Economics

What is the endgame?

If we step back from everything that is going on in the U.S., and in Greece and Europe, one can say that the endgame ultimately is devaluation of financial assets. It is almost as if these disruptive financial technologies enabled overproduction of financial assets. They increased productivity and they created oversupply, and that excess supply needs to be liquidated. But the liquidation is what governments don’t want to allow. So they are trying to support the prices of goods and services that have been overproduced, which are financials.

As long as confidence can be maintained in the underlying currencies, this game can carry on, but at some point it now seems inevitable that there will be an endgame. The conclusion from Simon Mikhailovich’s point of view should be read, bearing in mind this man is no gold bug but a derivatives expert with proven form in the field.

Economics

Birth and Death of the Celtic Tiger

In 2008 Eurostat reported that Ireland was the second richest country in the EU.

Less than three years later, Max Keiser presents us with a very different picture, of an Ireland few could have imagined.

There is blame aplenty and no shortage of wonderful writers in this country to expound their various theses on who or what was to blame, but not many focus on the central bank and its money.

When savings collapse and the total debt per taxpayer climbs to nearly 500,000 euros, one doesn’t need to wade through 900-odd pages of Ludwig von Mises’ Human Action to suspect interest rates might have been to blame.  Higher interest rates would have discouraged this level of borrowing, and increased savings — real savings.

One also realises that an average wage of around 35,000 euros (and falling) will never repay a total debt (still climbing) of 500,000 euros per taxpayer. Everyone knows this, but to face it would require the politicians to make themselves most unpopular in Brussels, and prompt some very uncomfortable conversations with bankers and property developers, with whom they had a very cosy relationship. Much easier to shift the obligation to service the debt onto the taxpayer and even raid his pension.

It seems childish to break it down to this level but the creditor’s relationship was to the bank or property developer. At what point did the contract stipulate that in the event the creditor could not be paid, the taxpayer would step in and shoulder the burden?

As a foreigner in Ireland, I have been moved by the stoicism of the people, but the degree to which it is being called upon is unjust. The shifting of debt obligations onto the taxpayer is simply not acceptable and one wonders how long it will be before the people decide to follow the more boisterous attitude of other small nations who are starting to make a stand (Finland, Iceland and Norway).

Let us hope it will be peaceful.

Economics

Matt Ridley on trade

A modest antidote for excessive pessimism can be found from listening to the latest interview at econtalk.org with Matt Ridley, author of the Rational Optimist.

The interviewer, Russ Roberts, apart from weekly interviews is a professor at George Mason university and co-blogger at the excellent cafehayek.com.

I would strongly recommend looking at the interview archive where he has interviewed a wide range of people ranging from economists such as Milton Friedman, challengers to orthodox investment banking practice such as Nicholas Nassim Taleb and evolutionary fitness experts such as Arthur de Vany.

He is respectful despite not sharing their views in many cases and truly gives people an opportunity to express their views and help educate the audience.