Tag Archives: John Kay

Oh bummer, there’s a gap | Gravitational Roughening

A Sheepish Story

One day, as she was grazing, a clever sheep contemplated the fact that as the herd kept eating away the vegetation for years, aside of water, nothing ever was supplied to the soil. She concluded that everything that sheep were eating must be coming from the soil.

A few days later, when she noticed that her favourite patch was really exhausted and there was nothing left to eat, just when she decided to move to a more promising patch, she had a shattering revelation: Food grows from the soil and as she was eating away the grass, she was really eating away the soil!

This excited her so much that she had to inform the herd of her revelation. Although the other sheep didn’t really get what was wrong exactly, after all it took her several days to comprehend the connecting facts, they all accepted that the issue was clearly disturbing her sufficiently to be of serious matter. They asked her, what they should be doing and she said that they must try to not eat. Or well, at least eat less!

So they stood around for a while pondering this. About two minutes to be exact. Two minutes is a long time for a sheep to keep thinking. OK, let’s try this and let’s not eat. After all, there is lots of other things sheep could do. Like what? What do sheep do when they don’t eat? And while they were pondering that thought, imagining themselves walking up a path, jumping over a small spring, bumping into a fence, they started to eat again.

Even our philosophical sheep realised that not eating wouldn’t really work. She kept a small worry that someday the soil might be gone, but she couldn’t really do anything about that.

Until the next fall. Late, winter approaching. The wind was cold with prickly rain drops whipping the face. Head down, she was grazing just within a small patch of forest offering some shelter. A gale blew through the trees, caught a big pile of leaves and lifted it fast in the air directly above her. That’s when she got really scared. She realised that if they kept eating away the soil, then one day, there will not be left enough of it and the wind will come and blow it away.

But what could she do about it? She had no idea and so she kept an ever deepening sorrow to herself. She started to look for signs of ground disappearing. There were definitely a lot of big holes in the ground. The rabbits seem to go in and out of them quite happily, sometimes disappearing in there for hours. There were a lot of them. She also thought she noticed them getting bigger. So she decided to keep watch. And for a couple of days, she kept grazing near a couple of holes that looked promising to her. She was hoping to observe when soil was disappearing.

Time passed and she already forgot why she thought these holes were interesting. She was lifting her head to see where the herd was. She couldn’t see them. She was considering at least to move to another group of holes and was looking around. That’s when she noticed the dog. He had his head stuck into a rabbit hole not far away from her. The dog seemed to move erratically in and out of the hole, always sniffing. That was curious. Suddenly he started to frantically move his front paws. It looked like he was trying to run, but only with the front paws, while the back paws kept him solid in place. How weird. But hey, what was happening now? Bits of earth started to fly from the hole, some quite large.

She couldn’t comprehend what the dog was doing, even though she could see well enough. But she kept observing as the dog continued doing his half running, every now and then quickly stopping to sniff at the hole, but then bringing up more soil, until he finally seemed happy enough with his job and ran away. When she was sure the dog was out of sight, she approached the hole and had a good look. There was a small mound of fresh soil at the entrance of the hole and there were bits of fresh soil all over the place. She was awe-struck. Fresh soil!

How did he do that? She remembered the half running and so she tried it herself. She didn’t quite manage to make bits of soil fly, but she thought she managed to make the small mound a bit bigger. She kept at it for a long time and the experience became deeply spiritual. But she couldn’t quite figure out what it meant.

Over the next days, every now and then she would try digging some more. It was an interesting experience for a while, but she couldn’t really see what it was accomplishing. The other sheep were giving her funny looks. She once thought that one other sheep was calling her crazy behind her back. And then winter came and the ground was frozen for weeks. So she stopped digging.

When spring came with its welcoming attractions, some soon “bucking around” and all, as the sheep smirkingly were telling one another, she came back to the place where she observed the dog digging. The place had some curious attraction on her that she didn’t understand at first. But there was nice grass and she started eating. And while she was chewing, she thought that this grass tasted better than others.

She wondered why that was and then remembered the bits of soil. She looked at the mound she helped making bigger back then. There was young fresh grass growing on it! And it tasted divine! She chew some more and contemplated, connecting the digging with the fresh grass. So this is how she could prevent the soil from disappearing. If you dig, you create new soil and that creates new grass. It all was crystal clear to her. She finally felt that she found the answer. And she ran to the herd and started to explain it all.

