Monday, 21 November 2011

A plain meerkat’s guide to economics.

It seems to me that the world economic system is in a bit of a mess at the moment and, as I have an hour or so free, I thought I would give the politicians and economists a few tips on how to sort it out.
Before I start, I feel I should list my economic qualifications so that you can judge my authority and knowledge in this field.
I have relied a great deal on advice from that famous economist, however, Sir John Milton Keynes.
I was also inspired by a chart on a BBC web site that took my attention while I was browsing through the blog of a well known published author at:-
I recommend this blog, do have a read.
So lets get the Euro zone sorted first and then get on to the difficult stuff. The problem all seems to be about who owes how much to whom so take the UK and Ireland as an example. The UK owes Ireland €113.5 bn and Ireland owes the UK €104.5 bn. Now even my simple maths can cope with that and see that the UK owes Ireland €9 bn net. OK that’s simplistic and I know it is different people and companies that owe different banks different amounts but why not look at it in a simple way. I suggest we set up a bank in the UK and call it, oh I dunno, say, The Bank of England and tranfer all the UK to Ireland debts to that bank. Do the same in Ireland, perhaps call this bank, err, The Bank of Ireland. The two banks then net off the debts with the end result that the UK owes Ireland €9 bn. Doesn’t seem so bad now does it? All we need to do is cut down on MP’s expenses for a couple of years and we could pay that off. Think how much we will be saving in interest payments. Now we could do the same with the other countries – if they all had central banks. They do? That makes it even easier. Now all the companies in the UK that were going broke because of all the interest they were paying on their debts are not paying any so they can afford to invest and take on people and start selling to each other. I think this is called economic growth. All these people that are now employed are now not drawing benefits but paying income tax and national insurance so the governments income increases so the deficit can be paid down. This is called a virtuous circle.
There is one big catch to all of this which I am sure you will have noticed, being clever Open University students. Where does the Bank of England get the money from to pay the aforementioned €9 bn that we still owe to Ireland. Well, perhaps they could print some money. What! They already have? Where did it go? I didn’t see much of it, did you? You say they paid it to the banks? Don’t be silly. Why would they do that? Oh, I Asee. Yes, I guess someone has to pay those salaries and bonuses to those poor, unappreciated bankers ( Did you know that ‘b’ is pronounced ‘w’ in German?  Sorry, I digress. ). Here is a different idea. Why not get the Bank of England to print a bit more money – say £100 bn ( None of that Johnny Foreigner Euro stuff ) . I think the population of everyone over sixteen years of age in the UK is about 50 million. Do the math as the Seppos say and you give every adult in the UK £2,000 in vouchers that has to be spent on goods that have been produced in the UK, within 3 months. Wouldn’t this produce more growth than giving it to banks who will buy gold bars and stick it in the vaults – if there is any left after the salaries and bonuses have been paid?
I know it is a bit more difficult because of the difference in owings between some countries. For example, Italy owes France €309 bn and France owes Italy €37.6 bn which means that Italy owes France €271.4 bn net – a huge sum, so what is to be done there?  Italy could invent a new currency – perhaps call it the Lira or something similar and tie it to the Euro. Then devalue the Lira against the Euro by 10% each year. This means that Italian exports in France will get cheaper year by year and so France will buy more of them. French goods will become more expensive in Italy so Italians will buy less of them. This means that the net balance will slowly reduce. To make this politically acceptable to private Italian savers with money in the bank, their accounts should be topped up by the 10% loss each year by the Italian central bank so that they will not withdraw their Euros before they are converted to Lira. After about five years, the net debt will be reduced dramatically, the 10% ‘girdle’ will be removed from the Lira and it will be allowed to find its own level which, at the moment would be at about 50% of the Euro so Italian industry would become very competative again and economic growth would take off. Well, until lunchtime anyway.
The same thing should happen with all the world debt that China are holding. The renminbi is badly over valued at the moment and should have some downward pressure applied by agreement. If the Chinese government refuses then tariffs equal to the required devaluation will be applied by all countries around the world to exactly the same level. This will have the same effect as devaluation of the Chinese currency.
Next problem please.
Alexander Potempkin – Moscow 2011
The General Theory of Employment, Interest, Money and Meerkats – Sir John Milton Keynes 2010

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