For Iceland

For Iceland, "Laandsbank" and banking and service industries; an epilogue [transcript dated before the financial crisis] is available in The TIMES [London] referencing the cross, good?, counsel between Iceland's Chancellor & Chancellor Darling of the UK. Wire transfer capacity, and self-help of British investors in Iceland's banking system and Irish sudden bank insurance and British accounts migratory & inevstors' preferred compensation options scathed operating capital [especially deposits] in Iceland as they flew to Britain. The panic reacted to a nationalization of Iceland's banks and a severe crimp in Iceland's burgeoning banking services sector.

A "how do you keep them down on the farm ... " mindset seems to have been lost on Reyjkavik which is now seeing a reverse immigrant flow, crisis related, which will be joined by those able to migrate for an economy.

If Iceland needs this form of banks restructuring boost and safety, then a post-office savings equivalent (or insured deposits to a US standard) via wire like the old Dutch Post-Bank may provide and suffice. In which, as this blogger envisions it, the scheme would be wire connected, Europe wide; and at least the accounts shifted in panic would be insured, and available for reserves re-lendng and safe. It could be a private institution.

British Post Office Savings bore less interest, were not directly insured, but guaranteed against loss by their permitted risk only in British Government Securities. An 'old gold' safeguard mentality; with modern 'money supply' versatility; that may work.

Iceland needs somehing beyond IcelandAir and a 'back to the sea & fishing' mentality; as in the sardonic and very wry Wall Street Journal piece a week or so ago.

SKOL!

Alan Greenspan - Did he say...?

Alan Greenspan - Did he say "credit tsunami" and relief/assistance by "sovereign credit" assisting the credit of private institutions? Yes he did. Not exculpatory, nor needed it be ... the prefatory words in House of Representatives Committee testimony October 23 2008 at the house link above; or herehttp://oversight.house.gov/documents/20081023100438.pdf -- .

HARD GOODS

Hard Goods ... durables .. manufacturing components, are evidencing by market reports, the stall which follows a credit crunch and in anticipation of any slow down. Inventories are not moving. Some are dormant in manufactures lots and warehouses; some have been sold to warehouses of wholesalers and intermediate buyers; some are in transit [F.O.B.]. Credit will purchase them ... and credit can be available to ward off hard times' consolidation-minded postponement of those investment decisions by a consumer or a business institutional purchaser.

A recent purchase in our household, to modernize a home snow removal capacity characterized past by this bloggers mind & muscle, and a 36 year old lesser snow-thrower/blower (a middle class home hard good); was motivated by the better fall prices (which were examined in contrast to last year's late-winter heavy snowfall & short supply high priced market; and the compelling reminder that we're making lawn mowers now, come back in the fall (which as this rambles was an agreed good idea when supply and early deals mean better prices & choices).

But the point of this is the 'kisser' on the sale. Sears Roebuck & Company, the winning seller had good equipment selections - especially snow-removal strength/capacity, good prices and good credit. The purchase combined a good homeowner's middle class credit rating with an optional credit re-payment extension of a year's delay. Yes, this blogger is no fool, the credit is over-head (cout de commerce) added to the whole or offered as both Sears and other hard goods sellers have done in the past, as a 'negative or no-interest for a year, etc., pre-paid option.

Hence, here, the hard goods lesson. They will stay on shelves or in inventory max-out warehouses until buyers feel times are better. That would be when either a return to or more income occurs, or business is better or at had (including those prospective orders for home betterment & business modernization & expansion) or until consumers can afford the risk.

That is what credit can do. Japan, now cutting back on automobile production, as is or will be Spain and Brazil, and Korea, and Detroit & NAFTA, and with a strong reactive YEN, previously could lead on similar hard goods sales with great credit arrays. Beyond the vault & upper-tier bank and bourse aid - that consumer credit can happen again. A 94% increase in a trade defict (or decline in trade surplus) signals concern; and coupled with the reactive YEN appreciation that equals recession in sevral hard goods industries. Tax credits for hard goods investment (tools) and an ACRS scheme to move and retire old machines, even to blossom used goods markets in pricing & buying recourse, would do it. If a balk after credit is allotted, then inventory taxes would motivate the discount. That appreciating safe YEN will fund bonds which fund credit.

Delay for hard times mentality is contagious .. let's open the windows and get some fresh air. Sane returns expecting growth in the bourses will follow including profits from earnings (dividends). Ask your hedged fund manager whether the market or he/she is variable driven in meeting growth targets for his/her investors. And "quo-vadis" .. where the growth?

ACRS

ACRS which acronym should have been in yesterday's blog entry, stands for Accelerated Cost recovery System, and is the US Treasury-IRS acronym for the program which offered business property taxpayers rapid amortization via speedy cost recovery of purchased or commercialized property through depreciation. This represented the applied policy ad tax law of 3-10-5 in accelerating the return of capital to investors in commercial property.

As this was written, Chairman Bernanke was recommending an additonal stimulus to Congress which as the previous, would take the lesser cost to apply and manage of another 'rebate' form as a cash stimulus to qualifying taxpayers. Macroeconomic soundness of ACRS as a measured short term spur against the cash rebate (with obvious longer term impacts of the former), as well as the US Treasury revenues cost of ACRS, is a public policy matter which Congress can and should debate.

