peterbirks

If you type the noun "die Schuld" into the German-English translator Leo, the first five results are "debt", "fault", "blame", "delinquency" and "guilt".

I'm not always a great fan of national stereotypes, but I do think that the structure of a language tells us a lot about the way that people within a particular society think, and this inextricable association between debt and guilt in the German language perhaps tells us as much about the German attitude to the current "debt crisis" as does its reported intrinsic fear of inflation more than anything else.

The conventional wisdom on the German attitude to the current eurozone crisis, one in which its remaining allies are now just Austria (or "South Germany" as it's known in eurospeak), Finland and the Netherlands, is that the driving force is some kind of hard-wired memory of the hyperinflation of 1923. Overriding all consideration is the memory of what happens "when money fails". But if you think about this, it doesn't make a lot of sense. Sure, fear of hyperinflation might be a factor, but other countries have suffered hyperinflation without developing such an intrinsic fear of it in future (Hungary, Mexico, several South American countries).

Two other factors strike me as being at least equally as important, and perhaps more so.

One is pure self-interest. TBH, if I were a German manufacturer or employee, all I would see at the moment as a result of Germany standing fast would be a falling euro – something which helps exports outside Europe now that Greece and other peripherals aren't buying German goods. On the flip-side, to accept the idea of eurobonds, infrastructure investment and structural finance deficits might be good for Europe as a whole, but it's hard for the average German to see how it is good for them. At the moment the German bund can pay virtually zero interest and will still get buyers. In other words, the current euro-crisis is actually good for Germany. As soon as things calm down, money will leave German bunds again for elsewhere.

The second factor is tangentially linked to the previous one, and that is that the German people tend to associate debt with wrongdoing. And here we move beyond economics and into an underlying attitude to the way of the world.

Nietzche thought this about "original tribal cooperatives:

"... the living generation always acknowledged a legal obligation to the previous generations ... Here the reigning conviction is that the tribe only exists at all because of the sacrifices and achievements of its ancestors – and that people have to pay them back with sacrifices and achievements". (The Geneaolgy of Morals)

If we accept that Nietzche, like many philosophers and politicians, tends to describe things as how he wanted them to be rather than how they were/are, then this is a revealing sequence.

I think that what we are seeing in the German people at the moment is an unselfconscious attitude to the nature of debt. Not only do they not see why the Greeks (the "indebted" or "guilty" party) should be "forgiven" (note how moral words creep into financial transactions) their debt, but they also feel that for them to do so would be some kind of betrayal of themselves and, in an odd sense, their ancestors. Morality entails a debt to those who came before you in your tribe and to those who come after you. If you forgive an outsider his debt, then that is wealth that you will not be able to pass on, or it is a failure to claim an obligation that your ancestors gained through their own hard labour.

As Graeber observes in "Debt, The First 5,000 Years", the sequence of money/obligation owed follows a fairly well-trodden path. Commercial and consumer loans became a useful way for the thrifty to increase their wealth. In a sense this follows Gladwell's ideas that an "early break" (such as being the eldest in a class) can feed on itself. If I saved a year's wages as a youngster in Mesopotamia BC2,500, I could then lend it out to people who spent more than a year's wages. From that point on, even if I spend as much each year as the initial borrower I am going to get richer and the borrower is going to get poorer.

Eventually the debtor would become a "debt-peon" or, effectively, a slave.

You can see where this is heading. This kind of structure, no matter how much you might think the debtor deserves what he gets, eventually rips society apart. As such, it is in the interest of the ruler, every so often, to wipe the slate clean. Those who are owed money scream blue murder, while those who owe the money point out that they have been living thriftily for several years, but still end up owing their creditors more at the end of the year than they did at the beginning. Not for nothing did the song "You work 16 hours, and what do you get, another day older and deeper in debt", resonate with the "post-slave" cotton workers, who weren't really any less slaves than their parents and grandparents. it was just that the slavery was economic rather than legalized.

"Amnesties" remain a frequent aspect of some autocratic societies, although these days they tend to relate to people in prison rather than people who owe money. But if we look at the world in an askance way, and see the US as the equivalent of the French monarchy in the 17th and early 18th centuries, then some parallels appear. Like the French monarchy, they have the other parties interested in maintaining the status quo over a barrel when it comes to borrowing money. Like in France, there are other parts of society who desperately want debts to remain debts and not to be driven out by bad coin or royal edict.

