Numbness Outside Of Knee

The strange war chest

Within a decade China has built a fabulous exchange reserves mainly in dollars. The official figure reached 1.9 trillion dollars and some of the estimated more than 2300 billion dollars.'s GDP of china, it comes only reach 3.5 trillion dollars. These reserves in recent months of financial turmoil aroused great passions and especially very large fantasies.

The problem is often stated as follows: during the last decade, trade relations between the U.S. and China were unbalanced. China has enjoyed a strong trade surplus that enabled him to build huge foreign reserves that it has converted mainly U.S. Treasury bills. But with the economic crisis and financial deficits have exploded U.S. State (the U.S. deficit will reach 12.9% of GDP in 2009) and the Fed has blithely run printing money (base money doubled in the United States within 6 months). China feels trapped address these growing risks of default and inflation. High inflation in the U.S. would collapse the price of dollars and therefore result in a loss of capital importance for the Chinese central bank. Chinese stir, and call on U.S. to pursue a fiscal policy and monetary wise. The Chinese treasure may evaporate. tensions grow between China accused the U.S. of Chinese exports have paid with funny money and the U.S. accusing China of deliberately manipulating the exchange rate to maintain strong trade surpluses. The delicate balance between Chinese who are benefiting from their trade surplus to maintain strong growth and the U.S. who are financing their monstrous budget deficit by the Chinese government could collapse with all the consequences that implies.

The reasoning I have just described is virtually meaningless. Yet it is repeated with the utmost seriousness by a large number of commentators decked out in their caps "expert". As often, the most basic principles are evaded. To try to understand the situation in China meet its reserve we will reflect on some points.

First, China's reserves have so far been the big winners in this economic crisis. Interest rates on U.S. Treasury bonds have collapsed. This implies that the price of long-term bonds held by the Chinese central bank has exploded. Meanwhile, the dollar was widely reassessed against the euro. The consequence is obvious: the value of China's reserves is more important than it was a year ago.

But there not even the issue. In reality, the Chinese central bank to make capital gains or capital losses, it has almost no importance.

How are China's reserves?

When currency area enjoys trade surpluses against another currency zone, the currency of this material should be revalued (its value should increase). When a U.S. company important to China, it pays in dollars. These dollars are then changed by the Chinese company in yuan. When Chinese purchases in the U.S., it will change its yuan to dollars. Thus, if China exports more to the United States it imports, the demand for yuan against dollar will be stronger than the demand for dollars against Yuan. Thus, as the basic principle of supply and demand, the value of the yuan against the dollar should rise. But if the yuan is reassessed, Chinese products may be less attractive for American companies. Likewise, American goods are more attractive to Chinese consumers. Thus, it would deal a blow to China's growth. To maintain the competitiveness of Chinese products, the central bank intervenes in markets exchange to achieve the desired exchange rate. To do this, it simply creates it sells the Yuan against the dollar. This will balance the effect of trade surpluses and the course of the Yuan remains stable. These dollars are then reinvested in Treasury bills for the simple reason that it is impossible to find 2000 billion dollars in base currency. Base money was only 800 billion U.S. a few months ago. Treasury bills are both the closest substitute of money and financial assets are widely available since the Bush presidency.

China has accumulated this treasure of war not for future needs but to stimulate and sustain economic growth at two points in his country. Fears about a "capital loss" of China's central bank are absolutely irrelevant. Again, many commentators confuse bank and central bank. Both types of institution have nothing to do.

What could make the Chinese government with these reserves? He can not spend it on the market because it would mean a conversion of dollars into yuan, which would mechanically raising the price of the yuan. That is exactly the effect that the government China tries to avoid. The Chinese government does not use large-scale reserves for placing orders abroad because this would penalize its own industry. The Chinese government can not begin to buy large shares of foreign private companies. Indeed, if this was done on a large scale, the tensions would be too great with the countries where companies are based. What sovereign state would support the nationalization of its business by a foreign government?! Such a strategy would only provoke protectionist reactions weakening the Chinese export industry. 2 000 billion unusable!

Do not forget that the Chinese government's goal is the industrial and economic growth and not the accumulation of foreign reserves. Thus, if foreign reserves are losing their value, it would not change anything .... China is by no trapping dollars as the value of its foreign exchange reserves does not affect its real wealth.

