Re: Euro Rates Slashed

[Dennis R Redmond <dredmond@xxxxxxxxxxxxxxxxxx>]

On Sun, 6 Dec 1998, S R Larsson wrote:

> With a relatively small public sector (as in the case of the US) tight
> budget discipline has a smaller effect, quantitatively, on aggregate demand
> than in e.g. Scandinavia. This means it doesn't take as strong an
> improvement in the private sector to outweigh the negative effects of
> fiscal prudence.

That may be in terms of absolute revenues as a percent of GDP, but the
data on total public and private debt in the EU is roughly comparable to
the USA. Public debt is 72% of GDP in the US, and private debt is around
115% of GDP (these are all World Bank data, by the way, available on their
website); the EU average is around 74% of GDP public debt, 120% private.
Japan's debt totals are truly astounding: public debt will hit 105% of GDP
this year, while private debt clocks in at 200% of GDP. Since the EU
core countries and Japan are richer per capita than the US, my own
heretical conclusion is that (1) such levels of leverage are no
accident, but are normal structural features of global capitalism, and (2)
debt levels will continue to rise, because if they
don't, you get a 1930s-style meltdown. Crazy as it
sounds, maybe we need to think seriously about reversing these
ratios, and imagining a future economy in which public debt is twice as
large as private debt, and not the other way around. Socialize Deutsche
Bank, Credit Agricole and the Japanese keiretsu banks, and you're
halfway there.

> (in-)significance for investment. Also, it would be interesting to see (in
> Minsky's tradition) how large a part of the last ten years' stock market
> investment has been credit driven; if credit money floods the stock market,
> then credit money helps creating the good state of affairs that the rest of
> the economy is benefitting from.

I wonder about this too. Hedge funds borrow like mad and speculate on the
market; mutual funds seem to do this, too. The ringer in all this is
that the US credit boom is increasingly fuelled not by domestic sources or
repatriated profits from US multinationals, but by EU and Japanese
creditors. According to the Federal Reserve's flow-of-funds data, we're
talking inflows of $200 billion a year. Who knows if this is accurate, but
considering the US trade and capital account deficits, it's hard to argue
that the US bubble is based on positive fundamentals.

-- Dennis