Well, yes Darius

This is amusing. Over at the old website I used to get long rambling comments from Darius Guppy (under a variety of pseudonyms) concerning this bloke:

He set out to restore the family fortune by faking a robbery in which he claimed he had lost a stash of gems. Lloyd\’s paid up within weeks and Mr Guppy – at the age of 25 – was a millionaire.

However, the audacious plot was uncovered when he and his co-conspirators were betrayed by an accomplice and he was later jailed.

I\’m not sure \”betrayed by an accomplice\” is quite right. Shopped as a criminal might be.

And he\’s written an essay about money.

For while it is true that Governments create legal tender – which is to say the physical notes and coins that circulate in an economy – that legal tender represents, at its absolute highest, only 3 per cent of the total money in circulation in the global economy. It is in fact the commercial banks, largely unaccountable and privately owned, that create the world’s money in the manner I will describe below.

Not promising (I swear I haven\’t read fuirther than this yet). We seem to be edging over to Richard Murphy territory here.

Consider the absurd contradiction at the heart of neo-liberal, Monetarist, Thatcherite economics which has constituted the Western orthodoxy for the past few decades: to emphasise on the one hand that the money supply should be brought under control whilst simultaneously allowing banking – where the money is actually manufactured – to run riot!

To grasp how the global fraud works we will need to step back in time and imagine ourselves next to the original goldsmith-banker.

Nope, not promising at all. Fractional reserve banking is \”neo-liberal, Monetarist, Thatcherite\”….how many more cultural swear words can you get in?….when actually it\’s not distinctively any of those things.

Currently the average fractional reserve requirements for banks amount to under 10% which means that for every dollar (or equivalent) the banks have on deposit they can lend out at least ten such dollars – virtual dollars which they summon from nowhere – and on which they charge interest.

Just as incredibly, this fact – the key to understanding how the international financial system actually operates and why the world is in such a mess – is discussed virtually nowhere in mainstream circles: not in The Financial Times, not in The Economist, not in the broadsheets, not in Parliament, not in the City and not in the economics departments of most Universities.

Either the process is unknown in these circles therefore – a sign of mediocrity – or it is indeed understood but kept deliberately quiet – a sign of wickedness.

It\’s so secret and unknown that it\’s part of the A Level syllabus:

Sources of money supply in an open economy (commercial
banks / credit creation, central bank, deficit financing, total
currency flow)

It\’s on page 650 of the current standard textbook. Indeed, it seems to be mentioned 11 times in that introductory book alone. \”money creation through fractional reserve banking\” gets 44,500 Google hits.

In short, so far we\’ve got wibble.

Likewise all sorts of financial instruments and ‘products’ are devised by the experts – Collateralised Mortgage Obligations, Put and Call Options, Floating Rate Notes, Preference Shares, Convertible Bonds, Semi-Convertible Bonds and endless other ‘derivatives’ – but in essence these additions constitute mere variations of the same basic Three Card Trick.

Giggle…FRNs, Preference Shares, Convertible Bonds are not derivatives.

It was the 1921 winner of a Nobel Prize for Chemistry and not for Economics, Frederick Soddy, who was among the first to articulate the mechanism by which money is created by the banks and how it mutates into debt in the ways I have described and his arguments have been developed over the years by thinkers such as Herman Daly and Richard Douthwaite.

Oh yes, very definitely Ritchie territory here. Personally I find using chemists to look at economics just as useful as I do using economists to look at chemistry: not a great deal.

Likewise with the banks – lend ten times more money than you possess and when the economy grows – or at least pretends to grow – Porsches galore, but when the lack of growth is exposed it requires only 11% of the loans on your books (in value terms) to be bad and you are bust. The truth is not that these institutions have suddenly become insolvent therefore, but that they were never really solvent in the first place since the assumptions on which they were founded could not apply in the real world. Simple false-accounting has meant that by rolling over their debts they have been able to keep them on their books as ‘assets’ rather than losses and forestall the evil hour.

There is an overarching name for the process I have outlined – ‘usury’ – and our predecessors from the Ancient and Medieval worlds appear to have appreciated much better than us its ultimate destination: ruin.

Being over leveraged, of course, he\’s quite right. But that process isn\’t called usury: it\’s called being over leveraged. Usury is (depending upon which religion you\’re talking about here) the process of either charging excessive interest or of charging interest at all. In Islamic circles for example, it means charging any interest at all.

Oh, did I mention that Darius now insists that he is a devout Muslim?

Anyway, there we have his considered thoughts on what\’s wrong with the world. Fractional reserve banking. That great secret which is in every economics course and every economics textbook is the hidden matter that none will or may speak of.

Guess they don\’t teach economics at Eton then?

7 comments on “Well, yes Darius

  1. If only it were generally understood that the commercial banks create credit and pile up interest income on the money that have
    magicked into existence.
    I have been involved in a slog-fest with the highly intelligent and well-trained Mark Wadsworth on his blog: he denies the banks are involved in any kind of weirdness. References to the books and authorities Mr Worstall mentions have no effect.But the point is nobody else becomes involved in the exchanges putting the Guppy 3-card trick argument.If it is as orthodox as you say ,why does the Green New Deal Group have to explain how banks expand credit ,as if this is a complex and shocking secret (Green New Deal The Cuts Won’t Work section 4 box 3) .When The Greenshirts went round shouting it in the streets,it was they who were thought weird.
    Guppy’s real crime, as far as the Ruling-class was concerned ,was in declaring,at the time of his trial, that all the great fortunes of England were founded on criminality or near criminal behavious. Since the family of Earl Spencer,an associate but later recipient of a beating, were well-known enclosers and sheep-ranchers and were actually put on trial for depopulating areas
    there might from his point of view be some justification for his taking his negative view of the great fortunes of England as ,for instance ,founded on driving people off their land (not to mention colonisation :where Enclosure went on a foreign jolly).
    Guppy seems to be guilty of the unforgiveable in England: articulately exposing its basic hypocrisy (also being dashing,foreign and not having any old enclosure money).

  2. Guppy would seem to be wishing away the great and glorious engine of growth that fractional reserve banking bestows upon us: deposit multiplication. Sure, it’s risky, but to prevent its occurrence would have been to constrain the astounding expansion of credit (and productivity, living standards, etc.) that it enabled.

    FRB has survived challenges from mercantilists, socialists, fascists and any number of other species of idiocy. Long may it reign. Sure, it’s not perfect, and central banks’ capacity to debauch currencies via fiat money is horrible; it’s still better than anything we’ve come up with.

  3. FRB banks should be clearly advertised as such. If people want to get instant access to cash from a FRB, then they should take out private sector deposit insurance to cover the risk that there may not be enough money to cover all demands for a payout. In other words, if you deposit cash in a FRB, you are, to all intents and purpose, a creditor to a relatively risky business. It pays to be aware of that.

  4. I doubt very much whether someone like Darius Guppy would write on your blog.

    Another case of you name-dropping?

    Tim adds: Well, yes, it is Guppy, all part of his mutterings about Peter Risdon, long story. Something I tried to tell you by email but you’ve given a false addy…..

  5. Pingback: Darius Guppy favours us with his thoughts on economics. Again

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