It is really strange that so much confusion may be done about it. Mercantilist episodes in Europe of the sixteenth and seventeenth century are yet well known. This economic ideology was to accumulate gold reserves of the most important potential by exporting as much as possible and the least important. The gold used in power to buy weapons to defeat his opponents and survive. It was in the service of economic policy. It was then, thanks to Ricardo and its precursors, including the direction of the exchange was to increase production at each of the commercial players to improve the material well-being of populations.

It is really amazing to see so many commentators moved possible "loss of capital" of China's central bank. Some also fear for the capital of EDF buys more and more debt to support its private bank loans. A central bank is not a bank. The confusion comes from the form in which central banks' balance sheets for companies like classical value of the asset is equal to the liabilities. Reserves in gold and foreign exchange, loans made to banks are capitalized. The currency in circulation is the liability. If the asset is devalued, what about liability? Money Does any value because it is supported by the value of the assets of the bank Central? The answer is no. The great economist Silvio Gesell already ridiculed in the 1910s the style of German banknotes "This ticket entitles you to 100 marks from the Central Bank", explaining that it is identical to write "who will share his ticket to the central bank will receive 100 strokes of the cane. " The currency has no value because it has an equivalent to the central bank, it has value because there is a demand for money, that money is scarce and it is recognized by the state and used to pay the tax. The central bank balance sheet structure as rest of our monetary system is a relic of the old gold standard. We experience reality in a system that has not been redesigned in the fall of Bretton Woods. Keynes took up the concept of money demand Gesell'm taught in all classes of the world economy, the ridiculousness of the situation does not jump in the eyes of many.

A question persists. Why Chinese rulers they are moved to the political risk of significant inflation in the U.S. (according to risk me greatly overstated)? The reason is simple, if markets expect high inflation, the dollar could collapse. Automatically, the yuan will be stronger against the dollar than it was and Chinese exports may suffer greatly.

What China fears reality is that in the United States begin to practice the same strategy as his own, that is to say, is to knowingly to devalue its currency to boost its exports. What the world should fear is a mad race to the devaluation. Currently only China and some Asian countries including Japan's large-scale practice. These devaluations allow China to take greater advantage of international trade as their neighbor. This is the famous strategy "remains your neighbor." As China is the only practice it, it only causes of the financial imbalances. However, if everyone practices this strategy, the effects can be catastrophic. One of the great lessons of the 30s. The competitive devaluation that took place in the 30's was the final result of uncontrolled rising protectionism and a total disruption of world trade.

If the strategy of China was tolerable during expansion, it becomes difficult in times of crisis. If in the coming years China continues to maintain strong trade surpluses, while manipulating its currency, while unemployment remains very high in Western countries, tensions will worsen. These reserves, if it is unnecessary to have great chance to become the anchor of our economic frustrations.

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Chinese Ending derivatives

Imagine if McDonald's was the largest shareholder WEIGHT WATCHER or SlimFast. Imagine if our rehab centers were held by major drug traffickers. The boundless cynicism of those men you would then appear as an absolute scandal. Basically, the banks act in a similar manner with impunity and without awakening the slightest hint of scandal.

The term "derivative" includes a large number of investment more or less complex and exist in the money markets, bond, action or raw materials. If the title of this article is obviously excessive, I will try to demonstrate just how many of them destabilize economies and their share of responsibility in the financial crisis we are experiencing.


