Posts Tagged ‘economic damage’

The Dark Pool of Empty Markets

Many have commented that the job market has become an enigma over the past few years. The jobless rate is low, but pay has risen slowly. Are we[1] measuring pay imperfectly? Vacancies co-exist with unemployment and the old phenomenon of under-employment and the new challenge of a zero-hours contract have emerged to colour the landscape. Many workers have had no real increase in wages in years. At Starbucks recently the Spanish barista and I chatted about job opportunities. She had an accredited certificate in the teaching of English as a foreign language. Additionally, she and her two friends were recent language graduates who had opted to move overseas to work as baristas in Ireland. They had no job opportunities as teachers in Spain. Coincidentally, a few months earlier, the vacancies page of a national paper carried notices for Spanish teachers at senior level to deliver a course on Spanish language and literature to the level prescribed by the Department of Education. The baristas applied for the vacancies and were not successful. It is not an unusual occurrence in the jobs market except that it was reported that in one of the schools Spanish was discontinued as a foreign language. French and German continued to be on the curriculum.

But why was Spanish discontinued? At one level there could have been a mismatch in the qualifications and skills required in the teaching of the Spanish course. At another level, maybe there was no demand for Spanish language at the school. Or maybe the more senior teachers, including French and German teachers, exercised a ‘hold-up’ on curriculum development until they retire. In a simple twist of fate one of the baristas had heard in the grapevine that there was a staff shortage in the school. On reflection there could be another explanation. Theoretical physicists have long believed that empty space is not empty at all[2]. The theory holds that radiation leaves energy in its wake when passing through the empty space. By analogy, in the economics of the jobs markets, Spanish baristas leave a skills set behind when they pass from one job at Starbucks to the next job at a Spanish restaurant creating an empty market of skills and talent in language provision. The transition creates an empty market of skills and talent in the provision of goods and services.

There are no actual jobs in an empty market. But with retirements and aging populations, Europe, for example, may have to rely on the dark pool of skills and talent in the empty market. It is not about the qualification per se rather it is about the misallocation of resources in an empty market that co-exists with the dark pool of skills and talent. In an efficient allocation of resources an individual with skills and talent enters an empty market at one level, (say) as a barista who is Spanish and qualified as a Spanish teacher, and exits at another level as a Spanish language teacher. It is an optimal outcome in a two-sided market of an aging European population and refugees, refugees that  qualified as doctors, engineers, teachers, nurses, writers, painters, plumbers, electricians inter alia who leave behind a skills set as they pass through an empty market as a doctor or engineer or plumber to become a refugee. Until policymakers accept the empty market phenomenon it is unlikely that baristas or refugees will have the opportunity to secure jobs that match their skills and talents. As Starbucks[3] CEO Howard Schultz commented ‘in a nation of latte makers and latte drinkers, you need more of the latter’. Europe has the demand for skills and talent; there is a dark pool of skills and talent, there is a new phenomenon of the empty market. The existence of an empty market could give rise to a misspecification in the economic analysis of labour data. In the econometrics of a wage equation, for example, the co-integration of earnings, prices and productivity will now require an effective hours’ variable[4] to accommodate hours worked in the new labour market of zero-hours contract,  underemployment and working in the grey and black markets. Otherwise a wage equation is just a re-parameterisation of a regression of the level of wages on the current and lagged levels of predicted wages and excess demand. In our view this could have implications for macroeconomic planning in an age of empty markets. The fact that there is a transitioning of skills and talent into an empty market right now should be recognised by policymakers and they should tap into and legitimise that dark pool, sooner rather than later.

[1] The question posed by Mark Glassman and Peter Coy in their vignette ‘Wages: Another Way to Look at Pay’ in Bloomberg Business Week July 22 2016.

[2] Article in The Irish Times ‘Magnetic Masters Bring Data Storage to a New Level’ by Dick Ahlstrom, July 21 2016.

[3] Cited in Time magazine July 11-18 2016 pp81

[4] Introduced in McNutt (1994): ‘Ownership and the s-firm’ in Andrew Burke [Ed] Enterprise and The Irish Economy Oak Tree Press, Dublin.

