# The Emergency is over



## Duke of Marmalade (10 Aug 2014)

So says the _Indo_ and apparently the public service cuts are to be reversed.
While I don't quite believe it, it still seems that we have made a much faster recovery than even the optimists amongst us hoped for.

Whilst no-one can say for sure what would have happened if other courses had been followed, I think some of our leading economists should blush when they reflect on their stance, as the below examples show.

Brian Lucey led the campaign against NAMA. He wanted the banks to be allowed go bust.

David McWilliams wanted us to leave the euro and forgive all mortgage debt.

Peter Matthews, Karl Whelan et al wanted us to tear up the promo notes.

The above and many more wanted us to burn the bondholders.

Even some wanted us to default on sovereign bonds.

Many, exemplified by Gene Kerrigan in the _Sindo_, argued that austerity was destined to fail on Keynesian grounds - we would be ex growth for at least a decade.

Even Doctor Doom, Morgan Kelly, who oh so correctly identified the banks as bust in Sept 2008, seems to have wildly overshot with his most recent predictions of Armageddon.

We have recovered because we have been allowed to recover.  We have been allowed because we behaved responsibly.  Any of the above nihilistic actions would have brought the wrath of those who count on top of us and the only winners would have been Sinn Fein, who would have loved the wheels to come off and for Ireland to have been left in isolation.


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## Brendan Burgess (10 Aug 2014)

Hi Duke

The fact that we are recovering faster than we were expecting, does not mean that all of these guys were wrong. 

I still believe that the depositors and bondholders in the banks, especially Irish Nationwide and Anglo, should not have been bailed out.  I understand the argument for keeping BoI and AIB open and it has cost very little to keep ptsb and EBS open. 

But once we had issued bonds or notes, of course, we were right to honour them. It's the retrospective guarantee of bank deposits which I did not agree with.

Certainly the people who called for us to spend more to stimulate the economy, seem very wrong.  

NAMA seems to have worked well in that it did not allow a flood of distressed property onto the market all at the one time.


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## Steven Barrett (10 Aug 2014)

Our national debt is €187,221,441,304 

http://www.nationaldebtclocks.org/debtclock/ireland


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## Delboy (10 Aug 2014)

Recovery!!! More like an upcoming general election and the rise of Sinn Fein being the reasons behind the reversal of PS pay cuts....we're still going to be adding to our borrowing, but at a slower rate.

The mind boggles


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## Duke of Marmalade (10 Aug 2014)

Brendan Burgess said:


> I still believe that the depositors and bondholders in the banks, especially Irish Nationwide and Anglo, should not have been bailed out.


_Boss_ I suppose we don't particularly want to re-open the debates of 6 years ago. In terms of size we could have let _Fingers'_ crowd go under, I agree. _Seanie's_ is not so clear, the potential domino effect on other banks is not known, I hope the bank enquiry will throw some light on this. My guess is that AIB/BoI advised Lenny that if Anglo went down they would follow.


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## noproblem (10 Aug 2014)

If we had responsible Bankers doing their jobs, responsible senior public servants doing their jobs, politicians who knew what was going on by having their fingers on the pulse and a small bit of honesty, then the trouble we were put into would not have happened. The thing is, it did happen and would also have happened if any other political party was in power. We the people also believed the good things we heard, didn't believe the few who said otherwise and "almost" everyone went daft. It's payback time and we've paid a price, even though there's still a mountain of debt to be paid. Things will get better and where ever that starts, be it public servants or private sector, we shouldn't be begrudging towards each other. Hope that the past will make us better people in the future and maybe we'll get somewhere that way. Just hope we as a people stop the begrudging, we're so bloody expert at it, especially as we never know what someone else is going through.


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## Steven Barrett (10 Aug 2014)

noproblem said:


> didn't believe the few who said otherwise



It was worse than that. Our leader of the time said he didn't know how these people didn't commit suicide.


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## dub_nerd (10 Aug 2014)

Duke of Marmalade said:


> ...it still seems that we have made a much faster recovery than even the optimists amongst us hoped for.



What??

Our debt is something like 120% of an artificially inflated GDP -- 150% of GNP would be a fairer measure. Our banks are still bust: AIB just declared a return to massive profits by getting rid of its bad loan provisions -- what a joke. Our sovereign bond yields are a fiction, held down by the current Draghi policy. One change of heart in Germany and the country will be instantly insolvent. We have a property bubble going on while we've barely started to address the effects of the last one. Employment levels are dismal.

