Bolitics The New Condem Government

[blandy]

I won't go into the whole thing, but he's getting his kids to do work for the gov't (him), not as private sector. But he's making the analogy that they are private sector. If they were private sector they could get "business cards" from neighbours, and instead of doing jobs for him, would be doing jobs for others - The whole tax stuff would be different

The kids doing jobs for neighbours for their business cards would be analagous to working in a different (foreign) economy not a different sector of the same economy.

The business cards earned from the neighbours would not be accepted by the father in payment for their 'tax obligation' as they were not the currency which he issued (he is the monopoly issuer of the currency needed to satisfy that obligation namely his own business cards).

I thought someone might pick up the "foreign" thing.

In the UK, the "business cards" paid by foreign owned companies based in the UK are accepted, whether in UK cards, or in Euro cards or dollar cards (exchange rates). People or companies can and do perform services or manufacturing which they sell to outside companies.

His analogy is OK if the UK economy is somewhere like N. Korea, or the USSR, where it is a totally closed system -where, as youy say he (the Gov't) controls all wages, all income, all companies (his kids). Where there's no trade outside the Country. It doesn't work for an economy like the UK, or even Australia where the example was intended to represent to make his point.

I do follow the logic, I just feel by simplifying he's misrepresenting (probably intentionally). His "lesson" is not valid.

I'm not an economist, I'm an engineer, but it's crystal clear the model is flawed and thus the conclusions can't be accepted as valid based on the model. Maybe His points are right (as I say, I'm not an economist, maybe a more complex, or different model would show them to be so) but he in no way demonstrates they are right with his example.

[snowychap]

In the UK, the "business cards" paid by foreign owned companies based in the UK are accepted, whether in UK cards, or in Euro cards or dollar cards (exchange rates). People or companies can and do perform services or manufacturing which they sell to outside companies.

And there are mechanisms for converting those other currencies to the currency within that economy. All of that is rather a red herring, though.

His analogy is OK if the UK economy is somewhere like N. Korea, or the USSR, where it is a totally closed system -where, as youy say he (the Gov't) controls all wages, all income, all companies (his kids). Where there's no trade outside the Country. It doesn't work for an economy like the UK, or even Australia where the example was intended to represent to make his point.

I do follow the logic, I just feel by simplifying he's misrepresenting (probably intentionally). His "lesson" is not valid.

The intention of his example is to show the relationship between the government and non-government sectors as he says:

It just happens we can simplify the relationship between the government box and the non-government box depicted in the diagram down to some basics.

...here is a basic modern monetary economy stripped down to the essentials...

He is not intending to represent, in his basic model, the full intricacies of a modern open economy; he has stripped down the component parts so that he can explain the workings of o particular part of it and the relationship in its most basic form between the government and non-government sectors.

I'm not an economist, I'm an engineer, but it's crystal clear the model is flawed ...

You certainly haven't explained why it is 'crystal clear'? You have just complained that it isn't complex enough.

Pick a basic concept of engineering and explain it to me/us.

[peterms]

I'm not an economist, I'm an engineer, but it's crystal clear the model is flawed and thus the conclusions can't be accepted as valid based on the model. Maybe His points are right (as I say, I'm not an economist, maybe a more complex, or different model would show them to be so) but he in no way demonstrates they are right with his example.

The link also includes further links to more complex models, if you prefer a more realistic model, and if you have the time...

[peterms]

Pick a basic concept of engineering and explain it to me/us.

He once did this for my son, who demanded to know the function of a washer, and who clearly knew the question would be better directed at him than me. I thought it was a very good explanation, which I believe I followed at the time.

[blandy]

You certainly haven't explained why it is 'crystal clear'? You have just complained that it isn't complex enough. Pick a basic concept of engineering and explain it to me/us.

Engineering would be even more OT than this economics thing, so I'll try and answer why the model looks flawed

He says in the first step that he (the Gov't) issues business cards. He says he pays cards to a child in exchange for work. His child is therefore public sector - employed by the gov't/him. He claims the kid is private sector, but this is untrue.

He concludes that until he (the gov't) spends business cards on wages for the child kid, who he claims is non-gov't sector, but who is by definition gov't sector there is no capacity to pay taxes.

He is, in the simplified example saying that the gov't cannot raise tax unless it prints money and pays it to the public sector - the child working for the gov't.

