London Banker é o heterónimo de um ex-banqueiro com responsabilidades passadas em mais de uma instituição financeira. O seu blogue, recente, é particularmente oportuno para a compreensão da presente crise financeira mundial. Além do mais, escreve num inglês admirável.
Recomendo-o vivamente ao nosso presidente da república, pois sei que gosta e entende as subtilezas da economia, e por isso mesmo está naturalmente muito preocupado com a situação portuguesa, a pressão cega e estúpida do Bloco Central do Betão, e a leviandade pseudo-keynesiana incorrigível do actual governo “socialista”.
Deixo-vos, por ora, mais uma leitura de férias na forma de duas citações deste surpreendente escritor.
Thursday, 31 July 2008
Fisher’s Debt-Deflation Theory of Great Depressions and a possible revision
I have been both a central banker and a market regulator. I now find myself questioning whether my early career, largely devoted to liberalising and deregulating banking and financial markets, was misguided. In short, I wonder whether I contributed – along with a countless others in regulation, banking, academia and politics – to a great misallocation of capital, distortion of markets and the impairment of the real economy. We permitted the banks to betray capital into “hopelessly unproductive works”, promoting their efforts with monetary laxity, regulatory forbearance and government tax incentives that marginalised investment in “productive works”. We permitted markets to become so fragmented by off-exchange trading and derivatives that they no longer perform the economically critical functions of capital/resource allocation and price discovery efficiently or transparently. The results have been serial bubbles – debt-financed speculative frenzy in real estate, investments and commodities.
Since August of 2007 we have been seeing a steady constriction of credit markets, starting with subprime mortgage back securities, spreading to commercial paper and then to interbank credit and then to bond markets and then to securities generally. While the problem is usually expressed as one of confidence, a more honest conclusion is that credit extended in the past has been employed unproductively and so will not be repaid according to the original terms. In other words, capital has been betrayed into unproductive works.
The credit crunch today is not destroying capital but recognising that capital was destroyed by misallocation in the years of irrational exuberance. If that is so, then we are entering a spiral of debt deflation that will play out slowly for years to come.
Friday, 8 August 2008
Snake Oil and Deflation
If the core problem leading to the current seizure of the credit markets is the misallocation of credit into unproductive works during the boom years, then no amount of new credit will solve the problem unless the distortions promoting misallocation are redressed through fiscal and regulatory policy changes. Bailouts and recapitalisation of failed policies of the past are only digging a deeper hole, betraying more capital of younger generations into the unproductive works financed by the current generation.
Correcting the bias toward betrayal of capital will not be popular or easy. Correcting the bias toward unproductive investments will require a massive change of political structures, financial intermediation channels, savings and consumption habits, and economic incentives which challenge virtually every assumption made by at least two generations of American businessmen and consumers and exported globally.
… Consumer credit is viewed as a fundamental necessity by virtually all classes of the workforce. Weaning the populace from borrowing to saving would require a huge shift of policy and popular culture. Few of the generations raised on instant gratification of desire will gracefully or voluntarily shift to living within their means and saving for their future requirements.
In short, there are no easy answers. We have hypothecated our future prosperity to repayment of our current debts. We will live less well in future, as will our children for a time. Whether by inflation or deflation our debts must be extinguished. Savings must be encouraged and must be allocated to productive investments that will yield not just future prosperity but social equity to minimise political conflicts. — in London Banker.
OAM 415 13-08-2008 02:21