either defined society, or its interests wrongly.
This is ,as always, ignoring the fact that people take on
100k extra debt for the land their bricks and mortar are assembled on.You are never going to get any market clearing with those huge sums (measured personally or nationally).
No wonder people use their credit cards: I have seen people make card purchases of under ten quids’ worth of groceries.
Free market economics just pushes up the price of land:Keynesian demand management ditto.
I misread that as “Thirty families accused of prolonging the recession”.
James
Given the incestuous nature of politics and how they all seem to be related to each other you may be right
No wonder people use their credit cards: I have seen people make card purchases of under ten quids’ worth of groceries.
In defence of the practice, I do this all the time. In fact I probably put two thirds of all my monthly expenditure on credit cards. I then pay the bill off in full at the end the month. If the bank and the retailer want to fund my working capital requirement (and in some cases even give me a kickback for doing so), I let them.
Are you sure these are credit cards and not debit cards? Personally I use my debit card for various purchases but don’t use my credit card at all.
DBC, I wondered if you might show up.
Your argument overlooks the point I made
about interest rates and savings. The crucial
point is that interest rates reflect genuine supply
and demand for savings, not the artificial
situation we have now.
DBC, I wondered if you might show up.
Your argument overlooks the point I made
about interest rates and savings. The crucial
point is that interest rates reflect genuine supply
and demand for savings, not the artificial
situation we have now.
You are absolutely correct and it is amazing that people do not see the insanity of Keynesian economics. One cannot get something for nothing, never mind what clever tricks one does on paper.
Reality would rule, of course, if there was no forced interference by government institutions or their side kicks that distort reality.
In the end reality will prevail but I suppose it could take a long time.
These gentlemen do not care about their kids. They have no true love in them.
We are also a fairly thrifty family. We don’t really go without much but most of what we do have is paid for up front. We use credit cards but only spend on them if we know that we can pay them off in full when the bill comes in.
I have concern that our careful budgeting may turn out to be a waste of time due to the government’s apparent addiction to borrowing. Still if we do have a long recession or a deeper one, it must be better not to be living under a mountain of personal debt.
I am another who only puts an item on the credit card if I know how it will be paid for at the end of the month, otherwise I go without. I prefer to use a credit card because it is an interest free loan for me and I have a current account mortgage (it suits my needs) so I can either pay by cash or debit card and pay interest on what I have spent, or out it on credit card and pay no interest until I settle the credit card bill. I also travel for work and would not appreciate paying interest between incurring a cost and getting paid the expenses I claim. I still remember the outcry when the head of Barclaycard pointed out that credit cards were a payment method, not a sensible source of credit. Strange world where a statement of the glaringly obvious is controversial.
Stonyground, it may be frustrating labouring to avoid personal debt and then being lumbered with government debt, but that has to be less bad (I won’t say “better”) than drowning under both governbment incurred debt and personal debt.
I’m with Michael and MarkE. I put nearly every purchase on my Discover card (even a $6 grocery purchase last night), and then pay it in full each month. They give me substantial cash rebates, never charge any fees, and since I pay in full there is never any interest charge either.
I cannot understand why anyone would use a debit card; why not just write a check? I suppose it is marginally easier to swipe the card than fill out the slip of paper, but it’s the same thing and you don’t even get the benefit of the float. Debit cards are a huge hoax perpetrated by the banks; if you can use them you could just as easily pay off the credit card balance in full.
The thrust here seemed to start at the idiocy of what passes for Financial Journalism in the MSM.
Of course, it seems applicable to everything that today pretends to be journalism.
We have to keep in mind that a large segment of those engaged in the MSM are only writers and it seems most of them have only been processed through the post-secondary systems without learning how to learn about a subject (let alone being interested in the efforts involved in learning).
Thus it is so much easier to join the cacophony of of the other birds in what remains of the MSM “rainforest” where all make the same sounds in general discord.
In general, any opinion-oriented writing is not worth wasting time on, and even the “facts” cited have to be discounted, because the old habits of verification are sadly neglected.
Y’ just gotta DIY now-a-days. Which was always the safest in the past.
We are witnessing shrinking intellects writing for shrinking audiences.
Back to the economics — What the (dumb) article ignores is a key fact about money: Money Circulates.
If a person pays off a debt, the former debtor indeed has less money to spend on other things — but the former lender now has more money to spend.
The real economy is not about money. It is about the production of goods & services which customers want. Part of the current Western problem is that real production takes place in China. Not sustainable.
