Bravo Niall Ferguson

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Niall Fer­gu­son has just made the first call for wide­spread debt resched­ul­ing that I have seen pub­lished in a major newspaper–today’s Aus­tralian, and I am sure it is repro­duced in many news­pa­pers around the world (if your local paper is owned by News Lim­it­ed, there’s a good chance that you will find it there).

The arti­cle is linked here–The great repres­sion–and some excerpts are shown below. Read it and refer your friends to it. Final­ly the call has gone out that what is need­ed to get out of this cri­sis is not more debt, but less.

There is some­thing des­per­ate about the way peo­ple on both sides of the Atlantic are cling­ing to their dog-eared copies of Key­nes’s Gen­er­al The­o­ry. Uneasi­ly aware that their dis­ci­pline almost entire­ly failed to antic­i­pate the cri­sis, econ­o­mists seem to be regress­ing to macro-eco­nom­ic child­hood, clutch­ing the mul­ti­pli­er like an old ted­dy bear.

The harsh real­i­ty that is being repressed is this: the West­ern world is suf­fer­ing a cri­sis of exces­sive indebt­ed­ness…”

The idea of mod­i­fy­ing mort­gages appalls legal purists as a vio­la­tion of the sanc­ti­ty of con­tract. But, as with the prin­ci­ple of emi­nent domain, there are times when the pub­lic inter­est requires us to hon­our the rule of law in the breach. Repeat­ed­ly in the course of the 19th cen­tu­ry, gov­ern­ments changed the terms of bonds that they issued through a process known as con­ver­sion. A bond with a 5 per cent coupon would sim­ply be exchanged for one with a 3 per cent coupon, to take account of falling mar­ket rates and prices. Such pro­ce­dures were sel­dom stig­ma­tised as default. Today, in the same way, we need an order­ly con­ver­sion of adjustable rate mort­gages to take account of the fun­da­men­tal­ly altered finan­cial envi­ron­ment.

No doubt those who lose by such mea­sures will not suf­fer in silence. But the ben­e­fits of macro-eco­nom­ic sta­bil­i­sa­tion will sure­ly out­weigh the costs to bank share­hold­ers, bank bond­hold­ers and the own­ers of mort­gage-backed secu­ri­ties.

Amer­i­cans, Churchill once remarked, will always do the right thing — after they have exhaust­ed all the oth­er alter­na­tives. But if we are still wait­ing for Keynes to save us when Davos comes around next year, it may well be too late. Only a Great Restruc­tur­ing can end the Great Repres­sion. It needs to hap­pen soon.”

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.