Calling this a rapid recovery seems fantastical.


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## MrEarl (11 Aug 2014)

SBarrett said:


> Our national debt is €187,221,441,304
> 
> http://www.nationaldebtclocks.org/debtclock/ireland




And that number continues to rise, day by day ....

Some things may be improving a little, but to say "The Emergency is Over" is absolutely stupid.  

We continue to live beyond our means and while I've absolutely no problem with reversing pay cuts for the lower salaried and waged as early as we can afford it, we're far from that situation when our national debt is continuing to increase.


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## Gerry Canning (11 Aug 2014)

Hmn ! {the emergency is over} 

Maybe the Hurricane part is past but ask.
1. People struggling to pay mortgages.
2. People struggling on income cuts.
3. People struggling on extra Taxes.
4. People on Dole Queue since 2008.
5. People on social welfare.
6. Banks still being permitted to set {facts} and run the agenda.

We still have a Gale force wind against us.

Could it be Politics wanting to save seats? I smell the stentch of elections coming up.

I hope my sarcasm is 100% wrong , and in fairness things are a bit better.


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## Leper (11 Aug 2014)

"Could it be Politics wanting to save seats? I smell the stentch of elections coming up."

Hi Gerry, When do you think the election will be called?


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## Gerry Canning (12 Aug 2014)

Leper; 

Don,t be so cynical!

Reckon they will hang in as long as possible.

If things keep (improving) they will hope to get a bounch over increased employment and  feel good factor.
However sending signal that Public Service pay might be somewhat restored is double-edged .
If public servants, who are a large voting block reckon Fine Gael are just massaging/playing politics , they will vote them out.
If the rest of us feel this is poorly thought out attempt to garner (buy) public servant votes ie like old Fianna Fail , we will vote them out.

What odds on an Oct 15 election?


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## Duke of Marmalade (12 Aug 2014)

Gerry Canning said:


> Leper;
> 
> Don,t be so cynical!
> 
> ...


PaddyPower: 3/1 an election this year. Next year Evens favourite.

I think you have the politics a bit mixed up there. This was a Labour ploy by Howlin. FG are already condemning him. As recovery gathers the political battle lines become very stark: do we roll back the PS cuts (Labour) or do we roll back the increases in taxation (FG)? This is a desperate but clever last throw of the dice by Labour.

My main point in opening this thread was to point out how wrong those various high profile economic commentators have been, and exposed so quickly. Will it stop David McWilliams telling us how he predicted it all and making more hair-brained suggestions? Not likely. 

Prof Alan Ahearne expressed it well in last week's IT oped. "Those who argued against austerity for the last six years have been proved wrong". Any chance they will admit it?


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## DerKaiser (12 Aug 2014)

I'm with you Duke. I think we need to get 200,000 people off the dole and a stream of returning emigrants before most will agree with you. This will happen.

If Ireland was a non-entity on the world stage, we would be back to being a third world country again following the crisis. But that hasn't happened.

Somehow, we have made others believe in us. Maybe it's because we have excellent IT and pharmaceutical capabilities. Maybe it's because of our positioning on the world food stage (Kerry, Avonmore and anyone notice Moy Park Chicken at the World Cup?) and in Tourism. Maybe it's because we have a young, confident and well educated workforce.

I don't think Ireland will be down long. We have had our problems. We were mismanaged and to an extent lost the run of ourselves. Fundamentally though our prospects are good and that will eventually come home to roost with the secptics.


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## Delboy (12 Aug 2014)

Duke of Marmalade said:


> Prof Alan Ahearne expressed it well in last week's IT oped. "Those who argued against austerity for the last six years have been proved wrong". Any chance they will admit it?



Is that the same Alan Ahearne who was sat beside Lenihan when the bank guarantee was brought in.
And don't forget it was FF that started austerity...they cut the dole etc before they lost power.

I think your being very selective in your choice of 'experts'


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## Steven Barrett (12 Aug 2014)

> Will it stop David McWilliams telling us how he predicted it all and making more hair-brained suggestions? Not likely.



Repeatedly saying something will happen and then saying "told you so" when it does is not a prediction. I wonder how many people made shed loads of money in between him starting to predict a fall in prices and it actually happening



> Prof Alan Ahearne expressed it well in last week's IT oped. "Those who argued against austerity for the last six years have been proved wrong". Any chance they will admit it?



Without knowing if their alternative would have worked, it's quiet easy to get around admitting that they were wrong.


