How to Suffocate Your Economy: Drown it in Massive Private Debt.

By Richard Vague – In the years since the 2008 global crisis, when the world’s growth rates tumbled, the IMF has dutifully printed forecast after forecast predicting rebounding growth rates. But in reality, rates have fallen well short of these predictions.

One of the key and largely overlooked reasons for this disappointing growth is hiding in plain sight: the increasing global burden of private debt—the combination of business debt and household debt.

Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes.

In the United States, total nonfinancial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, U.S. private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend.

Private debt is a beneficial and essential part of any economy. However, as it increases, it can bring two problems. The first is dramatic. Very rapid or “runaway” private debt growth often brings financial crises. Runaway private debt growth brought the 2008 crisis in the United States, the 1991 crisis in Japan, and the 1997 crisis across Asia, to name just three.

When private debt is high, consumers and businesses have to divert an increased portion of their income to paying interest and principal on that debt—and they spend and invest less as a result. That’s a very real part of what’s weighing on economic growth. After private debt reaches these high levels, it suppresses demand. more>

A New Measure of China’s Vulnerability

By Mark Whitehouse – The 2008 financial crisis helped bring global leaders to the realization that they needed a better early-warning system.

To that end, the Bank for International Settlements — a sort of central bankers’ central bank — has been publishing more data on money flows around the world. These include an indicator called the credit-to-GDP gap, which focuses on the amount of credit being provided to households and businesses as a share of gross domestic product. The more the indicator rises above its longer-term trend in a given country, the more likely it is that borrowers are getting overextended — a situation that tends to lead to defaults, banking troubles and broader slumps.

Now, the indicators for the U.S. and Europe are in negative territory — a reflection of struggles to restore growth while still working through the excesses of the previous boom.

The credit gap in China, by contrast, is at its highest level since at least 1995 (the first year of the data series): As of March, it stood at more than 30 percentage points. more>

Updates from GE

Thought The Industrial Age And Information Age Were Something? Wait Until The Augmented Age
By Maurice Conti – One of the best things about artificial intelligence systems is that once one learns an area of expertise, they all know it through networked learning. With intelligence augmentation, consumers won’t have to leave reviews on products on Amazon anymore. Connected products will review themselves through data to inform not only other customers but the engineers who made them.

In 1962, one year after the first industrial robot joined a production line at General Motors, the animated sitcom The Jetsons debuted. For just one season, the show forecast a future when people could have whatever they wanted (a gourmet dinner, a clean house, a flying car that folds into a briefcase) by pushing a button.

It was fantasy then, and much of it still is today—progress is sometimes slow. The Hunter-Gatherer Age lasted a couple million years, the Agricultural Age lasted several thousand years and the Industrial Age lasted a couple of centuries.

Then the Information Age came along and dramatically accelerated the speed at which we evolve, at least technologically. Now humanity is on the cusp of the next great era: the Augmented Age.

In this age, our natural capabilities will be augmented by computational systems that help humans think, robotic systems that help them make and a digital nervous system that connects them to the world. more>

A Weaker Currency Is No Longer Economic Elixir It Once Was

By Susanne Barton and Chikako Mogi – A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was.

In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs Group Inc.

The findings suggest that weaker currencies may not provide much assistance to officials in countries like Japan and the U.K. that are relying on unprecedented easy-money policies to help boost tenuous growth and inflation.

On the flip side, the data also indicate that concerns the U.S. recovery will be derailed as rising interest rates drive investors into the dollar are also overblown.

A shift in the structure of advanced-economy trade to less price-elastic goods and services, combined with the prolonged effects of the financial crisis, have stunted the sensitivity of trade volumes relative to global exchange rates, according to Goldman Sachs analysts led by Jari Stehn. more>

Central Bank Digital Currencies: A Revolution in Banking?

By Ellen Brown – To reiterate: this is what banks do now. Banks are not intermediaries taking in deposits and lending them out. When a bank issues a loan for a mortgage, it simply writes the sum into the borrower’s account. The borrower writes a check to his seller, which is deposited in the seller’s bank, where it is called a “new” deposit and added to that bank’s “excess reserves.” The issuing bank then borrows this money back from the banking system overnight if necessary to balance its books, returning the funds the next morning.

The whole rigmarole is repeated the next night, and the next and the next.

In a public blockchain system, this shell game could be dispensed with. The borrower would be his own banker, turning his own promise to repay into money. “Smart contracts” coded into the blockchain could make these transactions subject to terms and conditions similar to those for loans now.

Favoritism and corruption could be eliminated, by eliminating the need for a banker middleman who serves as gatekeeper to the public credit machine. The fees extracted by an army of service providers could also be eliminated, because blockchain has no transaction costs. more>


Why Fiat Money Manipulation Can Never Produce Prosperity


The Scandal of Money, Author: George Gilder.

