[høy giring i finanssektoren] would further explain the lack of any "net savings" improvement since the start of the crisis -- as the financial sector was suddenly and rapidly thrown into delevering, assets were being destroyed and money disappearing from the system. the resultant loss of savings in spite of the government's best efforts could explain how the current account deficit suddenly improved while "net savings" actually declined.
Fears that Britain may be heading for its first sovereign debt crisis since the 1970s hit a new intensity after Pimco, the world's biggest bond house, declared that it is starting to sell off its holdings of gilts.
The American investment group said it will be a net seller of UK Government bonds this year, at the very point when the Bank of England brings its £200bn programme of purchases to and end and the Treasury attempts to raise unprecedented sums through the capital markets.
[...]
Paul McCulley, a managing director at Pimco, said: "We are currently cutting back in the US and UK because... supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines."
Folks, PIMCO has a record of being not only right but privvy to "analysis" that you and I simply never, ever have or will get access to. How that happens is the matter of some conjecture - there are many, myself included, who believe that they're privvy to information sources that "ordinary peons" never will be given access to and in the debt markets insider trading is (for the most part) legal.(A Warning To Western Governments And Investors)
As a result when an announcement like this is made you're a rank idiot to ignore it or believe "it doesn't matter." It most certainly does matter and the odds are that they're right - and if you go against them you will be proved in the fullness of time to not only be wrong but poor on top of it.
The recent history of Argentina is worth reflecting on in this regard. Argentina successfully defaulted on significant international debt obligations in 2002. Initially, FDI dried up completely when the default was announced. However, the Argentine government could not service the debt as its foreign currency reserves were gone and realised, to their credit, that borrowing from the International Monetary Fund (IMF) would have required an austerity package that would have precipipated revolution. As it was riots broke out as citizens struggled to feed their children.(fra Why pander to the financial markets?)
Despite stringent criticism from the World’s financial power brokers (including the International Monetary Fund), the Argentine government refused to back down and in 2005 completed a deal whereby around 75 per cent of the defaulted bonds were swapped for others of much lower value with longer maturities.
[...]
The data is instructive. The resumption of growth has been strong and persistent (8.8 per cent in 2003, 9.0 per cent in 2004, 9.2 per cent in 2005, 8.5 per cent in 2006 and 8.7 per cent in 2007). Real wages have also risen modestly over the same period.
Official data shows that poverty rates (measured either as extreme poverty defined as not being able to eat properly and a more general poverty line defined by the minimum income needed for basic needs) have fallen dramatically since the abandonment of the neo-liberal fixed exchange rate system. Argentina demonstrated something that the World’s financial masters didn’t want anyone to know about. That a country with huge foreign debt obligations can default successfully and enjoy renewed fortune based on domestic employment growth strategies and more inclusive welfare policies without an IMF austerity program being needed. And then as growth resumes, renewed FDI floods in.
One commentator wrote a few years ago that that the Argentinian Government appears to have perpetuated the perfect crime. The Government offered the world financial markets a ‘take-it-or-leave-it’ settlment which was favourable to the local economy. At the time, the rhetoric claimed that countries that treat foreign creditors so badly would surely stagnate and suffer a FDI boycott. This is the standard neo-liberal line that is used to coerce debtor nations into compliance with the needs of ‘first-world’ capital largely defined through the aegis of the IMF. But the Argentinian case shows this paradigm to be toothless because the Government defied the major players including the IMF and the Argentine economy went on to boom despite it.
the big news is that it has become clearer that the private sector's negative rate of borrowing has stopped increasing and has stabilized at a level roughly opposite to the government's positive rate of borrowing.
So there is no coherent neoclassical theory that can take solace from the success of the government stimulus packages, should they avert a deep recession and cause a sustained recovery without a rise in the private debt to GDP ratio.[2] If there is to be a winner in this debate, it has to be a non-neoclassical school of thought.
There is such a school of thought which has developed in Post Keynesian literature recently. Known as Chartalism, it argues that the government can and should maintain deficits to ensure full employment.
Chartalism rejects neoclassical economics, as I do. However it takes a very different approach to analyzing the monetary system, putting the emphasis upon government money creation whereas I focus upon private credit creation. It is therefore in one sense a rival approach to the “Circuitist” School which I see myself as part of. But it could also be that both groups are right, as in the parable of the blind men and the elephant: we’ve got hold of the same animal, but since one of us has a leg and the other a trunk, we think we’re holding on to vastly different creatures.
Under a fiat currency system, the monetary unit defined by the government has no intrinsic worth. It cannot be legally converted by government, for example, into gold as it was under the gold standard. The viability of the fiat currency is ensured by the fact that it is the only unit which is acceptable for payment of taxes and other financial demands of the government.
The analogy that mainstream macroeconomics draws between private household budgets and the national government budget is thus false. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts). Government spending is therefore the source of the funds the private sector requires to pay its taxes and to net save, and it is not inherently revenue constrained.
So statements such as “the federal government is spending taxpayers’ funds” are totally inapplicable to operational reality of our monetary system. Taxation acts to withdraw spending power from the private sector but does not provide any extra financial capacity for public spending.
As a matter of national accounting, the federal government deficit (surplus) equals the non-government surplus (deficit). In aggregate, there can be no net savings of financial assets of the non-government sector without cumulative government deficit spending. The federal government via net spending (deficits) is the only entity that can provide the non-government sector with net financial assets (net savings) and thereby simultaneously accommodate any net desire to save and hence eliminate unemployment. Additionally, and contrary to mainstream economic rhetoric, the systematic pursuit of government budget surpluses is necessarily manifested as systematic declines in private sector savings.
