Re: flow or stock?

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

The problem with the continual IMF bailouts is that they do not address the
underlying problems. The IMF misdiagnoses the problem as lack of fiscal
discipline. But they fail to note that most of these economies already are
at undercapacity and that most of these governments have taken significant
steps to increase revenue and reduce expenditures. It is primarily economic
events that shake the fiscal deficit predictions (as we have seen even in
the U.S.).

The real problem is the huge debt structure that was accumulated in the
1970's from "bad loans". That is right. I am saying there are loans that are
bad and should never be made, and that even in a world of uncertainty
lenders have a responsibility to evaluate the potential for projects to have
anticipated Net Present Value. Granted, that is not to deny that even
prudent projections can be wrong.

What is needed is a radical restructuring of the debt and elimination of a
substantial portion of it instead of more bailouts for the big banks.

-----Original Message-----
From: Petrick, Karl [LBS] [mailto:K.Patrick@xxxxxxxxx]
Sent: Tuesday, August 13, 2002 7:27 AM
To: 'pkt@xxxxxxxxxxxxxxxx'
Subject: Re: flow or stock?


Paul O'Neill is just as brain-dead as his boss, and commits nearly as many
gaffs everytime that he speaks.  Before the current IMF loan was agreed to,
he said that Brazil shouldn't get any money unless it was somehow ensured
that 'it didn't just flow out of the country and into Swiss bank accounts'.
Had he bothered to make the simplest of inquiries (asking the IMF perhaps)
he would have known that most of the previous IMF loans had indeed flown
straight out of the country (thus negating the good that they could do
inside), in order to pay back other existing loans - a stipulation placed on
Brazil by the IMF before it would lend.  Swiss bank accounts perhaps, but US
ones, not Brazilian.

