----- Forwarded Message ----- From: Geoffrey Gardiner <[email protected]> To: [email protected] Sent: Sunday, 12 August 2012, 9:37 Subject: Re: [gang8] Interesting things Dear Michael, Yes. I even thought of offering a paper for the Dijon conference in December but there are only three days left to send a draft. Below is what I have written so far. Not quite the same as your points, but they are all part of the same model. I suppose one could say that lowering interest rates makes those who already have assets richer on paper, but only if they liquidate and spend do they benefit from it. Those without assets find it harder to acquire any. And the people who have the assets now are those (like me!) who were made rich by having their loans inflated away as a result of the application of monetarist 'remedies' for inflation which had exactly the opposite result to what was expected. ************************** Has Quantitative Easing instigated the death of popular Capitalism? Quantitative Easing, the practice of central banks buying up debt, mostly government bonds, has revealed that the market rate of interest is negative in real terms, a fact concealed until now by administered discount rates set at higher levels than the market required. The reason for this is that saving, mostly contractual for pensions and life insurance, vastly exceeds the amount of saving needed to fund Real Capital Formation and all other private uses of saving. (Support this with figures from UK National Income Blue Book for 2010). With a negative real interest the logic behind pension funds and endowment assurance policies vanishes. Savings will diminish in value if they are invested in bonds, even indexed linked bonds. For the moment there are still positive yields on equity investment, but the pool of equities is too small to provide a solution of the problem. Equities are often already overpriced relative to their net tangible asset values. (Example Kraft.) Therefore funds invested in equities are increasingly likely to look like Ponzi schemes. Quantitative Easing was based on a misunderstanding of the banking system. (Explain). Can it be reversed, and if so will real interest rates become positive again. Probably not. Savings does not equal real investment but equals financial liabilities, which encompass both debt and equity provision. ***** You no doubt have seen that the yield on 2 year Danish government bonds is negative. As I am getting ready to go away to Edinburgh I cannot finish it off, but as you will doubtless be saying the same things, I do not have to worry. Geoff From: Michael Hudson <[email protected]> To: [email protected] Sent: Saturday, 11 August 2012, 17:07 Subject: Re: [gang8] Interesting things Dear Geoffrey, You use a good term, Monetary capital gains. that in fact was what I was referring to, not rising “real” asset prices. I was simply applying the financial principle of “total returns”: income + monetary capital gains. As central banks have driven down the interest rate, they have created capital gains by raising the capitalization rate of a given income (at the lower interest rate), while national treasuries and local authorities have cut property taxes. This has created Monetary capital gains without any real growth in productive capacity at all. The effect of monetary capital gains on the “real” economy is to oblige homeowners to go further into debt to buy housing, and also — as you have pointed out -- to oblige pension funds (and pensioners) to save much more in order to secure a given retirement income. Michael On 8/11/12 7:22 AM, "Geoffrey Gardiner" <[email protected]> wrote: > __._,_.___ Reply to sender | Reply to group | Reply via web post | Start a New Topic Messages in this topic (5) Recent Activity: Visit Your Group The gang8 list is devoted to Creditary Economics. To unsubscribe, email: [email protected] Switch to: Text-Only, Daily Digest • Unsubscribe • Terms of Use . __,_._,___
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