Lordy be, praise the Lord and pass the ammunition.
I demonstrated how the banks have usurped the state as the principal creators of money, despite this fact being either unknown to or deliberately obscured by the financial and political communities and I argued that the banks’ money-creation process constituted in effect a hidden fraud upon the general population – a worldwide swindle that leads to a de-coupling of money and reality and the emergence of a parallel, virtual economy based on debt which, as it mushrooms exponentially, is bound eventually to implode.
Yes, this is so unknown and hidden that it\’s actually taught as part of the A Level economics syllabus. Those Rosicrucians, Bilderbergers, Illuminati, hiding something in plain sight!
Sources of money supply in an open economy (commercial
banks / credit creation, central bank, deficit financing, total
What clever bastards, eh?
Finally, I identified this general phenomenon by its ancient name – usury – the cancerous process of self-replication by which virtual wealth supplants real wealth and in the process enslaves human beings.
No, it\’s not usury, it\’s credit creation, fractional reserve banking even. But usury is, dependent upon which religious tradition (sooo useful in economics, eh?) you\’re following, either the charging of excessive interest or the charging of any interest at all. The flip side of usury is what the economist would call \”recognising the time value of money\”. A £ today is worth more than a £ in a year. The difference between the two prices is the interest.
Not a terribly tough concept to get. In fact all human beings instinctively get it: every language has the equivalent of the proverb that a bird in the hand is worth two in the bush (although it is only the more coarse modern ones that go on to point out that a hand in the bird…..).
Moreover, this contention, that stresses the extent to which the real economy becomes subservient to the virtual one, is given credence it seems to me by one obvious fact to which the commentators seem oblivious – that we should not be facing a crisis in the real economy at all.
After all what therein has actually changed in the past two or three years? There are still just about as many minerals in the ground and as many crops in our fields; it is not as if an economic collapse has been occasioned by anything tangible – the salinization and waterlogging of agricultural lands as occurred in ancient Mesopotamia for example, or a catastrophic decline in population levels brought about by the Black Death; nor has the store of human intellectual ability been depleted.
Quite true of course: but the economy does not depend upon those natural resources. Rather, it depends upon peoples\’ views. What Keynes called those animal spirits. It\’s those spirits which have changed, not the natural resources.
The crux of my argument in the Sunday Telegraph occurred where I showed how the banks have been bestowed what amounts to a license to print money owing to their ability to lend out many times more than they have on deposit. (‘Fractional reserve banking’).
In this way, the average reserve requirement for the majority of the world’s commercial banks is under 10% which means that for every dollar (or equivalent) which a bank has on deposit it can lend out at least ten times this amount – dollars which it invents and on which it charges interest.
Err, no. If I deposit £100 in a bank this does not mean that the bank can now lend out £1,000. That is nonsense.
If I deposit £100 and there\’s a 10% reserve requirement then the bank can lend out £90. Which will then be redeposited in a bank somewhere (allow us to assume the same bank in a different account) out of which £81 can be lent (£90 – 10% reserve) and so on. This sort of detail is important, yes.
This interest accumulates as newly-created money in the system at a compounded rate that can never be matched by economic growth in the real world and creates inflationary pressures for the very reason Monetarists point out – namely an over-supply of money, or credit.
Err, no, for if this were true there would be no point in being a monetarist, would there? If fractional reserve banking *inevitably* produces inflation then monetarists would be damning fractional reserve banking. As it happens, they don\’t. Rather, they say that this process of credit creation must not be allowed to get out of hand. Too little is bad (deflation! depression!) too much is bad (inflation!) and the right amount (umm, usually thought of as equal to nominal GDP growth isn\’t it? Or real?) is just perfect.
Such an inflationary pressure is bound in turn to produce an expansionary imperative on the global economy itself – hence the mantra of ‘growth, growth at all costs.’
No, the reason we want to have growth is because there are people out there who are absolutely poor. We\’d like them not to be poor. So we\’d like to have more stuff so that they can have some and thus not be poor. Even if we divvied up entirely equally the globe\’s production among all the people (however absurd this would be in reality) everyone would get $8,000 a year to live on. Here in the UK that would mean that we could have the NHS, the education system, local councils and nothing else. No food, no clothes, no houses, just government. Howver desirable the NHS, education and councils are we do tend to think that a good life well lived needs more than this. Thus we need to create more stuff, thus we desire growth.