Karl

> -----Original Message-----
> From:	"Pigeon, Marc-André" [SMTP:PigeoM@xxxxxxxxxx]
> Sent:	12 August 2002 15:27
> To:	pkt@xxxxxxxxxxxxxxxx
> Subject:	Re: flow or stock?
>
> Have been following the discussion for a while now and wholeheartedly
> agree with Paul's outrage. I was in Honduras back in May and the
> devestation is evident everywhere, even that well-known American "client
> state." Speaking of U.S. foreign policy, check out what O'Neil had to say
> about the failed policies in Latin America (rest of story follows below):
>
> Asked during a news conference in Argentina this week why Latin Americans
> were increasingly rejecting the magic recipe of privatization, lower
> tariffs and increased foreign investment, Treasury Secretary Paul H.
> O'Neill replied, "I have no idea." When it was suggested to him that such
> policies were not yielding the expected results, he said, "I don't know of
> another plausible answer, do you?"
>
> Marc-André
>
>
>
>
> August 11, 2002
>
>
> Brazilians Find a Political Cost for I.M.F. Help
>
> By LARRY ROHTER
>
>
>
>  <http://graphics7.nytimes.com/images/dropcap/r.gif>IO DE JANEIRO, Aug. 10
> - Brazil and other Latin American governments have followed Washington
> down the free-market path, only to find they are now losing control over
> their economies.
>
> The immediate consequences are most visible here in Brazil, which is in
> the midst of an important national election. Brazil, Latin America's
> largest country, has just engaged a $30 billion lifeline from the
> International Monetary Fund, but one that imposes strict policies on the
> next government. There is a strong chance that it will be a left-leaning
> one that promises to improve the lives of the poor who were left behind in
> the economic experimentation.
>
> "Don't try to strangle us," President Fernando Henrique Cardoso, who
> leaves office in January, told market speculators who have sent Brazil's
> currency plummeting in recent weeks on fears of a government default. He
> said the loan gave Brazil vital oxygen, and showed that the monetary fund
> played an important role in developing economies.
>
> But to some Brazilians, it is the fund that could do the strangling. The
> bailout announced this week is described as the most far-reaching package
> since the Clinton administration and the I.M.F. came to the rescue of
> Mexico in 1995, a successful intervention that was paid out almost all at
> once. But Brazil's comes with unusual strings, and it thrusts the lending
> agency into the uncomfortable position of being in the middle of Brazil's
> democratic decisions.
>
> That is because $24 billion of the loan would be delivered next year only
> if the new government met certain budgetary targets.
>
> "This agreement is an extremely shrewd and subtle piece of political
> engineering," said Gilberto Dupas, director of the international studies
> program at the University of São Paulo. "No candidate is going to want to
> be responsible for a brutal reversal of expectations" that would come from
> not receiving financing from the fund.
>
> After eight years of free-market orthodoxy that has produced only modest
> growth, Brazil has a strong chance of turning in another direction. A poll
> released Thursday shows the government's candidate slipping and two
> leftist opposition candidates - Luiz Inácio da Silva, known as Lula, of
> the Workers' Party and Ciro Gomes of the Popular Socialist Party - with
> more than 30 percent each. They are possibly heading for a second-round
> runoff in October.
>
> With so large an amount of money at stake, both Mr. da Silva and Mr. Gomes
> have reluctantly endorsed the loan deal.
>
> The bailout was intended to stanch a sudden crisis of confidence,
> manifested by a plummeting currency, investor flight and the prospect of a
> new government defaulting on $250 billion in public debt.
>
> Such fears have vastly increased the regional tumult that began with
> Argentina's financial crisis late last year. The crisis propelled the
> monetary fund to act, with the reluctant backing of the Bush
> administration, which had earlier opposed new money for Latin American
> countries.
>
> In the extreme circumstances, the I.M.F. promised the $30 billion, nearly
> twice the amount that market analysts had expected.
>
> "This is going to contribute to reducing the financial panic that was
> threatening to make the crisis worse," José Antonio Ocampo, director of
> the United Nations' Economic Commission for Latin America, said of the
> monetary fund's package. But he said the effects might be short- lived,
> and the "consequences for economic growth are limited."
>
> Brazil's new money is to be doled out over 15 months and requires whatever
> government takes power on Jan. 1 to maintain a budget surplus of 3.75
> percent through 2005.
>
> But both of the leading candidates are chafing at what they perceive as an
> intrusion on Brazil's sovereignty and on their ability to fulfill campaign
> promises. Guido Mantega, Mr. da Silva's chief economic adviser, complained
> that the I.M.F. was trying to confine a Workers' Party government "in a
> plaster cast."