I find myself wondering if the big issue that many partisans are forgetting is regulation. Whoever has the money to spend on real goods & services is likely to end up getting them from places like China because excessive regulation prevents the Western entrepreneur from filling the gap.
Laird wrote:
‘I cannot understand why anyone would use a debit card; why not just write a check? I suppose it is marginally easier to swipe the card than fill out the slip of paper, but it’s the same thing and you don’t even get the benefit of the float. Debit cards are a huge hoax perpetrated by the banks; if you can use them you could just as easily pay off the credit card balance in full.’
1) The debit-card transaction is much quicker and more-convenient for both the customer and the merchant than the paper check. The debit card (with PIN) can also be used in unattended situations, where a check cannot.
2) The debit-card transaction has a much-lower likelihood of fraud and/or error at the point of purchase than the paper check. Beyond that point, the possibility for fraud and/or error is just as bad – if not worse – but there is that advantage.
3) The debit-card transaction and the credit-card transaction are different things, legally, which give the customer and the bank different rights and obligations. It’s just another choice.
4) The debit card is highly-appealling to a large subset of customers who are unable or unwilling to obtain a credit card. The barriers to entry are lower.
5) The debit-card transaction is cheaper for the bank to process than a paper check (although the gap is shrinking). Lower processing costs = higher profits for the bank, lower service charges for the cosumer, better interest rates. Lower costs are always good.
6) The debit-card transaction is cheaper for the merchant to process than a credit-card transaction – much lower interchange fees, generally speaking. Lower fees means higher profits, lower prices. Lower costs are always good.
Don’t get me wrong – I’m all for writing checks, and I think everyone should do so, as often as possible. But your suggestion that everyone should do so instead of using a debit card is – a little simplistic. Debit cards have some significant advantages for a large marketspace of users and their banks, which is why they are so popular – especially in Europe.
FWIW, I have cut back on the number of credit cards I have and use. I use a debit card more since my CU began offering credit-card-like incentives on their house debit card. I’m also doing more and more and more with cash, especially since the resurgence of that venerable institution – the discount for folding money.
llater,
llamas
The debit-card transaction is cheaper for the merchant to process than a credit-card transaction – much lower interchange fees, generally speaking.
In particular, debit card transactions are often paid for by the merchant on a charge per transaction cost regardless of the size of the transaction, whereas merchants often pay for credit card transactions on a charge as a percentage of the transaction vale basis. (Charging for debit card transactions in particular varies from country to country, but this is often the case, and is certainly the case both in the UK and in Australia). This makes businesses with narrow margins often reluctant to take credit cards but happy to take debit cards and/or inclined to charge more if you use a credit card. Paying by credit card is usually best if the price is otherwise the same. This is not always the case.
(In the US…no idea about elsewhere)
If someone fraudulently uses your credit card, you’re on the hook for the first fifty bucks and that’s it, assuming prompt reporting to your issuer. And some major banks will even waive that.
If someone fraudulently uses your debit card, you’re typically on the hook for the entire amount. A bank may or may not eat the loss, but you’re depending upon them for goodwill.
The only thing that scares me more than debit cards is giving vendors direct access to my checking account, via “automagic bill-pay” or whatever it’s called.
Thrifty families build capital.
Sunfish wrote:
“If someone fraudulently uses your credit card, you’re on the hook for the first fifty bucks and that’s it, assuming prompt reporting to your issuer. And some major banks will even waive that.
If someone fraudulently uses your debit card, you’re typically on the hook for the entire amount. A bank may or may not eat the loss, but you’re depending upon them for goodwill.
The only thing that scares me more than debit cards is giving vendors direct access to my checking account, via “automagic bill-pay” or whatever it’s called.”
Sunfish is right that consumer credit-card fraud losses are limited by black-letter law – but so are debit-card fraud losses. The difference is in the speed of reporting the fraud – for credit-card fraud, your loss is limited to $50 until 60 days after the fraud, for a debit card, you must report the fraud within 2 days or your liability goes to $500. After 60 days, you’re on the hook for the entire loss, for both credit and debit cards – the difference being that the loss for a debit card is limited to your bank balance. The losses on a credit card could go to the credit limit. Many users do not properly understand this, but it is true.
I work in the banking technology business, which is why I don’t trust anyone or anything to do with banking technology. I designed ATMs for 20 years, you could not give me an ATM card at gunpoint.
