I agree that cash, while safer than assets, is still not safe in the current environment. One of the many things that Keynes said that was unfortunately ignored was “And above all else, let finance be national.”

The fact that it is not, and that production is as globalised as it has become, means that this crisis will be marked by extreme currency volatility–even more than applied during the Great Depression. In this sense, even the ultimate safe haven of the past has become a speculative play.

I have a similar feeling about gold, etc. While this has always worked as a hedge in the past during a credit crisis, the speculative holdings of it today might mean that the outcome this time round isn’t as rosy as in the past.

In a nutshell, I can see lots of ways to lose money as this crisis unfolds, and precious few to make it. So I’ll leave speculating about that to the professional pundits.

Those differences are because of the ratio comparisons. One is measuring change in debt relative to its own level; the other is measuring it relative to GDP.

If you–or anybody else here–need to contact me directly (rather than via the blog), use debunking@gmail.com.

So you agree that cash is a dangerous investment, that might not survive a credit collapse?

not sure how to contact you directly, but was looking at the May debtwatch, and noticed that the debt growth chart, (which I take to reflect the change in debt on a monthly basis (row 3) from the D2 table), and the chart does not seem to match the data for the mortgage (table states mortgage growth as 0.84%, whereas the chart shows ~1.5%)

Am I missing something??

Cheers

I can understand that interpretation, but I believe I do understand both the Austrian theory and fractional banking–and regard them as both deficient theories of credit creation.

It would take a lengthy and very technical post to explain why, but in a nutshell I’d call both models a “one tap” theory of how one fills a bath, when in fact there are at least two taps.

There is an additional manner in which credit is created, which exists in either a non-fractional/No-Gold Standard world or a Gold Standard/No-fractional banking world. Attempts to control credit creation in either financial worlds are like trying to stop a bath overflowing by controlling one tap, when the bath is in fact filled by two taps.

The whole idea of a Gold standard can only be understood in the context that it would exist in it’s most useful form without fractional reserve banking.

It’s true that credit growth today is almost entirely in the private domain. However it is still a manifestation of fractional reserve fiat money.

dyork I think most of the data is available from the ABS.

Got a question to ask you.

It may be unwise to give too much power to econocrats over monetary policy. But wouldn’t it be worse to turn that responsibility over to politicians?

Econocrats may not know enough about economics, but politicians would know even less. If we give politicians that much power, we can be sure that the conflict of interest between politics and economics will give way to political interests. That would be a disaster for the country.

We shudder to think what will happen if Australia has the bad luck to elect a Mugabe into power in the future. (According to Murphy’s Law, anything that can go wrong will go wrong eventually).

Personally, we favour the ‘democratisation’ of money- let the market determine interest rates under a gold standard. That implies that the central bank be abolished. At least, if things go wrong, there’ll be no one or institution to blame.

A similar observation was made by a US economist about the Fed, until the latest shift: they might claim not to be slavishly following a Taylor Rule, but if you use a Taylor Rule equation, you can predict every move the Fed did in fact make prior to the recent panic.

I’ll check that article out in more detail and get back to you.