begin with currency derivatives. They are to be able to exchange 1 week, 1 month, 6 months in advance a certain amount of one currency against another currency at an exchange rate fixed in advance. I can today and I agree with a bank to exchange euros cons XX YY dollars at a rate close to that today with a bank. Their role is to introduce a few certainties in the midst of enormous fluctuations in the exchange market. Indeed, how can companies manage any of his predictions, knowing that exchange rates can vary from 5, 10 or 20% within a few months. For a company that exports, the turnover which range from 5, 10 or 20% with the variation in rates. But the costs, however, are fixed in the national currency. Imagine a plane that Airbus sells for $ 10 million on 1 January. Payment is due on 1 June On 1 January the exchange rate is 1 € = 1.40 $. Airbus estimates that during these six months, the exchange rate may vary between 1 € = $ 1.20 and 1 € = 1.60 $. Thus, Airbus may receive 8.3 million euro in the most positive cases but receive 6.25 million cases in the most negative. If the cost is 6.5 million euro. Airbus can make a profit of 1.8 million euro, but could make a loss of 250 000 euros. This shows how much the currency risk can be critical for a company. To manage this risk, Airbus can subscribe to a derivative that will offer him a monetary bank. Airbus is January 1st to sign a contract under which Airbus will exchange 10 June to 1 million at a rate of 1 € = 1.43 $. Thus, on 1 June, Airbus is sure to receive 7 million euro and make a profit of 500,000 euros.

What wonderful service! The bank through its financial services has preserved our Champion European Aeronautics the terrible exchange rate risks plaguing our beautiful planet. The bank does itself no risk and actually performs arbitration on the interest rate differentials on different financial markets and its service charges by adjusting the exchange rate offered. The bank charges in the end virtually unlimited access to credit in the short-term which does not have businesses. What's wrong with that? The bank has it not done a great service to Airbus?

reasoning thus it completely sidesteps the basic issue: Who is responsible for large variations incurred on the exchange rate? In economic terms, rates exchange have absolutely no reason to change so violently in such a short time. Under the regime of floating exchange rates, changes in theory are supposed to allow trade in goods and capital between currency areas to achieve a balance. There is no deficit or surplus on both sides. The dollar, the yen may vary against the euro from 20 to 30% in 1 year. The terms of trade between different currency areas are very far also vary greatly. This is speculation on exchange rates is the main cause of the violence of these variations. Each day 60 billion worth of goods traded between the different currency areas. 6,000 billion is traded on exchange markets. Find the error. Banks play a dual responsibility. First, because they are speculating heavily on their own account. Second, because they open up credit lines phenomenal speculation on currency markets to other banks or business or to hedge funds. Without this credit, speculation of this magnitude is impossible.

You understood. The banks could spread the virus and then sell the cure of the disease. The bank wins on all fronts : They take significant commissions on transactions and currency conversions on derivatives and also affect the important interests on loans and speculation. More speculation, the larger the bank wins. the financial system has thrived for years on the disorder. But the vice goes even further. Derivatives exchange rates are overwhelmingly purchased for speculative purposes and not to prevent any risk. They allow an alternative method to bet on movements in exchange rates and thus aggravate the exchange rate variations where it is supposed to be a loophole. Turning now to

derivatives on the commodity market. The problem is exactly the same as before. The price of oil, wheat, aluminum can vary violently few months. Again, changes in consumption and production of its raw materials can not explain such violence. The oil price has been multiplied by 7 in 7 years. Suppose that on 1 January, the price of oil is $ 60 per barrel. Air France fears that a significant increase in the price of oil starts to hurt margins. An investment bank offered him to buy in 6 months, oil he will then priced at $ 65. To do this, the merchant bank will borrow money to purchase the required quantity of oil at $ 60, will store these barrels. By selling six months later at $ 65, the merchant bank will repay the loan, pay the financial costs and reap a profit. Again, the bank benefits from access to credit that the company did not.

responsibility of banks is yet again double in large changes in commodity prices. First, they speculate on their own account. Second, it opens monstrous lines credit to any kind of speculator banks, hedge funds ... What's worse is that the very nature of derivatives may cause serious shortages. As we say, when a player buys a derivative, an equivalent amount is stored by the financial institution. Thus, the more people fear (or hope) a higher price, the more they will award contracts for future purchase of raw material at a fixed price. As a result, ever larger quantities are stored. The shortage is greatest. Prices rise even more. This explains how one could see wheat prices, oil soar to such heights. On the contrary when the trend reversed and the majority of players expect a significant decrease, it becomes far less interesting to subscribe to such a contract. Naturally, there are fewer that are signed. The stock set up to honor its contracts no longer serve anything and pours violently on the market. Prices collapsed completely. This partly explains how prices could collapse so fast. But we can also continue to make small calculations to predict future changes in commodity prices.