How does this pan out? Well, in the end, Germany loses. In nearly all of the cases in history where an unsustainable and unrepayable debt has been built up, eventually that debt is wiped out, the slate is wiped clean. The only question here is "how" rather than "if". And the US debt will also, eventually, be wiped out. China, for all its US dollar holdings, will never actually get to claim its pound of flesh. Either the two parties will "agree" to wipe the slate clean, or the US political system will collapse, and China won't get paid anyway.

Once you realize that it's a question of "how" the debt gets eliminated, rather than "whether" or indeed (equally irrelevantly) "ought", it's possible to get something going. The problem is, the German leadership remains in denial because the German population (like all rentiers in history) deny the inevitability of the debt being written off, frequently citing "justice" and other moral factors that, in the end, will count for nothing. "Schuld" might be either "debt" or "guilt" in German, but in French the equivalences are "debt" and "culpability". Not the same at all.

What are our lessons from history here? Well, either the creditors accepted the new reality (and lived) or didn't (and died). Eventually the German people will be faced with a similar stark choice at the ballot box -- go with the newly emerged nationalists who stand as polar opposites to the newly elected Greek nationalists – one side saying "we will be paid" and the other side saying "like fuck you will", or the German people will see that compromise on debt, despite the moral hazard, might just about be the only way for their society to survive.

We live in interesting times.

____________________

I've been a bit under the weather. Only metaphorically. The actual weather has remained superb. We have been very lucky. It's probably the first really good week that Nice has had in the past couple of months.

Yesterday we made my ritual trek around Cap Ferrat - a walk which used to be quite adventurous, but which now is mainly an easy stroll. There were a few parts that tested Craig's vertigo, but he managed it. It was his personal best time and my personal worst. I've been developing a cold for the past three or so days and by yesterday it was beginning to have a physical effect. It was bad enough for me to be happy to come back home after we had finished, rather than attempt a tour of the Villa Ephrusse and its gardens.

On the way to Cap Ferrat we had a couple of slight problems. First I had imagined that it was the number 15 bus rather than the number 81. Then we had to trek to another part of JC Bermond station to find the actual stop. Then, when we actually got ON the bus, Craig's 7-day pass got stuck in the validating machine. This led to a delay. The driver got on the phone. By the time we got to the port, a man appeared with a key to unlock the machine.

( pics from Cap Ferrat and Entrevaux )

One thing that I forgot to mention about yesterday. As the bus we were on passed through Monaco on its slow, slow way from Menton to Nice, a policeman stepped out into the road and held up the traffic as two outriders and a lead car came onto the main square from the road to Beausoleil. A Lexus behind the lead car, number plate MC01, stopped outside the Barclays Bank, and out stepped Prince Albert.

Perhaps the bank manager had called him in for "a friendly chat".
"Now, Mr Albert..."
"It's Prince".
"Sorry, Mr Prince".
"No, it's Prince Albert".
"I do apologize. Mr Prince Albert. We've asked you in for a chat because your account appears to be 503 euros overdrawn, compared with your allowed limit of 500 euros."

++++++

( plenty of Cannes and Ste Marguerite pictures )

Well, I arrived in Nice on Saturday, and since then I've not really done anything that I haven't done before, and it has all been very pleasant.

One thing that is different is that this time around I am with Mr Nye. That means we are sharing a two-bed apartment which is considerably larger than the apartments in which I have stayed before, although, like two if the others, it is on Rue Pastorelli.

Another "all-time-first" was that, since we were flying British Airways, we arrived at Terminal 1 rather than Terminal 2. I've never come into Nice from that Terminal before, so it probably took us 35 minutes longer than it otherwise would have to get to the apartment.

We had a cheap lunch (chicken and chips!) at a nearby brasserie and Craig began his so-far-continued trek in search of new beers. This time round it was Paulaner. Then after a bit of a rest we went for a quick walk round the old town and had dinner at Chez Socca. I bought up a random collection of snacks (including the socca) and overall found it disappointing, and overpriced. Socca is a ligurian speciality. It is made by stirring chickpea flour into a mixture of water and olive oil to form a loose batter, and baking it in the open oven. People come back from Nice raving about it. I remain unconvinced.

On Sunday we walked around the cour Saleya in the morning and then caught the 17 bus up to the Monastery to look at the Jazz Alleys and at the Roman ruins. The museum was free, and Craig managed to find a detachable sword. The we walked to the Franciscan church and found Matisse's grave.


