Says the BBC.
Why is this a headline? Didn't everybody panic buy a year's supply a week or two ago?
Notwithstanding the stuff is wholly UK made and not imported anyway...
From BBC Reality Check:
Claim: Leaving the EU would make an average holiday for four people to the EU £230 more expensive in two years.
Reality Check verdict: It would be reasonable to expect a weaker pound to make foreign holidays more expensive, but it is hard to predict a precise figure.
We do not whether and by how much GBP would fall (or rise) relative to EUR post-Brexit, if it were to fall, then yes, the GBP price of holidays in the Euro-zone would go up slightly. Big deal. The amount you spend on a holiday is a fairly arbitrary figure, you can always go self-catering instead of full board; or camping instead of a hotel; or eat McDonalds not a four-course with wine; go for a walk or to a museum instead of to a theme park etc. Over the years, GBP has been a lot lower relative to EUR than it is now, and people still went.
But exchange rates are just one factor in the price of holidays.
As we well know, resorts set prices according to demand, and it is significantly cheaper during term time than during school holidays, so we could more than alleviate this perceived problem by having more flexible term times, i.e. having school holidays at a time when most other European countries don't.
Which brings us to this article from The Daily Mail:
Tourists are facing a shortage of sunshine holiday spots this year as British families turn their backs on previously popular destinations.
Travel agents say that thousands have switched to ‘safe haven’ resorts such as Spain, Portugal and Italy – apparently in response to terror attacks elsewhere.
However, there are simply too few hotels, apartments and villas to cope with the surge in demand. Even if people can find a holiday in Spain, analysts suggest they are paying a ‘safety premium’ of up to 20 per cent compared to destinations including Tunisia and Turkey.
Surely this will also push up prices and by considerably more than fluctuations in exchange rates?
… but which are actually a result of lots of self-reinforcing least-bad decisions taken collectively:
- The nation-state with fixed borders
- Land ownership
- Taxation
- Currencies/money
- Democracy
- Banking
- Government spending
- Peace
- National identity and immigration control.
You can't really have any of these without the others.
For example,
- the nation-state with fixed borders and land ownership are more or less synonymous;
- autocratic nation states/dictatorships are inherently less stable than democracies;
- democracies are less likely to wage war on each other than dictatorships or autocratic states;
- democracy isn't much use if there isn't a defined area within which the rules will apply, to be defended;
- there can be no taxation without government (even though the reverse is just about conceivable);
- democratically elected leaders like to be seen to spend money for the benefit of the masses;
- more spending/redistribution means higher taxation;
- peace is cheaper than war, enabling higher spending for a given level of taxation;
- nation-states themselves are a bit of a confidence trick, they require a national identity/sense of collective, which in turn means some brakes on immigration.
- tax and spending is more or less synonymous with currency;
- which people then use as a unit of measurement for everyday trading;
- which banks then use as a unit of measurement for creating debts i.e. money in the narrow sense;
- but banks are a huge confidence trick, they can only work as long as there is a government to enforce debts for them.
And so on and so forth.
Asks Random here.
I have absolutely no idea, if in doubt, look at a longer term chart and ask yourself whether EUR really has bottomed out yet…
Here's a chart of GBP vs a basket of other major currencies from 2009 onwards.
Clearly, it fell rather dramatically for three years from late 2007 to late 2010, then it scraped along the bottom for two years, but inevitably it has now climbed back a bit to be six per cent lower than its long run average*; there's no reason it wouldn't go back to that long run average over the next year or two.
That all depends on whether the other countries' economic policies are more or less stupid than ours, chances are they will all be equally stupid.
* Because of of subtle difference between harmonic and mathematical averages, the long run average for GBP is actually 0.96, not 1.0.
The results to last week's Enquête Amusant were as follows:
Êtes-vous Charlie?
Je suis Charlie - 50%
Je ne suis pas Charlie - 33%
Qui est Charlie? - 17%
Très bien.
--------------------------
So, the Swiss managed to keep the exchange rate for one CHF down to EUR 0.80 for over two years (see article at the time e.g. here), but in the end it was getting too risky/potentially expensive.