By Nathan Lewis – This system of money and prices is the information network that allows millions and even billions of people to cooperate together productively, and even, over time, with increasing productivity.

This information system is predicated on the idea that money is stable in value; that, for example, a rise in the nominal price of copper or Florida condos represents the supply-demand conditions of copper or condos, and thus contains information relevant to copper or condos, such as build more copper mines or build less condos.

By distorting the money – changing its value – the information contained in prices, interest rates, or profit and loss become distorted. It is often possible to distort interest rates at the same time, an important market price.

With a little thought, it is easy to see that you cannot improve the productivity of the system by distorting the information system that allows it to function. However, you can attempt to create fleeting short-term effects that might seem beneficial. Investments are made that, in the absence of monetary distortion, would not be made; people are hired that would not otherwise be hired.

An artificial boom may result, often followed by a real bust. The result of this “malinvestment” is typically waste: too many copper mines or condos, and perhaps not enough of something else, which became artificially unprofitable due to the monetary distortion. more>

Updates from Aalto University

Society needs critical and informed thinkers
By Tuula Teeri – Universities exist first and foremost in order to educate critical thinkers who are equipped with the confidence and the boldness to defend the knowledge society. Society needs critical, informed thinkers in all sectors of society, perhaps now more than ever: “Universities have a huge responsibility in safeguarding the knowledge society, developing new knowledge and insistently advocating for knowledge-based decision making.”

Milja Asikainen added: “Universities should take a bigger role in leading public discussions, not just adapting to them.”

Aalto University is performing well in creating added value from research and education, citing the development of the Aalto innovation ecosystem. Over half of all the start-ups coming out of Finnish universities originate from Aalto. more>


WHY IT MATTERS: Wall Street Regulation

By Marcy Gordon – he financial crisis that struck in 2008 touched off the worst recession since the 1930s Great Depression, wiping out $11 trillion in U.S. household wealth and leaving about 8 million Americans jobless. More than 5 million families lost their homes to foreclosure. Reckless trading and aggressive practices on Wall Street in the prior boom years were pinned with much of the blame.

Eight years on, the economy’s recovery from the havoc brought by the financial crisis has been halting and slow.

And popular resentment still smolders over the multibillion-dollar bailout by U.S. taxpayers of Wall Street mega-banks and financial firms in the crisis. It gave a big lift to Sanders’ upstart campaign.

It also created some heartburn for Clinton because of her financial connections. She and husband Bill have collected tens of millions of dollars in speaking fees from Wall Street banks, insurance companies and other financial firms. Over her 15-year political career, she’s received tens of millions in campaign donations from people in the finance, insurance and real estate industries.

Beyond their stake as taxpayers, American consumers have an interest in the financial regulations that came in after the meltdown. more>


It’s time to junk the flawed economic models that make the world a dangerous place

By Paul Mason – The Kingston University economist Steve Keen has long argued that reliance on flawed models contributed to the scale of the 2008 crash – by encouraging decision-makers to underestimate risks, economic theory has the power to make the world more dangerous.

And the stakes are big, too. One of the theories that, even now, eight years after the crash, continues to disorient policymakers is the assumption that actions by central banks are irrelevant. A total of $12tn (£9.1tn) has been printed by central banks to stave off global depression, yet the threat remains real. Stagnation is a threat that keeps central bankers, governments and social theorists awake at night – with the palliative always being looser monetary policy.

Yet orthodox economic theory insists it would have no real effect if the central banks pulled all this support – since the equations tell them there is no correlation between monetary policy and output. Mark Carney or Mario Draghi could double interest rates and slash quantitative easing and the economy should grow at just the same rate, says the theory.

Paul Romer, scathingly, calls this “post-real” economics, and suggests a horribly simple explanation for its popularity: human frailty. Comparing the economics elite with its equivalent in theoretical physics, Romer notes the same problems: over-confidence, “an unusually monolithic community,” near-religious group loyalties, a tendency to disregard results that don’t match the theory – and too little consideration of the risks of being wrong. more>


Shore up the euro before it’s too late, experts warn

By Noah Barkin – Will the euro survive the next big crisis?

A new report inspired by Jacques Delors, one of the architects of the single currency, says it probably won’t and urges policymakers to pursue immediate changes to Europe’s troubled monetary union to ward off the inevitable collapse.

“Reforming the euro might not be popular. But it is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis,” the report says.

“We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis.”

Central to the argument is the view that the European Central Bank has used up virtually all of its ammunition in the past year and that it is now urgent for politicians to act. more>