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| Economy |
| The monster and the sausages |
| 2011-12-06 |
| h/t No Passaran Germany's President Horst Koehler has denounced the world financial market as a "monster" using "highly complex financial instruments" to make "massive leveraged investments with minimal capital". Koehler, formerly head of the International Monetary Fund, seems perplexed about the causes of the present crisis, but I can explain them in a way any German can understand. Derivatives are like sausages. You take the low-quality parts of the pig that you don't want to look at while you are eating them, and grind them up into a package that seems more appetizing. The German financial system wanted to consume low-quality American assets, but did not want to look on what it was eating. German banks have written down about US$25 billion in securities derived from low-quality ("subprime") American mortgages, and doubtless will lose a great deal more. But it is silly to blame the sausage-grinder. Why didn't the Germans and all the other overseas investors buy mortgages in their own countries, instead of scraping the bottom of the credit barrel in the United States? It is because there aren't enough Germans, or Italians, or Frenchmen or Japanese starting families and buying homes. There weren't enough Americans, either, and therein lies a tale. The aging pensioners of Europe and Asia must find young people to pay interest into their pensions, and they do not have enough young people at home. Germans aged 15 to 24, on the threshold of family formation, comprise only 12% of the country's population today and will fall to only 8% by 2030. But one-fifth of Germans now are on the threshold of retirement and half will be there by mid-century. ...The monster is not the financial system, crooked and stupid as it may have been. The monster is the burgeoning horde of pensioners in Germany and other industrial countries. It is easy to change the financial system. The central banks can assemble on any Tuesday morning and announce tougher lending standards. But it is impossible to fix the financial problems that arise from Europe's senescence. Thanks to the one-child policy, moreover, China has a relatively young population that is aging faster than any other, and China's appetite for savings vastly exceeds what its own financial market can offer. There is nothing complicated about finance. It is based on old people lending to young people. Young people invest in homes and businesses; aging people save to acquire assets on which to retire. The new generation supports the old one, and retirement systems simply apportion rights to income between the generations. Never before in human history, though, has a new generation simply failed to appear. As the above chart makes clear, America's population profile is far more benign than Germany's, but it is aging nonetheless. There simply aren't enough young people in America to borrow money from Europe's and Japan's aging savers. The world kept shipping capital to the United States over the past 10 years, however, because it had nowhere else to go. The financial markets, in turn, found ways to persuade Americans to borrow more and more money. If there weren't enough young Americans to borrow money on a sound basis, the banks arranged for a smaller number of Americans to borrow more money on an unsound basis. That is why subprime, interest-only, no-money-down and other mortgages waxed great in bank portfolios. |
| Posted by:g(r)omgoru |
| #15 No mo, it's not the demographics point that invited Godwin, but your quip about hypergamy and its detrimental nature on the society if unchecked. lotp is after all a part time feminist (she may claim otherwise, but watch what they do, not what they say). I appreciate that you see the things in more fundamental light. I do interject the topic in my posts on the net, but for the most part, people think I speak alien. |
| Posted by: twobyfour 2011-12-06 18:11 |
| #14 So, I guess anyone who points out demographic realities is a proven Nazi, in your eyes? Didn't take long for Mr. Godwin to show up. So then, what is your solution to the problem? |
| Posted by: no mo uro 2011-12-06 14:43 |
| #13 Greek Bank Run is progress. This will make things much more difficult to manage. Just like putting money into gold. It does nothing. Money out of circulation. They still find gold buried from when Rome disintegrated. This is important to watch because the world is tied to this and its people will react in similar fashion. So how will governments deal with this. |