That only applies if everyone works for the the gov't. As I said, like North Korea. He's set up an artificial condition (North Korea economy and then a more complex version of it) and used it to "prove" all kinds of principles which are to my reading not proven because of the deliberate closed "model" used.

He seems to be "leading the witness" making a set of assertions based on a specifically tailored set of examples. The assertions are that

Public deficits allow the private sector to net save...Without deficits, the private sector (the kids) cannot save and accumulate wealth in the currency of issue....The accumulated public deficits equal the accumulated private savings....Budget surpluses squeeze the private sector for liquidity and the private sector is forced to run down wealth through negative saving in order to meet their tax obligations.....Budget surpluses destroy private wealth

My suspiscion is further drawn by the intro on the link peter posted I have been thinking about the macroeconomics textbook that ... I [am] writing at present.....the diagram is arranged in a vertical manner with the government sector at the top. Most macroeconomics textbooks wait ....to introduce the government sector. That lapse is telling In other words every one else thinks that my model is wrong/ I think everyone else is making a lapse in having a different model. He notes that a failure to understand the vertical relationship between the government and non-government sectors leads to spurious conclusions about stocks and flows. And says that every one else's books on the flows have the stuff in a different order.

I'm absolutely certain the bloke knows more about economics than I ever will, but I can't help but feel there's something iffy about they way he makes his case, about the little examples used to make clear certain principles.

He seems to be, in the whole article, putting together an argument to refute what some Aussie politicain he believes to be a clown has said.

He's proposing, pretty much, that defecits should be increased and are a good thing and that money / debt issued by the gov't is somehow unaffected by outside factors.

He seems to be ignoring, deliberately, a whole bunch of factors and influences. Were they to be considered, I'm not sure the prinicples would either look the same, or be "proven". The assertions and some of the principles just look decidedly unsupportable.

[snowychap]

Engineering would be even more OT than this economics thing, so I'll try and answer why the model looks flawed

The purpose of my 'challenge' (it came across a little too strongly, I feel) was not to take this further off topic but to suggest that the explanation of a simple concept in any discipline is muddied at a basic level by introducing things which don't alter the essence of that relationship (whilst they may well alter the some of the effects within that relationship).

He says in the first step that he (the Gov't) issues business cards. He says he pays cards to a child in exchange for work. His child is therefore public sector - employed by the gov't/him. He claims the kid is private sector, but this is untrue.

Again, I think that is for the sake of simplicity but, at the risk of buggering about with someone else's model, let's introduce the aspect of child a doing work for child b and receiving payment. The money still has to be created for there to be a currency aspect to this transaction (if it is just some kind of bartering between the two children over something which isn't currency then it won't get accounted for in terms of national income - which none of our existing shadow economy does).

He seems to be, in the whole article, putting together an argument to refute what some Aussie politicain he believes to be a clown has said.

I think he is applying a theory of economics (it isn't just 'his' theory but it is just a theory in the same way that current orthodox theories are) to a situation to explain why he thinks that or, if you will, using something mentioned by a public figure as the starting point for explaining those relationships.

He's proposing, pretty much, that defecits should be increased and are a good thing...

His argument mainly revolves around government spending not being revenue-constrained in his opinion. Whether deficits are good or bad will depend upon circumstances.

[peterms]

You certainly haven't explained why it is 'crystal clear'? You have just complained that it isn't complex enough. Pick a basic concept of engineering and explain it to me/us.

Engineering would be even more OT than this economics thing, so I'll try and answer why the model looks flawed

He says in the first step that he (the Gov't) issues business cards. He says he pays cards to a child in exchange for work. His child is therefore public sector - employed by the gov't/him. He claims the kid is private sector, but this is untrue.

He concludes that until he (the gov't) spends business cards on wages for the child kid, who he claims is non-gov't sector, but who is by definition gov't sector there is no capacity to pay taxes.

He is, in the simplified example saying that the gov't cannot raise tax unless it prints money and pays it to the public sector - the child working for the gov't.

That only applies if everyone works for the the gov't. As I said, like North Korea. He's set up an artificial condition (North Korea economy and then a more complex version of it) and used it to "prove" all kinds of principles which are to my reading not proven because of the deliberate closed "model" used.

In his (most simple) example, the child is paid by the public sector. That doesn't make them a public employee, any more than any firm working for the government is part of the public sector. The model doesn't address what happens if the kids work for other people as well (subsequent models do) but neither does it preclude it, it just leaves it out to simplify as much as possible.