CDS (Credit Default Swap) took the spotlight by sinking the U.S. insurer AIG literally. Their concept is apparently simple. This is insurance that can be subscribed in case of default of a company that we have a claim. Thus, the insurer reimburses the insured for the amount not payéeen case of default by the debtor. In return the insured to pay interest to the insurer on a monthly or yearly. The very existence of this product is a scandal because it challenges the very principle of credit and irresponsible makes all the players. To have a responsible, the lend money or that of its depositors must be the bearer of risk. Otherwise, all deviations are allowed.

Vice is twofold: the lender expects to achieve an arbitration. If he takes 100 euros to 6% but pays only 2% per year to the insurer, it feels like to touch 4% per year without taking any risk. The lender is completely cleared and to assess the quality of its investments since in case of payment of the claim as in case of nonpayment, the investor wins. The side of the insurer, it can provide a very large number of claims and receive a rent without investing a penny in these transactions which makes this activity extremely profitable.

is exactly what happened in the case of AIG. The group's financial division has launched headlong into the CDS insurance for hundreds or thousands of billions of debt and especially CDOs (collateral debt obligations), the product of mortgage backed securities. These CDOs were mostly rated AAA by major rating agencies or claims considered virtually certain. AIG outsourcing in all its risk assessment in these rating agencies are provided for these ridiculous financial products. Banks and hedge funds are able to jump at the chance to buy these debts can be insured in case of default and depreciation with AIG. Since defects in real estate receivables soared, AIG must repay money monstrous other financial players. This sector is completely deregulated, AIG would not put any money aside, as is the case in conventional insurance, to cover any risk. This is how the world's largest insurer became an endless hole for the U.S. government. The bailout allows the U.S. government not to allowed to spread beyond measure the effects of losses on these financial products today focus largely on the actor.

CDS also have other major problems. The sums insured are estimated at 50 000 and 60 000 billion more than the world GDP. This market is far from coming down to protect against default risk has become a giant casino where you bet on the failure of any particular company. In that market completely deregulated, we can insure against default of a company without ever having paid for the same company. Everyone can also improvise insurer without having to put any money aside. The insurer and the insured may well sell their contracts without consideration being aware. The opacity of the system is extreme. The staggering sums involved. Risks increasingly maddening.

Regulating this market is obvious if we want to avoid further explosions at AIG. But is it enough? We must return to the basis of banking to answer this question. The banker lends. For this loan, he received what he considers the cost of money added what it considers to be the risk premium of the loan. This risk premium compensates the bank where the bank is not actually paid. Assess the risk premium at a time when it will invest money from its depositors is the same job as a banker. Where is the role of CDS in this? How can someone who is not investing money can assess this risk? How the financial system may be responsible just as he clears himself of his task in favor of acting shamelessly.

The CDS issue is symbolic of the drift of the financial sector in recent decades. The perception of the banking business has grown from one to evaluate the risk that eliminate the risk. To eliminate the risk, it must pass to someone as soon as possible in any way whatsoever. How not to see that this spiral can only undermine the whole system. You have created so many beautiful counterpart as you like, the risk will always be held by someone. However, the greater the return, the greater the distance between the one who first took the risk and evaluated and the one who actually holds the risk is more important and this first one is less responsible than the second. Plus he is disempowered, most important risks are undertaken. The overall risk is growing as well as everyone feels protected. The original sin of our financial system was to believe he could ignore the essence of its function.


The same reasoning holds also for the CDO, the famous mortgage backed securities. By bringing together in one product, a large number of real estate debt, investors believed they could protect themselves from risks. Again the main problem is the astronomical distance between the one who takes the first risk and the one who actually holds. Whoever makes the loan in hand is the only one who can properly assess the risk of the mortgage. However, as the financial institution knows that she will be able to resell these claims quickly and they are then passed between many hands, his role is not to assess risk but produce a number needed to meet loan demand for this type of financial product deemed safe. Disempowerment is total.

How to defend this type of system. The lender must hold the risk. If he wants to reduce the risk of the loan, the only way is to assess its value in the risk premium on the loan based on default risks.

can be summed up the situation. There are two types of derivatives. Those where the financial sector creates disorder and then propose a panacea and where the financial sector plays in creating ever greater risks and to pass the bomb to an actor even more stupid than you hoping it explodes in his hands. The results are catastrophic. The banking profession must focus on fundamentals again if he wants to one day become responsible.

