Financial crisis ! whats your opinion and why :)

I dont really know much about economics.

Hey you should be flattered by this CL!

You should have stopped here.

Perhaps you could explain why it is that we need to borrow? Why can't we live within our means? How is an economy based on borrowing more and more ever supposed to work? If your constantly spending more than you can afford surely thats the problem?

a big pile of savings in order for them to be able to lend them to us. They increase their savings via interest at our expense. Why not have our own pile of savings?

Because in a household, when you increase your borrowing by 5%, it doesn't make your income go up by 6%. Otherwise it would be a damn good idea to borrow and we'd all be doing it. Household finances don't have a built in expenditure multiplier in the same way that national economies do.

Debt financed expansionary fiscal policy can and does work to promote growth whilst simultaneously lowering the debt/GDP ratio if used correctly. Unfortunately Brown and Balls took it too far and ****ed it up for everyone.

Hmm. That makes sense. Thanks.

In that case I think we should have a government controlled central bank as ive heard banded about in the media so we can still do that but get them to lay off in times of trouble and not have this credit rating worries.

Please explain why US national debt multiplied by something like a factor of 10 between the mid 70s and mid 90s.

Also please explain why national saving in the US has been so low (sometimes negative) since the 70s.

Again, you're regurgitating standard textbook responses. I also took econ101 or whatever it was in which this is taught. I hate to be the bearer of bad news, but a lot of that textbook stuff they teach you is quite flawed.

Now, people will only leave their jobs if they have choice. And that is exactly what people do not have in a recession. That is why recessions are prime periods for lowering of wages and benefits - because people are desperate.

I recently took a new job in January. I am getting paid substantially less than people were paid for the same position 3-5 years ago. I took it anyway. Why? Because most of the competing firms were offerring less! Why? Because they can. Why? Because they know people are desperate and unemployment is high.

So yes, in textbook land, if an employer lowers wages, the employees leave and find better jobs and their places are filled by others who are more desperate.

And the system is beautiful and a holy miracle of balance and precision that should not be tampered with. In reality, there are other considerations like high unemployment that mean existing workers will not leave their jobs but will accept paycuts, and new workers will enter the labour market with lower wages than their predecessors.

Ah, I see. So "freedom of choice" is now equal to "false hope". It doesn't matter if their dreams are crushed and they end up living in slums! They have the illusion of free choice in the matter, so it's all ok! Needless to say, my point stands. There is no choice.

....uh, maybe in england, or in sweden.....not in Egypt/Sudan/Vietnam/Cambodia/Kyrgyzstan etc. etc. ad infinitum

Well I've said it quite a few times already, universal labour laws that mean all humans are equal. Not the status quo, which is labour laws for western people and no laws whatsoever to protect the rest of the world who make our products.

I think you don't have the faintest clue of what you're talking about. Have you read all the articles I posted about the labour movement? If you had, you wouldn't be so woefully cavalier about what 3rd world children should be doing.

This is why I accuse you of religious adherence. First I recommended Rawls and you dismissed it without knowing what it's about.

Then I recommend Naomi Klein and you dismiss her without knowing a damn thing about her book.

Then you say firms "probably" treat their workers better without knowing the first thing about how these firms contract the workers. Just read the book then tell me what Nike or Apple is "probably" doing.

Lol. Get a job and then preach to me about the harm of employee rights. That's number one.

So when I complain about capitalism and you tell me "all countries went through it", then that is my response when you say "remove all regulation".

To what extent? You're saying you would allow millions of workers to immigrate from China to the UK? Or from India or Egypt or Sudan or Nigeria?

I recommend that you study the history of the labour movement in the west, since I do not believe you know anything about it and that's extremely significant to your views on labour rights.

I recommend you read No Logo by Naomi Klein, and Planet of Slums by Mike Davis to acquaint yourself with the lives of the workers who made your shoes, clothes, computers, phones, ipads, etc. As well as to understand the politics of urbanization and slum-growth. Planet of Slums will shock you, I guarantee it.

There must be somebody somewhere with a big pile of savings in order for them to be able to lend them to us. They increase their savings via interest at our expense. Why not have our own pile of savings?