He seems to be "leading the witness" making a set of assertions based on a specifically tailored set of examples. The assertions are that

Public deficits allow the private sector to net save...Without deficits, the private sector (the kids) cannot save and accumulate wealth in the currency of issue....The accumulated public deficits equal the accumulated private savings....Budget surpluses squeeze the private sector for liquidity and the private sector is forced to run down wealth through negative saving in order to meet their tax obligations.....Budget surpluses destroy private wealth

This is what he's referring to as national accounting identities, where by convention (accepted by other schools of economic thought as well) these things have to sum to zero. The key point he's making is that except in very unusual circumstances of there being enough of a surplus on foreign exchange to make it possible, ie Norway, a private surplus will require a public deficit and vice versa - and that the people who rail against a public deficit as though it's bad housekeeping or worse appear not to recognise the impact of running public surpluses or deficits.

My suspiscion is further drawn by the intro on the link peter posted I have been thinking about the macroeconomics textbook that ... I [am] writing at present.....the diagram is arranged in a vertical manner with the government sector at the top. Most macroeconomics textbooks wait ....to introduce the government sector. That lapse is telling In other words every one else thinks that my model is wrong/ I think everyone else is making a lapse in having a different model. He notes that a failure to understand the vertical relationship between the government and non-government sectors leads to spurious conclusions about stocks and flows. And says that every one else's books on the flows have the stuff in a different order.

I'm absolutely certain the bloke knows more about economics than I ever will, but I can't help but feel there's something iffy about they way he makes his case, about the little examples used to make clear certain principles.

Yes, he does come across as seeing himself as a bit of the swimmer against the tide. He's proposing a school of thought which is a minority view, and he's conscious of that. There's increasing interest in this school of thought, but it's not the current orthodoxy by any means.

He seems to be, in the whole article, putting together an argument to refute what some Aussie politicain he believes to be a clown has said.

His style is to take some recent event and use it as a the basis for an article, probably because it's in the form of a blog. Other posts this week include something based on comments from the head of the World Bank, and something sparked by the US elections. It's not that the content of the post is restricted to what he leads off on. The point is that the things said by these people reflect a common view which he is critiquing, and this tends not to be limited to one country. For example, reading the stuff about the narrative being put together in Australia about the rise in unemployment being down to workshy scroungers (who presumably weren't workshy when they had work), the parallels with what's happening here are obvious.

He's proposing, pretty much, that defecits should be increased and are a good thing and that money / debt issued by the gov't is somehow unaffected by outside factors.

He seems to be ignoring, deliberately, a whole bunch of factors and influences. Were they to be considered, I'm not sure the prinicples would either look the same, or be "proven". The assertions and some of the principles just look decidedly unsupportable.

He's proposing that deficits should be increased now, if we want to reduce unemployment; and that unemployment used to be a policy objective (ie keep it as low as possible) but has become a policy tool (ie the unemployed are expendable if it keeps inflation at an acceptable level).

Other models include some other factors, which were excluded in this simplest one. For example, this one considers the issue of how trade with China affects the model. He explains why the introduction of these more complicating factors doesn't render false what he has argued in the most simple model.

It's a school of thought, no more or less "true" than any other economic theory. I find it interesting, and also refreshing to hear from someone who believes as a matter of values that we should be looking to reduce unemployment, and explaining how we can do that.

[leviramsey]

It's a school of thought, no more or less "true" than any other economic theory. I find it interesting, and also refreshing to hear from someone who believes as a matter of values that we should be looking to reduce unemployment, and explaining how we can do that.

There's a fair amount of empirical evidence that he's wrong, though.

He asserts that the USA was running too low of a deficit over the past several years (not quantifying several) and that that resulted in a surge in private debt. If one looks at US deficit figures and changes in aggregate private debt, one sees that over the past thirty or so years they've moved largely in lockstep (due to [former Randian] Greenspan more than anything else): spiking in the eighties and this past decade and troughing in the late 90s. Moreover Japan has been running massive deficits for the past twenty years and has seen unemployment rise from 2% c. 1990 to about 5.5% at the turn of the millennium, falling to 4% before the recent unpleasantness and it's back up to 5-5.5%.

This, by the way, is the main reason that I generally regard macroeconomics, regardless of school, as a fool's errand. Economies are complex and perhaps the greatest manifestation of chaos out there (or at least this side of the weather): trying to simplify them into formulae works well in the periods that they've been regression-tested from generally doesn't work, and the tendency of people (especially governments of all manner of political stripes...) to take what they like about a given macroeconomic theory and ignore the parts they don't.