But concerns about auto bill pay can be easily allayed. Go to the cash-management division of your bank and tell them that you want to set up a second account solely for automatic payments, funded by an internal transfer from your primary account that is for the total anticipated amount of all automated withdrawals. plus one dollar. Set up that internal transfer to match the planned schedule of automated payments. That way, the access of outsiders to your funds is limited to the amount that you put into the walled-off account- they have to way to get any more. I have an account like this, and a second account which is tagged for deposits only plus a ZDB setting – every day, it gets broomed out into my primary account. That way, fraudsters can’t access my primary account numbers by backtracking deposits.
Not that I’m paranoid or anything . . .
llater,
llamas
@Johnathan Pearce
I am not sure I get what you’re driving at here since it seems to involve the quaint belief that banks pass on savers’ money to borrowers and charge interest for their trouble .
I would refer you to the latest report from the Green New Deal Group entitled “The cuts won’t work” Section 4:talking about how a bank creates money,
“First it creates the money loaned out,then it charges interest for having done so.
In public the financial services industry maintains that banks are merely humble intermediaries between one customer who has surplus funds to lend and another customer who desires to borrow.Interest is charged to the borrower to recompense the lender.But if the money is created from thin air,there is nobody to reward.In reality the vast share of the reward goes to the bank itself.”
This view collectively subscribed to by Larry Elliott,Ann Pettifor , Richard Murphy et al is not erroneous factually.
(Surprised that you thought I might show up: I’m hardly a regular .)
There are two elements to policy (especially policy in the United States and Britain – but in the other nations also). Hot tempered and intolerant people (like errr ME) often just shove both elements together (and declare than anyone who practices them should burn in Hell), but they should be dealt with each on their own merits.
There is the idea that the banks (and other such) must not be allowed to collapse.
The “broad money” (bank credit) expansion of the last few years was directly encouraged by both the Federal Reserve (“Alan Greenspan saves the world” each time he PREVENTED a clear out by refusing to allow the credit bubble to burst – i.e. he supported the bubble even more, thus making it BIGGER) and the Bank of England.
So (the argument runs) the financial institutions should not just be allowed to collapse – because this will lead to a massive deflation (truly massive and sudden) and terrible suffering for everyone and …………
The trouble with this argument (advanced by Tim Congdon and others) is that they do not make any move to deal with the problem (the credit bubble problem) even in the future – on the contrary they hold that credit bubble finance (which they dignify with the name “fractional reserve banking”) is noble and wonderful (the basis of economic growth – ignoring the basic economic law that all investment should come 100% from real savings) and that government (the Central Banks or other such) should step in whenever (for some strange reason) the house of cards is about to collapse (the bubble to burst).
This is “moral hazard” on steriods and just means the economy will go from crises to crises with each crises being worse than the last – even people who BELIEVE in franctional reserve banking should reject this utterly.
Just as Hankey (Governor of the Bank of England in the 19th century) rejected the bailout notions of Walter Bagehot.
O.K. Tim Congdon, let us admit (for the sake of argument) that fractional reserve banking is good and noble and “inevitable” – but that STILL means that when (you would say “if”) credit bubble institutions get into trouble, they must be left to go bankrupt. The malinvestments (and the malinvestors) must be liquidated financially.
If you follow a “Alan Greenspan saves the world” (as the headlines put it every few months in the early years of this century – and people have the bare faced cheek to say that the present crises “came without warning”) policy then the crises (the bubble) just gets bigger and bigger – till the whole financial system falls apart.
O.K. that is that dealt with (as much as I am going to bother to deal with it), but there is the second notion.
Now this is often atributed to Bagehot as well – but it is naught to do with him (although there were plenty of cranks in the 19th century who did believe in it).
This is the “fallacy of demand” the thing that Say’s Law (correctly understood) refutes.
A businessman knows that without customes he is doomed – so he leaps to the conclusion that what matters to the whole economy is customers “demand” (this is why businessmen are often, although not always, crap economists, by the way – a man can be wonderful a running a business, but a total menace when advising on general policy).
In reality if goods or serivces are valued by people they will be bought – they may not be bought at the price you want to sell them, and they may not be bought FROM YOU (the guy down the road may be offering a better deal), but they will be bought.
One does not need to print more money in order to ward off (for example) unsold houses – if there really was a demand for the houses (if they were not a credit bubble created malinvestment) then they will be bought, although perhaps not at the price the house builder would want.
Nor are “savings” an evil thing – nasty people hiding money under the floor boards because the Devil told them to do it.
In a real economy (by the way neither the United States or Britain is a real economy – and that is a rather serious problem) investment is financed by a thing called “real savings” i.e. the income that people have decided NOT (repeat NOT) to consume.