Apparently the Swiss national bank ended up with a pile of other currencies equivalent to one year's GDP. Seeing as these currencies can now only be sold for one-fifth less than what they paid for them (in CHF terms), there's going to be some explaining to do.
So that's what we learn time and again, in the long run, currency pegs will be abandoned and exchange rates cannot be manipulated; unless two countries which are economically similar and geographically close together, in which case their currencies would move in line anyway.
The question of everybody's lips now is: How long will it be until the Danish crack and allow their currency to rise relative to the Euro?
(For clarity, Denmark was in the same position as Switzerland, its politicians have decided to depress the value of their currency against the Euro to make it easier for exporters and cheaper for tourists (even though the place is still pretty expensive). They can keep the exchange rate down by printing as much money as the ECB is printing and swapping one for the other.)
So that's this week's Fun Online Poll. Vote here or use the widget in the sidebar.
The Scottish independence referendum is much in the news as we come up to the vote and one of the main weaknesses of the nationalists is their insistence that they will keep the pound, which the unionists decry as unworkable. Indeed, it was on this very point that Alastair Darling landed his most telling blow on Alex Salmond in the recent televised debate.
Yet no one ever seems to mention the experience of Ireland, where the newly independent state used sterling for seven years and then pegged its currency to the pound for a further fifty. You would have thought that the nationalists would be holding this up as an example of what could be achieved, and putting the unionists on the defensive, challenging them to say exactly why it couldn't be implemented for Scotland, but they don't.
It's just another mystery, to go alongside why the Tories, who would be almost guaranteed a majority in Parliament if Scotland were independent, are so against independence.
Something which primarily misguided right-wingers but also many misguided left-wingers wail on about is "fiat currencies".
I'll exclude the Modern Monetary Theorists from this, their view is a bit counter-intuitive, but does indeed make sense. I'm not even going to pander to the gold bugs on this; the so-called gold standard is meaningless, it is a confidence trick that only works for as long as it works.
So let's put prejudices aside and imagine that the government of a country has a huge sovereign wealth fund, it owns shares in businesses; land and natural resources; and levies user-charges for the services it provides, and it uses the income derived to fund government spending. To my mind, that is an asset-backed currency and not a fiat currency.
(There are some governments which do this, primarily in the Middle East, but it is not the case for many European or Western countries.)
To narrow the debate further, let us imagine a country which does not run deficits (this merely stores up bigger problems for the future); and let's also ignore money creation by commercial banks, 80% or 90% of which is merely collecting land rents via mortgage lending (LVT would sort that out).
Does the UK government have such a massive sovereign wealth fund? On paper, certainly not.
But in economic terms... it does!
1. The government as unwelcome shareholder
2. The government collects user charges
3. The government as land owner
4. The government as protection racket/slave owner
1. The government as unwelcome shareholder
The whole point of running a business is to generate profits for shareholders. The management and employees of anything larger than a sole trade or one-man limited company generate profits each year, and after deducting cash reinvested in the business or earmarked for reinvestment in the near future, pay out most of their profits as dividends. Management and employees can be heartily indifferent as to who those shareholders/recipients are.
That money leaves the business. So UK plc and UK Ltd between them pay (say) about £80 billion a year in dividends and about £40 billion a year in corporation tax. So in economic terms, the UK government owns one-third of the shares in all UK companies. It could simply ask each company to issue it with one bonus share for each two shares actually in issue, scrap corporation tax and its receipts would be much the same.
For sure, the UK government has not invested cash directly into most UK companies (although it often does indirectly via subsidies such as EIS or VCT tax breaks), but it provides lots of useful background stuff without which businesses would not be able to operate (legal system, education, roads and so on). So the deal could be: "OK, give me some free shares and I'll continue providing the legal system, educating your workers and maintaining roads for 'free'; you won't need to pay corporation tax any more."
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2. The government collects user charges/economic rent
There is a good reason why governments own/are responsible for most large infrastructure projects - roads, railways, water and sewerage pipes, the National Grid and so on. You can Faux Lib all you like about this but it is simply true for nearly all countries, whether they are capitalist, social democratic or communist.