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Why should revolutionize banking

The economic emergency in recent months has brought this issue on many lips: "Should we nationalize the banks? . If liquidity problems can be managed by a single central bank intervention in expanding their lines of credit, credit problems, they can not be solved by an injection of capital. Now that will invest money in a business that failed miserably? Nobody, apart from the state. Number of state have invested in their banks and took a role or not in their direction. A sort of hybrid model linking governments formerly reckless newly statist discourse and irresponsible management is taking the reins of global finance. The public sector is still far from being qualified to lead large banks. The pathetic failure of Credit Lyonnais and the investment policy strongly inspired by the orders of the state of Japanese banks in the 80's are there to remind us.

In this strange situation will emerge in the coming years the financial world of tomorrow. Reflection in these troubled times out our future banking model.

We know that. The allocation of financial resources plays a role in the economy of a country. They go according to productive or unproductive sectors, the health of an economy depends on it. We saw during the last thirty years a tremendous concentration of banking in most major industrialized countries (More in Europe, especially France and the United States). There is no denying that the crisis has exacerbated this situation and only a few major players are present. So a huge part of the economic salvation of our country is held a few hands. Who are these people? Do they have the skills to carry out the investment policy which our economy depends? We do know little or not. The opacity with total reign over those who have much of our economic salvation in their hands

The justification for a private banking sector joined the free market in general. Those who make the right investments to survive, others disappear. Thus the area is becoming more efficient and better and better allocate resources. What about that today? The mere failure of investment bank Lehman Brothers has completely paralyzed the entire interbank lending market and almost lead to a financial disaster without massive intervention by the state. One can say without much hesitation in coming decades, few governments take the risk of letting one of their big banks fail. This is the famous "too big to fail" aggravated by recent mergers and acquisitions bank.

The situation is well understood: the pooling of losses and privatizing gains. The situation is in itself morally and economically unsustainable. Banks whose managements have proved their failure will survive and only the direction, in the best case, be replaced. Many of them have invested heavily and knowingly in unproductive nature of speculative bubbles in search of quick profits. Many of them yet retain a similar structure to emerge from this crisis.

The banking sector in this form can not be no justification. They do not represent the public interest but the interest of shareholders and their management. Yet a bad investment policy is not sanctioned by the disappearance but by massive aid from the state allowing the bank to survive.

The model is rotting from the inside. A healthy economy can emerge from such a system. Go back to the very principles of capitalism. Healthy banks need to survive, insolvent banks, to disappear. This is possible only if the bankruptcy or a few banks can not by themselves undermine the economic system as a whole. This is possible only if banks have a limited size. This can be calculated for example in relation to the size of the liabilities of each bank. This may seem unrealistic given the current situation: the banking sector has never been concentrated. What have we gained from this merger? The enormous size of the banks would allow optimal diversification of investments and thus reduce the risk of bankruptcy. Many banks have instead taken risks to the extent of their gigantism. The enormous size of banks is intended to allow to fund huge investments to large enterprises. With the financial disintermediation, huge investments can be financed without the help of a great institution.

Nothing, absolutely nothing justifies such a concentration of banking. The spray will not be easy. But it is a necessary task.

In the model Allais / Fisher wilderness we stand here, banks of deposit and loan banks would be separated. Since banks deposit would keep all money deposited in the bank, the risk of failure would be extremely limited. So all of these deposits could be guaranteed by the state. Bank lending and investment they have a size limit determined by size of liabilities. Applicants would be informed of possible returns and risks and deposit their money knowingly. In case of bankruptcy due to a solvency problem, the bank simply disappear. Depositors would be compensated to the tune of amounts recoverable and businesses dependent on bank financing of this sustained for some time.

What Is The Hypothesis For The Dancing Raisins

What policies to end the crisis?