I know it may be difficult for people devoted to credit bubble finance to understand the following…….
People spending 100% (or more than 100%) of their income is not a sign of economic health. And if businessmen are saying “there is no trouble with people spending everything they earn, even with people spending even more than everything they earn, because we are still getting lots of loans for investment from the banks and other such”.
Well if that is saiid – it is time to run away from such a country as fast possible.
“The paradox of thrift is the economic theory that whilst it may be good for individuals and business enterprises to pay off debts and live within their means, it is bad for the economy as whole”.
This “paradox of thrift” is what Paul “Nobel” Krugman describes as his favourate bit of economics. The trouble is that it is total B.S.
To Sum Up.
There is an argument over “monetary policy” – i.e. whether credit bubble banks and other such should be allowed to collapse or not (which is what, under cover, “monetary policy” is really about even in “good times”).
I would say “even if I am wrong, and the pain of a financial collapse can be got round by increasing the monetary base to back up the broad money bank credit – WHAT IS YOUR PLAN TO DEAL WITH MORAL HAZARD?”
In short how do you stop each bubble being bigger than the last?
Bagehot tried to reply to Hankey on this matter – he said he would only lend at “high interest rates” and only to banks with “good assets”.
But Tim Congdon and the others have got rid of even this defence – they would lead to any institution that was “too big to fail” even if its only assets were worthless junk, and they would not just lend at “high interest rates” – they would lend at ANY interest rate (or none) in order to keep the mega banks (and other such) in existance.
This is NOT what Walter Bagehot had in mind – in short he would despise the modern “Economist” magazine (of which, I believe, he was either the second or third editor) almost as much as I do. And he would regard Tim Congdon and other I.E.A. style “free market” folk as crooks and conmen (which they are).
I still side with Hankey against Bagehot (but then, as as often been pointed out, I am compassionless S.O.B.).
However, this does not cover the full “demand fallacy” (associated with Keynes – but going back to a long line of “monetary cranks”).
This is just B.S. – it really is.
It is so stupid it confuses printing more money with creating more wealth. It thinks that customers spending lots of dosh is what makes an economy rich – cart before the horse, as it is a strong economy (i..e PRODUCTION – making goods and services) that allows the customers to buy stuff (not the other way round – Say’s Law).
I can argue with the Bagehot style “we must save the banks because if we do not ……” because they have a case. I do not agree with their case, but they have one.
But the demand fallacy people – the spend-more money-and-we-will-all-be-better off crowd.
They really can go burn in Hell.
“Your comments are too long Paul”.
O.K. “Taking real savings (i.e. income that people choose NOT to consume) and lending the money out – taking a percentage for their trouble” is what banks SHOULD do (as long as they remind the savings that the money is NOT “on deposit” in the sense of still being in the bank – in short two different parties, the “depositor” and the borrower, can not spend the same money at the same time).
Playing games (smoke and mirrors style) may be “inevitable” as Tim Congdon thinks it is (by the way murder and rape are also “inevitable” so why not “legalize” them as well? – because this is not murder and rape Paul, but it is fraud [at least MANY WOULD ARGUE THAT IT IS] so why not just “legalize” other forms of fraud?), and it does indeed lead to massive profits in the short term.
But then “inevitablly” comes the bust (the bubble bursts) – now here is the test.
If you say “well this was NOT fraud, but the banks have played and lost – they must go bankrupt and the general economy must endure the pain of deflationary collapse (the collapse of broad money, bank credit, down to the monetary base) which can be mitigated only by allowing prices and wages to adjust freely.
Well then I HAVE NO PROBLEM WITH SUCH A SPEAKER – I do not really want to put fractional reserve bankers in prison or see them dangle at end of a rope (there is a massive list of people I would like to see this happen to, but the credit bubble bankers are not on it), but IF people say “now we must save the banks” and the bankers agree and demand “quanative easing” and so on.
Well then my hand does start moving toward a nice length of rope.
interest rates must reflect the balance of supply and demand for savings
In a fractional reserve banking system, the supply is unlimited, which means that, economically, interest rates should be zero, and the only fee you should pay would have to be a monthly administration fee, unrelated to the amount borrowed.
–GJ–
On a related matter.
A lot of people have got the recent Irish experience wrong.
The media (including the Irish media) have normally presented it as a deficit that has been failed to be closed by “cuts” (thus vindicating Keynes).
However, if one looks at the budgets during the crises (before the last budget a few weeks ago) they have not really been about cutting government spending – they have been about increasing taxes, especially increasing taxes on the rich.
