________________________________
From: Cordell, Arthur: ECOM
Sent: Wednesday, October 8, 2008 9:02 AM
To: Keith Hudson; pete
Cc: futurework
Subject: RE: [Futurework] Will Justin Yifu Lin be the person?
Keith,
How have things worked with the Euro? My understanding is that it takes
away from individual countries the power to set interest rates
appropriate to economic conditions. National currencies at least
offered the power to devalue, revalue, raise or lower interest rates,
etc. A universal currency means that nations have to move in concert no
matter conditions locally.
Arthur
________________________________
From: [EMAIL PROTECTED] on behalf of Keith Hudson
Sent: Wed 10/8/2008 2:46 AM
To: pete
Cc: futurework
Subject: Re: [Futurework] Will Justin Yifu Lin be the person?
Hi Pete,
To answer your question, variable interest rates of a universal currency
could occur just as they do now within a national currency. A country
with a central bank interest rate of, say, 4% p.a. can also have a
spectrum of other interest rates operating within it (even up to 1,000%
p.a. -- as is the case of Fidelity small loans in this country at
present) according to the credit-worthiness of the borrower and the uses
to which the loan is put.
Thus a traditional building society in this country requires evidence of
a mortgagee's income and the deeds of the house being mortgaged -- the
latter not only as collateral but as persuasive evidence of the use to
which the loan is being put. At the other extreme, a loan shark (the
local representative of a much larger firm such as Fidelity in this
country) charging, say, 30-50% interest per week, dealing with a
borrower with little or no collateral, constantly updates his much
flimsier evidence. He usually lives in the same area as the borrower
and visits the borrower every week (usually on payday or, more usually
today, benefits day) to collect repayment.
It's up to the lender to ensure that he has the evidence of
credit-worthiness and borrower's intention and has a continuing level of
supervision that the loan is being carried out according to stated
intention. However, since the rise of securitized mortgages and credit
derivatives, contact with the original borrower or lender respectively
may be any number of indirect steps away. The collateral follows through
legally with the paper documents, but the value of the collateral
becomes vaguer each time the paperwork is bought and sold -- rather like
the game of Chinese Whispers.
Thus today's banks have little idea of the current circumstances
affecting a great deal of the paperwork they possess -- but which they
have been calling assets in their books. This is why the banks are not
lending to one another -- they know that much of their own assets have
values which are, in day-to-day practice, impossible to determine with
any degree of accuracy. Each paperwork trail can only unwind when an
original mortgagee pays off his loan or when an original creditor (or an
intermediary) goes bankrupt.
Today, the present stock exchange crashes all round the world are
supposed to be mainly due to sub-prime securitized mortgages in America
but this is only the visible part of the iceberg. As some of these (only
a minority a year or two ago) began to unwind -- visibly reducing the
asset value of banks -- then a whole lot more financial paperwork
started to became suspect.
Whereas only a year or so ago most Western economies were awash with
money (and being absorbed by shares and houses and, simply, wasteful
spending) we are now massively short of it. The stock exchanges will
show us in the next few days whether governments are offering enough to
reassure shareholders of banks and businesses. But this might be like
trying to stem a river too far downstream and the real extent of the
suspect paperwork will still not be known. My guess is that, over the
next few weeks, the only way that the real situation will emerge is by
continuing stock exchange slides which will then unwind many of the
paper trails by the brutal process of making thousands of business
bankrupt.
Keith
At 15:13 07/10/2008 -0700, you wrote:
Howdy Keith, welcome back...
On Tue, 07 Oct 2008, Keith Hudson <[EMAIL PROTECTED]>
wrote:
> The only other alternative is that a world currency could be
> adopted. This would stop currency speculation for one thing,
prevent
> differential national inflations for another, and ensure that
interest
> rates in this or that region were truly appropriate to the
local
> circumstances and not guess-fixed by central banks for
political
> reasons.
>
> And here we have two pointers which could make this
politically
> feasible. Firstly, we have a World Bank already. Secondly, the
idea of
> a transnational electronically-based currency is also firmly
on the
> agenda. We already have PayPal and several other systems which
aspire
> to do this.
Hmmm. First, I'm not convinced that things are so dire as to
require
such radical measures. And second, though I agree that currency
speculation is an external force which can exert unnecessary
hardship
on a region, I would say that a universal currency accompanied
by universal interest rates and borrowing practices (the
inevitable
consequence) will exert hardships of their own, and I'm not sure
which
would be worse.
Here in Canada we get to see the effects of a universal currency
and borrowing regime spread out over a widely disparate
population
in vastly different geographic and economic circumstances, and
it
can lead to hardships which seem near impossible to overcome,
even
with the benefit of mutual goodwill, common language, etc. Some
parts of the country become "depressed areas" which are
stubbornly
difficult to bring along to the economic health of the rest of
the country, due apparently to the combination of lack of
obvious
business development prospects combined with relative geographic
inconvenience. I would suggest that on a world scale, the
economic
violence done by such a regime would be orders of magnitude
worse.
The obvious fix would be to impose a regional variation in
interest
rates, but in this country, this has never been done (to my
knowledge,
anyway, since the advent of national banks), whether because of
the
perceived impossibility of policing the system, hidebound
resistance or
lack of imagination, or insufficient daring. Your comment "This
would...ensure that interest rates in this or that region were
truly
appropriate to the local circumstances and not guess-fixed by
central
banks" seems to imply regional variable interest rates on the
universal currency, so I'm interested to hear how you believe
this can be done.
-Pete V
Keith Hudson,
6 Upper Camden Place, Bath BA1 5HX
(044 1225 311636 or 312622)
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