Home
>
Political
>
Liquidity or Liquidation

Liquidity or Liquidation

Large parts of the world today suffer from a severe liquidity crisis. The famed globalization of the capital markets seems to confine itself, ever more, to the richer parts, the more liquid exchanges, the more affluent geopolitical neighbourhoods. The fad of "emerging economies" has all but died out. Try telling the Macedonians about global capital markets: last year, the whole world invested 8 million USD in their poor country. Breadwinners earn 300 DM a month on average. Officially, in excess of one third of the workforce is unemployed. Small wonder that people do not pay their bills, employers do not pay salaries, the banking system has a marked tendency to crash every now and then and the average real default rate is 50%.

Illiquidity erodes the trust between the economic players. Such trust is a precondition to the existence of a thriving, modern economy. We all postpone the gratification of our desires: we save now and consume later, for instance or we sell goods or services and get paid a month later. Such postponement of gratification is at the heart of the economic machine of the new age. It cannot be achieved, however, if the players do not trust each other to fulfil their promises (to pay, for example). Alternatively, the state can instate an efficient court system, aided by active law enforcement agencies. Keeping promises can be imposed to counter the natural tendency to ignore them.

The countries in transition lack both: liquidity necessary to keep one's monetary word and the legal system to force him to do so if he reneges. Small wonder that solutions are actively being sought by all involved: the business community, the state, the courts and even by consumers.

In this article, we will describe a few of the global trends. The trends are global, the reaction is world-wide because the problem is global. Bouncing checks have become a household reality in places as rich as Israel, for instance. The mounting crisis in Southeast Asia foreshadows bankruptcies and delinquencies on a chilling scale.

The simplest method is to revert to a cash economy. Payments are accepted only in cash. This, naturally, slows the velocity of money-like products and diminishes their preponderance, obstructing the expansion of economic activity. An even more malignant variant is the barter economy. Goods and services are swapped on a no-cash basis. It is money that generates new value added (by facilitating the introduction of new technology, to mention but one function). In the absence of money, the economy stagnates, degenerates and, finally, collapses because of massive mismatches of supply and demand aggregates and of the types of goods and services on offer and demanded. Still, this system has the advantages of keeping the economic patient alive even following a massive liquidity haemorrhage. In the absence of barter economy, the economy might have ground to a complete halt and deteriorated to subsistence agriculture. But barter is like chemotherapy: it is good for a limited period of time and the side effects are, at times, worse than the disease.

In many countries (Georgia, to mention one) defaults are prevented by demanding prepayment for projected consumption. Let us take the consumption of electricity as an example: many heavy users and numerous households do not pay their bills at all. To disconnect the electricity is an effective punitive measure but it costs the electricity company a lot of money. The solution? Programmable Electronic Meters. The consumers buys a smart card (very similar to phone-cards). The card allows the buyer to use a certain amount of prepaid electricity and is rechargeable. The consumer pays in advance, electricity is not wasted, the electricity company is happy, the tariffs go down for all the users. Prepayment does have a contracting effect on the demand and usage of electricity - but this is welcome. It just means that people use electricity more efficiently.

A totally different tack is the verification approach. The person making the payment carries with him a card which confirms that he is creditworthy and will honour his obligations. Otherwise, the card also serves as an insurance policy: an entity, not connected to the transaction, guarantees the payment for a fee. This entity is financially viable and strong enough to be fully trusted by the recipient of the payment.

This market in credit guarantees is more developed in the USA (where credit cards have overtaken cash and personal checks as a mode of payment) than in Western Europe. But even in Europe there are credit card equivalents which are very widespread: the Eurocheck card, for instance, is really a credit card, though it usually comes with physical checks and guarantees only a limited amount. One must differentiate the functions of a debit card (with direct and immediate billing of a bank account following a transaction) from those of a credit card. The latter allows for the billing of the account to take place in a given day during the month following the month in which the transaction was effected or converts the payment into a series of instalments (within the credit limits of the cardholder as approved by his bank). But in both cases, the guarantee is there and is the most predominant feature of the system. Such cards seem like a perfect solution but they are not: the commissions charged by the card issuers are outrageous. Between 2 and 10 percent of the payment made go to the pockets of the card issuers. Cards get stolen, forged, lost, abused by their owners, expire. But with the advent of new technologies all these problems should be solved. Electronic POS (point of sale) cash registers, connected through networks of communication, check the card and verify its data: is it valid, is it presented by the lawful owner, was it stolen or lost, is the purchase within the limits of the approved credit and so on. Then, the billing proceeds automatically. Such devices will virtually eliminate fraud. The credit card companies will guarantee the payments which will be subject to residual crime.

