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.”

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.
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  • pru­dentsaver

    I think gold is expen­sive in com­par­i­son to other com­modi­ties. I think bet­ter value is found else­where. I think gold will reach some­where around 12500 dol­lars if US inter­est rates were to go as high as in 1980. (21.5 %).

    i have looked at fixed things such as rail­road. CP, canada pacific is at the same price now, as at the mar­ket top in 1929. Change have hap­pened to the com­pany since then, but it’s cheap. Other things are cheap. I have looked at shares such as Kodak, they to is not far from their 1929 price level.

  • Frank

    Hehe. Another thought to add to the topic soup. I’ve changed my mind about Hydro­gen. How about Ultra­ca­pac­i­tors? Make these work well and *boom* every­thing changes.

  • doju­fitz


    If you do decide to buy Gold and Sil­ver — Sil­ver is very good value — but more vio­latile — do not put it in the bank — either find a good hid­ing spot (only you know) or pay for a vault stor­age — no banks.

  • Defla­tion­ist

    This video is an absolute MUST SEE. Michael Hud­son has got to be one of the most enlight­ened econ­o­mists of our day…right up there with Steve Keen 🙂

  • Agreed. Michael and I spoke at the same ses­sion of the 2006 Post Key­ne­sian con­fer­ence, and we now cor­re­spond reg­u­larly. He’s an expert on antiq­uity eco­nom­ics as well as mod­ern, hav­ing orig­i­nally been an arche­ol­o­gist. And he worked on Wall Street as well, so his knowl­edge of the sys­tem is both aca­d­e­mic and prac­ti­cal.

    It’s an excel­lent inter­view that every­body who vis­its this site would enjoy.

  • Aac

    GSM – your analy­sis on Storm Finan­cial is spot on

    I agree with Prof. Hud­son on most points but not sure about the debt for­give­ness part. The best means of debt for­give­ness is bank­ruptcy and if any­thing we could mod­ify the bank­ruptcy laws in Aus­tralia where the per­son in debt can walk away from their home and start with a clean slate. But they can’t keep their home as this would have unin­tended con­se­quences as is being found out in the US; ie. the sys­tem breaks down as peo­ple real­ize that it’s good to be in mas­sive debt as you will be for­given.

  • tom­myt

    Otway-Jack, I agree with you mate! I have lost my job!I and oth­ers are sup­posed to bail out those that caused this? what the? Why? I did ask a ques­tion here some time ago about nation­al­is­ing our banks and gov­ern­ing for all of us,not just minor­ity sec­tional inter­ests (banks and finance houses,only then can we maybe start to sort out all debt, reor­gan­ise the econ­omy based on ‘our way’look after those least able to look after them­selves, unem­ployed, pen­sion­ers (with priority)and re set the ‘finan­cial rules’ for the future,i.e. savings;work (there is a lot to be done in ‘oz’,we are still a young country)Australian pro­duc­tion by Aus­tralians for Australians,we can do any­thing we want to,we have the brains,the peo­ple and more impor­tantly all the nat­ural resources we need (for our­selves).

  • ned

    If only it were that easy Tommy, We never had a large man­u­fac­tur­ing base here in Aus­tralia and I don’t think we can grow one with our dynam­ics. Low pop­u­la­tion com­bined with a high stan­dard of liv­ing work against it being prof­itable to make con­sumer goods here. Also our envi­ron­men­tal laws are too strict to allow fur­ther pro­cess­ing of resources we dig up. I cer­tainly agree we have the abil­ity to pro­duce what­ever we want, it just isn’t prof­itable, instead I think we should look to we can do prof­itably and I think it is in research and design mak­ing money off prod­ucts we invent or improve which are man­u­fac­tured over­seas by Aussie owned com­pa­nies. Work smarter, the CSIRO is a great exam­ple of what we can achieve if we Aussies use our brains more!!

  • ken

    It is all look­ing very Japan­ese, as in the aim of eco­nomic pol­icy is to stop peo­ple los­ing their houses and banks from going bust, result­ing in a huge pub­lic debt. Of course we now know that even­tu­ally it all goes wrong any­way.

    I have noth­ing against the sort of debt mora­to­ria that allows peo­ple to buy time or actu­ally saves the banks money by avoid­ing some fore­clo­sures (Amer­ica already has these, some banks actu­ally decide that it is bet­ter not to fore­close) but eter­nally prop­ping up dodgy loans seems a los­ing propo­si­tion.

  • Yes, bank­ruptcy works as a “for­give­ness” clause for peo­ple who are heav­ily in debts. How­ever, the bank­ruptcy law in Aus­tralia makes it almost impos­si­ble for bank­rupts to lead a nor­mal life. It some­how defeats the pur­pose of being “for­giv­ing” at all. On the other hand, if we do have the law changed, then yes, many more peo­ple will down them­selves in more hefty debts just to be “for­given” and let go scot-free. I agree with one of the com­menters’ sug­ges­tions to invest on assets like gold and have it stored away in a rented stor­age space and not inside a bank.

  • Debt re-sched­ul­ing is a very seri­ous prob­lem of the state of our gov­ern­ment, but it also applies to the busi­nesses like ours, i.e. in self stor­age. I recall being in a dis­cus­sion of busi­ness acquain­tances in the self stor­age busi­ness, and we arrived at the same con­clu­sion that we need to man­age dept and loans, and if pos­si­ble, have these reduced. We under­stand that hav­ing loans and being able to pay on time sig­ni­fies good credit stand­ing, but at the end of the day, will hurt your busi­ness if you are not able to keep up with the inter­est pay­ments. We are glad that in my self stor­age busi­ness, we are able to keep a healthy bal­ance sheet.