The default delusion: Inevitable & desirable

Generali

Another great piece from Bedlam Asset Management:

http://www.bedlamplc.com/hres/potw%2089.pdf

Without exception and throughout history, capitalism has been a creative-destructive cycle, and in practice this is also true of all socialist states.

The G20 is a financial club of the world‟s wealthiest countries, which between them account for over 80% of global GNP and trade. Only 13 existed as independent countries a century ago, of which only two have not defaulted on their government debt since then. Many have done so more than once. Default is inevitable and cyclical yet rarely addressed.

Current analytical paralysis is preventing discussion of the next and most exciting phase of this cyclical pattern - that default frequently results in great financial, economic and social benefits....

MacMickster

I do like the analogy of the current situation as delaying an appointment to see the dentist until the pain becomes unbearable.

kabayiri

Just make the announcement which should have been made in the crunch.

"Let the private banks fail"

Why the state should bail out private institutions is beyond me. Yes, savers would lose money, but then savers don't complain when their savings are earning interest do they?

purch

Default is presumed to be a catastrophe, so delaying the inevitable is human nature.

Much like our exit from the ERM. It was presumed to be catastrophic for our economy for us to leave the club, so we delayed and delayed the inevitable. But when it actually did happen, things turned out quite well.

Wookster

Many much worse things have happened with far less debt on the table.

Politicians need to realise that they cannot put off the inevitable indefinitely.

Generali

purch wrote: »

Default is presumed to be a catastrophe, so delaying the inevitable is human nature.

Much like our exit from the ERM. It was presumed to be catastrophic for our economy for us to leave the club, so we delayed and delayed the inevitable. But when it actually did happen, things turned out quite well.

Leaving a fixed exchange rate system like the ERM is a kind of default: you have promised foreign creditors they will be paid $x whereas they get $x-y while still getting £z.

abaxas

What they forget is we are reliant on imports for food and energy.

I we default, we will be cold and hungry.

CLAPTON

kabayiri wrote: »

Just make the announcement which should have been made in the crunch.

"Let the private banks fail"

Why the state should bail out private institutions is beyond me. Yes, savers would lose money, but then savers don't complain when their savings are earning interest do they?

an interesting thought that we should let savers lose all their money

the only logical result would be that no-one would save in any bank so no lending

so absolutely no mortgages, no car loans, no business loans etc

it would be a most interesting experiment,

I wonder if the government of the day would last one month or two?

Masomnia

Why would people not save in any bank? They have to put their money somewhere, if they have it in any significant quantity.

People being more picky about the safety of the banks into which they deposit their savings could turn out to be a good thing.

CLAPTON

Masomnia wrote: »

Why would people not save in any bank? They have to put their money somewhere, if they have it in any significant quantity.

People being more picky about the safety of the banks into which they deposit their savings could turn out to be a good thing.

Did you know that Lloyds was a dodgy bank or RBS or HBOS or Dunfermline BS or the others.............?

with the knowledge we have now, then I would not put any money in the bank unless the government guarenteed the money as I believe that most UK banks are hiding massive bad debts and I believe most rational people would do likewise

Masomnia

CLAPTON wrote: »

Did you know that Lloyds was a dodgy bank or RBS or HBOS or Dunfermline BS or the others.............?

with the knowledge we have now, then I would not put any money in the bank unless the government guarenteed the money as I believe that most UK banks are hiding massive bad debts and I believe most rational people would do likewise

Perhaps not, but perhaps I would've taken a greater interest if I thought my savings were at risk?