( quite a few pictures of Nice, Monaco and Menton. )

Because I was catching up with a number of movies I had recorded off-air I was lax in watching my Lovefilm-supplied "The Guard" (2011), starring Brendan Gleason and Don Cheadle. It's a pleasant-enough film -- indeed, perfect for a weekday night when I don;t want to tax the brain too much. Gleason is top notch, Cheadle is good, the support cast is fine. There are some fun little ideas -- the drug-smugglers discussing Nietzche being particularly enjoyable.

It's one of those nice low-budget movies that come out of the British Isles every so often and which occasionally sparkle like "Gregory's Girl". "The Guard" is not that good, but it is definitely great fun.

Anyhoo, Lovefilm, clearly concerned that I had died, appears to have an interesting marketing strategy if you hang on to a movie for too long. Do they send you a gentle reminder? No. Well, they do, but what they also do is just send you another film anyway. This is brilliant. You feel grateful to Lovefilm for not hassling you, and you make the effort to watch the film if you still have it. If you've lost it, well, Lovefilm writes it off (presumably they accept a loss rate of about 5% or thereabouts) at least the first time.

So I made the effort and I sent it back, with another film ("The Tree Of Life") arriving the same day. That, I assumed, would get me back on track. But, no. Lovefilm has sent me another film, so now I appear to be on a two films at a time sequence rather than one.

The second film is the legendary "Man With A Movie Camera" (Russia, 1929) with, I suspect, the Michael Nyman score. With silent films the accompanying score is almost as important as the film itself.

Roger Ebert appears to have "Tree of Life" in his list of top 10-ever movies, which is interesting, given the mixed reviews that it has received. I watched about 10 minutes on a plane, but quickly realized that the film demanded a bigger screen.

++++++++

I managed to end April in front on the tables. I played the UKIP league, which was lucky, because Stars has dropped it for three months. Nearly every night was an overlay, not even counting the league prisze at the end.

I've also been puttion 20FPP a night into the turbos kicking off at 7.05pm. A couple of good results there gave me a $104 return on the month for those, but I won't get many nights of third out of 4,600. I'm targeting 6¢ per FPP for the year on those tournaments (plus the Saturday night 100FPP tourney). April was 920 FPPs for $104, or 10.7¢ an FPP or thereabouts.

The Cash games are just a perpetual struggle -- where the main enemy is just beating the rake, because there are so few fish around. Weekends are where you can pick up profit in actual open play. During the week it's just a matter of building up FPPs and Stellar Reward levels.

The "Road to 80bn hands" and a reload bonus because of SCOOP are all adding to effective rakeback. It's hard to work out how much that rakeback is. The reload bonus is averaging out at 19%. (a cent a hand or about two bucks an hour) The bonuses on hands appear to give me (six-tabling) something like a 1-in-2,000 chance every hour of hitting for an average of about $500. So that's a mere 25 cents an hour or .1 of a cent a hand. The stellar rewards are probably about 10 cents an hour. And there's the FPPs, which would "nominally" be $6 an hour, but that entails playing in tournaments to win it. That halves the return to about $3 an hour.

So that pushes the current rakeback to about $6 an hour out of an average of $10 an hour rake. 60%. If you just take cash for the FPPS it cuts to about 40%. Still quite respectable.

But when the SCOOP bonus expires (after just 30 days!) the rakeback reduces to $3 to $4 per $10 paid in rake.

____________

An absolutely top-notch column from Gideon Rachman in today's FT about the French election. He makes many perceptive and valid points, not least the analysis (which should be compulsory reading for all those who say how "wonderful" French life is compared to the UK and "why can't we do it the French way?") that:

"The French know that their cherished social model – with its excellent infrastructure, healthcare and pensions – has been built on an usustainable mountain of debt".

However, the more interesting conclusions are political rather than economic. The eurocrisis is rapidly becoming a political crisis rather than an economic one. Yesterday the Dutch government collapsed because of differences over austerity. And Germany steadfastly refuses to accept this reality. Only yesterday Jens Weidmann, Bundesbank president, said that

"We can only win back confidence if we bring down excessive deficits and boost competitiveness. In such a situation, consolidation might inspire confidence and actually help the economy to grow".

The problem is that many electorates have heard this message and are saying "go tell it to the marines".
As Tony Barber also observes in today's FT

"Today's reality is that the financial crisis, whatever its origins, is stirring a potentially far-reaching crisis of legitimacy in Europe's political system".

FFS, if a journalist can see this, why can't the head of the Bundesbank see it?