>
> "This limits the capacity for social investment we plan to make," Mr.
> Mantega said. "If we reduce interest rates and the primary surplus is
> maintained until 2005, the effort to reheat the economy will be in vain."
>
> The penalties for noncompliance are equally clear. Brazilians need only
> look next door at Argentina, which has been bogged down for months in
> futile negotiations to restore its line of credit with the fund.
>
> "When it comes time for the rest of the money to be dispersed in Brazil,
> because they have quarterly targets and reviews, the first time that Lula
> misses they can tell him he's not getting any more money," said Walter
> Molano, a market analyst with BCP Securities. "That's what they did to
> Argentina last year, saying there would be no waiver, and they will do the
> same to the next administration in Brazil."
>
> As goes Brazil, so goes the rest of the continent. The slide of the
> currency here, which lost nearly 20 percent of its value last month, was
> reflected in similar dips in Colombia and Chile and helped fuel a banking
> crisis in Uruguay. That was resolved only when the Bush administration
> agreed to an emergency $1.5 billion bridge loan last weekend.
>
> The standard advice of the fund to clients facing crises has been to
> insist on increased austerity, arguing that fiscal discipline is a
> necessary precondition to prosperity. But that translates into enormous
> suffering for millions of people, strengthens the appeal of left-wing
> critics of free-market economies and weakens governments that have made
> the changes Washington is urging.
>
> "It's easy at the top to say cut back on expenditures, but it is hard when
> you are a politician and the unemployment rate is 18 percent," said Joseph
> E. Stiglitz, winner of the Nobel Prize in Economics in 2001.
>
> Latin America "is not like the United States where you have a social
> safety net," he added. "Firing a worker has enormous economic and social
> consequences."
>
> From 1980 to 2000, per capita incomes in Latin America grew at only
> one-tenth the rate of the previous two decades, when governments followed
> more interventionist and protectionist policies.
>
> In a report that came out early this month, the Economic Commission for
> Latin America forecast no immediate improvement, saying that Latin
> America's economy will actually contract nearly 1 percent this year,
> largely because of the implosion of Argentina's economy.
>
> Despite its reluctant approval of bailouts in Brazil and Uruguay this
> month, the Bush administration continues to be baffled as to a long-term
> solution to that problem.
>
> Asked during a news conference in Argentina this week why Latin Americans
> were increasingly rejecting the magic recipe of privatization, lower
> tariffs and increased foreign investment, Treasury Secretary Paul H.
> O'Neill replied, "I have no idea." When it was suggested to him that such
> policies were not yielding the expected results, he said, "I don't know of
> another plausible answer, do you?"
>
> Mr. O'Neill appeared to offer free trade as the panacea for the region's
> current difficulties, referring repeatedly to Mr. Bush's approval of trade
> promotion legislation this week and the opportunities that offers. But
> Latin American officials consider that formula as simplistic as many of
> Mr. O'Neill's earlier declarations about the region.
>
> "We're in so extreme a situation here right now that the banks won't even
> give us export credits," even when the banks are not at risk, a senior
> Argentine official said after Mr. O'Neill's departure.
>
> "If all of our economies fall apart and have to rely on an I.M.F. life
> support system to survive," he said, "there's not going to be anyone
> around for you to trade with."
>
>  <mailto:pkt@xxxxxxxxxxxxxxxx>
>
>
> 	-----Original Message-----
> 	From: Paul Davidson [mailto:pdavidson@xxxxxxx]
> 	Sent: August 10, 2002 8:20 PM
> 	To: Christian Gregory
> 	Cc: pkt@xxxxxxxxxxxxxxxx
> 	Subject: Re: flow or stock?
> 	
> 	
> 	At 05:21 PM 8/7/2002 -0500, you wrote:
> 	
> 	
>
> 		I'm not clear in this discussion what you mean by
> speculation. Are you
> 		saying that holding something for speculative purposes means
> that the
> 		calculation of future income streams never occurs to one, as
> the holder?
>
>
>
> 	No.  You can calculate anything you want about the future -- what I
> am saying is by
> 	
> 	'information" you mean that the potential buyer  (the bull) and
> seller (the bear) are both (or either one) has statistical reliable (in
> the statistical sense that you are actuarially comfortable with your
> future estimates of cash flows going into the future not only for days but
> months and years) then you  are  saying that buyer (and or seller) of
> financial assets somehow possess"information" that can NOT exist in a non
> ergodic world (where statistics drawn from past samples [i.e., from either
> cross sectional or time series data] can not provide reliable estimates of
> the sampling statistics from the future.  T
> 	
> 	
>
> 		Why
> 		wouldn't you treat the EMH-driven interpretations of stock
> values as part of