Another fast developing solution is the smart card. These are cards similar to phone cards and they can be charged with money in the bank or through automatic teller machines. These cards (in wide use in Belgium, Austria, Germany and many other countries) contain an amount of money which is deducted from the cardholders account. The account is billed for every recharge. The card is the electronic (and smart) equivalent of cash and it can be read (=debited) by special teller machines in numerous businesses. When payment is made, the money stored in the card is reduced and the recipient of the payment stores the payment on magnetic media for later delivery to his bank (and crediting of his account).

A more primitive version exists in many countries in Eastern Europe: depositors receive checks exactly corresponding to the amount of money deposited in their account. These checks are as safe as the banks that issued them because they are fully convertible to cash. They are, really, paper "smart cards".

Credit cards and (more cheaply) smart cards are a way to restore confidence to a shattered, illiquid economy. Macedonia should consider them both seriously and encourage them through the appropriate legislation and assistance of the state. For Macedonia, the choice is to be liquid or, God forbid, to economically self-liquidate.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

Mercedes Benz s500 rentals Salem ..

In The News:

Streaming giant Roku has recently been targeted by a pair of cyberattacks, and the company confirmed over a half million Roku accounts were compromised.

The Land Aircraft Carrier combines an all-terrain, six-wheeled vehicle with a two-seat aircraft, which features electric vertical takeoff and landing.

The European Union has sent TikTok a "request for information" on the video sharing platform's newest app, TikTok Lite, under the Digital Services Act, with the aim to clean up social media.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The FBI is warning the public about a recent phishing scam via text that claims its targets owe money in Pennsylvania for unpaid road toll charges.

Your Apple Music settings may be revealing to your contacts what you're listening to. Kurt "CyberGuy" Knutsson explains the process to change those settings.

Learn how to secure social media accounts, implement legacy contacts, and create a digital estate plan to protect your online assets from 'ghost hackers' after your death.

A ported phone number scam is leading to more people having their identities stolen by sophisticated scammers. Kurt “CyberGuy" Knutsson tells you what you need to know.

The Great Pacific Garbage Patch, a vast marine debris vortex, is being tackled by The Ocean Cleanup’s innovative technologies. Kurt “CyberGuy" Knutsson explains.

Discover easy solutions to tame autocorrect frustration on iOS and Android devices. Turn off, customize and add personal touches to your typing experience.

Kurt “CyberGuy" Knutsson reveals the six top things to do right now before it’s too late: Tech and life choices that can keep your safer on and offline.

Kurt “CyberGuy" Knutsson shows you some simple steps to discreetly hide apps or an entire app page on your iPhone for decluttering or confidentiality.

The ambient light sensors on smartphones may be turned into cameras, according to researches at MIT. This could pose a threat to people's privacy.

The Autonomous Road Repair System from tech firm Robotiz3d uses artificial intelligence technology to locate potholes and promptly seal them.

Scammers have stooped to using artificial intelligence to scan obituary websites to create fake obituary websites to target the grieving.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

A Mercedes-Benz Manufacturing factory in Hungary is using humanoid robots to help with human staffing shortages on the factory floor.

Some video games act like unregulated banks, according to CFPB, which has begun monitoring the situation. The agency says children may be most at risk.

Ascender the robot is capable of climbing stairs with heights up to 8.7 inches, and it can give every corner of your home a deep cleaning.

Tax-return scams are on the rise, and one tax expert from a cybersecurity firm says filing your taxes on time is one way to avoid tax scams.

The innovative XPENG Robot Unicorn is inspired by the mythical unicorn, and you may forget the robot is not actually a living creature.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The Federal Trade Commission, the federal agency to report scams to, is being impersonated as part of a new sophisticated phone scam.

Eatrenalin is a restaurant in Germany with a Floating Chair innovation that makes the 17,000-square-foot venue feel like an amusement park.

U.S. Air Force Secretary Frank Kendall met with the Senate Appropriations Committee on Tuesday and said he plans to ride in an autonomously-operated aircraft this Spring.

Liquidity or Liquidation

Political