It is because the physical land has been sub-divided between millions of different owners, which has two consequences:
i) A private entrepreneur who wants to build a project from A to B has to pay dozens, hundreds or thousands of different landowners to acquire or use their land. Each one can hold the entrepreneur to ransom. If you need a ten mile strip to build a project with a capitalised finished value of £10 million, each landowner can hold out for a large chunk of that £10 million. If our entrepreneur manages to acquire 99 out of 100 pieces of land for their current (assume low) value, it only needs one person to twig what is going on, and even if he only owns a few yards of the total required strip, he can hold out for nearly all of that £10 million. If a few landowners adopt this strategy and get too greedy, and a few always will, then the project does not go ahead.
b) The entrepreneur only collects a small part of the economic benefit of that infrastructure. The bulk of the 'consumer surplus' simply goes into higher land values for the land which is near a junction, a station, has mains water, electricity etc.
The government is the only entity which can grant Compulsory Purchase Orders. The 19th century railway companies in the UK could only do it because of Acts of Parliament granting them the right to acquire land for its current value; and those in North America could only do it because the US or Canadian governments gave them vast tracts of land for a low price.
The government is the only entity which can tap into those increased land values, in order to pay for or subsidise the infrastructure or indeed to make an overall profit on the deal.
The best example of this in the UK is roads. The government collects about £50 billion a year in fuel duty, VAT, vehicle licence, parking tickets and fines, Congestion Charges, tolls and P11D benefit in kind charges, but it only spends £10 - £20 billion on building, maintaining and policing roads. The profit of £30 - £40 billion a year is user charges/economic rent paid by motorists.
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3. The government as landowner
The UK government is, in the narrow/legal sense, quite a large landowner. It owns four million council homes, lots of schools, hospitals, government buildings and indirectly owns a million Housing Association homes and everything which belongs to the Crown Estates. On some of these it collects the full site premium/location rent (Crown Estates) and on some it just charges for the building and charges little or nothing for the site premium/location rent, which accrues to the tenant as a freebie.
In the economic sense, the UK government owns one-third of all commercial land and buildings, i.e. those liable to Business Rates, which raise one-third as much as the total annual rental value of commercial premises.
People who pay Business Rates wail on about it being a tax, but it is not: when you buy commercial premises, you are actually only paying for two-thirds of the value up front and agreeing to rent the other third from the government. The future tax bill comes off the purchase price. So if your business needs two storeys of a building, you could buy three-for-the-price-of-two and sublet the third storey to a tenant, his rent covers the Business Rates on all three storeys, job done. The rent collected and Business Rates paid net off to nothing, and you are occupying your own two storeys 'tax free'.
The same used to apply to private housing when we had Domestic Rates. This was replaced with Poll Tax/Council Tax, but other taxes such as Stamp Duty Land Tax and Inheritance Tax (not to mention ATED and so on) have been ramped up accordingly, and the overall revenues from these are about £40 or £50 billion a year, i.e. about one-fifth or one-quarter of the total site premium/location value. It would be far better to replace the lot with a single rate tax of one-fifth to one-quarter of the site premium/location value (mathematically, this is around three-quarters of a per cent per annum of current selling prices).
That seems fair enough to me; without the government to protect ownership, to provide law and order and roads, refuse collection etc, land values would be precisely zero until such a time as enough people get together to re-impose these things by force/collective agreement, in which case, they are 'the government'.
Land ownership and 'the state' are synonymous, you cannot have one without the other. Even if you do not accept the concept of 'the government' as landowner, it certainly provides services to landowners for which is can charge, and to the extent it is collecting the rental value of land above and beyond those costs, it is acting as a letting agent for the whole of the society which generates that value.
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4. The government as protection racket/slave owner
As the reader might have guessed, I don't think that corporation tax is the worst tax, and I think road use and land ownership are perfectly fair game for taxation (Land Value Tax is actually a good tax, it leads to a better outcome if you levy it than if you don't, almost regardless of what the proceeds are spent on).
