Thursday, September 22, 2016

Ambrse Evans-Pritchard — UN fears third leg of the global financial crisis - with prospect of epic debt defaults

The third leg of the world's intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history.
It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity.…
Systems based on efficiency as the priority are likely to be fragile and unsustainable. Capitalism is based on "efficiency of capital."  The problem is that financial capital is debt-based, and as Minsky observed, stability leads to instability as confidence exceeds potential and then performance. The result is a reset. The world is now in the midst of such a reset. Rebooting takes some time. Enjoy the wait with a glass of brandy and a cigar.
The UN's diagnosis is that "shareholder primacy" and the entire edifice of liberal market finance are among the key culprits, all made worse by stringent fiscal austerity that has starved the global economy of sufficient demand.
Its prescription is radical. The world must jettison neo-liberal ideology, and launch a "global new deal" with a blitz of investment on strategic sectors. It wants a return of the "developmental state", commanding a potent industrial policy, and backed by severe controls on capital flows.
Then comes the heresy.
The UN's advice to the emerging nations is to retake control of their destiny and turn the tables on the financial elites. They should impose capital controls, preferential tax treatment for retained earnings, and force fund managers to hold assets for longer. They should allocate credit without apology, and learn a trick or two from the Korea's methods of "financial repression".…
But even the Western elite is wavering.
With uncanny timing - fit from a Conservative Party that has outlived every other major party in the world from sheer instinct and fingerspitzengefühl - Theresa May may now start to close that era with her embrace of industrial strategy.
What is clear is that world will soon need a massive and coordinated spending push by governments to create demand and bring the broken global system back into equilibrium. UNCTAD is entirely right about that.…

The Telegraph
UN fears third leg of the global financial crisis - with prospect of epic debt defaults
Ambrse Evans-Pritchard

16 comments:

Andrew Anderson said...

The problem is that financial capital is debt-based,

Equity based capital is an alternative but why should those with equity "share" it when government subsidized private credit creation allows those with equity to use it for the basis for loans of what is, in essence, the public's credit but for private gain?

Kaivey said...

A fascinating article.

Tom Hickey said...

Financial capital ultimately traces its source to money and money comes either from private sector borrowing with concomitant deposit creation or issuance of government tax credits through government spending and transfers.

Private debts must be repaid with deposits or from cash in circulation.

Government tax credits are future obligations of the government to accept the liabilities it issues in payment of obligations it creates. When taxes are paid the tax credit gets cancelled.

Non-monetary financial assets are derivatives of money (unit of account) and can be exchanged for money.

Andrew Anderson said...
This comment has been removed by the author.
Andrew Anderson said...
This comment has been removed by the author.
Andrew Anderson said...

Except common stock can itself be used to buy the goods and services a company produces - completely bypassing the need for bank credit or fiat except for the need to pay taxes.

Tom Hickey said...

Except common stock can itself be used to buy the goods and services a company produces - completely bypassing the need for bank credit or fiat except for the need to pay taxes.


Exactly where can one exchange common stock for real goods without selling the stock and purchasing the real goods in markets?

And no matter how the exchange takes place, it is subject to taxation in the US. IRS and state revenue agencies maintain tight surveillance over such attempts to avoid taxation, as some acquaintances have discovered to their surprise.

Andrew Anderson said...

Yes, tax laws would have to be changed, no doubt. Still, in theory, common stock is a perfectly valid endogenous money form that does not require debt, except fiat for tax purposes.

Not that we necessarily even need endogenous money beyond that which 100% private banks with 100% voluntary depositors can create but if we do then common stock is a possibility.

Bob said...

Better to waver than be sent to the guillotine.

Ryan Harris said...
This comment has been removed by the author.
Seve141 said...

Use common stocks or shiny rocks, what's the difference to the US government?

Rhetorical -- as there is no difference.

Carry on your whole life bartering it makes no never mind to the Federal governments of the world's nations.

The bartering challenge should be obvious, although, there are both corporate and personal barter organizations claiming to help.

TPTB simply employ the concept of "imputed income" and apply those imputed amounts to the current taxation laws. In the case of the argument for common stock - simply research the consequences of employee compensation packages.

The result of that tax liability calculation is of course payable only in the local currency (unit) of account.

In the case of the US, the US dollar. Chickens, common stock, shiny rocks, crypto-currencies, preferred stock, bonds, works of art, etc. are not US dollars.

Even those who have accumulated personal assets without any visible means of support, eventually have to convert their assets to US dollars to satisfy the man.

If not the Treasury will step in and offer assistance.

IRS Auction - Main Menu - US Department of the Treasury
https://www.treasury.gov/services/Pages/auctions_index.aspx

Random said...

http://www.nationalreview.com/article/424927/hillary-clinton-secret-service-treatment-abuse

Promote to post please.

Ralph Musgrave said...

Andrew, Common stock is a very poor form of money surely, since the value of shares constantly fluctuate. What people want from money is something that purchases exactly the same basket of goods in a year's time as it does today (ignoring inflation).

Andrew Anderson said...

since the value of shares constantly fluctuate. Ralph

No doubt government subsidies for private credit creation contribute to the volatility.

WillORNG said...

Stock and dividends are a debt of the company.

WillORNG said...

Stock and dividends are a debt of the company.