Actually that is exactly in line with Keynesian dogma – the rich are evil (because they save lots of their income) so government should take their money away and spend it.
This does not turn out too well in practice.
Now it is true that in the last budget (the budget of a few weeks ago) the Irish government really did go in for a policy of cutting government spending.
But it did not do this because F.F. has suddenly stopped being a populist bunch without any free market principles what-so-ever.
The Irish government has finally turned to cutting government spending BECAUSE EVERTHING ELSE HAS FAILED.
The Ambling Dutchman – what you describe might just possibly be a problem (rather than an advantage) of credit bubble “fractional reserve” banking and other finance.
But I think you know that.
Obviously an economy is a circle of laber supply to holders of the means of production so that products are made that can be consumed. If all the products are consumed, down to the “seed corn” then there is nothing invested in to make the next production run. So there needs to be a balance between production, consumption and “savings” (the capital to make the next production run).
Left on its own the market (or the sum total of all individuals calibrating their own production, consumption, capital) works very well. There will be times of over optimism and speculative misallocation, and the market will inexorably react. Those who have miscalculated most will be punished most. Those who haven’t will be fine.
What we have had over the last century, the rise of Statist interventionism, is those who have constructed massive entitlements and transfers to those for merely existing. Production was not an issue. The right to consume trumped all. And the State was the clearing house of that Right. And so it took onto itself a huge unfunded debt. The only way it could even come reasonably close to fulfilling its charge was to overstimulate the economy with cheap credit so that consumption beyond rationality was the order of the day.
But now we MAY be snapping too far into the other direction, saving too much and not consuming enough. If so, it’s really just another symptom of the illness of Statism. People are not able to act and react on their own. They have been blinded as to how real equity is created. They are not able to calibrate their own production, consumption, and investment. They don’t know what will be hauled off tomorrow for reallocation or what worth the scrip they get in return.
The only way will ever recover is a generation beyond the end of our Statist nightmare. This has been three to four generations in the making. It’s not going to unravel itself in a year. The article in essence may be right – too much saving. But if the implication is that there needs to be intervention, then it is wrong. We have years of pain ahead and it is the pain of recalibration. Of people controlling their own lives and their own assessments of production, consumption, and saving. And the relearning of such isn’t going to be short term or smooth. We don’t need more skull cracking and central plans, we need less, and for a good, long time.
“But now we MAY be snapping too far into the other direction, saving too much and not consuming enough.”
And who is the “we” in that statement, Brad?
The people who have been saving the most in recent years are the Chinese. But rational savers don’t just stick the savings under the matress. So the Chinese have become the largest buyers of, among other things, US Treasury bonds. That allows the US government to give (borrowed Chinese) money to welfare queens, who spend it on crack cocaine. Their crack dealers then buy boffo stereo sets — made in China.
Money circulates!
The unsustainable part is that eventually the Chinese saver will become rational, and realize that their US Treasury Bonds are not a good store of value. And the US will find that real wealth was the ability to make things, not the the ability to buy that which others had made.
In short, the “excessive savings” argument is not realistic.
It is worth pointing out that, taking the United States as a example, there have been credit bubble banking collapses every few years from 1819 (see Rothbard’s “The Panic of 1819”) to 1921 (the busting of the very big World War One credit money bubble).
Many of these credit money bubble bursts took place without there being any central bank in the United States (for example the panic of 1857) – so it really is the idea of credit bubble finance itself which is at fault.
However, (and here defenders of franctional reserve banking can justly reply) the United States recovered quickly each time.
The bankrupt went bankrupt, the mass unemployment turned back to people being employed and so on – and normally within a year or so the worst was over.
It was only in 1929 that markets (for example labour markets) were NOT ALLOWED TO adjust – by Herbert “The Forgotten Progressive” Hoover, with his keep up wage rates fallacy (and so on).
What is happening now is more interesting (in the Chinese sense).
The government (including the Fed) has simply decided that no-matter-what the bust will not be allowed to take place.
They will even “throw money from helecopters” if need be.
There was something like this attitude in Japan in raction to the post World War One bust (the refusal to allow the bust to run its course finally broke in 1927 [yes SEVEN] when the Japanese economy finally fell apart – leading to de facto military dicatorship) and in the 1990’s.
But nothing quite like this.
We really are in uncharted territory – off the map in the white spaces with “there be monsters” written on them.
It is impossible to predict exactly what will happen.
Of course it will be horrible – but the nature (in detail) of the horror we will only know when we experience it.
