The capital crisis may not bleed out. Governments are going down the track of printing money after flattening out interest rates.
Wrong solution. It will stimulate escalating inflation – like what happened in Germany between the world wars. Like Zimbabwe.
A better solution is to reduce the levels of private debt as well as fix the banking system once and for all.
Banking is a bit like bee-keeping. You never know really how many bees you have at any one time in a hive (although with computers these days, you can watch momentary cash flows in a bank in real time, no doubt).
The tragedy of the last eight years is we have 50 times as many hives, but the bees will not expand into them because the surrounding flora has been ignored and now does not support that many bees (although bees will fly up to 5 miles). The bee keeper can remove some honey, but not all or the hive will die.
There is another thing the bee keeper knows. A bee will never go to the wrong hive. Each bee knows its home. Keeping the bad debt sequestered sounded like an easy out, paying the derivatives out will inflate the economy wildly and frankly is unfair. Exposing the bad debt to reality however should bankrupt the system.
These steps are not a presciption but perhaps talking points for those who understand such things, they are suggestions that appear logical, to keep the banks going and to get the money back to the tax payer, enable growth and right this boat to structurally alter things so things start to improve; it would seem we need to immediately:
a) print lots of money [being done]
b) give lots of money away [happening] – give employers who do not lay off staff over the 2009 year a substantial tax benefit
c) raise a tax on banks to get the bailout loans repaid and draw a line, when a bank has public bailout money in its books, existing loans at the time of the funds advanced interest rates are discounted.
d) Introduce declining rates on credit card debt by international agreement – the ridiculous way in which credit card companies encourage you to pay outrageous interest rates is a constant pressure cooker for many young adults. If the debt is being paid each month, interest rates fall by regulation 1% per month until the low rate is reached. The low rate is half the primary rate which is the market rate. Make this permanent so that people who max-out credit cards are not then forced into backruptcy each and every month for the rest of their lives (this is usually the foreclosure trigger!)
e) Raise interest rates to more normal levels but only for NEW loans so the banks can pay for NEW deposits.
f) make the stock market more accessible
g) increase the buy/sell rate spread on the NZD by a margin to decrease speculation and discount direct to stock market investments of foreign exchange
h) don’t regulate their bonuses, tax them at 80% until all the bailout funds are repaid
i) banks to centralise all debt of flagged customers and after that six months must pass before forclosure – which can be prevented by the customer making payments.
Some of these should have the effect of reducing the demand on the old monetary agreements and allow new ones to be made.
Banks must be reluctant to lend money out at 0.5% and nothing happens. If their available capital pool were increasing then they would be falling over themselves to get rid of it.
It is better for governments to not have to nationalise banks but how can it be avoided? Give the banks far more to do so they have to work for these million dollar payments – financed by the tax payer. Retrospective tax is to be avoided, but maybe put a year or two limit on it, and the majority would support it. Giving the bankers the toxic assets is another solution, I doubt it would work as their bonuses would be a mere sigh versus the hurricane we may otherwise face?