A very good spot. Well done. However the truth of the matter is that no such savings exist. There is a myth around banking that the money of savers is given to debtors. That banks are just intermediaries in this process.

The truth is that when we take out loans new money is created for that loan. The money is just created. Rather than taken from saver to debtor. The vast majority of money in the economy is created by banks, in the process of people taking out loans.

What this means is that the total amount of debt of people is not equal to the total amount of assets of the people. Instead all of this debt is owed to banks.

Now suppose we did what you suggest, we did not go into debt. Well then we would have no money, because money is created as debt.

"When banks make loans, they create additional deposits for those that have borrowed the money" - Bank of England.

This is just plain wrong. Read back my posts from last week. Stop mischaracterising the nature of the money multiplier. We get it: you don't understand how it works and therefore it scares you.

By definition, total credit = total debit. The idea that money is owed to no-one is just patently stupid. I've read this hilariously misinformed line about "the total amount of debt of people is not equal to the total amount of assets" on conspiracy theory websites, which is obviously where you've got it from.

We do have a central bank, and it has to justify everything it does in a letter to the chancellor.

Currently the central bank is in change of monetary policy and the treasury is in charge of fiscal policy.

I suspect your text books are wrong

It is true that debts equal assets. However the problem is that banks are not intermediaries. The debts of one man does not equate to the assets of another man. Instead the debts of one man are the assets of the bank, not the savers.

Ahh, so we can tell our bank to ignore the credit ratings people and we're sorted.

The line from the tories, that you cant borrow your way out of a debt crisis works nicely because the most knowledge most people have about economics is from newsnight and so not borrowing when your in debt seems to be sensible. Do you think thats wrong and we should be borrowing more to do as you describe above? And was it really brown and balls who caused this world wide crisis?

If we borrow money, and use it to make more money, and then pay back more money than we borrowed, so everyone has more money. Wheres that money coming from? Obviously we can print more money but that causes inflation which means you don't actually have more money. We say the economy is growing so we have more money but in an economy based on something intangible as "financial services sector" are we talking about an increase in things of value or bigger numbers? I mean Germanys manufacturing means that they create things of value so if, in a purely hypothetical situation, we removed money and had direct trading of things for other things, they'd be pretty rich whereas we seem to be focused on multiplying money which has no real value in its self. Obviously when we borrow money to make more money we could invest it in things that hold tangible value but where is that happening? Wheres our investment in making valuable stuff like Japan, Germany and China do. If the money system collapsed tomorrow would we not all be sat at our Sony screens tearfully stroking our numbers while they still had things that we actually need/want and could still get by reasonably well?

I like the idea of having silver money as pound sterling once was so that when we have lots of money we also have lots of value.

Thats a matter of semantics.

the bank is owed lots of money by lots of people and it owes a lot of money to other people,

Banks actually own very limited assets.

Even if the banks somehow did "own all the assets", who do you think owns the banks?

No it is not. It blows a great big ****ing hole into most economic models that assume that banks are just intermediaries between savers and investors, and thus have no real effect on the economy.

The fact of the matter is that banks endogenously create money and have a huge impact on the economy. Which in recent times has been to create a house price bubble.



Private debt is a lot lower than private savings those, is it not?



A promise to pay, is an asset. And banks own a lot of those.



If it is true that banks own most of our promises to pay, assets, then should it really be all that surprising that people in control of banks make a **** load of money without actually producing anything?

A promise to pay, is an asset. And banks own a lot of those.

Admitadely, I have not studied things like DSGE models. However from what I gather they treat banks as intermediaries rather than institutions that indirectly manipulate the economy. Now, you do not need to know the equations to know that an assumption like this is going to wreck the model. Indeed, whenever DSGE models fail to work, most people just seem to shoe horn something new onto the end of it to make it work, like adding exogenous shocks or sticky wages that are also flexible at the same time.

This is true. It is also true that almost all their assets are promised to someone else.

eg: my credit card bill currently stands at £250. So that is an "asset" of my bank. But my debit account stands at £1250. So that is my "assets".

So in total, I have £1000 of assets and my bank... has nothing.