There’s a Hole in the System (Gavin Kostick)

For those unfamiliar with the original – see here.

Gavin Kostick’s latest:

There’s a hole in the system, dear Draghi, dear Draghi,
There’s a hole in the system, dear Draghi: a hole.

Then fill it dear Olli, dear Olli, dear Olli,
Then fill it dear Olli, dear Olli: fix it.

With what shall I fill it, dear Draghi, dear Draghi,
With what shall I fill it, dear Draghi: with what?

With taxes dear Olli, dear Olli, dear Olli,
With taxes dear Olli, dear Olli: try tax!

But the tax take is falling, dear Draghi, dear Draghi,
But the tax take is falling, dear Draghi: it falls!

Increase them dear Olli, dear Olli, dear Olli,
Increase them dear Olli, dear Olli: whack’em on!

But tax take falls more now, dear Draghi, dear Draghi,
But the tax falls more now, dear Draghi: it fell!

Squeeze the sovereigns, dear Olli, dear Olli, dear Olli,
Squeeze the sovereigns dear Olli, dear Olli: squeeze them!

But the sovereigns are bursting, they’re bursting, they’re bursting,
But the sovereigns are bursting, they’re bursting: some burst!

Try the savers, dear Olli, dear Olli, dear Olli,
Try the savers dear Olli, dear Olli: try them!

The hole just got bigger, got bigger, got bigger,
The hole just got bigger, got bigger: it grew!

Then the bondies, dear Olli, dear Olli, dear Olli,
If you must it’s the bondies, it’s the bondies: burn them!

Now the system is creaking, is creaking, is creaking,
Now the whole system is dear, dear Draghi: it creaks!

[female voice]

Inflate it dear Draghi, dear Draghi, dear Draghi,
Inflate the system it dear Draghi, dear Draghi: inflate!

But I don’t have a mandate dear Christine, dear Christine,
But I don’t have a mandate dear Christine: don’t ask!

Well then print it, dear Draghi, dear Draghi, dear Draghi,
Well then print it dear Draghi, dear Draghi: please print.

But we don’t have a printer, dear Christine, dear Christine,
We don’t have a printer, dear Christine: there’s no ink!

Well who make money, dear Draghi, dear Draghi?
Well who can make money, dear Draghi: who can?!

Well the banks are supposed to, dear Christine, dear Christine,
Well the banks are that system, the banks: that’s who!

[All together now]

But there’s a hole in the system, dear Draghi, dear Draghi,
There’s a hole in the system, dear Draghi – a hole!

25 thoughts on “There’s a Hole in the System (Gavin Kostick)”

  1. Our last line of defence: laugh at these people!

    Wonder if Gavin is familiar with Mickey MacConnell’s ‘The Politician’s Song’?

    Opening verse and chorus:

    “For twenty frantic fruitless years I worked in Dublin Town
    Reporting for newspapers, I was busy writing down
    All the words of politicians in my endless quest for truth
    T’was at such a wasted exercise I squandered all my youth.
    That’s the cause of my misfortune, as I’ll explain to you
    For I find myself now talking like politicians do
    So if somebody should ask me “Do I take sugar in my tae”?
    I grasp them warmly by the hand and this is what I say.

    (chorus)
    “Well I’m very glad you asked me that for at this point in time
    In the circumstances that exist there is in the pipeline
    Infrastructural implications interfaced with lines of thought
    Which lead to grassroots viabilities which at this point I’d rather not
    Enunciate in ambiguities but rather seek to find
    Negotiated compromises which are the bottom line
    For full and frank discussions which could serve to integrate
    With basic fundamental principles to which we all relate
    Not in doctrinaire philosophy which any fool can see
    In inescapable hypothesis confronting you and me
    But in the interests of the common good then you need never fear
    For I have the matter well in hand and I’m glad I made things clear….”

    http://www.mickeymacconnell.com/Lyrics%20The%20Politician%20Song.htm

  2. There’s a debt crisis Draghi, dear Draghi, dear Draghi
    There’s a debt crisis Draghi, dear Draghi, yes, debt.

    Let’s reduce debt dear Paul, dear Paul, dear Paul.
    Let’s reduce debt dear Paul, dear Paul, less debt.

    That deletes money, Draghi, dear Draghi, dear Draghi.
    That deletes money, Draghi, dear Draghi, oh yes.

    We’ll create money, Paul, dear Paul, dear Paul
    We’ll create money, Paul, dear Paul, yes more.

