Welcome Guest [Log In] [Register]


Reply
  • Pages:
  • 1
The Challenge of Credit Creation; Lord Adair Turner - 3 part Video
Topic Started: 11 Oct 2013, 04:09 PM (1,657 Views)
peter fraser
Member Avatar


This is a three part video presentation from Lord Adair Turner, ex President of the FSA and recently one who was seriously considered as a Governer for the Bank of England.

Wikipedia describes him as -

"Jonathan Adair Turner, Baron Turner of Ecchinswell (born 5 October 1955, Ipswich) is a British businessman, academic, a member of the UK's Financial Policy Committee, and was Chairman of the Financial Services Authority until its abolition in March 2013. He is the former Chairman of the Pensions Commission and the Committee on Climate Change. He has described himself in a BBC HARDtalk interview with Stephen Sackur as a 'technocrat'."

Turner is no lightweight in economics - he 'knows things' as they say in North Qld.


Here are the three videos -









And the slides that he refers to are here - Slides Here

This is a wonkish but important discussion where Turner questions the desireability and stability of a system that outsources the creation of money to the banks, macroprudential tools, the credit cycle, the failure of economics to teach relevant information in our universities, and a whole gammit of matters relating to the monetary system. It's will take about 50 minutes to watch this series, but it's well worth the effort.

One point that he made that took my interest was that in his view Central Banks tended to nip credit cycles in the bud just before we got to the productive part of the cycle.I would appreciate any comments.

He criticises the system that was originally designed to extend credit to industry, but is now dominated by consumer finance. He wonders about the long term effect of debt creation (the other side of the ledger to credit creation).

All in all it's a damn good watch that should make everyone who takes the time to watch it, think about the end results of the direction in which we are heading. In a way it's similar to what David Llewellyn Smith over at MB has been plugging for some time, except it's done in a far more elequont way with solid explanations.


I would appreciate your point of view on these lectures and any arguments for or against that you may have to contribute.

All contributions and views welcome.
Edited by peter fraser, 12 Oct 2013, 07:42 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
Profile "REPLY WITH QUOTE" Go to top
 
miw
Member Avatar


*crickets*

Well, my 2c worth is that this is one of the most interesting things I've seen in a while. Definitely worth an hour or two of your time to watch. Incidentally, he manages to put the MMT view of the world while simultaneously bringing our attention to the things a lot of MMTers conveniently don't discuss and explain in clear terms the things that Minsky and Keen are banging on about.

Mel, as an avowed Keynsian, you might not like some of it, but actually if you follow through on his arguments you'll get your bit of sugar as well.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
Profile "REPLY WITH QUOTE" Go to top
 
mel
Member Avatar


actually i will be watching it 100% monday and letting everyone know where Turner went right and wrong miw :lol

it certainly does feel good to be acknowledged as a Keynsian economist - this could be the start of something big. Thank you miw.
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
Profile "REPLY WITH QUOTE" Go to top
 
peter fraser
Member Avatar


miw
11 Oct 2013, 11:46 PM
*crickets*

Well, my 2c worth is that this is one of the most interesting things I've seen in a while. Definitely worth an hour or two of your time to watch. Incidentally, he manages to put the MMT view of the world while simultaneously bringing our attention to the things a lot of MMTers conveniently don't discuss and explain in clear terms the things that Minsky and Keen are banging on about.

Mel, as an avowed Keynsian, you might not like some of it, but actually if you follow through on his arguments you'll get your bit of sugar as well.
He certainly draws attention to the system weaknesses and the long term structural issues with the present monetary system where money can only be created through debt.

I have issues with government printing without sterilising, but that's because I have little faith in our political masters, although a structured program based on an accepted formulae that introduces limited amounts of fiat in productive times just might work, but that should also mean destroying it in times of recessions, which then asks the question how do we accurately measure that because GDP is a flawed measurement.

A better measurement might be based on the import/export ratio.

It would be a huge change for the world of economics.
Any expressed market opinion is my own and is not to be taken as financial advice
Profile "REPLY WITH QUOTE" Go to top
 
peter fraser
Member Avatar



No comments?

I have a question then. Assuming that our ad hoc monetary system is designed to cope with gradual increases in debts and corresponding gradual increases in the supply of money in the system, what happens when either the money supply contracts over an extended time due to shrinking credit or a constant government surplus.

What happens when the system is stressed by a rapid rate of increase in the money supply over an extended period of time?