The cash stimulus timing and instant need is well within the quickly applied fine tuning throttle controls of the Chairman and should not be delayed any more than a commended revenues accumulating taxation suggestion would be.

CONTRACTION

An economy in shrinkage or withdrawal is in a state of contraction.
Called loans (loans recalled by the lender and cancelled), failed loans,
business cut-backs to save costs and resources, layoffs, shutdowns.

In the thirties this lead to an economic depression. Lacking risk,
incentives, or assurances of more, businesses and more consumers
conserved. The contraction collapsed DEMAND. The famous Lord Maynard
Keynes made DEMAND the single greatest factor ofathriving economy in his
inter-war, and earlier, studies of the effects of consumption in a
economy.
Demand spurs a growing economy.

Except in a dictatorship, people consume what they decide they need and
want. They spend cash and credit forward to consume. This consumption
multiplies as "demand" in every sector for facets of the goods and
services production and delivery line.

People are paid at intervals of that production consumption cycle for
their part in the economy and for their added value to the production
process. Prices are the bargain as "cost & satisfaction" to each tier
of production and consumption.

How much growth? Well the old sages said -- when the population is the
measure -- at least ahead of the population growth or it is
subdivision.

And recession? the little depressions - the turn down in a business
cycle is still two consecutive business quarters with a net decline in
growth. France is officially in one. It is applied euphemistically
to any slowdown.sometimes.

The way out? Inflating, stimulating an economy to grow .. to restore
CONFIDENCE to consume - to manufacture ahead - to risk.

The tools? Credit and tax incentives to employ and to consume. In
the blog entries following in the next days you'll be reminded of the
'hot seventies' with the lingo of "investment tax credit" (good when
you've made a profit for taxation); and the rapid amortization schemes
-- such as 3-10-5 (three years depreciation [cost recovery] for business
vehicles and some machinery... 5 years for other machines in business
& 10 years for business real estate).

If the economy's demand exceeds supply and gets too hot - the resulting
demand induced price inflation can be tamped with 'savings'
inducing/spending deferring taxes and consumption taxes to aid the
treasury's supply side and 'brake' or cool the economy. Imports can
also reduce price inflation by expanding supply & sharing the demand.

Government (which economics students remember as the G in the old
GDP/GNP calculation is an eater. Its demand is enormous and can consume
as an engine. Its payment factor, its revenues & buying means, will be
at issue.

Expect deficits paid for with US bonds which the conservative & wary
investors will gobble. Europe will do likewise, so will Japan and
countries elsewhere in Asia.

So since demand compounds demand and demand includes demand abroad
whether as trade or tourism, none need starve nor collapse if the
coordination works and is effective,

Like other grand Keynesian schemes: (the Reagan stimulus, The
Kennedy-Johnson tax cuts and Great Society spending, the Marshall Plan &
wartime spending ... the engine responds.

(As a closing note, a favorite economic historical fact mentions the
massive spending of Britain for the early 19th century Wellington
Campaigns against Napoleon - rather than bankrupt the British economy,
they surged the economy and Britain grew richer .. financed by British
Rothschilds et al.) Not an endorsement of war, but an underlying proof
of measured demand fueling an economy.

No one died from 'star wars' and the Lasser curve.

The MULTIPLIER

MULTIPLIER is not a funnny word, but a routine American English form meaning the effect of multiple factors in an economy. It is part of fundamental modern economics. It is not "trickle-down" - an archaic politically charged Reagan era word of the Democratic Party opposition - when economic policies favoring the supply side were ridiculed as laissez-faire economic incentives for the rich. (The rich would get cake champagne & fresh spring water, and the poor would get the crumbs and the trickles downward from their consumption.)

The MULTIPLIER is the backward and forward effects of supply & demand, effecting prices, employment and the whole economy. Oil as a pricing factor is a classic majestic example (actually the greater set of energy as a price component).

Credit crunches will lag the economy's daily and forward function until the effect ripples backwards to layoffs and production supply line drop offs and cutbacks.

Food prices will be affected by petroleum prices (a cost factor multiplied into the food pricing) but not imemediately, and where seasonally dependent, not until next year .. and they may rise before then. Only supply, and its honest pricing ingredient as a constancy in transportation & production will do that.

Equally, the ripple backwards of a multiplier will show the variable -- the multiplier of demand for goods and services. Anticipating those demands and the continuity of that demand (against a trough) is modern fiscally sound economics -- affecting business & governemnt. Congress is now addressing bi-partisanly a stimulus package which joins the issue of suffcient unemployment compensation, property tax revenue delinquencies (the greatest source of US state treasuries & local governments); fall-offs in demand for new hard goods due to employment cut-backs lay offs and credit declines or delinquiencies. Were we badgered into excessive interest rates to build bank balances and capital --the credit crunch would be worse, and the effect of credit costs (high passed through interest rates) would be instantaneous -- with a disastrous multiplier effect.


That factor - the multiplir in forward expansion and reverse detraction in consolidation and contraction are the government's : the Congress, the OMB and the Fed -- concerns now. The last thing they'll need is idle or insufficient capital -especially in assisted partnered (not nationalized) banks.