[snowychap]

Moreover Japan has been running massive deficits for the past twenty years and has seen unemployment rise from 2% c. 1990 to about 5.5% at the turn of the millennium, falling to 4% before the recent unpleasantness and it's back up to 5-5.5%.

Do we know what the unemployment rate would have been without the massive deficits?

Isn't there a fair bit f questioning over how well targeted any spending was in Japan?

p.s. I am disappointed we haven't got a pretty chart with the deficits and aggregate private debt plotted.

[leviramsey]

Moreover Japan has been running massive deficits for the past twenty years and has seen unemployment rise from 2% c. 1990 to about 5.5% at the turn of the millennium, falling to 4% before the recent unpleasantness and it's back up to 5-5.5%.

Do we know what the unemployment rate would have been without the massive deficits?

Isn't there a fair bit f questioning over how well targeted any spending was in Japan?

Proves my larger point regarding macroeconomics... those who have macroeconomic justifications for cutting taxes can always fall back on "they weren't cut properly" or "things would be worse had that not been done" etc.

In a lot of ways it's similar to "technical analysis" of security prices, of which, IIRC, Peter Lynch (manager for Fidelity's Magellan fund for many years) said, "I realized it was useless when I inverted the chart and got the same answer."

[snowychap]

Moreover Japan has been running massive deficits for the past twenty years and has seen unemployment rise from 2% c. 1990 to about 5.5% at the turn of the millennium, falling to 4% before the recent unpleasantness and it's back up to 5-5.5%.

Do we know what the unemployment rate would have been without the massive deficits?

Isn't there a fair bit f questioning over how well targeted any spending was in Japan?

Proves my larger point regarding macroeconomics... those who have macroeconomic justifications for cutting taxes can always fall back on "they weren't cut properly" or "things would be worse had that not been done" etc.

I don't think it 'proves' anything, does it? Though I can see why it reinforces your bias. :winkold:

[peterms]

There's a fair amount of empirical evidence that he's wrong, though.

He asserts that the USA was running too low of a deficit over the past several years (not quantifying several) and that that resulted in a surge in private debt. If one looks at US deficit figures and changes in aggregate private debt, one sees that over the past thirty or so years they've moved largely in lockstep (due to [former Randian] Greenspan more than anything else): spiking in the eighties and this past decade and troughing in the late 90s.

I'm not clear why you think the evidence contradicts what he's saying. He quotes here exactly that strong correlation of domestic private surplus and public deficit to illustrate his point that they are (together with net imports/exports) linked. The figures are expressed as % of GDP, not cash.

As for how much greater the deficits should be, his position is that they need to be judged according to the spare capacity in the economy. His driving aim is to reduce the excess spare capacity represented by unemployment, and he recognises that if you push that too far and outstrip capacity, you will create demand inflation.

Clearly, if the government expands aggregate demand beyond the capacity of the economy to absorb that then there will be inflation. Deficits always involve inflation risk and that risk has to be judged according to the prevailing spare capacity (correctly measured) in the economy.

His point is not that running too low a deficit creates private debt. It's more that running a higher deficit can allow a greater level of economic activity. If households are reducing their indebtedness by saving/repaying debt at the expense of some consumption, as they will often aim to do in recession, then you can either allow spending to remain at that lower level and take the pain that comes with it, or else increase government deficits to create extra spending power.

The blog I linked to above includes some comments from Greenspan which are interesting in this respect:

Let me begin with a nation’s sovereign credit rating. When there is confidence in the integrity of government, monetary authorities—the central bank and the finance ministry—can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit. This power has profound implications for both good and ill for our economies.

Central banks can issue currency, a noninterest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.

[leviramsey]

As for how much greater the deficits should be, his position is that they need to be judged according to the spare capacity in the economy. His driving aim is to reduce the excess spare capacity represented by unemployment, and he recognises that if you push that too far and outstrip capacity, you will create demand inflation.

Clearly, if the government expands aggregate demand beyond the capacity of the economy to absorb that then there will be inflation. Deficits always involve inflation risk and that risk has to be judged according to the prevailing spare capacity (correctly measured) in the economy.