Bargaining & Dispute Resolution

Recently, at the Manchester Business School we introduced bargaining as a solutions methodology for use in alternative dispute resolution (ADR). It was the central theme of Day 2 of a three day residential Workshop on the broad theme of ethics and responsibility in business (ERB) a new elective available to all MBAs. The material from Day 2 and the case work reviewed during the Workshop have now being assembled into a Masterclass offering. If you are interested in finding out more about the bargaining process and how it could be adapted for your particular needs then please do contact us on this webpage.

The Conversation

The parties to the dispute need to have ‘a conversation’ so they meet with the arbiter in a neutral location. The approach focuses on an inherent ethic of responsibility as the centre piece of any conversation or dialogue between the conflicting parties. Throughout the conversation the arbiter by observing the parties extracts a latent code of ethics and begins to influence the parties’ belief systems. The approach complements the structural analysis of negotiation recognising the bargaining power of both parties.

Negotiating, however, is a party-specific power-centric approach whereas bargaining is more subtle – it has a power base that rests with the arbiter’s influence over the belief systems’ of the conflicting parties. The premise on which the bargaining approach is built is simple:  that the parties can reach a better outcome – called a bargain – by contracting or bargaining. The methodology is expressed in terms of converging towards a resolution – called a payoff or a bargaining set – in which neither party to the dispute is worse-off.

patrick mcnuttChina2015

Taking Responsibility

The pedagogy is grounded in a Kantian ethic of responsibility – this allows the parties and the arbiter to transform the priorities into a value set of duties so that the dispute can be ascribed by the arbiter to the lack of commitment to one’s duty. Our integrative analysis divides the methodology into ‘off-contract’ or dispute and contract or resolution stages, wherein each stage represents a sub-game. In the off-contract sub-game each party will learn the priorities of the other party and observe a trade-off pattern of conflicting priorities. For example, workers may have a right to a living wage or a minimum wage in many jurisdictions but it is the duty of the employer to pay it. However it is the duty of the employer to pay the wage and by not fulfilling duty, the wage is not paid and an off-contract dispute occurs.

The objective of the conversation is to move the parties to a contract point. Starting from an off-contract point a bargaining set is established which is equivalent to an ADR agreed resolution of a dispute. In theory the set is obtained by moving the parties on to an Edgeworth contract curve. In practice the bargaining process is sequential; it follows a stage-by-stage process moving the parties forward from initial consultation at time period t to final agreement at time period t+1.

Bargaining builds on the conversation. We applied the approach in 2010 to enable senior partners at a leading UK law firm come to an agreement on office relocation and new areas of specialism. Earlier the approach was adopted by the Board of Directors of a payments system company to reach an agreement on allocation of shared capital costs in the roll-out of new payments technology. Like the opening move in chess the off-contract steps follows a sequence:  Step 1: meet with the parties to extract the material facts. Step 2: elicit the duties expected of each party by the other. Step 3: identify the lack of commitment, the off-contract point, around which this dispute occurs. Step 4: assess both the threat values and the opportunity sets available to each party within the contours and parameters of the bargain. Step 5: define the trade-off function in terms of threats v opportunities for each party to the dispute.

The contracting steps have to be choreographed by the arbiter. Central to the bargaining is the payoff-constant trade-off. This is Step 6. It is a critical step. A good example is provided by Caffé Nero’s response to the recent increase in the living wage to £7.20 per hour. They offer to pay the increase but suspend the staff’s entitlement to free lunches At Step 6 the payoff-constant Pareto move for each party is assessed. Step 7: introduces the bargaining set in terms of justifying the payoff-constant move from each party. Step 8: initiates the bargaining process by moving the parties towards an agreed contract position, a unique position, so that no-one party is worse-off post-agreement but one party is better off.

Playing Not to Lose                 

This facilitates bargaining as an inclusive process with a positive focus and an emphasis by all parties on playing not to lose. For example, when Kraft HQ in 20105 signalled a decision on factory closures and job losses at the Dublin plant and at their plant in Bourneville, outside Birmingham, the workers responded by improving productivity to ensure the long term viability of the plants. A deal was agreed. The trades union Unite commented it was a good deal for the remaining workers Once the parties realise that neither party can do better unilaterally than the arbiter’s bargain they have reached a resolution. The arbiter’s bargain is the best they can do given the reaction of the other party. Quintessentially it is a Nash bargaining outcome obtained by the good offices of an arbiter skilled in the reasoning tools of non-cooperative game theory.