What happens when the increase in debt is all in the private sector and not balanced between the public and the private sectors?

Anyone prepared to hazard a guess at any of these questions?

Any expressed market opinion is my own and is not to be taken as financial advice
Profile "REPLY WITH QUOTE" Go to top
 
Strindberg
Member Avatar


peter fraser
12 Oct 2013, 07:58 PM
...... what happens when either the money supply contracts over an extended time due to shrinking credit or a constant government surplus.

deflation
Quote:
 
What happens when the system is stressed by a rapid rate of increase in the money supply over an extended period of time?

inflation
Quote:
 
What happens when the increase in debt is all in the private sector and not balanced between the public and the private sectors?

That works fine, as per the Howard period.
An increase in money supply and debt can surely be expected to be of the order of the real expansion of the economy (~3%?) plus targeted inflation, ie a total of ~5%-6% per annum. If it all resides with the private sector it means the people themselves are making the spending and borrowing choices rather than pompous power wielding gits who imagine themselves to know better how to spend and borrow what is ultimately other peoples money.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
Profile "REPLY WITH QUOTE" Go to top
 
Elastic
Member Avatar


Thanks for posting Peter. Only had a chance to watch the first one but looking forward to seeing where it's headed.
Only a rat can win a rat race.

Profile "REPLY WITH QUOTE" Go to top
 
peter fraser
Member Avatar


Strindberg
12 Oct 2013, 08:58 PM
deflation


inflation


That works fine, as per the Howard period.
An increase in money supply and debt can surely be expected to be of the order of the real expansion of the economy (~3%?) plus targeted inflation, ie a total of ~5%-6% per annum. If it all resides with the private sector it means the people themselves are making the spending and borrowing choices rather than pompous power wielding gits who imagine themselves to know better how to spend and borrow what is ultimately other peoples money.


I think that we have to go beyond that.

There are dangers that we shouldn't overlook. Let's assume that a country such as Australia is doing well and so we create a lot more debt and money in the system to reward ourselves for our hard work. Our dollar is high and will buy a lot of imported goods. We live it up, run a large current account deficit. It's all going fine because we are paying ourselves well and other countries need our iron ore. Our dollar is worth a lot in the currency markets so other countries are willing to extend us more credit.

And then a change comes and we find that no one wants to buy our iron ore anymore. At that point we have high foreign debts because we bought too many Ferrari's, we now have a currency in the toilet, and no one wants our stuff.

The value of the extra currency that we created, that once balanced out the extra debt that we wrote, now no longer comes within a cooee of covering it due to the falling value of our dollar. It would be fine if we owed all of our money in $AUD but we don't, we bought too many Ferrari's and the trade deficit wasn't fully hedged.

Every single dollar that we create either through the banking sector or via government deficits also creates an equal amount of debt. Net wealth then is zero. Don't you think that a successful well run economy should accumulate wealth without corresponding debt. Do you think that there may be better ways?
Edited by peter fraser, 12 Oct 2013, 09:50 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
Profile "REPLY WITH QUOTE" Go to top
 
Strindberg
Member Avatar


peter fraser
12 Oct 2013, 09:19 PM


I think that we have to go beyond that.

There are dangers that we shouldn't overlook. Let's assume that a country such as Australia is doing well and so we create a lot more debt and money in the system to reward ourselves for our hard work. Our dollar is high and will buy a lot of imported goods. We live it up, run a large current account deficit. It's all going fine because we are paying ourselves well and other countries need our iron ore. Our dollar is worth a lot in the currency markets so other countries are willing to extend us more credit.

And then a change comes and we find that no one wants to buy our iron ore anymore. At that point we have high foreign debts because we bought too many Ferrari's, we now have a currency in the toilet, and no one wants our stuff.

The value of the extra currency that we created, that once balanced out the extra debt that we wrote, now no longer comes within a cooee of covering it due to the falling value of our dollar. It would be fine if we owed all of our money in $AUD but we don't, we bought too many Ferrari's and the trade deficit wasn't fully hedged.