Recent months have seen an explosion of a multitude of bubbles simultaneously throughout the world: housing bubble, commodities, stock market, credit bubble Consumer, derivatives, CDOs, CDS, LBO, works of art, luxury market, football .... This makes the current crisis is unique in history. During the last decade, the world seemed to become the playground of a mad escapade of investors embarked on a frantic search of immediate income. The cavalcade was spilled on the market for technology stocks in the late 90s and the housing market, then passing through the stock exchanges of emerging countries and the market for raw materials to finish today in the market less lucrative vouchers Treasury. At each meltdown inevitable, our central banks have done a duty to rearm our lads credit costs and cheap. Yet today the feast seems to end with the resulting major economic crisis. Faced with the explosion of these bubbles, should at all costs revive the credit market as it exists or is it time to retire financial institutions to their weapons of mass destruction and favor policies that are more innovative?
The phenomenon is a constant bubble of capitalism over the past three centuries. It is distinct from that of inflation. Inflation is rising prices recorded an average across all services and consumer goods. A bubble is defined as it increases the price of a single asset. So the price of oil has been multiplied by 7 in 7 years or 100% increase per year while inflation increased by only 3% per year maximum in France. To understand how we arrive at prices completely disconnected of all reality, we must return to the formation of these bubbles. Initially, the new promises of profit that can provide a market attractive to investors. The rise of asset market then drew speculation, that is to say the attempt to capitalize on the upward movement by buying assets to sell soon after. Only the anticipation that another will be ready to buy more expensive assets in the near future that motivates the purchase and not an assessment of long-term price of the asset. Many speculators hoping for high yields indebted in part to buy the asset because if the performance of the operation is outweighs the interest of the loan, you earn money without having out of his pocket. The important thing to understand is that the bubble phenomenon owes its existence to this speculative debt. If speculation was made in cash, the money could be spent in other assets that eventually would be dumped and attract investors again. Here, the price increase is largely through borrowed money and penalizes few other assets.
Speculation is by definition a non-productive activity. It invests in an asset until the price goes up. What what is traded are shares of ownership of such assets or such. Nothing is invested in creating any wealth. Take for example a lifting action by a company. The sum raised will be used for an investment. Subsequently, the change in stock price will not change the amount of investment previously made. The euphoria generated by a massive debt bubble causes a totally unproductive. Now on this debt there is interest and this interest can not be reimbursed by the rising prices themselves fed by new debt. One day, the funds are drying up and the bubble bursts by liquidation Panic assets to repay debts.
This mechanism reveals the fundamental paradox of asset pricing. We consider now that the price of an asset takes into account the expected return of the asset and its volatility relative to the rest of the market. However, in times of euphoria, there is finally little risk of not finding a buyer at a good price a few months later. The investor with experience in several successful experiences in recent years perceived risk as relatively low. Everyone is afraid to miss the golden opportunities offered by the market and it therefore seems reasonable time to assess bubble these assets at unreasonable prices.
Human nature has not changed in literally a decade. Greed often invoked to explain recent phenomena can not explain itself. How then can we explain such a boil on the entire planet?
First, by irresponsible monetary policies of the ECB, the Fed, the Bank of England or the Bank of Japan. The Fed and the BoJ has kept rates very low for years. Adjusted with inflation and real interest rates were negative for several years. Thus, borrowing and speculating on just about any asset that can take 2, 3 or 4% a year, it was possible to make a profit without a penny out of his pocket. In addition, central banks have poured financial circuits of money during the past three years. In Europe, the growth rate of money supply was over 11% in 2007 while GDP growth was 2.5% and inflation of 2%. This influx of credit has been spilled on the asset market.
Second, the conversion of the debt capital markets in an asset more liquid, ie tradable in financial markets. Securitization ever more sophisticated bank debt has allowed financial institutions to sell all sorts of claims. The banks were able to borrow at low cost, lend money to private agents and immediately resell to others that claim with a profit. Taking advantage of growing demand for these assets at risk, this type of method, where the gain is immediate, prompting banks to make loans riskier still. The high and stable yields of these assets between 2002 and 2006 and the illusion that enabled new knowledge to prevent financial risk have prompted many institutions to buy and to inflate the various bubbles.
Third, globalization and liberalization of capital flows have allowed any investor to take advantage of a potentially far greater number of opportunities for speculation. No real global regulation, the world has become a sort of Wild West for daring investor.
Fourth point, the accumulation of foreign exchange reserves in dollars of oil-producing countries, China and Japan, both of whom have largely artificially undervalued their currency to maintain an export economy competitive. These countries undertake not going directly into foreign countries dumped on the market these reserves of liquid assets.
The last main cause seems to be growing disparities of wealth and income on virtually the entire planet. Indeed, a billionaire who is far more likely to place their savings in the asset market than would a middle class household. United States, the median real income has stagnated during the last thirty years is the ever increasing debt of households has enabled the country to increase its consumption and production.