Key Take-Away

Participants are introduced to a range of bargaining tools as a form of reasoning that has its roots in non-cooperative game theory. The tools are an aid to reasoning during the conversation as the conflicting parties move towards a dispute resolution or bargain. Duration is a one day attendance at a residential Masterclass. Participants will be introduced to a set of invaluable tools in finding a resolution to a dispute viz. opportunity costs, value net, bargain, payoff-equivalence, Nash equilibrium, indifference trade-off, belief system and payoff-constant Pareto improvement.

Wistful Economics

Economics of times past, of Adam Smith and Keynes alas! Has economics become an illusion? Yes. It is an accidental tourist in the political landscape. Economic policy making is[1] ‘but a walking shadow, a poor player that struts and frets his hour upon the stage’ of natural numbers, coupled with policymakers throwing[2] ‘sixes and fives in games of chance’ and ‘as wise folk know the conditions in every country’ – targets and trends, patterns and probabilities. All the policymakers are merely players; they have[3] ‘their exits and their entrances sans teeth, sans eyes, san taste, sans everything’. There are no hard lines of distinction. Deflation may be temporary if capacity is absorbed by the real economy. However, a finite measurable increase in sales (thus, output) cannot be secured by small marginal reductions in price. Some industries are depressed and household balance sheets are insolvent. Ah, there’s husbandry in heaven and ‘a heavy summons lies like lead’ upon[4] the ECB: US dollar strength against the Euro is due to deflation in Europe and deflation in Europe is driving up the US dollar. Policymakers ‘cannot sleep’; with their ‘eyes severe, and beard of formal cut, full of wise saws, and modern instances’ they are actors in a Shakespearean play of infinite length as big data, social media and the Internet of Things transform real lives.

In a deflationary period a mismatch in prices and quantities occurs as companies and consumers both fear to spoil the chance of getting a better price later. This fear in a moment in time creates a short period. Competition breaks down and imperfections – for example, short term working, poverty and inequality, exchange rate volatility, competitive devaluations and lower wages – emerge with lasting impact.

Without China’s continued growth, there is no economy in the world large enough to absorb further contraction in the EU and the US. Only those who believe that economic policy making is akin to a Shakespearean play ‘full of strange oaths’ will enjoy the summer recess. But action is required now if deflation’s short period is to be defeated, best illustrated by the life of the mayfly than that of an elephant. A menu of policies should include a return to managed global exchange rates for a period of time, fiscal stimulus in order to ease domestic debt burdens and a continuation of QE in the EU. Falling prices are little comfort for the indebted householders and unemployed. The policymakers[5] sentence all of us to the sentence: ‘there is to-morrow, and to-morrow, and to-morrow, to the last syllable of recorded time’. It is better to end austerity now than regret doing economics by numbers.

[1] Act V Scene V Macbeth spoken by Macbeth

[2] Chaucer’s Canterbury Tales The Man of Law’s Tale 1st Part 130-134

[3] Act II Scene VII As You Like It spoken by Jaques

[4] Act II Scene I Macbeth as Banquo enters.

[5] Act V Scene V Macbeth spoken by Macbeth

Whither the Euro? The Liar’s Paradox

Whither the Euro? The Liar’s Paradox

In Dickens’ Hard Times the character Mr Gradgrind can’t help but speak about Facts to his pupils: ‘Now, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life. Plant nothing else, and root out everything else’. As we listen to Mr Draghi, to Mr Carney and to Ms Yellen, as we read the Financial Times or listen to business channels, isn’t it all about the Facts and the numbers? Analyst’s commentary coupled with an over-reliance on Facts and numbers has thrown economic policy making into the lion’s den of semantic incoherence. We forget that the real economy is about losing a job, going bankrupt, losing your home, personal and household debt.

Facts and Numbers:  Relevance of Godel

Sadly, economic policy making has evolved into a game of natural numbers. In addition to semantic incoherence – ‘numbers on the upside’ or  ‘targets below forecasts’ – we would argue that Gödel’s first incompleteness theorem may have a direct relevance to policy makers, warning them of the incompleteness of an economic policy, reliant on numbers alone.  Each time a new policy statement – boosting credit in Southern Europe, changing interest rates or QE – is added as an axiom, there are other true statements that still cannot be proved, even with the new axiom. If an axiom is ever added that makes the system complete, it does so at the cost of making the system inconsistent. His argument shows that any consistent effective formal system that includes enough of the theory of the natural numbers is incomplete: there are true statements expressible in the language of economic theory that still remain unprovable within the EU system of policy signalling. For example, what would happen if QE were introduced by the ECB? Thus the policy problem for ECB and for the EU is that no formal system, reliant on numbers and number predictions, satisfying the hypotheses of the theorem, exists. Instead we have noise and signals.  

