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The Forum > Article Comments > The 'credit crunch' and how to solve it > Comments

The 'credit crunch' and how to solve it : Comments

By Kevin Cox, published 1/10/2008

We have allowed banks to make loans backed by loans: it is a system with an inbuilt flaw.

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I love your thinking here: back to real monetary theory instead of the neo-economics practiced over the last decade.
Of course money must be backed by real assets! This is economics 101 yet is overshadowed by the profits made using financial instuments. These instruments (repos, futures, short-selling...) are supposed to add value to the economy but in fact they distort the currency system so much for so little real input.
Banks made Billions in profits last year. Where is the gain to justify this profit? To what extent are we, the taxpayer now supporting these banks?
Alas, I doubt the "money experts" (the same ones that steered us int the current mess!) will give your idea credence.
Posted by Ozandy, Wednesday, 1 October 2008 4:07:32 PM
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I think that like so many others you have missed the point, which was defined by Mr Micawber 150 years ago.

He said:

Annual income £20, annual expenditure £19/19/6, result happiness.

Annual income £20, annual expenditure £20/0/6, result misery.

This is the commonsense point that you cannot live beyond your means for any sustained period. Americans have been profligates for the last 400 years, and the only smart president they ever had was Franklin Roosevelt, who in WW2 bankrupted his allies and obliterated his enemies. Both America and Australia have been living beyond their means for 30 years, as evidenced by our enormous foreign debt, which did not exist in 1972.

If you have debtors and creditors in the same country you can use the law to defraud the creditors (remember that Keynes called his economic system "The euthanasia of the rentier). Only trouble is, you can't do that to foreign creditors. If they decide to call in your foreign debt, as they have done twice in Australian history in 1893 and 1931, there is little you can do about it. All you can do, which will take decades to work, is to encourage saving, which, as the author points out, has been viciously overtaxed here for decades.

Our economic future depends on the goodwill of foreign creditors, who lend most of our debt to our banks as 6 month $US certificates of deposit, which our banks are constantly renewing. If they decline to renew the debt, or only offer to renew at exorbitant interest rates, the banks can only call in their customer's mortgages or pass on the exorbitant rates. Many may recall 1984, when NZ got uppity about US nuclear ships, and Wall Street thought it would be a great time to call in the NZ debt, to see what happens in this situation. Again, look at RAMS, which went through this last November, and vanished in a puff of smoke.

Unfortunately, many thousands of good people are going to lose their homes in the coming depression, and they can thank Keynes and our politicians for that.
Posted by plerdsus, Wednesday, 1 October 2008 5:43:17 PM
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You are all making it too complicated and trying to solve it without penalty to the creators of the scam.
Try this;

Russell Crowe says the solution to the American crisis is to just give everybody in America one million dollars.
You laugh
Think this through.

There are 300,000,000 people in America. (including kids)This would obviously cost $300,000,000.

The Paulson, Bernanke and Bush team are proposing to spend $700 BILLION to save the creators of this mess from ruin.

They are then going to give the bill for this to the 300 million people above sending them broke or at least into more financial stress.

Would you vote for a deal like that?


What they are offering is another scam to fix the scam

Follow the money

Who benefits?



What you could do is:

Set up a body to distribute the million.

They pay off everybodyís house mortgage first

They pay out all the credit cards and other loans they have

They send whatís left of the million (if any) into the personís bank account



Result

The banks are now funded.

And everybody is back in business as the consumer goes and does what he likes best; shop Ďtill you drop.

All Kevin or Stephens here would have to do is give every adult in Australia one million dollars and we and our banks wouldn't have a problem either. Cost about 10-15 million dollars. Not even the cost of a de-salination plant
Too easy

Merv
Posted by Archiesview, Wednesday, 1 October 2008 8:44:29 PM
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Er, $300 000 000 equals an expenditure of ONE dollar for every man, woman and child in the US.

Russel proposes ONE MILLION dollars for each of them. This equals $300 000 000 000 000. I'm not sure that there is even this much liquid currency on the planet.
Posted by Fozz, Wednesday, 1 October 2008 9:59:22 PM
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The idea has merit so long as the money does not find it's way to consumerables which will have the effect of hyper-inflation.Giving everyone $1 million in the US is $300 trillion.A recipe for disaster.
Stabalise the patient with a transfusion of funds,bring back confidence but make sure the patient pays back the funds with interest.There are no other choices.If the US goes under,so do we.
Posted by Arjay, Thursday, 2 October 2008 1:38:02 AM
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So many commenters appear to be arithmetically challenged, I wonder if this isn't the root of all current sub-prime mortgage problems. Maybe a few zeros or decimal places were left off of the loan contracts. Maybe some borrowers saw all the zeroes and didn't know what they were looking at. This is so sad. Too many people are incapable of managing their affairs in the modern world.
Posted by Daisym, Thursday, 2 October 2008 5:26:25 AM
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