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## Gerry Canning (12 Aug 2014)

to Duke of marmalade; 

I dont think I have my politics mixed up. 
Mr Voter will tar Fine Gael and Labour with the one brush as coalition (partners).

Interesting thread so far; 

Not sure is the glass half full or half empty!


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## Steven Barrett (15 Aug 2014)

On the news last night, they showed the GDP growth of the US, UK and Eurozone since 2007. 

The US and UK, both of whom have used QE are back past 2008 levels. The US achieved this in 2011. GDP in the Eurozone still hasn't got back to 2008 levels yet. So much for austerity. 


Steven
www.bluewaterfp.ie


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## DerKaiser (15 Aug 2014)

SBarrett said:


> So much for austerity.


 
I feel I'm stating the obvious here, but comparing economic policies for the US or even the EU to Ireland is not appropriate.

We are a small open economy. Relatively speaking, international competitiveness is more important than domestic demand, so a sensible level of austerity over a short(ish) timeframe is a far better strategy than trying to spend your way out of a recession, provided it actually does restore competitiveness.

International trade makes up a much lower proportion of economic activity for the EU and, to an even greater extent, the US. Stimulating the domestic economy is a far better strategy in these circumstances.

In short, a blanket policy of austerity across all EU countries is not a sensible EU policy. It would be far better to encourage economies like Germany to loosen the purse strings a bit and try ensure that there are not too many countries pursuing austerity strategies all at once.

For Ireland, however, our ideal strategy is for other countries to be growing / spending their way out of recession whilst we peg ourselves at a level that improves our competitiveness.

You can judge the success of this policy on our balance of payments with the rest of the world. The massive excess of exports over imports effectively means we are very steadily reducing the amount owed on international support we received through the recession.


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## Jim2007 (15 Aug 2014)

SBarrett said:


> The US and UK, both of whom have used QE are back past 2008 levels. The US achieved this in 2011. GDP in the Eurozone still hasn't got back to 2008 levels yet. So much for austerity.



Buying growth through debt... It is worth noting the the countries with lower debt also have lower unemployment rates!



Country|Net Debt % GDP|Unemployment
Austria|53%|4.8%
Germany|57%|5.1%
Switzerland|28%|3.1%
USA|88%|6.4%
UK|83%|6.1%


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## Branz (15 Aug 2014)

DerKaiser said:


> ....
> The massive excess of exports over imports effectively means we are very steadily reducing the amount owed on international support we received through the recession...



How come, assuming you mean international support to be the euro 200 odd Bn debt?


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## Sunny (15 Aug 2014)

Recovery or not, 10 year bond yields of less than 2% is just absolutely nuts!

http://www.irishtimes.com/business/...s-new-low-ahead-of-possible-upgrade-1.1898039

It will end in tears....


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## Jim2007 (15 Aug 2014)

ircoha said:


> How come, assuming you mean international support to be the euro 200 odd Bn debt?



If you are continuously selling more than you are buying, it is very hard to screw it up in the long term.  This has been one of the basic arguments Swiss financial advisor have been using in recommended Irish bonds for the past several years.

It is also one of the reason why they believe an exit from the EU would see a new Irish Punt rise rather than fall...


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## Jim2007 (15 Aug 2014)

Sunny said:


> Recovery or not, 10 year bond yields of less than 2% is just absolutely nuts!
> 
> http://www.irishtimes.com/business/...s-new-low-ahead-of-possible-upgrade-1.1898039
> 
> It will end in tears....



Given the benchmark rate of around 0.97%, it is about right....


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## Sunny (15 Aug 2014)

Jim2007 said:


> Given the benchmark rate of around 0.97%, it is about right....



Ha ha. No it's not. So the credit profile of Ireland justifies a 1% premium on German bonds?? The current price reflects nothing except ECB offering cheap funding in the repo market so there is huge positive carry in buying Irish debt and then going knocking straight to the door of the ECB. The Euro sovereign debt markets have lost all sense of normality and that won't last forever. That's why it's funny to see the Government congratulating themselves on falling bond yields. Even Greek yields are at ridiculous levels. Government policy has very little to with it. The Irish banks still own the majority of Irish debt so this idea that foreigners are trampling over themselves to buy into the 'Irish story' is ridiculous.


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## Jim2007 (15 Aug 2014)

Sunny said:


> The Irish banks still own the majority of Irish debt so this idea that foreigners are trampling over themselves to buy into the 'Irish story' is ridiculous.



Well believe what you will, but my experience tells me otherwise.