However, determination of what exactly the optimal deficit level (and the optimal deficit level in a fiat currency system is somewhere above zero: any time a government is running at surplus (mind that many times when governments claim to be running at surplus they're engaging in rather dubious accounting) it's a government that has taxed too much) is not exactly a simple matter, and unless you have a government that is prepared to immediately cut off the spigot of spending (e.g. instead of having an annual budget having at minimum a quarterly budget) then it is apt to overshoot the mark (which is why probably the best Fed policy at the moment is to explicitly link QE2 to inflation measures: "if inflation goes above x% QE2 will immediately cease").

It's a lot like trying to catch the optimal marginal tax rates on the Laffer Curve...

The blog I linked to above includes some comments from Greenspan which are interesting in this respect:

Let me begin with a nation’s sovereign credit rating. When there is confidence in the integrity of government, monetary authorities—the central bank and the finance ministry—can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit. This power has profound implications for both good and ill for our economies.

Central banks can issue currency, a noninterest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.

A government with the ability to issue a fiat currency can never default (at least on non-inflation-adjusted claims... it's an interesting question whether TIPS could default in the worst-case scenario), as long as the government retains sovereignty (e.g. holders of Confederate debt were wiped out after the US Civil War... arguably the CSA paid the greatest war reparations in history in terms of direct and indirect economic impact). The greater question is what happens if a government gets into a situation where it essentially resorts to printing money to get out of a debt jam, and perhaps more pertinently, what happens when there is fear in an economy that such a step might be taken.

The number of figures in one's bank account is completely meaningless, even in economic and financial terms. Money has no real importance: it's what you can do with that money that's important. If you receive timely payment of all interest owed and full repayment of principal at maturity, but the currency you receive has had its buying power cut in half, have you really been repaid (and over 30 years, it only takes a 2.5%-ish annual rate of inflation to erode buying power in half)? If you expect 2.5% inflation, you'd be batshit crazy to take less than that in interest, and if you're not going to stand for less than 3% from an entity that has zero default risk then you're going to demand more from entities that have nonzero default risks.

[snowychap]

you'd be batshit crazy

That's okay. It's the world of finance, there's gotta be plenty of 'em around.

[leviramsey]

you'd be batshit crazy

That's okay. It's the world of finance, there's gotta be plenty of 'em around.

Truer words never spoken.

[snowychap]

I thought I'd keep this in here rather than muddy the waters (even more than I might have done already) in the student protest thread:

Revealed: Lib Dems planned before election to abandon tuition fees pledge

The Liberal Democrats were drawing up plans to abandon Nick Clegg's flagship policy to scrap university tuition fees two months before the general election, secret party documents reveal.

As the Lib Dem leader faces a growing revolt after this week's violent protest against fee rises, internal documents show the party was drawing up proposals for coalition negotiations which contrasted sharply with Clegg's public pronouncements.

A month before Clegg pledged in April to scrap the "dead weight of debt", a secret team of key Lib Dems made clear that, in the event of a hung parliament, the party would not waste political capital defending its manifesto pledge to abolish university tuition fees within six years. In a document marked "confidential" and dated 16 March, the head of the secret pre-election coalition negotiating team, Danny Alexander, wrote: "On tuition fees we should seek agreement on part-time students and leave the rest. We will have clear yellow water with the other [parties] on raising the tuition fee cap, so let us not cause ourselves more headaches."

The document is likely to fuel criticism among Lib Dem backbenchers and in the National Union of Students that the party courted the university vote in the full knowledge that its pledge would have to be abandoned as the party sought to achieve a foot in government. Within a month of the secret document, Clegg recorded a YouTube video for the annual NUS conference on 13 April in which he pledged to abolish fees within six years.

"You've got people leaving university with this dead weight of debt, around £24,000, round their neck," the future deputy PM said in the video.

Clegg also joined all other Lib Dem MPs in signing an NUS pledge to "vote against any increase in fees". The leaked document showed that during the preparations for a hung parliament the Lib Dems still intended to fulfil that commitment.

The Lib Dems, who are now under intense pressure after agreeing in government that tuition fees should be allowed to rise, said the document was designed to work out how to reach agreement with the Tories and Labour, who were "diametrically" opposed to them.

As the party was isolated, the negotiators concentrated on trying to win ground where they could find consensus. Sources say that, in government, they have succeeded in tackling the discrimination against part-time students identified in the secret document.