The result of all this is the emergence of a kind of boiling on the entire planet. Prices began to rise in isolation of unimaginable proportions sometimes on very specific markets in specific locations on world markets sometimes critical. We could call it the economy Jacuzzi. This boiling may have initially positive effects apparently creating a resurgence of activity. Rising property prices will boost the construction sector, the explosion of stock prices will facilitate capital raising of large companies, the crowd of middlemen taking advantage of the effects of intense speculation this will support consumption spending the profits (30% of jobs created in the United States in the 2000s have been in the real estate sector). Yet the economy is facing Jacuzzi its first real crisis after just a few years of existence.
The results in terms of unproductive debt are absolutely frightening. Our standard will be the evolution of the total debt (government debt + debt + companies outside the financial sector of household debt) to GDP, as debt producing nothing will not increase the GDP in the long term but increase the amount of overall debt. In 2008, the United States, it represented 230% against 125% of GDP in 1981, France : 203% against 167% of GDP in 2002, Great Britain: 300% of GDP ... The financial sector debt also reached record highs. In 1981, the debt of U.S. financial institutions accounted for 22.9% of GDP. In 2008, we reached the 132%. British banks are in debt up to 4 times the GDP of the United Kingdom. All Western countries has been affected by this unprecedented wave of debt. The amounts to be repaid each year become increasingly important, increasing the risk of bankruptcy. This exponential trend to the accumulation of debt is not sustainable long term because the weight of debt gradually weakens the different economic actors be they banks, households, businesses or state. On top of that economy Jacuzzi, consisting of countless bubbles formed a huge bubble of credit that some say is exploding and on a sudden one day explode.