But because the government is in thrall to the land owners and bankers, it does not levy full user charges for land ownership, so to make up the shortfall, it has to turn to what can only be reasonably described as a protection racket/slave ownership.
By levying income tax and NIC on wages and salaries, it takes away 40% - 49% of your earnings (or even more that that if you are an additional rate taxpayer or have student loan deductions) for nothing particular in return. Yes of course, all taxpayers benefit to some extent from government spending, but the benefits any particular taxpayer receives bear little or no relation to how much he pays in; in fact, the ratio is probable negative - those who pay in most get least and those who pay least or nothing get most.
And then there is VAT. What the government does is to take one-sixth of the value of all goods and services which VAT-able businesses provide; or if you are economically illiterate, it charges people a fee on one-sixth for spending their already taxed money in the shops. Again, there is little or no relation between the benefits which the payer gets and the amount he pays in VAT, the only benefit is not having the rest of your goods and services confiscated for non-payment.
So, by taking away up to half of what you earn in income tax, NIC and VAT, you spend half your time working for the government; in economic terms, the government 'owns' the output of ten million private sector workers, it's nowhere near as bad as true slavery, because at least you can choose what sort of job to do, how much to work and you get to keep half of the wealth you generate, but that's only a question of fact and degree. Under current rules, a large chunk of what you are left over with goes on rent or mortgage repayments, privately collected taxes which the government allows landowners and bankers to keep for themselves, which is why simply emancipating slaves without giving them some land does not make them much better off.
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From City AM:
If Scotland left the UK but kept the pound, and was cut off in every other way, it would end up like Ecuador, El Salvador and Panama.
These economies are dollarised (Scotland would be sterlingised); they use the greenback but don’t benefit from a banking union or any other kind of assistance from Washington or the Fed.
In the event of a banking or sovereign crisis, they wouldn’t be bailed out by anybody; and they wouldn’t be able to print any money themselves as they don’t control the currency.
If you have a banking or "sovereign" crisis (whatever that is), you are doomed anyway, this is an opportunity to chuck everything in the bin and start again.
See for example Germany in 1948, they just started all over again with the DM, which was a resounding success. If you are stuck in a currency union, this gets a whole lot nastier/trickier, as the PIIGS have found out.
And as he goes on to explain, the lack of a safety net/moral hazard has led to all-round better outcomes in those named countries anyway.
The point is though, anybody can "print" any amount of any currency he likes, because "printing" ultimately means "borrowing". When you take out a loan, you are "printing money". Bank notes, cheques, IOUs are ultimately all the same thing.
The only limiting factor is your credit rating and people's willingness to lend to you, and the fact that you are not in a formal currency union with a Bank of England safety net (which is purely for the benefit of banks and not the country as a whole) is no particular barrier to using Sterling or something bloody close to it - see for example Isle of Man or The Republic of Ireland until 1978.
From the BBC:
The Bank of England governor has said an independent Scotland would need to give up some power to make a currency union with the rest of the UK work.
Mark Carney said such a move, proposed by the Scottish government, "requires some ceding of national sovereignty". He also said the risks of not having a strong agreement had been demonstrated by problems in the Eurozone.
Nope.
There are plenty of examples of countries using "somebody else's" currency, i.e. countries not actually in the official Euro-zone which use the Euro or whose currencies are pegged to the Euro.
For sure, notes and coins issued by those countries might not be accepted as legal tender in the Euro-zone itself, but so what? We always had that with Scottish bank notes in the UK, and this is a bit of a red herring as 99%* of transactions by value are entirely electronic nowadays.
Would Scotland have to pay a slightly higher interest rate on GBP-denominated borrowing that England and Wales, or a higher interest rate on EUR-denominated borrowing than Germany or The Netherlands?
Quite possibly, that depends entirely on Scotland's credit rating. We know that interest rates on government debt are different in different countries in the Euro-zone. That's no different to UK businesses all using GBP but paying different interest rates on their borrowings.
If Scotland reduced public sector waste, ran a sensible tax system, got their economy going and didn't run large deficits, then they'd end up being able to borrow more cheaply than England & Wales or the PIIGS, that's for them to sort out.
