Monday, September 24, 2012

Guest Post: QE For the People - What Else Could We Buy With $29 Trillion?

Forget Euro and Pound - What About Local Currencies?

German Chancellor Angela Merkel maybe be trying her utmost to keep Greece in the euro, but a high school teacher from Bavaria may have found a better solution and is pitching the idea to Greek politicians.

Economics teacher, Christian Gelleri, started a local currency in 2003 with his students in the small town of Prien am Chiemsee, around 50 miles south of Munich. The currency has performed so well that on Wednesday he was invited to travel to the Greek region of Macedonia to show local politicians how it could keep them from leaving the euro.

"We see complementary local currencies as an answer to balance differences between regions within a currency zone," he told "We have very big differences in the euro zone when you compare a region like Munich with Thessaloniki [in Greece]."

His idea doesn't stop at Greece and he believes it could prevent the euro zone break up in the long run.

The idea is called "express money" that would be issued by governments. It would have fast circulation with a 2 percent levy for hoarding notes with a 10 percent charge for conversion into euros. A supporting document co-written by Gelleri reminds readers that doubling monetary velocity, doubles gross national product.

He recommends a complementary currency on a national level in Greece and even if they did break from the euro, he believes that local currencies could be used alongside the drachma to strengthen poorer areas.

And Gelleri has plenty of experience, the currency he created - the Chiemgauer - will celebrate its 10-year jubilee next year.

"With a turnover of 6 million euros last year and a growth rate of 20 percent we see a continuous and very positive development," he said.

The amount of local currencies across Europe has now reached 104, all of which are listed on This week Bristol, a city in southwest England, launched the latest of these - the Bristol Pound.
The project is backed by the Bristol Pound Community Interest Company who initially set the exchange rate which is simply one-to-one with the pound sterling.

A secure printing firm creates the notes, seven main outlets then issues them and 350 independently owned businesses in the region will be accepting them in the coming weeks. They hope 1000 businesses will sign up to the scheme by the end of the first year.

A business consultant who lives in the area, Ross Parker, isn't so keen on the idea saying it won't change people's spending habits or the amount of money they have.
"The Bristol Pound is linked to the U.K. pound, and neither the Bristol Pound, nor other local currencies would survive without such a link," he told "There is no reason why people would trust their local council to stand behind any currency if they can't trust their central bank."

Dr Gill Seyfang, an academic from the University of East Anglia in the U.K., who lectures on sustainable consumption, has a more positive outlook for the Bristol Pound.

She sees it as being more professionally-organized, more useful and better marketed than previous attempts. There's a clear reason why these local currencies are appearing according to Seyfang.

"As people find that more of their needs are simply not met by national (and international) currencies, then naturally people look to new, innovative financial solutions," she told

"These initiatives always spring up in times of economic recession," she said, citing the "stamp scrip" that begun in the American state of Iowa during the 1930s Great Depression.

Thursday, September 20, 2012

$62.7 Trillion In Net Worth: Here Is The Latest US Household Balance Sheet

Moments ago, the Fed released its latest Z.1, aka the Flow of Funds, which is the primary source of information of that one component of modern finance which all modern economists continue resolutely to ignore because it blows all their anachronistic theories on monetary theory out of the water: shadow banking data. But more on that later. for now, here is the graphic summary of that most important of conventional data points updated every quarter: the US household balance sheet, and specifically the net worth of the US consumer, which in Q2 declined from a 4 year high of $63 trillion to $62.7 trillion, on a $900 billion drop in financial assets, offset by a $400 billion hike in real estate assets. Most importantly, and the reason why to the CTRL-P operator the only thing that matters is the stock market, of a total of $76.1 trillion in assets, only $24.2 trillion are tangible: i.e., real estate and durable goods. The remainder, $51.9 trillion or 68.2% of total, is Financial assets. It is this number that is the sole target of Bernanke's "monetary policy" and which must be inflated at any and all cost.

Thursday, September 13, 2012

Steve Keen: New Zealand Seminar: Schumpeter, Minsky & Endogenous Money

Steve Keen: This is probably the most detailed seminar I have given on my views on monetary macroeconomics. I begin with the data that, back in December 2005, led me to expect that a huge economic crisis was imminent: the ratio of private debt to GDP. Then I explain why this ratio matters, in contrast to the arguments that Neoclassical economists put that only the distribution of debt matters. This takes me through the empirical data, the theories of Schumpeter and Minsky, and the mathematics needed to prove that “aggregate demand equals income plus the change in debt” is correct, and that this does not involve double-counting.

Bernanke Advocates Blowing Asset Bubbles As The Antidote To Depression

QUESTION: My question is -- I want to go back to the  transmission mechanism, because speaking to people on the sidelines of the Jackson Hole conference, that seemed to be the concern about the remarks that you made, is that they could clearly see the effect on rates and they could see the effect on the stock market, but they couldn't see how that had helped the economy.

So I think there's a fear that over time this has been a policy that's helping Wall Street, but not doing that much for Main Street. So could you describe in some detail, how does it really different -- differ from trickle-down economics, where you just pump money into the banks and hope that they lend?

BERNANKE: Well, we are -- this is a Main Street policy, because what we're about here is trying to get jobs going. We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective. Our tools involve -- I mean, the tools we have involve affecting financial asset prices, and that's -- those are the tools of monetary policy.

There are a number of different channels -- mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more -- more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they'll, you know, make a better return on that purchase. So house prices is one vehicle.

Stock prices -- many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend.

One of the main concerns that firms have is there's not enough demand. There are not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason -- their house is worth more -- they're more willing to go out and spend, and that's going to provide the demand that firms need in order to be willing  to hire and to invest.

Tuesday, September 11, 2012

Jailed UBS Employee Gets $104 Million From IRS For Exposing Swiss Bank Account Holders

Just in case there wasn't enough excitement and fury directed at Swiss bank account holders, which continue to dominate the presidential election "debate" above such mundane topics as the economy, or, say, reality, here comes the IRS, which as we noted yesterday collected $192 billion less than the government spent in the month of August alone, and have awarded Bradely Birkenfeld, a former UBS employee who in 2008 pleaded guilty to conspiracy to defraud the United States and was sentenced in 2009 to 40 months in prison, but received preferential whistleblower status after a prior arrangement to expose numerous Americans with Swiss bank accounts, has just been awarded $104 million.

2050 Years Of Global GDP History

The chart shows 2050 years of relative global GDP, during which there was a surprisingly flat distribution of the major economic powers: China, India, and the "West", at least until the mid-1800s, when the "Western" Golden Age began primarily courtesy of the industrial revolution, followed by the arrival of the Fed and virtually endless leverage (i.e., borrowing from the future until such time as no more debt capacity remains at either the public or private sectors), only to end in the late 1900s when the marginal balance of power shifted back to Asia, which became the next nexus of debt accumulation (see our earlier post on The Great Recoupling for some additional perspectives).

And while the chart, from Deutsche Bank and PWC, attempts to predict the next 40 years of relative GDP distribution by eventually regressing back to the the long-term trendline, we feel that this is quite an optimistic assumption for a world in which virtually every "developed" country is insolvent, begs for China to ease whenever western inflation sends gas prices soaring making reelection of the incumbent impossible, and is reliant on the indefinite continuation of the USD's reserve status to preserve the last traces of western superiority (not to mention cheap funding of $-trillion deficits as far as the eye can see).

Tuesday, September 4, 2012