Godel’s sentence

Economic policy today is transmitted as number signals into the financial markets. Any decision to change interest rates, for example, will have already been discounted by hyperopic analysts. Mr Draghi like Mr Carney will push the forward guidance to ensure a target natural number is met – an inflation level or a growth rate target. On a quarter-to-quarter comparison, EU growth averages less than 0.5%. It is but a number. The Fed sets an unemployment target number of 7%, however measured, and only when unemployment converges to that number will the Fed signal an interest rate change. However, Godel’s incompleteness continues with the austerity mess, and the game of number predictions.

Waiting for Economics

What has happened to macroeconomics in the hands of bureaucrats and politicians? Once there was a policy mantra, P: ‘low (high) inflation explains currency appreciation (depreciation)’ and ‘low (high) interest rates explain currency depreciation (appreciation)’. The US Fed added QE which contributed to a devaluing US dollar. The ECB has been anxious about the strength of the Euro v US dollar, but the Euro has depreciated against Sterling. Is the interest-rate differential between the US and EU so much greater in natural number counting than that of the EU and UK to explain a depreciating-appreciation Euro. If policy prescriptions, P, each represent examples of the Gödel sentence that each time a new policy statement is added as an axiom, there are other true statements that still cannot be proved. We have the liar’s paradox embedded in economic policy decision making: Nominate a P. ‘P is false’. But it cannot be true for then, as stated, it is false – nor can it be false, for then, it is true.

Signals and Noise

Interest rates and inflation figures are Facts, they are numbers. Natural numbers that are allowed to guide policy – it is a mess. EU faces a deflation trap defined by a long period of low inflation, below a target rate of 2%.  The Economist in its May 24th 2014 edition referred to this period as one of ‘lowflation’. Mr Draghi had signalled in early June 2014 how he intended to tackle the imminent threat of deflation – lower interest rates and a European style QE boosting credit by providing funding to banks on the condition that they lend to business.  Now we await the ECB meeting this week (September 4th). He will be reminded that the economic fundamentals are just numbers. Interest rates, exchange rates and inflation are natural numbers. The EU target inflation is 2%, ECB interest rates are now at 0.15%, falling from 0.25% and the Euro/Sterling rate of exchange fluctuates around 0.7911 and 0.8123. Natural numbers but with a potent impact on policies that directly affect everyday life.

1944-2014: Breton Woods to Brisbane

Did Mr Draghi signal at the Jackson Hole meetings last month that the Eurozone needs a relaxed fiscal and monetary policy? Will we see a signal from the ECB this week towards a purchasing of securitised assets? According to European Commission figures last month (August 2014) Eurozone inflation was at 0.3%, well below the target of 2%. In the real economy, however, bad banks dominate the landscape, unemployment continues to rise and growth remains stagnant. Yet our policy makers remain persuaded by Facts and data and numbers.

A reliance on Facts and numbers will continue to stifle policy making; it will ensure that Europe is at least a decade away from any numbered gains in productivity, any increases in real wages or any increases in growth. There is always hope. But in the reliance on Facts and data there is a great danger for policy makers sailing between the Charybdis of raising interest rates too soon and the Scylla of raising rates too late.

Analysts could be predicting a weakening Euro, strengthening US$ and Sterling as we end 2014. FX analysts will try to predict likely movements in the currencies but currency misalignment still continues. Indeed, in a world of numbers we will continue to ask: whither the Euro and Eurozone economies in an era of stagnant growth? But unless ECB engages with QE, Europe will continue to drift into debt-deflation cycle. Maybe there is hope that at the G20 in Brisbane later this year our policy makers will consider an interim regime of managed exchange rates across the world #tuncnunc to facilitate a return to economics. Earlier discussion on managed exchange rates on


Godel’s Theorem

Gödel’s theorem shows that, in theories that include a small portion of number theory a complete and consistent finite list of axioms can never be created, nor even an infinite list that can be enumerated by analyst’s computer programmes.