In its simplest terms, therefore, there is little difference between the architecture of our global financial system and the Ponzi scheme put into place by Bernard Madoff.
Thus, the most basic exercise in false accounting, from which the other variants nearly all stem, is to treat a depletion of assets as the generation of revenue.
In this way, Madoff was able to utilise funds placed on deposit with him to pay out above average returns to investors who assumed, wrongly, that those returns had derived from profitable ventures when in fact they had been drawn from their own capital – (in itself an analogy for Britain during the Thatcher years and up to the present time).
Ah, I see where he\’s going here. The growth we\’re getting is simply the liqudation of natural (and other) capital and it will all end in tears. Except we\’re not. Liquidating natural capital that is. As Bob Solow pointed out, 80% of the growth in the market societies in the 20th century came from adding more value, not from consuming more resources. Resource use might be a problem with that 20%, yes, but that doesn\’t mean, as the 80% shows, that growth must stop if we are to reduce resource consumption.
For, in 1929 the world’s population was under a third its current level and de-forestation virtually non-existent;
Blimey, so history\’s another thing Mr. Guppy is ignorant about. The bottom, the lowest level of, forest cover in the USA was in the early 1920s. It has been rising since then: deforestation in the US was over by 1929. It\’s almost as if Darius has never heard of an environmental Kuznets Curve. Which surely cannot be the case, given that he\’s setting himself up here as an environmental prophet.
Consider a respectable but by no means startling growth rate in the world’s economy of 2% per annum – a figure with which the likes of Messrs Obama and Cameron would no doubt be pleased and a pittance – until one looks beyond one’s own nose, that is.
For, when 2% is compounded annually, then in 35 years – or one generation – a single incremental increase is equivalent to a doubling in today’s terms and in two generations’ time to a quadrupling.
This is true of course.
Increase the rate to 6% – only slightly more than what Ireland will have to pay on the loans recently required to bail out her economy – and the figure becomes almost 60 times.
It simply isn’t going to happen.
Err, you know, people can run primary budget surpluses? Even full surpluses? It is in fact possible to pay down debt?
Thus, the combined wealth of the world’s billionaires, (just shy of 500 at the time of writing), amounts to the net worth of the planet’s poorest 2.5 billion inhabitants. Moreover, for the reasons already outlined, the process of distribution from the poor to the rich can only accelerate. So that, (according to the United Nations Development Programme) while in 1960 the 20% of the world’s richest people had thirty times the income of the poorest 20%, by 1997 that figure had already reached seventy four times.
Given that the poor are getting richer there is no transfer from the poor to the rich. That the greater wealth being created is being unevenly distributed is true: but it is not that wealth is being taken from the poor and given to the rich.
the huge Trans National Corporations, some of which already constitute economies larger than those of certain countries?
Well, yes, it is true that the economy of Exxon is about the same size as the economy of Luxembourg. But why this should be a surprise I\’m not quite sure. The value added by 200,000 odd rich world workers is equivalent to hte value added by 200,000 odd rich world workers. This is why they\’re rich world workers of course: for their value added is high.
But I fear that\’s not quite what Darius means: he\’s confusing corporate turnover with GDP.
The sexualisation of society occurs not on account of our liberal values but simply because sex sells. The serenity of Sunday is sacrificed to the same idol.
Becoming quite the little prodnosed conservative, isn\’t he?
But how could it be that supposedly well-educated individuals, including politicians, financial journalists, accountants, economists and other ‘experts’, could be so blind to what the average ten year old student of elementary mathematics would grasp within seconds – that non-ending exponential growth in a limited world is simple Alice in Wonderland?
Because, dunderhead, GDP is \”the value of goods and services\”. It is not necessary to have more goods and services, nor to consume more resources to create them, when we can increase the value being added as a way of increasing GDP. As, above, Bob Solow has pointed out we largely do anyway.
Concepts such as self-sufficiency, tariff barriers, the ending of fractional reserve banking, local currencies, restrictions on the movement of capital, national economics and indeed any proposal that aims at our re-acquiring control of our economies cannot even be discussed.
Ah, my apologies. Not a conservative, a fascist.
I\’m sorry, but the rest is just too boring.