The Marxists are happy – they think this is their chance (not quite now – but when things totally break down in a few years).
However, they may not get things all their own way.
I would urge restraint – we must give the powers that be (which is the United States at least include many Marxists) no excuse whatever to declare an emergency and censor dissent.
We must “endure the unendurable” and respond to no insult or policy folly with violence. We must even accept physical violence (such as that which SEIU thugs are so happy to dish out) without violent reprisal
And if there is to be killing it must be clear (totally clear – beyond even the lies of the “mainstream” media and the “education system”) that the left started it.
“But that gives them the advantage of the first blow Paul”.
I know that – but there is no other way, if we wish to have the support of the majority of people. And that will be needed in the grim times ahead.
Speaking personally, I just think it’d be nice of governments would just let people keep more of – or all of – their own money. And govts should simply stop buying more bureaucrats, to increase their GramscoStalinist-traction, sack what they have, and bugger off.
That’d solve a lot of people’s problems.
Then, personal debt would be a personal problem, like halitosis. Banks might help you, or they might not. It’d be up to what you could negotiate with them.
“Speaking personally, I just think it’d be nice of governments would just let people keep more of – or all of – their own money. And govts should simply stop buying more bureaucrats, to increase their GramscoStalinist-traction, sack what they have, and bugger off.”
Sure, but that is idle. Somehow, at some point in time, the enemy will have to be made to bugger off.
It will be utterly tragic when things do actually come to the point of civil collapse – because there is no good reason why the governed cannot act to reign in the spending of their governors now.
Obama’s and the U.S. government’s most harmful economic myth is that savings are bad, and that only spending improves an economy. Spending transfers current production, but savings buys the equipment and business expansion that directly produces jobs. The reason that government taxation and borrowing is bad is exactly because these use up savings and direct savings toward bad investments.
The mantra is “70% of the economy is retail spending”. Another view is that 30% of the economy is savings and investment. An increase in savings is the basis for increasing the production of consumer goods. Consumer goods are real income. Not pieces of paper (dollars), but real things.
Cargo Cult Economics
People do not prosper because money moves around or stops moving around. The money is the result of an efficient management of resources to produce what people want (can pay for). Building more houses did not make the society rich, because many people couldn’t pay for them. The government got us into a mess because they encouraged everyone to buy a house, no matter what.
– –
I think the most destructive illusion of governments is that they can create prosperity by increasing spending.
The government sees spending and prosperity, and decides wrongly that spending causes prosperity. It then decides to increase spending by any and all means, even if it needs to take the money now or later from some people, to give it to others.
I get it. People use umbrellas when it rains, so using umbrellas causes it to rain.
Sad to say, this is a type of Cargo Cult centered around money. John Maynard Keynes is the shaman of this cult.
If coercive authorities could no longer coerce and the value of things could find their own level then everything would work just fine. Some people would need help and others could give it, if they wished. But basically we would be well off and not propping up the elite who siphon off the wealth by printing money.
Money only has value as the medium of exchange. It is convenient. But the thieving elite now controls it with coercion.
We all know that. Mises Institute knows that. Gary Franchi of Restore the Republic knows that. Sean Gabb of the LA knows it too. Ron Paul also.
So what’s the mystery?
DBC, in referring to interest rates
reflecting supply and demand for savings,
I was saying how things should be, not
the rigged system we now have and
which is the object of my critique.
If you want to criticise the current
system, you will have not much
dispute from me.
Alice,
I said we “may” be saving too much (snapping back) to give a concession the article’s assertion, but that even if true State stimulation of spending is not the answer. I don’t think we in the US are in fact going too far in the other direction in total, because, as you say, we a consuming the labor from China in an almost mercantalistic way with the Chinese Government as our agent. We really in a symbiotic relationship where we over-consume and they over-invest, each with their own fascistic controllers at the lead. It wil be interesting to see what happens when the transfer of labor dries up. I can’t see anything other than a national disavowing of the treasuries we have sold to China. What their response is will be interesting.
Our Keynesian friends can blow me. They want to print fiat money, take over various large chunks of the economy wholesale, and generate massive politics-driven instability in the world, and my little micro- economy. Then they get pissy when I fail to put my unalloyed trust in them.
