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The Challenge of Credit Creation; Lord Adair Turner - 3 part Video
Topic Started: 11 Oct 2013, 04:09 PM (1,656 Views)
miw
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Strindberg
12 Oct 2013, 10:53 PM
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.
Yeah. The videos were talking about private debt, not public debt.

Agreed that what matters over the long term is how nett wealth moves. Wealth is created by production and destroyed by consumption. Credit that goes into investment will tend to increase nett wealth, as long as the investment is sound. Credit that goes to consumption both increases aggregate demand and hence drives investment and allows consumption, so it contributes on both sides of the ledger. Credit that is used to leverage asset purchases does neither, but it does create an overhang due to the continuing credit contract that, given poor sentiment, can promote deleveraging and a drop in aggregate demand and in investment, causing a balance sheet recession which, by the way, is what most of the developed world is suffering now.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Andrew Judd
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peter fraser
13 Oct 2013, 09:25 AM
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.





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?
1. I was banned from Wiki for amongst other things attempting to alter the page on Fractional reserve banking to show that there was plenty of literature on the Wicksellian view of credit creation that was regarded as voodoo economics by mainstream economics even though it was clear the BOE and RBA were quoting Wicksel now and then and regarded mainstream economic viewpoints as being unhelpful since they were so obviously wrong.

2. The idea we are now stuck at a point where credit creation has reached a maximum - ie we are at peak debt is not a new idea for this forum

3. The idea we can spend past the deflationary consequences of peak debt with unfunded newly issued government spending is not a new one on this forum, and in any case central bank purchases of newly issued government bonds are doing that anyway - more or less.

So the biggest problem seems to me there are no new ideas and we are still stuck in the same place with no obvious way forwards that can be said to be new inspiring or exciting.

The future will likely be low interest rates for years and years to come,with various methods of limiting house prices during a long period of weak uninspiring economic growth
Edited by Andrew Judd, 13 Oct 2013, 04:50 PM.
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peter fraser
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Andrew Judd
13 Oct 2013, 04:37 PM
1. I was banned from Wiki for amongst other things attempting to alter the page on Fractional reserve banking to show that there was plenty of literature on the Wicksellian view of credit creation that was regarded as voodoo economics by mainstream economics even though it was clear the BOE and RBA were quoting Wicksel now and then and regarded mainstream economic viewpoints as being unhelpful since they were so obviously wrong.

2. The idea we are now stuck at a point where credit creation has reached a maximum - ie we are at peak debt is not a new idea for this forum

3. The idea we can spend past the deflationary consequences of peak debt with unfunded newly issued government spending is not a new one on this forum, and in any case central bank purchases of newly issued government bonds are doing that anyway - more or less.

So the biggest problem seems to me there are no new ideas and we are still stuck in the same place with no obvious way forwards that can be said to be new inspiring or exciting.

The future will likely be low interest rates for years and years to come,with various methods of limiting house prices during a long period of weak uninspiring economic growth
Well we are not at peak debt. Debt will continue to build, but it can go out of synch from time to time and that can be dangerous.

the question is - is there a better way to create money without creating high levels of debt, or can we selectively encourage a different type of investment.
Any expressed market opinion is my own and is not to be taken as financial advice
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doubleview
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This might sound familiar to some !

http://www.cnbc.com/id/101103819
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peter fraser
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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.
and still more crickets. Not even mels Keynesian perspective.
Any expressed market opinion is my own and is not to be taken as financial advice
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mel
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peter fraser
14 Oct 2013, 11:01 PM
and still more crickets. Not even mels Keynesian perspective.
haha! sorry Peter I haven't made time to watch it yet. I actually hit 'reply' early on in the thread to answer your questions (which Strindberg initially answered) but quickly realised short answers wouldn't have been sufficient.. i suspect i know you too well and i have a strong feeling a couple more significant points will be made by the time this thread reaches its climax :bye:
Edited by mel, 14 Oct 2013, 11:15 PM.
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
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peter fraser
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mel
14 Oct 2013, 11:09 PM
haha! sorry Peter I haven't made time to watch it yet. I actually hit 'reply' early on in the thread to answer your questions (which Strindberg initially answered) but quickly realised short answers wouldn't have been sufficient.. i suspect i know you too well and i have a strong feeling a couple more significant points will be made by the time this thread reaches its climax :bye:
I do hope so mel, I would like to hear the views of others who know more than I do about the future of rising debt levels and whether a change of lending policies might encourage people too invest more capital and energy into productive pursuits instead of property dominating so much.

How they might achieve that when our bricks and mortar lenders and APRA encourage banks to focus on property. How might we direct more capital towards production.

What do we have to do to achieve that?

Any expressed market opinion is my own and is not to be taken as financial advice
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b_b
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peter fraser
11 Oct 2013, 04:09 PM
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.
Just watched video 1. Pretty much mmt.

The only two points where I would disagree is
1. He seems to suggest Hoarding under the gold std reduces agg demand, where it does not with fiat. However financial savings under mmt (in the absence of an external deficit) also reduces agg demand. However, there is no doubt credit creation is far more unconstrained.

2. For most modern monetary systems, the natural rate of interest is zero.

Edited by b_b, 14 Oct 2013, 11:55 PM.
(S – I) + (T - G) + (M - X) = 0
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Catweasel
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Catweasel say it a wonder.

If nutty theory ever win a Noble the Prize.

No reason why the not.

Problem the be,

it just a business as a usual.
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peter fraser
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b_b
14 Oct 2013, 11:54 PM
Just watched video 1. Pretty much mmt.

The only two points where I would disagree is
1. He seems to suggest Hoarding under the gold std reduces agg demand, where it does not with fiat. However financial savings under mmt (in the absence of an external deficit) also reduces agg demand. However, there is no doubt credit creation is far more unconstrained.

2. For most modern monetary systems, the natural rate of interest is zero.
Yes he is pretty close to MMT. The three videos are worth the time.

I don't understand your point that the natural rate of interest is zero.

If I was in earthmoving and I rented an excavator from you, I would earn money from that excavator and naturally pay some rent to you (not taking wear and tear into consideration)

Similarly if I was an importer I could borrow money from you, buy a shipload of product, and market that to retail outlets in time for Xmas, and again I would make money in the margins from that borrowed money. Is it not reasonable that again you would expect a return for renting that money to me?
Any expressed market opinion is my own and is not to be taken as financial advice
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