    How is that done?, dear Draghi, dear Draghi, dear Draghi.
    How is that done?, dear Draghi, dear Draghi, how so?

    We’ll give the banks re-serves, dear Paul, dear Paul.
    We’ll give the banks re-serves, dear Paul, reserves.

    Yes, I read that, dear Draghi, dear Draghi, dear Draghi.
    Yes, I read that, dear Draghi, dear Draghi, I did.

    The multiplier will save us, dear Paul, dear Paul.
    The multiplier will save us, dear Paul, I’m sure.

    That hasn’t done it, what went wrong?, dear Draghi, dear Draghi.
    That hasn’t done it, what went wrong?, dear Draghi, it’s worse.

    I see now, dear Paul, It works the wrong way around.
    I see now, dear Paul, money leads reserves.

    Well what next? dear Draghi, dear Draghi, dear Draghi.
    Well what next? dear Draghi, dear Draghi, what next?

    Get the banks to create it, dear Paul, dear Paul.
    Get the banks to create it, dear Paul, through loans.

    Through loans? dear Draghi, dear Draghi, dear Draghi.
    Through loans? dear Draghi, dear Draghi, through loans?

    Yes, through loans, dear Paul, dear Paul, dear Paul.
    What’s the problem?, dear Paul, dear Paul, problem?

    That adds more debt than money, to the e-cono-my.
    More debt than money, dear Draghi, more debt.

    It has worked, in the past, dear Paul, dear Paul.
    It has worked, in the past, dear Paul, it has.

    Yes, I see, a graph, of the mon-ey sup-ply.
    It has doubled every ten years, for the last 5 decades.

    Yes, that’s right, dear Paul, and it might happen again.
    Let’s encourage credit to Ess Emm Eees.

    No-one’s willing, or able, to take on that much debt.
    No-one’s willing, or able, to take on much debt.

    I’ll keep hoping, dear Paul, dear Paul, dear Paul.
    I’ll keep hoping, dear Paul, dear Paul, there’s hope.

    There’s a debt crisis Draghi, dear Draghi, dear Draghi.
    There’s a debt crisis Draghi, dear Draghi, yes, debt.

    It seems slowly economists are starting to doubt the money multiplier model of banking.

    In 2009 Jean-Claude Trichet said:

    ”In a modern banking system, and in normal circumstances, central bank credit is largely used by banks – in the form of required reserves – to create bank credit, and expand deposits and broad money aggregates. So, an increased provision of central bank credit can lead – more or less automatically – to an increase in broad money.”

    In 2011 Vitor Constancio, Vice-president of the ECB, raised some doubts:

    ”This fits into the old theoretical view about the credit multiplier according to which the sequence of money creation goes from the primary liquidity created by central banks to total money supply created by banks via their credit decisions. In reality the sequence works more in the opposite direction with banks taking first their credit decisions and then looking for the necessary funding and reserves of central bank money. As Claudio Borio and Disyatat from the BIS put it: “In fact, the level of reserves hardly figures in banks´ lending decisions. The amount of credit outstanding is determined by banks´ willingness to supply loans, based on perceived risk-return trade-offs and by the demand for those loans” In modern banking sectors, credit decisions precede the availability of reserves in the central bank. As Charles Goodhart pointedly argued, it would be more appropriate talking about a “Credit divisor” than about a “Credit multiplier” ”

    In 2013 Mario Draghi went even further:

    ”It is a fallacy to make a mechanical connection between the creation of central bank liquidity and a rise in the money supply. The liquidity we provide to banks is used in the markets where banks lend to each other. It does not automatically increase credit or money in the economy – and so does not automatically lead to price pressure in the economy.”

  3. Banking was allowed and even encouraged to create a credit boom and the “remedy” is to rescue real assets by leaving paper ones behind ….

    This will make one decade of Depression into three decades of Depression.

    Can you not see that yet?

  4. Thanks for the comments above.

    I desire neither to be Pope nor anti-Pope.

    I hadn’t come across that Veronica – very good.

    I thought the following was well put.

    “Europe: No Need To Worry, The Fire’s Downstairs”

    “There’s a great deal to be said for commercial experience and gradual rollout. If Coca-Cola had tested a new product that killed 10% of the focus group, it’s reasonable to assume that they’d hesitate with the global rollout of Cyprus Cola. Instead, Mr Dijsselbloem is clapping the dust off his hands, announcing that he thinks this all went rather well, and looking to have another crack somewhere else.”

    http://pawelmorski.wordpress.com/2013/03/27/europe-no-need-to-worry-the-fires-downstairs/

  5. @Gavin,

    Great link!