Sorry chaps. The wife and I are retiring our debt this year, and other than the mortgage, we’re going to get as liquid as we can possibly get for the foreseeable future. Placing your trust in the Keynsey-tranzis to protect your economic well-being is like placing your trust and economic future on a particular number of the roulette wheel – black 17 for instance – and hoping it will pay off, contrary to every experience you’ve ever had with it. In my country, they are putting the finishing touches on creating a state operated corporate monopoly over health insurance (yes, I know, I just charged my own country with fascism) and they are planning on doing the same thing with another 1/6th of the economy, the energy sector, by executive branch / regulatory diktat.
In other words, I’ll return to acting like a normal consumer when the state returns to acting like a government of the people, for the people, rather than my master. For now, all I can do is make sure I’m as fiscally solvent as possible in order to weather the financial shocks they insist on throwing at me on a seemingly arbitrary and random basis.
Countdown to a VAT tax and a “wealth tax” to punish the fiscally solvent in 3…2…1…
Actually, people who deploy their money towards the elimination of debt, the growth of savings, or even a pile of cash are doing TWO favours.
a) The money they’re *not* spending at businesses that don’t matter or can’t manage themselves … helps push those failures out of the way and transfers whatever resources they might have into stronger hands.
b) The reserves of cash will (eventually) be spent, thus benefitting the solid businesses which manage to survive the period of retrenchment.
Why should I waste my resources on a crappy business instead of repaying debt? This is good.
People cannot save too much–unless the government forces them to.
Whatever level of savings they choose is their right, therefore the “right” level.
It will be utterly tragic when things do actually come to the point of civil collapse – because there is no good reason why the governed cannot act to reign in the spending of their governors now.
Mike, old buddy, you’re obviously not living in the U.S. state where I reside. I’ve written both my Democrat/criminal U.S. Senators at least a dozen letters about the insanity of the spending they’ve voted to allow. The responses, when/if I get them, are complete boilerplate that almost invariably do not address the questions I asked or the comments I made.
I still write them regularly, for the same reason I vote, but I do so only out of my own sense of obligation as a citizen, not because I have the slightest belief that they listen or care about what I think. TARP and the current healthcare debacle are just two examples of the U.S. Congress’ Democrat majority ignoring its constituents. They know Americans, lots of them, are angry over this incredible amount of deficit spending. They simply don’t care.
I’ve read numerous commenters on well-regarded web sites noting the Democrats are acting like a governing class that does not anticipate ever again having to face a wrathful electorate. I think that assessment of the behavior is correct; I truly hope the underlying premise is wrong. I don’t think I’d bet much against it, though.
Andrew M Garland – I wish what you say was correct (it was of Bush – he really did believe in these absurd fallacies), but I believe the truth is even worse.
I believe that Barack Obama and his key allies in Congress know that this policy will (with a few years at most) will end in economic collapse and that is what they WANT.
As for the rest of the Democrats in Congress – well in the Senate at least the recent vote has shown there is one decent human being (not “great statesman” just decent human being) amongst the Democrat Senators – they all voted for this Health Care insanity (as nearly all did for the “Stimulus Bill” a few months ago and…..).
Some may switch their vote when the Bill comes back from Conference – but that will be a con.
Mac is correct – some have been paid off (such as Nelson of Nebraska) and some just fall apart under pressure (as the Senior Senator of Indiania does – who so many people tell me is a “good man”, sorry someone is not a “good man” if he always collapses when pressure is put on him). But the fact remains they have all gone along with Obama.
Calling James Webb, Junior Senator for Virginia.
I know you passionatly hate George Walker Bush because of the Iraq war (which you opposed from the start), but that does NOT justify what you have done over the last year.
You were wounded in Vietnam – you lost friends in Vietnam.
And now you are HELPING THE MARXISTS – and do not kid yourself, Obama and gang ARE Marxists.
You helped him get elected – against John McCain (NOT George Bush remember) and you have voted for the big Bills that his allies have presented before you.
Bills (such as the Stimulus Bill and the Health Care Bill) DELIBERATLY DESIGNED TO UNDERMINE THE UNITED STATES over the next few years.
In your heart you know the wickedness of what you have done – and you know that your previous brave military service does not excuse it.
Mac: I understand that there are people like you who do act even if ineffectually. But the kind of action I have in mind when talking about this is a bit different from writing nice letters to evil people. Popular, moral action against the principle of relegating personal authority at the ballot box is what I have in mind; the government must be brought to its’ knees by clear and unambiguous demonstration of the moral authority of free people.
Agreed mike.
In Britain someone really can say “I am an isolated individual, there is little I can do”, but that is not true in the United States.
There are few places in the United States where one can not (if one bothers to look) find Tea Party people and help with Tea Party events and other activities (such as fighting the establishement to take over the Republican party – and making it actually a force for rolling back statism, rather than an annex of the Country Club).