The size of the country or economy plays little role in this. The Netherlands has lower borrowing costs than Germany because they run a tight ship. See also: Switzerland.
But what we have learned is that currency unions benefit the wealthier, central and more productive regions and make things even worse for the poorer, peripheral and marginal regions, and much the same applies to using a common currency, even if there is no formal arrangement in place.
So basically an independent Scotland can use whatever currency it wants, GBP, EUR, SCP, USD, that is a relatively minor decision (see also: Vaclav Klaus' comment about sorting all this out in an afternoon when Czechosovakia was split up).
All that matters is whether Scotland is run properly. If they mess up, then whichever currency they use, it will end badly for them.
* Made-up figure, I couldn't be bothered looking it up.
GBP appears to have bottomed out. Interestingly, it goes in line with house prices - currencies and land values are both driven by the same speculative flows - rather than moving inversely to house prices:
Most of the currencies are also on the up (from a low base, USD, EUR, CAD) or near all time highs (SGD, CHF and AUD). The only one which is approaching the bottom is JPY:
So if you were thinking of taking a punt from GBP into JPY, those charts seem to say "hang on a bit, give it another month or two". The message from the simple JPY vs GBP chart for the last five years is "pile in now, it's a good a time as any":
I've updated my currency spreadsheets for the first time in a while.
In short:
GBP is still scraping along the bottom.
EUR seems to be bouncing back a bit.
JPY has nosedived impressively by twenty per cent over the past 12 months, it's back below its long-run average. All to do with Abenomics, I guess.
This is something which all sides like to trot out; mainly the Austrians and Faux Lib's, but also some of the priced out-conspiracy theorists, and the Homeys like to use the retrospective justification that owning land is the only good hedge against inflation (Home-Owner-Ism is in fact the main cause of inflation).
The theory ignores the basic fact that currencies can't all devalue relative to each other, and that there were price rises in nearly all Western countries (and in PR China) between the mid 1990s and 2008 or thereabouts. The argument that net immigration causes house price rises suffers the same flaw: even in countries with net emigration, there were house price rises over the same period.
And all the evidence points in the other direction: there is a positive correlation between the strength of sterling and UK house prices.There are subtle reasons why one causes the other, or perhaps they have a common third cause (it might be as simple as the fact that what is good for the UK economy is good for GBP and pushes up house prices and vice versa), see footnote*, but hey:
I think it would be fair to summarise those charts thusly:
- From 1990 - 1995, GBP and house prices both falling;
- From 1996 - 2008, GBP went back up sharply and then plateaued; house prices rose steadily throughout;
- In 2008 and 2009 GBP and house prices fell sharply
- From 2010 - today, GBP and house prices have been bumping along the bottom, both drifting down slightly.
That looks like a positive correlation, not a negative one which is what the Faux Lib's claim.
* The main cause of high house prices is an increase in the amount of credit created by banks; the bankers are probably the main driving force behind all this, along with a few very large landowners:
GBP is still scraping along the bottom of the chart, and hasn't really changed much in the last two years: 
The EURocrats are playing the same game as the British government but there appears to be some way to go yet (another few per cent down?):
The only major currency which looks possible a bit toppy is AUD:
Usual rules apply: the charts from 1990 to date, except AUD which starts a couple of years later and you can click to enlarge.
According to Euronews, a "Grexit would be ugly and costly" because..."The return of the drachma – which would immediately be massively devalued against the euro – means Greeks would not be able to repay foreign loans."
1. Sure, it might be ugly and costly for Greek's creditors, but a politician's first duty ought to be to his or her own electorate, so here's what I would do if I were in charge: simply start collecting taxes and paying public sector salaries, pensions etc in a new currency, let's call it "Drachma" for sake of argument.
2. There is no need to officially leave the Euro-zone (subject to whatever niceties are buried in some treaty or other) and the rest of the Greek economy can continue to denominate transactions in € if it so wishes.