Given this fact, let's look at what the objectives of economic policies undertaken since the beginning of the financial crisis in western countries? The proposed solutions seem to be using again very policies that led our economy to the brink.
All central banks have lowered interest rates which in theory can encourage borrowing and investment. Yet this recipe has been used to address all the crises of the past decade and has led us to our current situation. In 1998, following the Asian crisis and the collapse of LTCM, the Fed has lowered interest rates violently causing the appearance and the implosion of the dot.com bubble in 2000-2001. To avoid a severe economic crisis following the September 11, rates were reduced to historically low levels for several years, inflating the housing bubble. The current rate of decline 2007-2008 and the massive influx of cash is largely responsible for the bubble in the commodities market. Despite the perverse effect is now evident that this type of measurement, all the major central banks have drastically cut rates and inject hundreds of billions in today accumulating excess reserves to revive credit market . If short term, this may help extinguish the fire and limit the damage, does it really meaning to medium term to recreate new environment for creating new bubbles destructive?
Rescue banks through the share repurchase program of distressed assets in the United States, at the entrance of the state capital in banks in the United Kingdom, the long-term loans from the French state is a major problem in capitalist economy. The survival of businesses profitable and well managed and the disappearance of others is a corollary of a capitalist economy efficient. But if some banks are just passing a bad pass, others have demonstrated an absolutely catastrophic management. In addition to saving banks irrespective of their management, states have encouraged the acquisition or merger between major banks (BNP / Fortis, Bank of America / Merrill Lynch, JP Morgan / Bear Stern). The phenomenon of "too big to fail" Is not one reason for the excessive fragility of the international banking system? Preservation businesses flawed from the inside can be a viable solution.
Western states in general have announced plans to raise several points of GDP to avoid too heavy fall in consumption and investment. Even Germany has decided to challenge his austerity budget. In the United Kingdom, the government deficit in 2009 will be 8% of GDP, U.S. federal deficit has grown at an annual rate of 39% in the last quarter of 2008. A key lesson of Keynesianism and the crisis of the 30s is that states must spend more than they receive in times of crisis. Yet such measures poses a number of problems. Western states are heavily indebted. The French government already practices of its chronic deficits Keynesian policy since more than thirty years. We must also realize that when the French government borrows at 3% of GDP, it is just sufficient to repay the interest on public debt. Every year, the state bleeds already the nation to the tune of 80 billion euro or 4.5% of GDP to repay creditors in most countries. Already engaged in a relentless pursuit of logic, the state with recovery plans can only aggravate the situation forward. Other forms currently share a real bubble world of bonds whose cause the nervousness of investors looking for investment in an uncertain environment. The price of these bonds, despite an offer exponentially increased very strongly. The 3-month rate of U.S. treasury bills are even fall below 0% for the first time since 1929. French government bonds followed the same trend from 4% for a year to less than 2%. These vouchers are far from being safe. In the event of rising interest rates or inflation due to the use of printing money, the paper may lose much of its value. This bubble this time is "too big to explode" and whether suspicion vis-à-vis the states were to appear, the result would be catastrophic.
policies initiated far from calling into question the trends of recent decades have led to this crisis are just worse. At all points of view, our economy acts as a kind drugged to the debt. We know that in the long run, it aggravates our situation, but at the time it feels so good. However, do not perform these steps would immediately sink our economies. If Lehman Brothers has clearly demonstrated that he was blissfully unaware of leaving a structure having such a role of pillar collapse. We know from Keynes that when consumers start to consume less and businesses to invest less, it is the role of the state to take over quickly. We also know that a company whose actors are indebted embarked on a massive deleveraging process can lead catastrophic deflation. The situation seems a desperate point of view. The credit bubble is present and push the explosion will not stop the inevitable.
Yet in 1935, the famous American economist Irving Fisher, also faces an exploding credit bubble has developed an ambitious and misunderstood today could well be the solution to our problems. This plan was later developed by the French Nobel prize in economics, Maurice Allais. In our economy, banks have a support role as an intermediary between those who save and those who lend. Yet it has another equally fundamental role but unknown, that of creating money. When you deposit 100 euros on your current account, the money belongs to you, is theoretically available at any time and is even guaranteed by the state. Yet, within the euro area, for example that money can be lent up to 98% or 98 euros per bank, the remaining 2 euros to be kept in reserve. The money will be spent by the debtor and will end on behalf of another individual who may have the money at any time. Through this mechanism when the central bank lends 1000 euros to a bank it can get 50,000 euros of credit and currency in circulation. Today, no credit, no money in circulation.
Irving Fisher and Maurice Allais later proposed to abolish the system and return to a system where all money deposited in the current account would be kept in reserve. Banks would be split between bank deposits and bank lending and savings only immobilized for a period agreed in advance could be construed by the banking system. The money created by the central bank would be loaned to banks to be used for state spending. The banks would retain their role as an intermediary but would lose their role in money creation. This change may seem insignificant and yet absolutely! This could help simply to deflate the credit bubble without catastrophic effect. Today our channels
stimulus inevitably require credit, lower interest rates, central bank lending to banks, government debt. Let's face it, this is awkward to fight a crisis of debt! If the state dares to use the board to note, the risk of hyper inflation enormous since each newly issued euro can be processed under the current system by 50 euro credit. In the system
Fisher / 1 euro Allais created by the central bank is 1 euro. If the state uses printing money, inflation risks are moderate but the risk of hyper inflation are nonexistent. It should be understood that the deleveraging process involves a decrease in consumption and investment officers indebted. Thus the State to compensate for this lack may finance additional spending simply by creating money and do not get into debt. And reviving the economy in time of crisis would be perfectly possible without additional indebtedness of the state or the artificial creation of conditions conducive to the emergence of new bubbles.
The adoption of such a plan would have the international impact of monetary and real revolution would require a political effort to pass an extremely complex system to a system fundamentally simple. Yet for the man in the street, it would not change in appearance not much, but our societies benefit from a strong economy finally.
This ambitious plan is of course not the only option for our governments. But we must realize one thing, we are facing a crisis of extraordinary dimensions and only measures of exceptional magnitude we can emerge unscathed from the current situation.