But of course the Tea Party people are “common”.
Paul – I didn’t get too excited by the Tea Party people to be honest, basically because they are – well, not good enough.
I will never take anyone seriously who will first sort out insurance and paying for police supervision before protesting against the size of government spending.
I often cheer on calls for cutting government spending, but I do so only for minor tactical purposes (e.g. getting published in a national newspaper). But it isn’t good enough – the bullies need to come up sharp against a very real possibility of having their heads kicked in, not gently persuaded to steal less of our stuff.
I understand that tea party people have jobs and families to care for first which is why they behave themselves nicely. But the reality of acting on moral principle cannot be expected to fall within our comfort zones – we are not going to win by following the enemy’s rules, playing kissy-kissy with the police and merely talking about size.
Whatever else may be said about Ghandi, I wonder how many other men since Christ himself were able to evoke that distinctly moral fear and awe in his opponents hearts…
That is the kind of power that is called for here (in whichever country we might refer to) and I have next to no confidence in anything short of that. I realize that puts me well out there in other people’s moonbat territory, but I can’t help that.
Paul – I didn’t get too excited by the Tea Party people to be honest, basically because they are – well, not good enough.
I will never take anyone seriously who will first sort out insurance and paying for police supervision before protesting against the size of government spending.
I often cheer on calls for cutting government spending, but I do so only for minor tactical purposes (e.g. getting published in a national newspaper). But it isn’t good enough – the bullies need to come up sharp against a very real possibility of having their heads kicked in, not gently persuaded to steal less of our stuff.
I understand that tea party people have jobs and families to care for first which is why they behave themselves nicely. But the reality of acting on moral principle cannot be expected to fall within our comfort zones – we are not going to win by following the enemy’s rules, playing kissy-kissy with the police and merely talking about size.
Whatever else may be said about Ghandi, I wonder how many other men since Christ himself were able to evoke that distinctly moral fear and awe in his opponents hearts…
That is the kind of power that is called for here (in whichever country we might refer to) and I have next to no confidence in anything short of that. I realize that puts me well out there in other people’s moonbat territory, but I can’t help that.
Mike – that is exactly what the statist want, the threat of violence. So that they may declare an “Emergancy”.
Do you want censership and a general crackdown – revoving any possibility of saving the West? Then threaten violence – or riot, or shoot Obama, or plant a bomb. Whilst outwardly shocked and upset, in reality the “mainstream” media and the education system (and the rest) WILL LOVE WHAT YOU HAVE DONE (even as they put you in a jail cell or mental hospital).
You will have given them the excuse they want – the excuse to beat down the reluctance of the police and the military to carry out the desires of the left (for example, most of the miltary do not like the left and would need to be given hard evidence before they could be convinced a crackdown was needed).
The media have lied their heads off about the Tea Party people – but the lies have not shaken the basic truth that these people are nonviolent in their actions (a truth that most people know).
THEY HAVE TO BE NONVIOLENT IN ORDER TO HAVE ANY CHANCE OF SUCCESS.
Mike, if they took your advice it would all be over.
The pro freedom movement would be held up (by the media and the education system) as “violent extremists” to the eyes of the public – and DISCREDITED.
That is what they left would love to do – all they lack is the hard evidence of violence, the evidence that you are so keen to give them.
By the way I know how you feel – all this is very hard for me to.
Perhaps it is harder for me.
We must “endure the unendurable” – smile and politely use reasoned argument (when we feel desperately like killing people).
Paul,
Your admonishments are justified. My use of this…
“But it isn’t good enough – the bullies need to come up sharp against a very real possibility of having their heads kicked in, not gently persuaded to steal less of our stuff.”
… was an over-the-top manner of trying to point to the necessity of choosing the correct ground from which to move against the government, i.e. to protest with full integrity to the premise of self-ownership rather than attempt to plant both feet on the corruption of mixed premises.
As to the necessity of nonviolent resistance – I agree, hence my citation of Ghandi and Christ.
“Perhaps it is harder for me.”
I am very fortunate in many ways and am grateful for this – but I do not relieve myself of the responsibility to challenge my enemies’ views face-to-face and trying to change his or her mind whenever an opportunity is thrust upon me or otherwise arises, whether that be at work or socially. There have been some costs to following this policy, and I have no doubt that you are yourself all too familiar with not only those costs but others too.
Understood and agreed Mike.
By the way I hope that Taiwan continues to go well for you. Their mistake in healthcare not withstanding.