3. So instead of paying out €100 billion a year in pensions etc and collecting €90 billion in tax (running a €10 billion annual deficit), they just start paying out GRD 100 billion (pensions etc being converted 1 for 1) and demand GDR 100 billion in tax. Conceptually, this works best with Land Value Tax (or a Poll Tax) but it works with income tax or VAT as well.
4. There doesn't need to be any indicative exchange rate between GDR and the Euro. At present, VAT is €23 for every €123 of gross turnover, and this raises (say) €18 billion. So they need to collect nominal GDR 20 billion in VAT, so the rate is just set at GDR 26 per €123 gross turnover.
5. That would ignore the fact that spending by pensioners etc is 40% of GDP, to keep the arithmetic simple, sales made in GDR could be exempt from tax for the time being. So the rate then has to be bumped up to GDR 26 per €78 turnover (i.e. 60% of the original €123).
6. So there will be businesses who need GDR to pay their tax bills; and there will be pensioners who have GDR which they have to exchange for stuff. There's supply and demand on both sides, and things will soon settle down.
7. Before the Grexit, a shopkeeper with €123's worth of goods on the shelf had to keep back €23 of the sales proceeds to pay the VAT; he now knows that he has to try and get total sales proceeds in the ratio of €78 to GDR 26.
8. So €78 + GDR 26 is OK - this implies an exchange rate of GDR1 = €1.73. €117 + GDR 39 is also OK - this implies an exchange rate of GDR1 = €0.15. It's up to each shopkeeper to try and work out the optimal GDR prices, i.e. an item which currently costs €10 might be priced at GDR6 or it might be GDR60, I can't imagine it will take them more than a few days to work this out by trial and error.
9. Hey presto, deficit eliminated, Euro problems solved, revolution/military coup/civil war averted.
... are not the kind of fatuous headlines you will find on this blog, unlike at Reuters and the Wall Street Journal.
Yes, over the last 24 months, EUR has gone up a bit and down a bit in terms of GBP, and at the moment it is 'down a bit':
But if you look at a twenty-year chart of each currency against a currency basket, the last few months are just little up or down ticks. It looks as if GBP is finally bottoming out again after its precipitous falls of 2007 and 2008, that's about all that's worth mentioning:
It appears that the hard pressed, hard working, squeezed middle over in Norway are busily scrimping and saving to build up private wealth to provide themselves with something to fall back on in retirement and something to leave to their children etc etc:
Norway is moving closer to a housing bubble as the central bank’s strategy of cutting interest rates to weaken the krone spurs credit growth and bloats property values.
A day after Norway’s financial regulator said the biggest domestic threat to the economy comes from an overheated property market as borrowers bet rates will stay low, Norges Bank Governor Oeystein Olsen on March 14 demonstrated he won’t allow further krone gains by cutting the bank’s main interest rate a quarter of a percentage point to 1.5 percent.
The country may already be in a housing bubble, according to Robert Shiller, the co-creator of the S&P/Case-Shiller (SPCS20) home- price index who predicted the U.S. subprime mortgage crash. Policy makers should “start worrying now,” Shiller said in an interview in Copenhagen in January. Norway’s Financial Supervisory Authority this week told banks to build up their capital buffers to prepare for increased losses as low central bank rates continue to fuel credit-market imbalances...
The irony is that much of Norway's national wealth was built up by a very Georgist approach to collecting that self-same national wealth via the tax system (or not allowing national wealth to be dissipated and privatised or sold off to banks). Their entire sovereign wealth fund is merely all the taxes collected from oil extraction in their half of the North Sea (the bit which the UK generously/foolishly allowed them to call their own) and this is a large part (not being in the EU must have helped) of what has put them in such an enviable fiscal position:
The economy of the world’s seventh-largest oil exporter has steered clear of Europe’s sovereign-debt crisis. The government has no net debt and the biggest budget surplus of any AAA-rated nation, thanks to a $600 billion sovereign-wealth fund. Unemployment fell to 2.7 percent in February, Europe’s lowest rate, the government said on March 1. Norway, like Switzerland, isn’t a member of the European Union.