This is why you see sheep digging.. Well.. It appears that she wasn’t quite able to explain it well enough to start a fashion. But the story is still sometimes told amongst sheep and every now and then, you can spot one digging. They’re testing the theory, they call it gravitational roughening.

A Not So Much Sheepish Story

The Fox sues the Duck

In this case, it’s a fox who actually is supposed to support the duck. Duck being the outgoing administration and that’s really what they looked like in the past few months. They’re being sued by that right winged populist news channel’s business division, because the United States Treasury Department is unable to account for the whereabouts of the TARP. That is so scary on so many levels. 

Have they already spent more than they ought to? (Where has all their TARP money gone? The answer my friend is blow-oh-owing in the wind.) Is this going to a hearing and who will be held accountable? Obama better looks into the books on day one. And did the US media really had to wait for FOX to come along and dare to ask? I have to admit, I’ll be curious to see how they’re going to milk it. (Any excuse to watch light entertainment.) Or will we regret that we ever wanted to know? 

As Paul Krugman points out in his article about “The Obama Gap“, even if the high flying plans of stimulus packages are to be approved, that will not be the end of it. He indicates that if there must not be a depression … Funny that you only hear that attributed with “long” or “lasting”. Nobody ever talks about the possibility for a short or transient depression. As if using the term depression isn’t depressing enough! They have to add to our apocalyptic expectations, as if making sure that we’re scared enough when they present us with the bill. So Krugman indicates that if there must not be a depression, then governments have to inject a sizeable fraction of what is being lost. (Well, what’s true for the US in such fundamental matters should not be different for many other countries.)

The numbers that are bandied about say that for every buck your government spends, your economy will add another or two. So if your recessional shortfall is two point one trillion bucks (Krugman’s estimate for the US for a year), you need at least 650 billion bucks. Obama’s stimulus package is is above 700 billion, but half are tax cuts intended to stimulate consumer spending. That’s us, guys! We, who have just woken up to the fact that the overdraft on our credit cards is possibly something we should attempt to clear off with pulsating vigour, are asked to go out and shop as in the good old days (like last year). Sure we will, we’ll spend billions!  That is, if you give them to us.

The headlines have already announced it. They’re printing more money. That is a simplification of the matter, but not unwarranted. The correct term is “Quantitative Easing“. Governments will buy up bad dept from the markets, including the debts they just made themselves to finance their bailouts and stimulus packages. And to buy this all, they don’t really have to print money. They just add some digits on a balance sheet and then move the digits over to somebody else’s balance sheet and so forth until there’s a chain to the sheets with all the debt. It’s that easy! And why stop with the dept? Why not going on a spree! Buy all the ailing companies as well! Maybe some bankrupt third world country to boot. And can you please remove any debt from my sheets too while you’re at it? And why not?!

When asked about the Zimbabwe effect, experts (remarkably often ex-big-bankers) ensure us that it can’t happen here. “Chalk and Cheese!” Japan tried to cure their depression with Quantitative Easing with not much impact. Looking further into the Japanese experience, it all comes down to get business to borrow. Whatever they’ve tried, it didn’t happen. Could it be they don’t know how to fix it?

Breaking the Frame

As I wade through the murky waters of my newly found love for economics, there is a reoccurring theme that doesn’t quite fit in: confidence. Economists try to model our behaviour in terms of economic activities and transactions. And while their complex models, terminology and mastery of math instil awe and fascination, I cannot get where this confidence thing is coming from. Confidence being an important factor of my economic future is remarkable. Confidence borders closely on faith and belief. Voilà, There we have it again. Money for nothing.This only works if we believe in it.

And I do not. I operate in a different frame of reference. From my perspective, I don’t see how this is creating new prosperity, all the while I am worried that all they really do is making another hole bigger.

In an article in Prospect Magazine,  John Kay proposes to change the financial system by breaking the banks apart and to “separate the Utility from the Casino”. He doesn’t quite explain which bits exactly will fall into which of the two, but I think you get the picture. The Utility deals with the flow of money, moving it around, making it available. The Casino is where you go spend it on your future. And if you’re lucky, you will have one. What has happened is that the losses incurred in the Casino of the monetary system have drained the arteries of the Utility. In the current climate, the Utility is offering commodities. As a business model on its own, it offers little incentives. So let the nationalised banks become public services providing the plumbing and leave the gambling to others. That is an idea I get. I could even say, I have confidence in it. Although, I still can’t see myself going to a casino. And I have a hunch, that for this to work, you might send me there for my insurances and pensions. I hope they give me a good line of credit!



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