    My favourite bit:

    “…we have rank amateurs playing a high-stakes game without understanding either the rules or what’s at stake. Maybe our masters have plans for a controlled detonation of a massively complex and unstable system. But I see damn all evidence of that. Instead we appear to have a group of underqualified provincial politicians who, having been badly mauled by a housecat are looking to pick a fight with an alligator.”

  6. Is Draghi actually still alive anymore?

    I don’t think he’s been seen for the last three weeks. Maybe he working too hard. On the other hand, maybe he was working too hard(on certain things).

    Either way, his silence is screaming.

  7. The Leaving of Dame Street, The Hob of Hell, Hole in the Bucket – am I missing any in the GK collection of essays? The Leaving of Dame Street is my favourite with its end of epoch atmosphere.

  8. OMF, Draghi very publicly told Wolfgang Schaeuble he didn’t have the right kind of certificate to hold an opinion on Cyprus and should shut up, a few weeks ago.

    Personally, I expected there would be repercussions.

    Who is shutting up now?

  9. @Grumpy

    “Draghi very publicly told Wolfgang Schaeuble he didn’t have the right kind of certificate to hold an opinion on Cyprus and should shut up, a few weeks ago.

    Personally, I expected there would be repercussions.

    Who is shutting up now?”

    I wondered and commented about that.
    Was skinning the Cypriots just a way of Schaeuble trying to prove he was boss?
    I suspect it was.

  10. @ Joseph Ryan

    One can fall back on the famous statement by Jean Monnet “Nothing is possible without men, nothing is lasting without institutions”. It may be noted that, while the ECB is one of the institutions of the EU, the Euro Group is the creation of a protocol to the Lisbon Treaty which stipulates that it meets informally.

    The quality of the deliberations within the Euro Group are now plain for all to see. The European Council is also an institution of the EU and it has agreed a game plan to which Couere, a member of the Executive Board of the ECB, has drawn attention. Either Germany sticks to it or it does not. At this juncture, it is impossible to know as it is not clear who exactly is in charge of German policy.

    A member of the German cabinet has been moved to ask the leaders of the institutions of the EU to defend the country against unjustified attacks!

  11. @docm

    Do you think Coeure is arguing that:

    (i) No other bank or set of banks could end up as bust as those in Cyprus, or

    (ii) If and when banks do so in the future, senior creditors will, again, be untouched, at whoever else’s expense is necessary to ensure that?

  12. @ GK

    On a small but important point of detail, this the wording of the exchange between Luke Baker of Reuters and Dijsselbloem.

    Q: To what extent does the decision taken last night end up setting a template for bank resolution going forward?

    A: What we should try to do and what we’ve done last night is what I call “pushing back the risks”. In times of crisis when a risk certainly turns up in a banking sector or an economy, you really have very little choice: you try to take that risk away, and you take it on the public debt. You say, “Okay, we’ll deal with it, give it to us.”

    @ grumpy

    What he is saying IMHO is that a gameplan has been agreed by the Heads of State and Government and it should be worked through despite what the geniuses in the various finance ministries who think they know better come up with. As far as Draghi is concerned, the phrase “give them enough rope and they will hang themselves” comes to mind.

    Incidentally, it is worth noting that the design of the euro, from Maastricht onwards, has been in the hands of said geniuses whose talent for judging the political impact of their decisions is by now well recognised.

  13. Who gives a f*() about economists to begin with?

    That’s right, the gambler does.

    Who gives a f*() about the gamblers?

    That’s right, the bankster does.

    Who gives a f*() about the bankster?

    That’s right, the government does.

    Who gives a f*() about the government?

    That’s right, I give a f*()!

    State of mind, education, poisoned, poisoned by greed.

    Greed? (Not that again!)

    Who gives a f*() about this horse that is starving in the cold, the gambler just opened the gate, chased it out into the cold, no shelter, no water, no food, no comfort, yeah well, I know, it’s just a horse.

    Who gives a f*() about this child… this horse… this dog… this woman… this man?

    Who gives a f*() anyways?

    DO YOU?

    Well yeah, then wipe that smirk of your face to beging with or f*() you!

  14. @grumpy

    The process of european integration has developed in steps. When they got the euro going they expected to move onto political union. That was shot down in the mid 00s. So we are left with something like a half finished sandyford apartment block with the ground floor rented out to aldi. It works but not as intended to.

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