The Limits of Confidence in Theory

The end of an era is an accurate description of a process that theories go through in dismantling the structure of the world we know in order to replace it with another way of understanding the world around them.


Worthless Guarantees and Printing Presses

Yesterday in Fannie, Freddie Commit to Waste $40 Billion a Month Taxpayer Money I talked about the chain reaction of guarantees.

Ireland guaranteed bank deposits putting Germany and the UK at a disadvantage. After criticizing Ireland, Germany did the same. The UK stepped in to guarantee bonds so now Germany and the US are at a competitive disadvantage.

Am I the only one who sees how absurd his is? Is the final ending point, the government of every nation guaranteeing everything?

Australia and New Zealand, get into the Guarantee Business.

Australian Prime Minister Kevin Rudd said Sunday the government will guarantee all bank deposits for a period of three years.

From Sunday, the government will also guarantee all term wholesale funding by Australian banks operating in international credit markets “to make sure they have the best possible access to global capital,” Mr. Rudd said.

The New Zealand government followed Mr. Rudd’s announcement by introducing a bank deposit guarantee program as both countries sought safeguards against turbulence in global credit markets.

Where are the economic models, the one’s that Ross Garnaut used that took 3 months to calculate the economic impact of carbon trading schemes on the economy in 100 years time? Is this a case of “can’t predict the weather but can predict the climate”?

Worthless Guarantees and Printing Presses (cont.)
Of course governments have something that insurers don’t. That something is a printing press. However, there is theory and there is practice. There is a price to pay for those government guarantees. We have already seen the complete collapse of Iceland’s currency.

Blanket guarantees of everything will eventually end in a collapse of some major country or some major currency, the breakup of the EU, or a global depression of some sort, perhaps all of the above.

All those government guarantees, just like the guarantees of Ambac and MBIA , are totally worthless, just in different ways.

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0 thoughts on “The Limits of Confidence in Theory

  1. There was something to be said for using physical gold as the exchange standard. Unless you could show it on demand, you did not get credit or at least good credit terms.

    The meltdown was largely a child of perception and the remedies artificial.

    Maybe, in this age of supercomputers, we can produce an analogue of gold, little devices like electronic diamonds that cost a mint but are more portable and secure than gold. Whatever the form of the device, it would have to be an improvement on the “imaginary wealth” concept of the spruikers of today.

  2. There was something to be said for using physical gold as the exchange standard. Unless you could show it on demand, you did not get credit or at least good credit terms.

    The meltdown was largely a child of perception and the remedies artificial.

    Maybe, in this age of supercomputers, we can produce an analogue of gold, little devices like electronic diamonds that cost a mint but are more portable and secure than gold. Whatever the form of the device, it would have to be an improvement on the “imaginary wealth” concept of the spruikers of today.

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