Re the bolded bit above.
Almost every single foreign dollar or Peso the Australian banks have borrowed is fully hedged against movements in the AU$ against the currency which is borrowed. The foreign currency repayments are almost entirely identical to what they would have been had the borrowings been entirely in AU$ regardless of movements in the exchange value of the AU$. Any unhedged holdings are deliberate for diversification.[/quote]
From the RBA:
Quote:
 
The 2009 survey confirms that nearly all foreign currency liabilities of Australian entities, particularly those of the banking sector, are hedged into Australian dollars using derivatives. In contrast, around one-half of foreign currency assets of Australian entities are hedged into Australian dollars; the unhedged foreign currency assets are typically long-term direct investments or portfolio investments held for diversification purposes. The implication of this hedging behaviour is that, although foreign liabilities exceed foreign assets, the effective foreign currency assets of Australians exceed their foreign currency obligations.


You finish with:
Quote:
 
Every single dollar that we create either through the banking sector or via government deficits also creates an equal amount of debt. Net wealth then is zero. Don't you think that a successful well run economy should accumulate wealth without corresponding debt. Do you think that there may be better ways?

Actually, net money is negative. Broad money aggregate is about $1.5T (RBA D3) and aggregate credit is about $2.1T (RBA D2). I assume this has arisen through banks making loans on the basis of their own assets which they have accumulated over the years - most banks loan assets exceed their deposit liabilities - check eg the CBA balance sheet. But this does not mean that Australia has negative or "zero" net wealth as you falsely state. We need no more money than is required for immediate means of exchange. Limiting the definition of wealth to money, as you have, is quite silly. On this basis I suppose the Saudis and the Norwegians are not particularly wealthy if you ignore the Saudi's oil and all the non-money Sovereign wealth of Norway. I suspect that even Buffet and Gates don't keep a large stocks of actual money. For years my personal debt money far exceeded any deposit money I had. It was no problem, my assets far exceeded my debt money. What is so desirable about having one's assets in a bank deposit account?

What matters is that over the long term we increase our net wealth. That is what we are doing. Debt helps with that process.

Debt does apply differently to people and governments. People have a life cycle during which it is appropriate to take on debt and ultimately pay it off. Governments have no firmly expected life cycle and no compelling reason to get rid of all debt.
Edited by Strindberg, 12 Oct 2013, 10:57 PM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
Profile "REPLY WITH QUOTE" Go to top
 
peter fraser
Member Avatar


Strindberg
12 Oct 2013, 10:53 PM
Re the bolded bit above.
Almost every single foreign dollar or Peso the Australian banks have borrowed is fully hedged against movements in the AU$ against the currency which is borrowed. The foreign currency repayments are almost entirely identical to what they would have been had the borrowings been entirely in AU$ regardless of movements in the exchange value of the AU$. Any unhedged holdings are deliberate for diversification
From the RBA:


yes I know that bank foreign borrowings are hedged, that's why I avoided discussing bank lending and used the analogy of buying Ferrari's which I use as a broad substitute for imported goods.

If we buy more than we sell we end up owing other countries foreign currency. Individual transactions might be hedged but not everything.

This is not the only issue, perhaps you haven't watched the videos.


Quote:
 
Actually, net money is negative. Broad money aggregate is about $1.5T (RBA D3) and aggregate credit is about $2.1T (RBA D2). I assume this has arisen through banks making loans on the basis of their own assets which they have accumulated over the years - most banks loan assets exceed their deposit liabilities - check eg the CBA balance sheet. But this does not mean that Australia has negative or "zero" net wealth as you falsely state. We need no more money than is required for immediate means of exchange. Limiting the definition of wealth to money, as you have, is quite silly. On this basis I suppose the Saudis and the Norwegians are not particularly wealthy if you ignore the Saudi's oil and all the non-money Sovereign wealth of Norway. I suspect that even Buffet and Gates don't keep a large stocks of actual money. For years my personal debt money far exceeded any deposit money I had. It was no problem, my assets far exceeded my debt money. What is so desirable about having one's assets in a bank deposit account?

What matters is that over the long term we increase our net wealth. That is what we are doing. Debt helps with that process.

Debt does apply differently to people and governments. People have a life cycle during which it is appropriate to take on debt and ultimately pay it off. Governments have no firmly expected life cycle and no compelling reason to get rid of all debt.


I was discussing money so I meant wealth in unit currency terms. I understand wealth includes non monetary unit assets.

What were your impressions from the videos?

Any expressed market opinion is my own and is not to be taken as financial advice
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
ZetaBoards - Free Forum Hosting
Join the millions that use us for their forum communities. Create your own forum today.
Learn More · Sign-up for Free
Go to Next Page
« Previous Topic · Australian Property Forum · Next Topic »
Reply
  • Pages:
  • 1



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy