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"Anglo Saxon" does not mean high debt - just the reverse

Indeed, as we know from Monday, the difference between the Anglo Saxon and Continental models is that in the Anglo Saxon model, total debt is zero, while in the Continental model, total debt is...er, zero.

OK, you did say "gross debt".

I enjoyed this posting. Do Canadians also see themselves as Anglo Saxon? I think it's a classification my fellow Scots would often find reason to put themselves outside of.

This book helps put the debate in context:

"Used as payment and a medium of trade, food was the basis of the Anglo-Saxons' system of finance and administration"

I'll lend you a nice bowl of Scots porridge if you promise to invest it wisely in the Goldilocks economy and pay me back in Beaver Tails within ten years. I suggest you let it cool down first, because I hear "hot money" is a big problem in foreign investment.

Hi Leigh! Yes, I did have to catch myself, and say "gross debt".

Only a minority of Canadians would see themselves as Anglo Saxon: those of mostly English descent.

My Anglo-Saxon sister, nephew and niece will be visiting from England tomorrow. I plan to take them on the Rideau canal, and feed them beavertails: http://www.razzledazzlerecipes.com/canada/beaver-tails.htm Much tastier than porridge!

I'm currently pushing the idea of narrow/limited banks. Wouldn't that qualify as a return to the Anglo-Saxon model?

Hi Don! Maybe. If I like it. I'll call it "Anglo Saxon". If not, I'll call it "Continental" ;-)

A narrow bank that has demand deposits as liabilities, and....government bonds (or something very safe and liquid) as assets? How are the rest of household savings going to be channeled to firms? Via stock markets (including mutual funds)? If so, then yes, that sounds "Anglo Saxon".

Narrow Banks...wasn't it Henry Simon(s?) who advocated that in the 1930's?

Don: yes, it was Henry Simons, but in the 1940's. And Milton Friedman seemed at least partly onside as well.

But if you want a really stable financial system, forget narrow bansk. Forget banks altogether. Firms finance their investment with 100% equity (stocks, shares, whatever, or preferred shares if you like). And households own only shares (possibly in a mutual fund). Households do not own demand deposits, but they hold currency and can write cheques on their brokerage accounts. No banks at all. Pure Anglo Saxon model, at its most extreme. Totally stable. Firms cannot default, because they have no debt, and banks cannot default, because there aren't any. (OK, there is a slight risk of default, or rather bouncing a cheque, if my stocks crash between my writing a cheque and it being cashed.)

Ethnic labels for political phenomena are usually kind of silly, anyway.

Mandos: agreed. But it used to be roughly meaningful, in the past, under the old definition. The English-speaking countries did do more finance through the stock market than through banks, I think. About 15-20 years ago I had a map of the world, where the size of countries was weighted by stock market capitalisation. Germany and France were small islands off the coast of the UK. The rest of Asia was a small island off the coasts of Japan and Hong Kong. Wish I still had that map.


1) This is very thought-provoking, Nick. Note, in line with your argument, that most EU Continental banks --- at any rate in West Europe --- turn out to be far more highly leveraged than American banks turn out to be. Britain, though, is an exception. Its banks are dangerously leveraged.


2)The evidence? There is, please note, a good comparison of the blatantly higher debt problems of EU Continental banks compared to the US on three categories: (i.) Short-term liabilities held by banks as a % of National Debt; (ii) Same liabilities as a percentage of GDP; and (iii.) And leverage ratio of liabilities/equity.

It turns out that the Continental banks --- including Switzerland and Iceland (not members of the EU but following the same regulatory rules and sources of business firms’ capital for investment) --- are far more dangerously exposed on all three categories. The US is low on all three. Britain, alas --- it should be expelled from the Anglo-Saxon country-label --- is very dangerously exposed too.

(Actually, the use of the label is strictly economic, and is continually applied on the Continent of Europe to single out Britain, the US, Australia, New Zealand, and yes, even Ireland (in the Eurozone, but with social spending as a percentage of GDP as low as in the US . . . not to mention its subsidies for multinational implants. As for Canada, in the days of Liberal Party hegemony --- especially with Quebec Prime Ministers --- its economy moved in social spending terms toward a EU welfare-state, though its labor markets, its business models, and its ways of raising capital for investment were largely dependent on equity markets. This has changed in the last few years, beginning even in the Liberal Party era --- but especially in the last few years, n’est-ce pas?)


3) The source of the comparisons was a New York Times piece back in October 2008. In case you aren’t a NY Times subscriber, Click here for a table that sets out the exposure of several banks in Europe and the US . . . but not all those that appeared in the NYT original article. If you click on the link right above the table, though, you’ll find the startling data.

I myself was astounded by the figures.. Even the frugal, cluck-clucking Germans --- convinced that Americans are flailing about in a muck of fathomless debt --- turn out to have banks that are dangerously indebted compared to American ones. (I imagine, without having the data, the Canadian banks are maybe even less exposed than their American counterparts.

Moreover, contrary to the pedaling-it-softly Continental governments and media --- who were claiming back in September and October that the US was falling into a deeper recession than they were --- their countries, as it happens, have also sunk deeper and faster into serious recession than us and you in Canada.


4) One final point. The export-driven economies in the industrial world have fallen faster and deeper into serious recession as well . . . especially compared to the US (can’t say for sure about Canada). South Korea, Taiwan, Singapore, Japan, and Germany are now finding out just how perilously their GDP depended on exports as the main stimulus to GDP growth.

Japan’s and Germany’s domestic consumption, for instance, has hovered somewhere between 56-59% of GDP in this decade down through 2008, compared to the US’s unsustainable 72-73%. By contrast, about 27% of Germany’s domestic production derives from export-oriented firms (not to mention the supplier firms, very numerous if smaller in size), and Japan’s reached as high as 18% during the recovery after 2003 spurred mainly by rapid global growth and a big spurt in Japanese exports.


5) Oh yes, lest we forget --- there's also China, even more dependent on export-oriented growth.

As it happens, its saving rate was an astonishingly high 50% in the mid- and later years of this decade, with its fast economic growth depended for 40% on export-oriented production and high and often unproductive domestic investment . . . and not just unproductive in many sectors, but also dangerously shoddy in infrastructure spending as well as spending on school buildings, and apartment and office buildings. (Net exports --- which include imports --- are, of course, much smaller; but still not negligible: just the contrary.)

Observe quickly in passing.

Chinese national income statistics are fraught with problems and maybe even fraud --- not least the actual inflationary rate applied by its GDP deflator to calculate actual GDP growth. Prime Minister Zhu Rongji started complaining back in the late 1990s that he and his central statistical bureau were receiving phony jacked-up data from all the regional governments. At one point he even tried to have the central statistical bureau by-pass the regional governments; send out their own agents to the provinces and local levels; and have them gather and analyze the data before sending it on. It turned out these bureaucrats from Beijing were hopelessly adrift in those regions, and the experiment was scrapped. Click here for a 2002 study.


Michael Gordon, AKA, the buggy professor

Michael: Thanks for your comment. You add good extra information and insights that are strongly complementary to my original post.

I agree with what you say (except on China, see below). "What's the German word for 'Schadenfreude'?" Did you see my post, a few weeks back, comparing Canada and the Eurozone? (Synopsis: Eurozone = Canada minus federal government). With the new of the last couple of days, I am feeling even more pessimistic for the Eurozone.

On China: I need to do a post on this. My current feeling, both on what ought to happen, and what will happen, is that China ought and will be the locomotive. Debt is the consequence of China saving and US FEd being forced to lower interest rates, and therefore dissaving. Now China is forced to dissave, and spend its assets. China stock prices already up strongly.

very interesting post.

I wasn't aware that there was this distinction, but now that I think about it I've had some experience with it. My grandfather started one of the first rock and roll radio stations in Canada in Ajax when he came over from england after the war. He refused to use any debt financing whatsoever, and relied solely on equity, even when it was detrimental to his business. We always figured it was some sort of eccentricity, but I guess he was just following this Anglo-Saxon model.

o/t, but I've still got copies of the original Beatles albums from the station with 80% of the titles scratched out with "DO NOT PLAY" written over. Too racy at the time, apparently.

A bit of trivia: according to one of the too many documentaries I've watched over the internet, even the so-called "Anglo-Saxons" aren't. Genetic testing shows that 75% of the ancestry of the British and Irish populations is from a small group very early settlers who populated Britain shortly after the ice age, when Britain was still connected to the European mainland. In no region of the UK are less than 60% of the popuplation descended from this early population. The population of the UK & Ireland are most closely related to the populations of western France and northwestern Spain.

The later influxes of Celts, Anglo-Saxons, Danes, Normans, etc. only account for 25% of the ancestry of the British and Irish.

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