 € Appreciates: Low inflation and High Interest Rates

If appreciates expect lower inflation, and high real interest rates

€ Devalues: High Inflation and Low Interest Rates

Low and negative rates of interest € devalues


 € Appreciates: Low inflation and High Interest Rates

If appreciates expect lower inflation, and high real interest rates

Higher unemployment and downward pressure on wages

Internal Member State devaluation


Drifting into a debt-recession trap

The despondency that has attached itself to the financial crisis is ‘taking shadows from the reality of things’. Dante would not approve. Europe is drifting into a prolonged recession as policy-makers worry about inflationary expectations and competitive devaluations. Households hope to be delivered from this agonizing crisis.  Are there solutions? The following is a grand narrative of policy options, contingent on a managed exchange rate regime, an idea first aired in the Letters to Editor page of the Financial Times in 2009. G20 has not acted. They meet in Mexico – maybe recent Yen, RMB, Euro, Sterling, Swiss Franc and US Dollar movements may persuade them to look at the role of exchange rate fluctuations ‘midst this financial crisis as Europe drifts into a debt-recession trap.

Drifting into a recession

There is a palpable sense of despair and hopelessness, a lack of demand yet inflationary expectations have become embedded in the policy-maker’s crystal ball. The real economy of households and companies is shrinking in a vacuous cycle of intermittent growth as rising bond prices and lower yields improve the real economy of the investor. Banks, the exogenous factor in the policy-makers’ macro-economic models, still fail to understand that job creation, time-to-build technologies and innovations require a flow of credit. Personal balance sheets are moving into safe harbours, given the wealth destruction that has occurred in the property and equity markets and will continue for the foreseeable future. Anybody who can is saving, more are spending less. Welcome to the debt-recession trap.

Household balance sheets

Recovery must be centred on the household balance sheet; however, household budget patterns are unpredictable. Current decisions depend on expectations of what future policies will be. This is a conditioned response for households in a debt-recession trap. The mismatch between policy-maker and reality creates a short period – a phenomenon that households imagine if they change demand and spend more the other households will neither keep demand unchanged (so all increase demand and prices go up) nor continue to keep their behaviour unchanged (so bargains become available to the first mover) if they alter their behaviour. How each household responds depends on how each believes the other will respond. The result is demand is less, output is less and the recession is prolonged.

In the interim, households have adjustment costs – no interest income from government bonds, no dividend income from company-issued equities and minimal after-tax spend so unlike in the macro-economic models of our Central Banks, households are not seeking to maximise the concave single-period utility function subject to a budget constraint wherein the present value of consumption equals the present value of disposable income. Savings, for example, in a debt-recession trap signal to policy-makers that rational householders are experiencing low levels of expenditure in the present period due to the short-period phenomenon thus reducing the marginal utility of expenditure in future periods. So there should be a greater willingness to spend when the personal balance sheet are restructured.

Policy prescription: reduce income taxation to increase after-tax spend

QE and the US Dollar

During the Great Depression banks restructured their balance sheets; reduced loans in absolute and relative terms and invested (mainly) in government bonds. Isn’t this happening today? The ECB/Bundesbank believes that purchasing government bonds is tantamount to monetising government debt, thus leading to high inflation or a loss to the ECB on a government default. Paradoxically pre-crisis banks were turning government bonds from across the Euro zone into cash at the ECB, as governments borrowed and the banks relied on short-term funding. So really, all Central Banks – the Fed, BoE, BoJ and even ‘the outright monetary transactions’ policy at the ECB/Bundesbank facilitate the buying of government bonds – so why the mystery?

The Fed signals less worry about inflation through QE and the printing of money. Lowering interest rates may be devaluing the dollar but it is facilitating increased US export competitiveness. Central Banks that want to support their currencies are willing to increase interest rates. The Fed does not. The US dollar has been captured by Fed announcements. It is widely accepted that QE has contributed to a weak US dollar.

Exchange rates

When Timothy Geithner described China as ‘a currency manipulator’ in 2009 the exchange rate became politicised. More recently, Jens Weidmann, President of the Bundesbank, expressed concern about Central Banks’ efforts to revive exports by facilitating competitive devaluations. Did he have the Fed in mind?  Music to the ears of Brazilian Finance Minister Guido Mantega, who first signalled the ‘currency wars’ in 2010 as Brazil worried about an overvalued real. Its current account deficit is now contributing to a reduction in its economic growth. And the new PM of Japan, Mr Abe has had an impact on the Yen’s exchange rate pushing it from 78 per US dollar to 89 as he asked the Bank of Japan to double its inflation target to 2% – and to buy government bonds until that target is met.

