IMF should be printing SDR and its stipulation should be to inflate private debts away and enforce regulations that put a maximum to private debt emissions, a maximum debt/GDP ratio.

Once most of private debt is inflated away, penalising the debtors (fall of capital good prices relative to consumption goods prices) and the lenders (fall of the real value of the money lent) and hence reducing moral hasard (those who did neither borrow nor lend in excess are favored), then everything is fine.

I would favor a complete ban on consumer debt, except may be on some durable goods (as laundry machines). Credit emission needs be very strictly regulated, with the clear signal that money emission is a state monopoly, outsourced to private agents only under very strict obligations.

i prefer gellner to polanyi, but _the great transformation_ is worth revisiting i think, wrt the ‘sociology of economics’ or political-economy of the market system (or american system); gellner would say that ‘statism’ (state capitalism again!) is required for industrialised societies…

oh and i’d just add that while the IMF is trying to get more involved (be relevant) the BIS might be the more appropriate forum

cheers!

The USA are surely rolling over a truly colossal amount of debt. In their own currency, though. Balance of financial terror indeed.

As John Authers wrote recently the international reference currency has turned out to be the yen. Which is in many ways a proxy for the renmibi.

A lot of people here make the mistake of thinking that central banks care about their balance sheets and profit&loss; but mostly they don’t they only case about the growth and power of their economies. They are instruments of statist policy. The Bank of China first and foremost.

there is no great need for new regulation. what those now losing money into thin air are learning, will not be forgotten for a generation or two. people will regulate their own risk taking. just as it took a generation or two for the folk memory of the great depression to be forgotten.

after the great war, there was w.w.2.

so now after the great depression are we into g.d.2 ?

someone paid 6.5 million pounds sterling for a damien hurst art object this september.

so cheer up it could be worse. you might be waking up to spending g.d.2 in a hostel for the homeless, one that has a space for you and another for a pickled shark in a tank, that you can’t even eat.

usually the rabbits, being rabbits, breed. but sometimes even if the rabbits live, the conjuror decides or is asked to bring the rabbits back – whereupon they disappear again.

in fact banks conjure with electronic digits not rabbits, so i would advise what the other contributors are too polite to advise – stick to farming.

One interesting facet is that had Paulson bailed out Lehman and nothing bad happened, he would be political toast since this would have been considered proof-positive that the bail out was unnecessary. This is one reason that it is important to slow down the crisis. If there is no crisis, you won’t be allowed to do anything, and by the time you can do something, things are moving so quickly that what you are doing is useless.

Also, I don’t think it would have been possible for the central banks to move more aggressively at cutting rates than they were. It’s like trying to pump on the accelerator when your gas lines are broken. Something that did happen was that whatever cuts in interest rates that the central banks were doing, simply were not being transmitted to the rest of the market. Once people start worrying about losing 90-100%, a one or two percent rate cut is not going to make much difference.

Also, if we are in a situation where this crisis leads to a deep recession, I think that is a cause of joy and celebration, because we were seriously seeing something much worse in mid-September.