And so, back to the French election. Rachman raises two, somewhat contradictory, issues here.

The first is that about a third of the voters in France went for "outsiders" – those who ostensibly reject the status quo. But the seond is the more interesting. Rachman notes that, for all the rhetoric, what was most interesting was how similar were Sarkozy, Hollande, Mélenchon, Le Pen and Bayrou. All of them attacked globalization. All of them emphasized the wonders of the French social model and that the French "solution" was a model that the world should follow. Reality, as it were, took a back seat.

The differences were mainly tactical. Sarkozy is, in essence, talking about rebuilding borders. If the French can't export their own model over free frontiers, it's damned if its going to import someone else's. As Hollande said in a speech last week;

"The French are a free people, who will not allow their future to be determined by the pressure of markets or finance".

We've heard that before, in Greece. But when it comes to not having the money to pay the salaries of the people who voted for you, it's amazing how this line of "stuff the financial markets" gets forgotten.
Le Pen, meanwhile, sings the Marsellaise (not very well, I thought, but, hey, she's French and I'm not) at her campaign headquarters and also (like Sarkozy) argued for protectionism, but went further and argued for a withdrawal from the euro. To the outsider, the differences between Le Pen and Sarkozy are less than the similarities.

The extremists, or, in cases, simply the "anti-Merkels" are gaining strength. In the Netherlands it's the Freedom Party of Geert Wilders. In the June 2010 elections the PW gained more than 15% of the vote and 24 seats out of 150. That was the slow fuse that eventually led to the collapse of the Dutch government this week. That will likely lead to a new election. What percentage will the Dutch Freedom Party win – a party note that roughly follows the Le Pen line on withdrawing from the euro and banning immigration.

I would, by the way, take issue with calling either of these parties "fascist" on the grounds that they want to ban immigration. If you agree with this then effectively call James Callaghan's strategy in the late 1960s fascist, or the Australian governments since heaven-knows-when as fascist. Much though I dislike any restriction on economic movement (I think that we have it arse-about-tit banning people who want to come here to work but accepting people who want to come here because they are being persecuted somewhere else), let alone restriction based on race, it's a sad fat of life that most people support it, and they supported it in the UK when it was backed by both Labour and Conservative parties.

Indeed, the Front National in France seems to be doing it's level best to remould itself as a kind of Nationalist anti-libertarian semi-socialist "solid French" party not dissimilar to the constituency to which the Nazi Party appealed in Germany in the late 1920s. That party (and the Communist Party) were also quick to blame "the bankers" (except that the Nazis called them "the Jewish Bankers").

As I've written before, this uprising against the rentier class (for, to be sure, this is what it is) has been seen many times before, and is often the result of a long period of low inflation. Low inflation and high real interest rates work intrinsically in favour of the rentier class. It also suppresses social mobility. Low inflation is, therefore, implicitly favourable to the conservative wing of society and unfavourable to the have-nots. (I am aware that a separate discussion here would be the hyper-inflation of the 1920s and the fact that "have-nots" can also be part of the rentier class, as in Russia in the early 1990s, where pensioners' savings were wiped out).

Parties that appeal to this "have-not" group will inevitably get more votes as more people join the non-rentier class.

It's that which will make the election in the Netherlands so interesting.

++++++++++++++

So, there was a response to my last post which said that I appeared to be a bit more optimistic of late. To which I replied, well, yes and no.

Let's take the "yes" part of the equation. As I wrote at the beginning of the crisis, when people still seemed to think that it was about liquidity (not least the board of Lehman Bros), it seemed obvious that this was a solvency crisis rather than one relating to liquidity. Or, rather, just because there's a temporary liquidity problem does not mean that if you solve that then you solve the problem.

In the three and a half years since, it's become increasingly clear that there are several types of "solvency crisis" (four spring to mind) and each of these can be either quite small or very big or anywhere in between.

The key dynamic here is, time.

So, what are the four types of solvency crisis?

1) a crisis that is going to bite you in the arse really soon, but which is getting better
2) a crisis that is going to bite you in the arse very soon, and is getting worse
3) a crisis that isn't going to bite you in the arse very soon, and it's getting better
4) a crisis that isn't going to bite you in the arse very soon, but is getting worse.

It's also possible that various parties will disagree on whether any particular problem needs solving quickly, and whether it's getting worse or getting better.