The Lib Dem document is disclosed in a new book on the coalition negotiations by Rob Wilson, Conservative MP for Reading East. Wilson, who interviewed 60 key figures from the main parties for Five Days to Power, reveals that:

• The Lib Dems made no attempt to stand by their two key economic election pledges – no deficit reduction this year and opposition to a VAT increase – in the coalition negotiations. A Clegg aide told Wilson: "The thing that changed minds was George Osborne saying that he had seen the figures and it was quite horrific in real life as opposed to spin life."

• Alexander, appointed by Clegg last year to lead a secret four-strong coalition negotiating team, had thought the Lib Dems would only support a minority Tory government and not a coalition because of a "substantial gulf" between the two parties. In his confidential document on 16 March, Alexander wrote that it "would make it all but impossible for a coalition to be sustainable if it were formed, and extremely difficult to form without splitting the party."

• Chris Huhne, a member of the secret team, wrote a dissenting report to Clegg saying the Lib Dems would have to form a full-blown coalition with the Tories, and not prop up a minority government. He warned there was no precedent for a minority government delivering a fiscal consolidation, raising the prospect both parties would face a backlash. "Financial crises are catastrophic for the political parties that are blamed, and we should avoid this at all costs."

• George Osborne, who had long feared the Tories would struggle to win an overall parliamentary majority, persuaded David Cameron to allow him to form the Tories' own secret coalition negotiating team two weeks before the election. The Tory leader demanded total secrecy and asked only to be given the barest details for fear that he would blurt it out "unplanned in an interview".

• David Laws, a member of the secret Lib Dem negotiating team who briefly served in the cabinet, predicted on 24 February 2010 that the Tories would make a "very early offer of co-operation or coalition" in the event of a hung parliament. Laws told Wilson that he has a high regard for Osborne who tried to persuade him to join the Tories in 2006.

• Gordon Brown was so keen to form a coalition with the Lib Dems that on Monday 10 May, the day before his resignation, he offered to form "a completely new sort of government" in which Clegg would run EU policy. The Lib Dems understood they would take half of the seats in cabinet.

A Lib Dem spokesman said tonight: "These are selective extracts of documents which discussed a range of options ahead of any possible negotiations. As the Liberal Democrats made clear throughout the election and in negotiations, they had four key priorities which were set out on the front page of the manifesto. All of these priorities were agreed in the coalition document. The nature of the coalition agreement has meant we were able to set the foundations for a stable five-year government that will deliver many of the priorities the Liberal Democrats have long supported."

Clegg tried to downgrade the pledge to abolish tuition fees at the 2009 party conference, prompting a backlash from the left. A plan to abolish them over six years was included in the general election manifesto.

What utter weasels.

[Awol]

^ Haha, that's what you call busted.

[drat01]

Clegg has to think about now his job as leader of the LibDem part of this Gvmt.

It's got to a stage now where the Tory inclined - most of the LibDems in the cabinet etc, really need to grow some balls and join the Tory party properly. The remainder of the LibDem's have to start a new party or, as many are doing, join the Labour party. Clegg and his power hungry cronies have killed the LibDems stone dead.

[peterms]

If you expect 2.5% inflation, you'd be batshit crazy to take less than that in interest, and if you're not going to stand for less than 3% from an entity that has zero default risk then you're going to demand more from entities that have nonzero default risks.

Though whatever interest level you require, if you lend to people who stand little chance of repaying with the slightest change in circumstances, I suppose the level of interest becomes a bit academic. So much current discussion seems to be about government debt, government deficits, but surely the real cause of the financial crisis was the unsustainable level of private debt?

There's a good expression in Scotland, the "daft laddie question", meaning a question asked by someone ether naive or pretending to be, that gets to the heart of an issue. The Queen asked one such (maybe it should be a "daft lady question") when she asked Gordon Brown why no-one had foreseen the crisis. I believe he was unable to answer.

Some did predict it, but they tend to be minority voices, not from the neo-classical mainstream, not the ones who have the ear of governments. They seem to me to be the ones most worth spending time on.

[peterms]

Clegg has to think about now his job as leader of the LibDem part of this Gvmt.

It's got to a stage now where the Tory inclined - most of the LibDems in the cabinet etc, really need to grow some balls and join the Tory party properly. The remainder of the LibDem's have to start a new party or, as many are doing, join the Labour party. Clegg and his power hungry cronies have killed the LibDems stone dead.

Bit premature, Ian. I expect they will go through several convulsions and much pain before they reach that stage, if they ever do. Could take quite a while.