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## Sunny (15 Aug 2014)

Jim2007 said:


> Well believe what you will, but my experience tells me otherwise.



It's not a case of what I believe. Before the crisis, foreign investors hugely outnumbered domestic holders of Irish debt. Now it's about 50:50 and guess who the is probably one of if not the largest foreign investors? Yep, the ECB. We are now borrowing at all time low levels. We couldn't even borrow at this level when we were running multi billion euro surpluses and had a debt to GDP ratio of about 25%. I know fund managers who bought when yields were multiples of what they are now. I don't know any fund managers who want 10 year bonds yielding 1.97%. I do know banks who want them purely for liquidity though.


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## Brendan Burgess (17 Aug 2014)

Duke of Marmalade said:


> My main point in opening this thread was to point out how wrong those various high profile economic commentators have been, and exposed so quickly. Will it stop David McWilliams telling us how he predicted it all and making more hair-brained suggestions? Not likely.



Hi Duke

Your forecast was spot on.Here is McWilliams' latest piece in the Sunday Business Post: 

*Start the presses, Mr Draghi*

_Sometimes, when I hear the European elite  say there is no alternative to austerity, I am reminded of those  moustachioed generals[in the first World War] and the appalling human consequences of their  inability to see that neither tactics nor strategy were working._


_Today,  the European economy is shuddering to a standstill. Both Germany and  Italy contracted in the last three months. Meanwhile, France has  stagnated for the second consecutive month._


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## Duke of Marmalade (17 Aug 2014)

_Boss_, I read the article. Why do I waste time on this nutter? 



> This may sound radical...this type of radicalism demands a rethink of the way we run the economy.


 The radicalism he refers to is his suggestion that the central banks should simply give people money rather than supply it to the banks. His argument goes that if you dole out money to the plebs then they will spend it and the economy will grow. And when inflation returns the central banks simply take the money back. It's this last bit that puzzles me. I know that is the way "conventional" QE is supposed to work - if it becomes inflationary mop up the liquidity by reversing the asset purchases. But reversing the doling out of free money to the punters, how does that work? It's not the first "radical" suggestion by David, he had similar arguments for letting everybody off their mortgages, sure that would encourage a spending spree, the economy would grow and we would live happily ever after.


But what is really familiar about the above quote is David's obsessive self belief in his unique genius - his capacity for thinking outside the box, of coming up with solutions which are radical, which are beyond the imagination of mere mortals. This is exactly how he urged us to leave the euro in 2009. I remember the article, pity I can't trace it, but I recall him implying that it takes a true genius to think outside the box, to contemplate the unimaginable, like Einstein. David fitted that very description (in his own lunchtime that is).

Whilst I am in the mood for saying nice things about David let me remind AAM readers that he fiercely criticised the ECB's LTRO programme - denounced it as printing money no less. I remember a quite humorous YouTube clip he produced which majored on displaying a number with countless zeros. And yet here is telling Super Mario not only to start printing but start handing out the stuff at street corners.


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## Duke of Marmalade (17 Aug 2014)

Here is that YouTube clip

[broken link removed]



> New ideas go through a cycle. First they and their proponents are ridiculed, then they are violently attacked and only then are they accepted as a universal truth. I suspect the same will happen to the idea of leaving the euro.


Just what happened to Einstein, though our own erstwhile hero is still waiting to be hailed as the Messiah.


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## Brendan Burgess (17 Aug 2014)

Hi Duke

That's a great video. The illustrations were brilliant.  I only vaguely understand QE, and like, you I don't know how it gets reversed.  He seems to be advocating something now, while strongly opposing its near equivalent a few years ago.  

Brendan


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## Sunny (18 Aug 2014)

Here is the article from his website if you can't read it on the SBP

[broken link removed]

I think David spends so much time looking for smart analogies like WW1 gernerals that he forgets about what his area of expertise is supposed to be. The idea of QE isn't radical. Bypassing banks to ensure the money flows into the real economy isn't radical. Coming up with a workable alternative would have been radical.


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## Gerry Canning (18 Aug 2014)

This pleb is of the following un-professional opinion;

In spite of, or is it because of ,we appear to be muddling along , the sticks in the dyke are holding and just maybe this flood is receding !

Mr Mc Willam is a very good self publicist.
He reminds me of the comment by a Union General on a Condeferate General.

