[P2P-F] Fw: [gang8] Interesting things

Fri Aug 17 11:34:41 CEST 2012

----- Forwarded Message -----
From: Geoffrey Gardiner <geoffrey.gardiner at btinternet.com>
To: gang8 at yahoogroups.com 
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 <michael.hudson at earthlink.net>
To: gang8 at yahoogroups.com 
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" 
<geoffrey.gardiner at btinternet.com> 
wrote:

>
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