What would you do with €25bn?

080610Portrait003I completely forgot to post this when I was asked the question: what would you do with 1 Anglo, or 25 billion euros, as it used to be known? Here's what I said. Can you spot the logical flaw(s)?

Use 25 bn on a series of staggered debt paydowns to reduce the debt-disposable income ratio from 170% to around 100%, essentially solving the bank's problems by giving every household a voucher to spend on goods and services and education or, with government matched funds, pay down their outstanding debt. Most people will choose a linear combination of the two alternatives, and most people who need to will deleverage, heaving the banks back into solvency as a second order effect by reducing the probability of bad loans to zilch in the next 2/3 years, dramatically boosting domestic consumption, production, saving, and investment, and, as a side product again, getting whatever party suggests it back into power, come hell or high water. The voucher idea also avoids the hideous moral hazard problem.

Importantly, each *individual* gets the voucher, not each household. So dual income families can really benefit. Stagger the payments by age cohort, starting with the 20-25 year olds, 25-30, and so forth.

You'd see a huge bump in inflation in the following year, which would be brilliant, as that would kill off more of the debt, and the economy would be growing gangbusters again, unemployment would reduce a combination of which would help to drop the debt-disposable income ratio again, and incentivise people to invest rather than save.

Collect Nobel Prize and pass 'Go'.