Thursday, September 24, 2009

A Wolf Amongst Sheep

Calling Wen Jiabao: Martingale currency strategy misguided.

That would be equivalent to official holdings by the US government of $6,000bn (€4,000bn, £3,670bn) all denominated in the currencies of other countries. It is little wonder such a huge exposure makes the Chinese government nervous. But nobody asked the Chinese to do this. On the contrary, US policymakers have consistently (and wisely) advised them to do the opposite. Having made what I believe was a huge mistake, the Chinese government cannot expect anybody to save them from its consequences.

And this is particularly good; I had never thought to look at it this way.

It is important to understand how distorted China's economy now is: in 2007, personal consumption was just 35 per cent of GDP. Meanwhile, China was investing 11 per cent of GDP in low-yielding foreign assets, via its current account surplus. Remember how poor hundreds of millions of Chinese still are. Then consider that the net transfer of resources abroad was equal to a third of personal consumption.

Honestly, the more you think about it, the more you realize that Steve Keen's idea of a debt jubilee is the most sensible solution (minute 6:20). on grand scale. Maybe the Jews were onto something with that sabbatical thing. We can keep making all the stuff we're making (there need be no falloff in production) if we just admit that some of the benefits of this are going to be redistributed in a way nobody anticipated when they followed the incentives laid out for them. This is true in the US, and true in China as well. The only fundamental problem with the world economy is that the Chinese have excess capacity in Teddy Bear production and shortage of capacity in clean air, while we have excess capacity in housing and a shortage of capacity in air filtering technology. That may take some time to cure, but doesn't seem insurmountable to me (which and so by the way, where's our green tech bubble when we need it).

On another note, I'm a little worried that I find myself agreeing with some obscure Australian economist being interviewed on some pirate internet news channel over a bad Skype connection to the backdrop of an office that looks like it was recently raided (again) by some nefarious government agency. Things is definitely gettin' weird.

Anyhow, this all gets into the obvious problem that if the government did have a debt jubilee it would change the incentives for the future. How do you get people to go out and work really hard and invent new stuff and provide new services and just generally fuck up their time with shit to do, when they know that even if they do (or don't do) shit the table will be reset in 7 years?

Well, I think the answer is you just make debt illegal to begin with. I suppose this was the Islamic improvement on the Jewish financial regulation. Following this train of thought, it's clear that the Christians went overboard with the whole turning the other cheek thing -- Jesus was a commie. What we need is naked, ruthless, unfettered, equity-only supercapitalism. And a religion to go with it.

Anarcho-theism to the rescue!

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