Comments on: The drugs don’t work any more Tue, 24 Mar 2015 16:54:45 +0000 hourly 1 By: Lambick Tue, 04 Oct 2011 19:37:56 +0000 Not being a person to whom people listen to, my view from the early ninety’s (far before the ‘irratrional exuberance’) that nothing good could come from Greenspans low-interest policy went unheard. Now I think of it in more philosophical terms, low interest was the amphetamine that made the economy run faster than it realistically could, making us richer than we could realistically expect to be, borrowing to increase even what we already had. Our present debts wouldn´t be the greater problem if we had robust growth, but that is more and more eluding us (hence the panic with central bankers and governments). The understandable fear that social unrest will tear the fabric of society may make us wish for immediate economical revival, but it might be wiser to prepare debtors and creditors, banks and governments for quite a few years of a becalmed world economy. That is a different mindset.

By: NukerDoggie Mon, 03 Oct 2011 15:53:29 +0000 Problem is that the destruction of ‘my debt’ is also the destruction of my creditors’ assets. How do you bridge this fundamental divide (chasm) between the interests of debtors and those of creditors?

Debt destruction is easy to say, hard to implement. Everyone’s in this global economy for himself. No one’s going to sacrifice his own wealth for the common good. So “debt destruction” will inevitably lead to war (economic or outright military) when it’s cross-border debt destruction. And debt destruction within national borders will inevitably lead to financial and economic collapse of entire sectors, if not the entire country – leading to catastrophic rips in the social fabric, civil disorder and martial law.

Debt destruction is one of those tools that works pretty good on paper – not in the real world of greedy, self-centered human beings, corporations and governments.

By: BowMtnSpirit Fri, 30 Sep 2011 21:17:59 +0000 @AdamSmith: While I agree with your points, and I agree that mark-to-market is necessary, there will be no “economic recovery.” Recovery assumes that we’ll return to that chimerical market value of … when? 2007? 2006? No, a mark-to-market will erase the artificially inflated valuation built upon speculation, over-reliance upon a nearly depleted energy source, and the socialized hidden costs resulting therefrom. Mark-to-market means we get to learn how to ride horses again.

By: AdamSmith Fri, 30 Sep 2011 17:13:26 +0000 Great article.

And there is something else wrong today: truth and facts no longer matter.

Many years ago when I studied the science of accounting, the principle of “conservatism” was a bedrock of the profession, taught in all the schools, and always on the CPA exam.

It basically says that accountants must represent the interests of shareholders and investors, and thus must value assets conservatively. If an asset has lost value subsequent to its acquisition, the accountant must “mark to market”.

If on the other hand the asset has gained market value since its acquisition, the accountant must continue to value the asset at its acquisition or “book” value, under the notion that unrealistic market gyrations shouldn’t enable the company to artificially generate accounting gains. Only when the company sells the asset can it claim the benefit of the market gain.

This principle of conservatism served American commerce well. But it is gone now. After the fall of Lehman Bros. in Sept 2008, America’s accountants have caved in big time.

The books of American companies and banks are full of dead, rotting wood. Assets carried at 100% of their cost, when they are only worth 20% of that.

Truth and facts no longer matter in American Republican commercial enterprise. It has now become a charade, with the Fed, SEC, and Treasury playing the make-believe game right along with them.

Mark-to-market is first necessary step toward economic recovery.