Government spending and purchases of government bonds by the central bank add liquidity, while taxation and sales of government securities drain private liquidity. These transactions influence the cash position of the system on a daily basis and on any one day they can result in a system surplus (deficit) due to the outflow of funds from the official sector being above (below) the funds inflow to the official sector. The system cash position has crucial implications for the central bank, which targets the level of short-term interest rates as its monetary policy position. Budget deficits result in system-wide surpluses (excess bank reserves).
Competition between the commercial banks to create better earning opportunities on the surplus reserves then puts downward pressure on the cash rate (as they try to off-load the excess reserves in the overnight interbank market). So budget deficits actually put downward pressure on short-term interest rates which is contrary to all the claims made by mainstream economics.
If the central bank desires to maintain the current positive target cash rate then it must drain this surplus liquidity by selling government debt. In other words, government debt functions as interest rate support via the maintenance of desired reserve levels in the commercial banking system and not as a source of funds to finance government spending.
As a matter of accounting, for aggregate output to be sold, total spending must equal total income (whether actual income generated in production is fully spent or not each period). Involuntary unemployment is idle labour unable to find a buyer at the current money wage. In the absence of government spending, unemployment arises when the private sector, in aggregate, desires to spend less of the monetary unit of account than it earns. Nominal (or real) wage cuts per se do not clear the labour market, unless they somehow eliminate the private sector desire to net save and increase spending. Thus, unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.)
What few understood was that the budget deficit and the trade deficit were closely linked, and each was closely related to the evolving character of the global financial system. They were so closely related, in fact, that they usually amounted to two aspects of the same thing. And as the new global monetary system developed, the growing need for dollars -- for monetary reserves -- held outside the United States would come to guarantee that the United States would necessarily experience both trade deficits and budget deficits almost all of the time. The deficits were not so much a symptom of a declining position as the tribute paid to the United States for its position atop the world financial order. The falling dollar in the 1970s stemmed from the threat to that position, following the Nixon shocks, the triumph of international monetarism, and the destruction of Bretton Woods. [KODE innskyter: ...og at oljeproduksjonen deres toppet i 1970, muligens kanskje?]
There is a basic relationship in macroeconomy, as fundamental as it is poorly understood, that links the internal and international financial positions of any country. A country's internal deficit, that is, its "public" deficit and its "private" deficit -- the annual borrowing by companies and households -- will together equal its international deficit. In the early postwar United States, the typical pattern of the private sector, which consists of companies and households, was to run a small net surplus each year, of around 2 percent of GDP. Thus, the private sector accumulated financial assets, while the publilc sector built up a corresponding stock of debts. Overall, the country enjoyed a situation in which approximate external balance could be (and was) maintained, so long as the public sector deficit did not exceed 2 percent of GDP. If households and companies were depositing money in the banks every year, government could borrow that money without having to look for it abroad. To put it another way, government did not borrow abroad, and so the government's deficit, which is the amount by which public spending put into the economy exceeds taxes taken out, created an exactly offsetting private surplus.
Why did it prove possible for Reagan to do what Carter could not, namely run large deficits, without a fall itn the dollar and consequent inflation? Because the Federal Reserve's policy of super-high interest rates and a super-strong dollar helped Reagan out. By attracting a flood of investment capital back into the United States, the strong dollar policy reconciled fiscal stimulus, recovering employment, and a rapid end to inflation. The dollar now became the unchallenged world reserve currency, which meant the United States not only could, but had to, run trade deficits to the extent of the demand for reserves. So long as the domestic private sector remained of a mind to accumulate financial assets, which it did through the Reagan term, the trade deficits had to be translated, as a matter of accounting, into federal budget deficits of a similar size. The doctrine of "twin deficits" did gain official notice -- Paul Volcker spoke and wrote about it in the mid-1980s -- but the interpretation then given held that budget deficits were to blame for the trade deficit. The role of the world financial system in making the deficit inevitable was overlooked.
For the next three years, the recovery gathered force. Unemployment fell, the budget deficit began to diminish, and inflation did not rise. The 1997 Asian crisis brought a flood of capital back into the safe haven of U.S. Treasury bonds, strengthening the dollar. The trade deficit rose.
But now the budget deficit did not. Indeed it fell -- all the way to zero and into actual surplus, for the first time since 1969. How could this happen? How could our foreign deficits go up while our budget deficit went down? If the money sent abroad did not come from the government, where did it come from? This fact caused many who had been exposed to the "twin deficits" view of budgets and trade to deny that the view was accurate. But they were forgetting the third element in that equation. There is one possible way (and only one) for budget deficits to go down while the trade deficit goes up: for the private sector of the American economy to "take over" the budget deficits previously run by the state. And that is what happened. Private businesses and households in the late 1990s chose, for the first time in postwar history, to move massively into deficit. Credit cards, mortgages, and home equity loans suddenly became the drivers of American economic growth. For a time, the American household took over the job of running deficits from the American government. This was the Keynesian devolution.
The liquidation value of total debt is inversely proportional to the prevailing rate of interest. In particular, halving the rate of interest by the central bank is equivalent to doubling the liquidation value of total debt.
Innlegg
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