Let's have a look at these categories, and try to put in some real-life contexts:

(1) Ireland is, I think, a good example of a crisis that was short-term, needed solving quickly, but which is getting better. The Irish have, quite staggeringly, restored their international competitiveness without a devaluation. To achieve this in such a short time is terrifically impressive. So, reason to be cheerful, part one.

2) The obvious example of this is Greece. Indeed, the arse-biting has already occurred, and the world has survived. How has this happened? Simple, by the expedient of kicking the can down the road. Financial services companies were allowed to widen their margins. They used much of this generated cash to write off Greek debt that they held. In other words, the rest of Europe, facing declining living standards, helped pay off the duff Greek sovereign debt held by international companies. This was only possible because the Greek debt is small relative to the global economy. Reason to be cheerful, part two.

3) Long-term crises that are getting better are hard to find, not least because, since the crisis isn't an immediate threat, there's no impetus to solve it. On the plus side, because it's a long-term crisis, it's only a problem now if there is a collapse in confidence.

4) Long-term crises that are getting worse. A fine example of this is Italy. Sure, the economy is a mess, and there's no sign of it getting better. But it's a relatively sustainable mess. And it's no more of a mess than the UK's "pensions time bomb". The "time bomb" analogy is hopelessly misleading. We don't have the money to pay all of the pensions that people think that they are going to collect (whether the worker has contributed to that pension or not is, I fear, an irrelevancy, an accounting foible). Promises, one day, will have to be broken. But they can be broken a bit at a time. And they don't have to be broken tomorrow. That's how it is with Italy. Provided domestic savings goes into Italian debt, and provided young people can leave the country to find work elsewhere, a country whose economic system is laughable and whose production values are pathetic, can carry on for decades. In other words, provided confidence is maintained, Italy is not going to break. Reasons to be cheerful, part three.

There are other plusses. The major factor in putting off some of the recent financial threats has been the Long-Term-Refinancing-Operation (LTRO), a neat trick of free money (€1trn of it) that isn't called cranking up the printing presses. But, what is it really? The only difference between LTRO and just printing shedloads of cash is that the latter is an undated interest-free loan whereas the former is a dated low-interest loan. But if you think about it, this difference disappears, because LTRO a dated loan that, as things appear at the moment, can never been redeemed. When it's time is up in three years, it will quietly be redeemed at the same rate of interests until, in 60 years time, it just becomes part of the money supply.

As I think I wrote a couple of years ago, the problem of solving a "that money never existed" problem is finding someone to pay for it. As I also wrote, it has become clear that the borrowers have won. his might look wrong, in that it's the banks (the "lenders") that got bailed out. But this is smoke and mirrors. Banks are just brokers between those who are consuming more than they are producing and those who are producing more than they are consuming. Notwithstanding all of the public pronouncements, notwithstanding the horrors that are occurring in Greece as I write, the net overall effect of the current "solution" is that those who have consumed more than they produced over the past 12 years are not, indeed, cannot, pay it all back. And even if they tried to pay it all back, the impact on domestic and global economies would be profound. A "solution" of a transfer of wealth from savers to borrowers will "solve" this problem. Of course, it's not a solution to everyone's taste, but that's what happens when you think that a lot of wealth exists somewhere that actually doesn't exist at all.


So, what's the downside? Well, the downside is that there are other examples that are not so easily solvable. As everyone else is writing at great length, the primary one at the moment is Spain -- or, to be more specific, Spain's banks, which are relentlessly refusing to write down the value of property to a realistic value. Spain is bigger than Ireland. Spain is not making itself more competitive. Spain has very high youth unemployment.

Can it fudge through? Perhaps, but it's looking increasingly unlikely. Portugal, of course, is already a dead man walking. It's another country where it could be difficult for democracy to survive. When Portugal goes, will that drag Spain down?

These are big questions that require big solutions, and at the moment there's no sign that anyone is going to come up with them. Most of the other problems in Europe (including France and its horrific exposure to Italian debt) are big problems, but they don't require immediate solutions unless there is a crisis of confidence. Spain could require an immediate solution, relatively quickly.

The question is, what kind of fudge/can-kicking/radical solution can Europe come up with? Strange as it may seem, there are a number of options available. This problem is, after all, no worse than the rural bank crisis that hit China in 1999. How was that solved? By the simple expedient of bringing in foreign cash. The same could be done in Spain, if the Spanish could swallow their pride. And that, of course, is the nub. There are many solutions to what is a not-very-big-problem in the grand scheme of things, but every one of those solutions goes against the grain with at least one interested and powerful party. The IMF fixers, the Eurozone bully-boys, Merkel, the World Bank, and Spain's government itself are all opposed to solutions that might be acceptable to four or five of the other parties. If all of them dif in their heels, then Spain could head perilously close to default or, more likely, a confidence crisis that no number of crisis meetings could solve.