Do they not get it that land rents and resource rents are much the same thing? If they'd taxed land rents rather than incomes, that sovereign wealth fund might be twice as big and their economy would be in an even better shape. Taxing land rents acts like a much higher interest rate on land purchases alone, but affects nothing else, so even if they left their central bank rate at zero per cent all that extra liquidity would go into the real economy and not a speculative bubble.
As to dampening the value of your currency, that's easy, you just keep printing it and buying up other currencies until the exchange rate position reverses, and then you convert back into your own currency again, booking a handsome profit in the process.
Ah well.
From the FT, it's basically about agglomeration, but also about the optimal size of a currency area in the absence of big intra-area transfers:
Sir, A simple lesson in geography explains why periphery states could never compete in the euro.
Take an approximately 1,000km circle round Cologne. Such a circle will reach as far north as Dundee and Oslo, as far east as Warsaw and Dubrovnik, as far south as Naples, and as far west as Dublin; 1,080km will get you to the Spanish border. That’s what a truck or van driver could achieve in a day’s intensive driving from the Rhine valley, if the regulations allowed it.
Take a similar distance from Lisbon and you get as far as Bordeaux. You wouldn’t make it to Barcelona*. From Athens and you won’t even get as far as Belgrade**.
Now think for a moment how many people live in each of these circles, the market available for a salesperson to jump in his car from his factory in Düsseldorf or Cologne, compared with that available to an entrepreneur in Lisbon, Madrid or Athens. Hermann has a market on his doorstep of more than 350m people within a 12-hour drive. Alfonso can reach out to only 57m, if he’s lucky, unless he flies. Spiro, on the other hand...
Patrick J d’A Willis, Director, Loans Trading, Exotix, London.
* Lisbon-Barcelona is 1,006 kilometres, allegedly.
** Athens-Belgrade is only 806 kilometres, allegedly..
Your answers to last week's Fun Online Poll were as follows:
Taking assets and liabilities into account, how much 'money' is there in the world?
None - 81%
Billions and trillions - 11%
Other, please specify - 8%
Thanks to everybody who took part, I'm delighted to see that the penny has dropped [sic] with 81% of you. While there are indeed billions and trillions in financial assets (be that notes and coins, bank deposits, corporate or government bonds) by definition, there is always an equal and opposite amount of financial liabilities (either the government, companies or the banks owe other people the same amount). Remember: if you have a stash of bank notes under the mattress, you are making an interest-free loan to the government!
Responding to ChefDave in the comments under the poll: Yes, in the very short term, there can be a mismatch between the amounts recorded as assets and as liabilities for book keeping purposes.
Let's say somebody takes out a mortgage of £100,000 to buy a house for £100,000. The house is a real asset and the mortgage is a financial liability of £100,000 to the borrower and is recorded as a financial asset in the bank's books, so on Day One, the net financial asset/liability is £nil. Now, maybe the borrower loses his job and the house falls in value to £80,000, but the bank still records the asset at £100,000. Oops, mismtach!
But that's only in the short term. Sooner or later the bank will repo' the house and sell it for £80,000 and will have to write off the rest (which is a release from a liability from the ex-borrower's point of view i.e. a windfall gain). The bank's owners (shareholders) then have to share that loss of £20,000 between themselves, so the value of their shares falls by £20,000 and the balance is reinstated.
And so on. Saying that "the economy is drowning in debt" betrays the same misunderstanding. All this really means is that some creditors will not be repaid in full; or that actually enforcing all the debts would cause more harm than writing off some of them.
Physical gold of course is not money, it is in itself a valuable asset which can be used as a medium of exchange or a way of measuring liabilities - i.e. if I borrow ten gold coins from you, then this a financial liability and your receivable is a financial asset. This still nets off to nil gold coins and does not change the number of gold coins in existence. And the fact that a country's currency is expressed in terms of gold ('Gold standard') does not stop it being a fiat currency. The government can change the exchange rate whenever it wants, this is just a question of making a foul compromise between political and economic forces.
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Ross has posted an Arbitrary list of the best to worst Republican candidates for President. Staying in the spirit of things, that's this weeks Fun Online Poll: "Whom would you like to see as the Republican candidate for President?"
Vote here or use the widget in the side bar.