Policy prescription: looser monetary policy and higher inflation targets

China and the Yuan/RMB

Elsewhere we had argued that Yuan appreciation will not and cannot solve the Sino-US trade imbalance. China in time, will, we had argued then, move to a more flexible exchange rate regime but at its own pace. It could occur during the 12th Five-Year-Plan 2011-2015 as economic growth in China becomes less reliant on export-led growth. By 2015 China trade and FDI flows will have moved away from US and Europe and more towards what we had described as the ASLEEP economies We agree with Professor Subramanian at the Peterson Institute for International Economics that the RMB could displace the US dollar as the leading reserve currency in the next decade. Trading nations and TNCs are already diversifying into RMB – being able to trade in RMB reduces transaction costs and mitigates currency risks for exporters. Liquidity from China could relieve any inflationary pressures in trading economies.

Solution Template

Many trading nations are considering a looser monetary policy combined with a higher inflation target – it presents an optimal policy and an escape hatch in a debt-recession trap. An inflationary bias in the conduct of monetary policy might be optimal if inflation shocks can lead to (welfare enhancing) increases in output. Albeit, any comparative statics exercise emanating from policy-makers’ models should be interpreted with great caution. A looser monetary policy could drive their respective currencies lower but any hope of sustained growth will be frustrated by a beggar-my-neighbour policy of competitive devaluations in the race to win the greater share of increased exports.

As previously outlined, a period of managed exchange rates may be required under the auspices of G7, and ultimately G20. Europe, specifically, and the G20 trading nations more generally, need to manage their monetary and fiscal policies within a managed exchange rate regime in order to escape the debt-recession trap.

Policy prescription: managed exchange rate regime to align world currency fluctuations.

Rational households and companies may have ‘parked’ demand and production, delayed in the anticipation of an inflationary period with looser monetary policy and competitive devaluations. If their expectations were managed within a managed exchange rate regime then there could be some hope that the real economy may improve as the worlds’ trading nations together plan an exit from the financial crisis. ENDS/PatrickMcNutt

Fiscal cliff and Kantian equilibrium

The fiscal cliff is the Nash Equilibrium [NE] is the best the Democrats can do given the reaction of the Republicans; they will debate big ticket items on spending asnd taxes but both know that neitherparty wants to go there  –  but it will happen if there is no compromise, according to game theory. The NE is often best understood as a ‘trap’ to avoid, but you can only avoid it, if there is compromise, and we can only compromise if I trust you and you trust me! The ethical dimension to this can be found in the answer to ‘who will compromise first’, that is, fulfil duty and take responsibility to find a Kantian equilibrium; the Kantian sequence could be observed….Move A:  I move first, then you follow: Move B: you move next and then I follow..Move C: we both observe each other as ‘taking responsibility’…How either party moves in the sequence and thus ‘fulfils duty’ depends on what each party believes the other will do…you might just be about to read these signals in the US.

Economic Damage & Spoiled Markets

Markets are spoiled when policymakers place greater worth on the value of a penny saved than on a pound spent on doing something. Consumers prefer to save instead of spend, as each fears to spoil the chance of getting a better price later. With a declining demand at a time of positive technology expectations, economic damage embeds itself into the spoiled markets, as the experience of buying and selling in bad times influence future behaviour and the damage will occur and recur in a pattern of lifecycle debt and deflation. G20 policymakers could endorse global policies that borrow more of the future and spend in the present. The economic damage today is in government cutbacks, indebtedness, redundancies, job losses and credit restrictions. Although technology and innovation cycles are visible across many products and services, although we are in an information business cycle, any expectant boost to world growth has been muted by the debt of economic damage. Banks had had converted a simple banking exchange of deposits and lending into a complex debt instrument exchange system – complex betting on the probability that a no income, no job or assets (NINJA) loan recipient would repay. They have spoiled banking, they have lost credibility as their profits continue to be privatised, and their debts socialised. The recent initiatives from ECB and the Fed represent a pan-QE3 frontal attack on a stubborn world economy that is stumbling into an era of deflation and economic damage. The QE3 is a positive signal, it has a chance of success, but more has to be done now.