Will that happen? My guess would be, 30:70 (i.e., 70% that it won't). The doomsayers are confusing the long-term threats with the short-term threats, the big dangers with the small dangers. The short-term threat, even a €500bn short-term threat such as Spain, does not have to be solved all at once. As we have seen with Greece, if you can solve a bit now, and a bit next year, then you can stave off the apocalypse.

But the long-term systemic problems remain. The euro as it is is unsustainable -- we are seeing creeping fiscal union, although the one "never" candidate here is likely to be Germany, which is quite happy being part of a group telling another country what to do, but definitely doesn't like the idea of all the other countries pointing out that the German financial system is, er, not that hot, and needs changing.. But the whole euro structure as is, cannot survive. That does not mean that the euro can't survive; it can, and I think that it will. It just won't survive in its current form. The solution that I think might get past all the objections is a kind of "two-track" euro. This will enable two interest rate levels (and you can switch from one to another) and currency movement controls between countries. Sure, there would be cash smuggling, but you could have a "soft euro" and a "hard euro" with stamps on the soft euro, That could have a nominal 1:1 exchange rate that might change down the line. If a country moved from soft euro to hard euro, there could be currency exchanges. It would not need to be an overnight announcement (which is what we would need to head back to pesetas or drachma).

Inflation is coming, equities will be the best long-term bet (especially those with defensive pricing capabilities and with exports to the Far East). Democracy might die in a few Eeuropean countries. Isolationism will gain in popularity. Free movement, free trade, and a rather pleasant globe-trotting world, might become something we look back on fondly. The future isn't bright, or orange, but I don't think that it will be apocalyptic.

++++++++++++

I've started reading David Graeber's excellent Debt; The First 5,000 Years. Graeber is an anthropologist rather than an economist (remember, Gillian Tett started out as an anthropologist) and I'm slowly coming to the conclusion that anthropologists have more to tell us about the current euro-crisis than do economists.

Graeber starts off by exploding one simple myth -- that debts have to be repaid. That myth is entrenched in the current euro crisis. "You borrowed the money. You must repay it", says Germany, the IMF, the ECB, and, indeed, some of the victims themselves. TO fail to repay a debt is somehow dishonourable, morally reprehensible.

But let's have a think about this. As Graeber points out (somewhat obviously) if all debts had somehow to be repaid, the lender would not need to check on the creditworthiness of the borrower, because the lender would know that he would be repaid. Similarly, interest rates would be virtually zero, because the lender knows that the debts are going to be repaid.

But it doesn't work like that. When a potential lender and a potential borrower come together, the lender prices in the risk that he will not be repaid, and sets the interest rate (and other matters, such as the amount he is willing to lend and the collateral) accordingly. Defaults, therefore, are all part of the game. That lenders take the moral high ground on this is interesting, in that, when looked at this way, the whole thing is a simple financial transaction where the lender takes on a risk and, if he gets it right, he gets paid accordingly. There's no moral "wrong" in defaulting.

There's a well-known saying; "Neither a borrower nor a lender be". This conceals a deep moral contradiction held within our society, which can see how lending and borrowing are very useful when it comes to oiling the wheels of capitalism, but which remains intrinsically uncomfortable at the concept of some people being designated as "in debt" and others being "owed".

Graeber spots another odd thing about debt, once that is also reflected in the saying "When you owe the bank a million dollars, you are in trouble; when you owe the bank a billion dollars, the bank is in trouble". It is this fact, writ large, which explains why the US is not, as we like to term it, the largest debtor in the world. The rest of the world is now in the situation where we are the bank that's owed a billion dollars. It's us (the rest of the world) that is in trouble, not the US.

But, to return to the eurozone crisis. The current groupthink is that, if Portugal follows Greece and then Spain follows Portugal and then Italy follows Spain, the result will be financial Armageddon. But, would it? History is littered with instances of debts being written off. Indeed, one could argue that most revolutions prior to the nineteenth century were about the indebted writing off their debts by the simple strategy of killing the rentiers. What we currently know is that billions of dollars which we thought existed (and which the rentiers therefore counted at 100%) didn't really exist at all.