> 		the conventions by which things are valued, with the
> understanding that such
> 		conventions can and will change according to new
> information?
>
>
>
> 	Since no one has reliable "information " about the future -- there
> fore the value of liquid assets (at any point of time) is based on a
> convention!  --See chapter 12 of the GENERAL THEORY.
> 	
> 	But if it is impossible to have reliable information about the
> moments around the mean that will be fortcoming from the samples from the
> future, then the spot market price of any liquid asset at any moment can
> not be based on any reliable guesstimate of future earnings.
> 	
> 	Moreover even if you were supernormal  (and everyone else was
> not)and therefore you are  able to accurately foresee the future, as long
> as the asset is liquid, you can maximize your return by selling on the
> daily high and buying on the daily low-- ie.e., betting on thedaily sample
> variance rather than the sample average -- or long term secular trend
> value of future profits.
> 	
> 	
> 	
>
> 		hat other
> 		rules of interpretation do you think we should use for
> evaluating
> 		securities? (Or do you think that they shouldn't exist?)
>
>
>
> 	Of course there are conventions -- see chapter 12 of the GT-- but do
> you really thing that when the Dw Jones goes up or down by 300 or 400
> points in 6 or seven hours that the market price at any moment has
> anythingto do with expectations of a rationally calculated actuarial
> present value of the future quasi rents that the underlying  long-lived
> capital goods will generate over their useful lives?  and ifr you do I
> have a bridge that connects Brooklyn and Manhattan that I would like to
> sell you.
> 	
> 	
> 	
> 	
> 	
>
> 		I'm also a little curious about the degree to which
> non-ergodicity applies.
> 		If there is _nothing_ that can be ergodically determined,
> then even
> 		Keynesian policy prescriptions would be ruled out, since
> they imply (as does
> 		any theory) applicability across space and time.
>
>
>
>
> 	Nonsense-- Keynesian policies should be that expenditure and revenue
> choices will have to be altered when ever the real aggregate effective
> demand generates a level of employment that is significantly different
> than full employment -- but even more importantly one should  develop
> institutions that prevent liquidity crises (e.g., Argentina today) from
> creating the public scandal of an economy that could be producing more for
> its citizens -- has 21% unemployment, firms going broke, a GDP that has
> declined more than 15% in less than a year --merely because it has a
> liquidity problem.
> 	
> 	I am sorry if I sound angry -- but I have just returned (about 5
> hours ago) from a 4 day trip to Latin America .  Those who like to
> pontificate about economics and efficient markets should be required to
> see and experience  the pubic scandal where hard working blue collar and
> middle income people are having lives destroyed  UNECESSARILY by such
> efficient markets!!!
> 	
> 	 I am appalled that the US government and the IMF is willing to
> provide a liquidity  (antibiotic) injection to Brazil and Uruguay -- who
> caught this contagious disease from Argentina-- to try to cure the
> disease, but is not willing  to provide medicinal help to the  sick
> patient  who originally caught this disease -- and could recover with a
> similar antibiotic shot (to continue the sickness contagion metaphor).
> And especially when the original sick person (ARGENTINA) was a model of
> doing what the IMF recommended throughout the decade of the 1990s.
> 	
> 	
>
> 		 In other words, I don't see
> 		why insisting on this high-threshold of ergodicity doesn't
> in fact lead you
> 		to suggest that since nothing can be known about the future,
> nothing can be
> 		done
>
>
> 		.What you want to do is build institution  .that can assure
> ceilings and floors on future cash flows   -- which merely require
> injections (or withdrawls of liquidity -- and this increase (or decrease)
> in liquid does not require the using up on any real resoruces-- that is if
> you understand the essential properties of all liquid assets. And
> institutional rules that mean that if many holders of any liquid asset all
> want to exercise their fast exit strategy a once, that we require an
> orderly exit rather than a disorderly one..  The analogy is why we do not
> permit people to shout fire in a crowded theatre and if a real fire does
> break out we provie instructions for an orderly exit fromj the theatre!!
>
>
>
> 	in th olden days  such policies included a the lender of last resort
> who lent FREELY, etc.  in modern times Bagehot's definition of the lender
> of last resort has to be modified.  If you want to understand then you
> will have to read my FINANCIAL MARKETS, MONEY AND THE REAL WORLD book
> which has just been published -- and I understand can even be ordered from
> Amazon. com now.
> 	
> 	Paul
> 	
> 	
> 	
> 	
> 	Paul Davidson
> 	Editor, Journal of Post Keynesian Economics
> 	503 SMC
> 	University of Tennessee
> 	Knoxville, Tn 379996-0550
> 	phone Number: (865) 974-4221
> 	fax number: (865) 974-1686
>