{He is a very good General , he would volunteer his men for anything}


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## Protocol (18 Aug 2014)

Brendan Burgess said:


> Hi Duke
> 
> That's a great video. The illustrations were brilliant.  I only vaguely understand QE, and like, you I don't know how it gets reversed.
> 
> Brendan




It's easy to explain how conventional QE gets reversed.

With QE, the CB buys lots of financial assets.

They could buy shares, but they tend to buy bonds.

They need to buy a lot, so they need to buy in a large, deep, liquid market.

Typically, then, they buy Govt bonds, as there is a very large market for these assets.

Sometimes, they buy high-grade corporate bonds, or bank bonds, or mortgage-backed bonds.

In the US, the Fed bought lots of Treasury bonds, but also Mortgage Backed Securities MBS issued by wholesale banks.

To reverse QE, simple sell the bonds back into the market.


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## Duke of Marmalade (18 Aug 2014)

_Protocol_

That is my understanding of "conventional" QE. David is maybe not quite arguing that the ECB should give the money away but he certainly is advocating doling it out directly to the public as interest free loans without being subject to normal commercial banking underwriting. 

This is pure crackpot - and yet the SBP gives it an airing. David has become typecast. He has to come up with ideas outside the box - that's what his fans have come to expect. 

Sometimes I think David actually believes in his schemes, that he might believe in the axiom _"it is outside the box ergo it is brilliant"._ 

But I am still prepared to give him the benefit. He is more likely a shrewd cookie simply milking his audience and gullible editors with what he knows to be pure idiocy. The fact that he can a little while back denounce the printing of money and now promotes the printing and giving it away is a rather breath-taking proof that he is simply a cynical showman.


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## Brendan Burgess (18 Aug 2014)

Protocol said:


> To reverse QE, simple sell the bonds back into the market.




Hi Protocol

Is it that simple? If the Central Banks had bought a few hundred million of bonds, then that would be simple. But can they simply sell trillions back into the market? 

Would that not create huge negative outcomes?


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## Protocol (18 Aug 2014)

Well yes, it is as simple as either selling the bonds back into the secondary market, or holding them to maturity when the issuer will repay the CB.

But you are correct, the effects of massive sales on the market is a big issue.

Even the mere mention that the Fed might slow (not stop) its purchases of bonds has an effect on the market.

So yes, when QE in the UK and USA is ended, and if large amounts of bonds begin to be sold back into the markets, that could cause large effects on bond prices/yields, involving massive capital losses.

Now, the CB may decide to either simply hold the bonds until maturity to avoid such instability.

Or they may gradually sell these assets in a careful, controlled fashion, to help avoid instability.


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## Protocol (18 Aug 2014)

http://www.voxeu.org/article/unwinding-quantitative-easing

A discussion of the effects of unwinding QE.


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## Duke of Marmalade (19 Sep 2014)

Stunning quarterly national accounts figures confirming that we have recovered all the GDP lost during the crisis.  Will Gene Kerrigan admit that his simplistic leftie Keynesian rants against austerity have been proved so quickly to be hogwash?  
I note calls on irisheconomy for Morgan Kelly to admit his doom mongering was way off and to apologise for the damage he caused to Ireland's international reputation.


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## Gerry Canning (19 Sep 2014)

There appears to be Trillions upon Trillions of nominal currency value sloshing around in the form of Bonds/Qe etc.

There appears to be more nominal money ie, in laymans terms currency, in the system than could ever be spent, or that could in laymans terms we could ever call value.
There appears to be a confluence of thinking that as long as we keep the nominal currency value chugging along , then no-one will break the shell of these Trillions and cause a serious problem by forcing real value onto this nominal currency. 
On that basis , have we not done well to survive thus far?
I cannot get my head around trying to figure out where real value versus nominal value exists.

To me , all this Qe/Bond buying  has the hallmarks of doing whatever it takes to ensure that we avoid killing the measure called GDP and that as long as we all survive without major shocks , it is as good as it gets.

Maybe this is more than a bookies ensuring the odds do not go out of sinc and cause trouble, but I readily admit I cannot understand it.


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## Duke of Marmalade (20 Sep 2014)

Gerry, I think I see where you are coming from.  Certainly if everyone decided to spend all their money over the next few months the economy could not possibly deliver at these prices.  However in balance sheet terms the money is backed by the enormous pool of human and non human capital.  It is a question of the timing of the exchange of the monetary claims for the fruits of this capital.
Think of the typical graduate fresh from uni - not a bean in the world but enormous human capital. Over the next 40 years or so she will give of this capital in exchange for her little pile of monetary claims.
Hey, it works, don't ask too many questions.


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