Which brings us back to the pricing of risk and the fact that default is all part of the game. What happened here was that the lenders, quite simply, mispriced the risk. As such, they are upset not so much at the fact that Greece and Portugal are defaulting, as at the fact that when they lent the money they did not set the correct price for the risk.

Why was this? Because it was the eurozone. The lenders (many of them German, many of them French) assumed that a loan to Greece was not far short of as safe as a loan to Germany, because Germany was seen as an implicit guarantee of the loan.

The key word here is "implicit". It has come to pass that Germany insists that it is no such thing. The ECB insists that it is no such thing. When it comes to paying back its debts, Greece and Portugal are on their own.

And so the lenders are insistent that Greece and Portugal DOES pay back its debts. What in fact they are saying is "we lent to you at 3% a year, and therefore the debt must be as safe as if it was a real 3% a year debt".

But that puts the cart before the horse. It's like in poker when a player on tilt bets far too big with a hand on the spurious grounds that, since you bet big with really good hands, somehow by betting big you make your hand really good. The lenders lent to Greece at 3%, therefore it must be treated as a 3% risk, not the 20% risk that it really was.

The lenders have had their arms twisted when it comes to Greece. The write-offs last year came thick and fast, helped by profitable cash-flow. In other words, the current borrowers are paying off the Greek debt, rather than the original lenders (that's why base rates are 0.5%, savings rates are 2.7% and borrowing rates are 4.7% - that 2pp margin is in many cases going to Greece, or Ireland, or Portugal).

But the borrowers, and this includes Spain, should simply say to the lenders "look guys, you totally fucked up on this one. If we default on you, the world won't come to an end, although your company might. But that was your fault. What on earth were you thinking of, lending to us at such a low rate?"

That, as it were, is how debt works. Sometimes your gamble pays off and you get paid. Sometimes it doesn't, and you don't. The five years to 2008 were a period when lenders lost sight of this simple fact. They were awash with cash and they wanted to create debtors. I remember a conference where the head of lending at Alliance & Leicester BOASTED at how those people who had been shifted onto flexi-mortgages nearly all owed more at the end of the year than they did at the start. Risk management was, quite simply, thrown out of the window.

So, sure, the banks didn't drag people off the street and force them to borrow. Hell, no, because in effect what they were doing was selling a $10 product for $5. No wonder people queued up to fill their boots.

Looked at in this way, the borrowers who are going to find inflation wiping out the money that they owe have done nothing "wrong", not in any economic sense. Hell, if I'm an unemployed junkie and a bank is willing to lend me $10,000 at 3% interest, who is the economic moron? The junkie, or the bank?

If you think of Greece in the 2000s as a kind of unemployed junkie, then it becomes clear that all the mistakes here were made by the lenders (who mispriced the risk) rather than the borrowers (who took advantage of the mispricing). Therefore the IMF, and Germany, and much of the media, take the moral line that "you have to repay your debts". But, as Graeber points out, this is a nonsense. Lending and borrowing are economic rather than moral transactions. If the borrower defaults, all that the lender can hope is that he priced the risk correctly in the first place.

Which brings us to Spain. As Wolfgang Munchau points out in this morning's Financial Times, you would think that the powers-that-be in Germany and the IMF and the ECB would notice that panics over Spanish bond yields and weakness in the euro have tended to come not after Spain tells the powers-that-be to fuck off, but when Spain actually announces tough new austerity plans as a "solution".

If Merkel was right in her analysis, the interest rates should fall when Spain announced plans to implement what Germany is urging. In fact, yields on Spanish bonds have only fallen when the ECB throws money at the markets (via the LTRO announced last December), indicating a possible expansion out of the crisis, rather than a bunker-like shrinkage of expenditure. In other words, the markets aren't worried about the Spanish deficit, they are worried about the austerity "solution". The euro, the markets think, can only be solved by inflating away the debts of the peripherals and restoring price competitiveness via money-pumping.

The paradox here, of course, is that pumping money into the economy theoretically reduces the value of that currency, so the euro should weaken as a result. Indeed, Merkel uses obscure science logic here to assume that, if this is the case, taking money OUT of the economy will strengthen the euro. But it doesn't work like that. The strength of a currency is a subtle balancing act that requires a mix of stimulation and caution. What we have at the moment as a "strategy" is too much caution and not enough stimulation.

Oh, and as for those debts -- write 'em off, let many of the banks go bust, and then stimulate your way out through good old Keynesian public works. This will absolutely slaughter the rentiers -- which is why, of course, they are all putting forward their "moral" arguments and insisting that this must not be allowed to happen.

