Thursday, February 27, 2014

INET — Institute Senior Fellow Adair Turner’s Debt Addiction Remarks Turn Heads

Lord Turner, who is the former head of the United Kingdom Financial Services Authority and currently a Senior Fellow at the Institute for New Economic Thinking, pointed to continually rising levels of private debt as a key culprit holding back the recovery of the global economy.

4 comments:

Dan Kervick said...

That's part of it, but deficient government investment is a part too. The developed world needs to learn something from China.

Ralph Musgrave said...

Given the way we subsidise private banks (billion dollar bailouts, TBTF subsidies, lender of last resort facilities, etc) it’s hardly surprising that private debt is excessive. And the British government is even madder than others in that it positively ENCOURAGES the build-up of debt via schemes like “Help to Buy” and “Funding for Lending”.

There is of course an alternative way of imparting stimulus which every MMTer is well aware of: creating fiat and spending it into the economy (and/or cutting taxes).

I.e. I think Dan’s point about “deficient government investment” needs expanding into the above more general point: that is, it’s TOTAL GOVERNMENT NET SPENDING that needs to be larger, not just government investment.

As to how banks can be made fail-safe when the above subsidies are withdrawn, that’s easy: have banks funded entirely by shareholders, not depositors or bondholders. That way, when a bank does badly, all that happens is that it’s shares fall in value, and that’s no big deal. The present system under which banks are funded mainly by depositors and bondholders is crazy: it means that if the loans and investments made by a bank fall in value by a small amount, the bank is technically if not actually insolvent.


Ryan Harris said...

It's difficult for a government in a developed nation to promote any type of investment. During Obama's election he said he was going to promote green energy, by the time he was elected, China ramped up their production facilities to accommodate a massive US stimulus for solar and wind facilities.. that never materialized. When the US announces road or bridge projects, Cemex has trains lined up, China, Turkey, India have the Steel & bridges produced and sitting in US ports ready for delivery before the project awards are ever made. If we go the R&D route that we used in the 80s and 90s, brigades of subsidized graduate students are sent in from the world over then leave when they are done. There just isn't much space for government to spend that would have a material impact on the domestic economy and employment. Transfer payments directly to citizens work okay so they can buy more imports to improve their housing, food, cars and invest in nicer import distribution and advertising facilities. We've have nicer coffee shops, better Apple & T-mobile stores, lots of green energy in walmart, nicer racks in costco, a new awning over the entrance to macy's with better imported granite flooring... great import facilities, while the ports and advertising/media agencies have all expanded beyond the imagination. Our big miracle export is our fiat for central bank hoarding. Perhaps the Federal Reserve Bank could hire a couple million currency specialists to produce and study those numbers on the spread sheets?

Matt Franko said...

Good points Ryan.... lets face it the all the non-Western nations are at core western wannabes.... like zombies for USD balances .... pretty pathetic ...

rsp,