| Posted by: Dale 2011-12-06 13:11 |
| #12 It's got nothing to do with abortion and everything to do with transfer taxation (to fund the "welfare" state). Basically transfer taxation harms money velocity (wealth creation), we can simulate wealth creation with increases in debt, until it needs to be paid back (when the opposite happens), if you want to keep simulating wealth creation then you need an exponential amount of debt. How does a state do that? Easy! Just lower reserves. What happens when the interest rate gets lower than the lending risk? Systematic bankruptcy combined with an economy not only facing the REAL level of hampered wealth creation but also having to pay of vast sums in interest. |
| Posted by: Bright Pebbles 2011-12-06 13:10 |
| #11 The monster IS the financial system, the US financial system of fraud and misrepresentation AND the welfare state in Europe. Oh yes, the rampant materialism and mass abortion of a new generation. We're getting there but we're about 5 years away from it. |
| Posted by: Bill Clinton 2011-12-06 13:01 |
| #10 G. Summers said " the situation in Europe is a solvency Crisis, not a liquidity Crisis". I don't agree with some observations but the derivative idea is great. People who can't afford to retire will work till they drop. Those who have retired will continue to work part time to keep their incomes from dropping or due with less then much less. Then some family may require help. Retirements could all be gone in a flash with a economic tsunami anyway. When you retire these days you must stay in the game. |
| Posted by: Dale 2011-12-06 10:42 |
| #9 Never before in human history, though, has a new generation simply failed to appear. Au contraire, the Romans suffered a population drop as a result of new diseases, and were unable to keep out the barbarian hordes. The Byzantines suffered a similar drop in population and the Arabs moved right in. One of the reasons the Muslim conquest was so rapid, is there was actually very little fighting. |
| Posted by: Frozen Al 2011-12-06 10:36 |
| #8 wiki says that the 3k's were not 3rd Reich, but belonged to the previous generation. in any case, it was the "Kaiser, Krieg, Kanonen" that really caused the problems IMO |
| Posted by: abu do you love 2011-12-06 07:21 |
| #7 Kaiser, Krieg, Kanonen was more the problem for men, although the feminine role of Kinder, Kuche, Kitche (und Kleider)were associated with the Nazis. Not that I intend to correct the Professor! I merely recite from Wikipedia. |
| Posted by: Bobby 2011-12-06 06:59 |
| #6 no mo uro, "Kinder, Küche, Kirche" has been advanced before to solve massive economic issues that placed a strain on a nation. Caused quite a bit of trouble for others before it was defeated, as I recall. |
| Posted by: lotp 2011-12-06 06:27 |
| #5 Whichever nation finds a way to make every woman who is fertile enough to do so desire to (and actually have) three or more children in a stable family - and in a culture which values families instead of the apparatus of state - will inherit the world. Islam? |
| Posted by: g(r)omgoru 2011-12-06 06:12 |
| #4 Never before in human history, though, has a new generation simply failed to appear. It didn't "simply fail to show up". Uncoupled (!) from religion and given access to jobs via affirmative action and relieved of any negative consequences for unplanned pregnacies by politicians who championed birth control and casual abortion and unquestioning welfare and man's fault divorce, women have been free to act upon more primitive, uncivilized hypergamous hard wiring and upon simple human greed. Screw around until you're not that good looking any more, then find some sap to have one or two designer kids, then divorce the husband and take his stuff and get back to screwing around. And unscrupulous men have gone right along. Whichever nation finds a way to make every woman who is fertile enough to do so desire to (and actually have) three or more children in a stable family - and in a culture which values families instead of the apparatus of state - will inherit the world. Sexist? Nah. Realist. |
| Posted by: no mo uro 2011-12-06 06:09 |
| #3 Nature abhors a vacuum. Another tribe will move in and take over. Like in California. |
| Posted by: Eohippus Phater7165 2011-12-06 05:51 |
| #2 Well you wouldn't want more yucky people eating noble plants or poor animals while exhaling that toxic carbon dioxide stuff, would you? |
| Posted by: Scooter McGruder 2011-12-06 04:40 |
| #1 Never before in human history, though, has a new generation simply failed to appear. Yah. it was aborted. |
| Posted by: Ptah 2011-12-06 04:29 |