A frustrating day on the everything front -- one of those days when I wondered whether I had turned from my normal "ever-so-overprepared" person into one of my friends who are noted for there lack of correct advance thought.

I picked up my Amazon package this morning and took my shoes in for repair. Then I took the usb-stick into Happy Snaps to get about 90 snaps developed. So far, so good.

Then things went slightly awry.

First, my nice new Haas & Cie watch suffered from the fact that it was built for a man with the wrist the size of my forearm. OK, I can get that done when I go to pick up my shoes, I thought. At last the fact that watch-repairers and shoe-repairers are in the same shop!

Then, as I fitted my new WiFi connector for my LG TV, so that I could watch streaming from the Internet on my TV, I couldn't work out why it wouldn't show any network connection. Perhaps if I had thought it through I would have realized that it was my Panasonic DVR that was internet-enabled, not the TV -- and the DVR didn't have wifi capability either -- only wired.

So, that'll have to go back to Amazon under the 30-day returns policy. Postage shouldn't be too much. But, a hassle, nevertheless, and a bit of stupidity that I don't usually fall for.

When I took the watch into get some links taken out, it transpired that when removing the rubbber sole from my shoes, the leather sole underneath had come away. Last pair of Churches I buy. No extra cost, but extra time required.

I couldn't go back this afternoon, because I was waiting for the man to come to repair the fridge-freezer.

He did turn up, but he effectively said that the fridge was a write-off because the back of the fridge interior had separated from the condenser wall. That meant that the compressor was working far too hard because the sensor wasn't able to work properly. All of this rang true. I'm awaiting a quote for a new compressor, but he said that, TBH, it might be best to write it off as a bad job. He was very surprised that the fridge-freezer was only three years old.

I may get the new compressor, get a year out of the machine and then trade in for an under-the-counter fridge-only (where my never-used dishwasher currently sits). That would free up quite a lot of space in the kitchen, and I could put a table in there with a couple of chairs.

Still a bit of a pisser, though.

So, all-in-all, a day when electronics has got the better of me -- without any computers of Microsoft being involved (something of a first). And much of it was my fault. That said, the AEG-Electrolux model that I bought got almost universal rave reviews at the time (notwithstanding the fact that I hadn't read them before making the purchase!) so I would probably have gone for it anyway.

It's amazing how much time is taken up by admin tasks when you don't make the effort to get it right first-time round. Today I think I wasted about three hours through no fault of my own and three hours because I failed to prepare properly. Lesson learnt.

Interesting last two turbo tournaments. Both times I went out with flopped flush under flopped flush.

____________

I think that a great deal of what I used to put into Live Journal now goes into Facebook and personal e-mails. There are probably several reasons; last August and the amazing negative response that I got to one post led me more in the direction of Facebook, where at least only a designated (albeit reasonably wide) audience can see what you post. Added to that, in the old "the medium is the message" style, I began to feel that the blog now consisted of something completely different from its initial derivation (a web diary) and had become more of a place for essays. This is no bad thing. The world had lost a medium for samizdat, and the blogs that remain often contain well-thought out essays on current events. A far cry from early days of 14-year-old goths joining a 10,000 strong online group entitled "Why am I so different from everyone else and why am I not in any groups?", or 11-year-old girls writing about how she is certain that she was adopted as a baby because her parents are nothing like her and absolutely do not understand her at all and life is so cruel and why won't that nice boy in class look at me?

Essays are all well and good, but more often than not they require a bit of work. Even, shock horror, research. If I'm particularly attracted to a topic, I'm fine with that, but I'm not going to do it for its own sake.

I also have a weekly column now in the Insurance Day trade paper. OK, it has to be about insurance, but apart from that it isn't that different from this blog.

All of that means that occasionally some things fall through the Facebook/LJ gap. One of them was a review of Napoleon and of my last couple of days In San Francisco. There was no real time to do one on the Sunday, and by the time I got back I was straight back into the office on the Tuesday, and was jet-lagged for nearly a week. (On the plus side, going into work does drive you back into proper body time far quicker than if you stay at home for another week).

So, let's go back to the old-style blog, a kind of online diary keeping other people I know, but with whom I do not talk that often, up-to-date with the ongoing travails of the Birks life.

Here's some pictures of my last Saturday in San Francisco (or, rather, Oakland - which, apart from the movie, appeared to be shut).

( some pictures of the Paramount )