The Truth Is Out- Or Is It? or Do Banks Print Their Own Money? Part 1

dosh

 

The Truth Is Out: Money Is Just An IOU, And The Banks Are Rolling In It

David Graeber

http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

 

https://s3.amazonaws.com/s3.documentcloud.org/documents/1698915/monetary-reform.pdf *

 

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf #

 

The charge that private banks create money in the form of debt and that debt money creation caused the credit crunch is a major charge against the financialised world economy and orthodox economics. This charge targets the Federal Reserve and central banks across the developed world as authors of the problem.

 

If this is an accurate understanding of the way the economy works then the solution to the credit crunch and its aftermath is relatively straightforward: ‘End the Fed’ and effectively nationalise it (and all central banks), and money making powers for socially desirable projects (such as reconstructing capitalism along traditional lines!). Proponents of this type of approach action include Ellen Brown on her ‘Web of Debt’ blog and Professor Steve Keen.

 

This argument does have a number of positive aspects to recommend it. It is underpinned by the desire to reconstitute a commons – money which serves everyone. It is a political solution that emphasises the need to have a political confrontation with the Monetarists that have hijacked the monetary system.

 

And all of this becomes ever more relevant in the light of a recent discussion paper by Frosti Sigurjonsson commissioned by the prime minister of Iceland* exploring the possibility of nationalising the money creation process. Iceland is noted for adopting a non mainstream approach to the credit Crunch and its consequences, nationalisation would be more of the same non orthodox approach. The most significant thing is that this approach again argues that a political solution to the Credit Crunch and financialisation is possible.

 

But it is not just the ‘unorthodox’ that are offering new ways of looking at money philosophy. A discussion paper by the Band of England ‘Monetary Analysis Directorate’# makes the admission that banks do in fact, print their own money, just like the insurgents claim. This document is startling for a number of reasons and well worth reading.

 

In a Guardian opinion piece by David Graeber more or less gets the tone of the insurgent ‘victory’:

 

‘Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy“, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox (‘insurgent’- AP), positions more ordinarily associated with groups such as Occupy Wall Street are correct’

 

Surely, the first question that arises from this development has got to be: Why now? The Orthodoxy after decades if not centuries of standard monetary theory is now suddenly throwing in the towel and telling us the great unwashed occupy insurgents were right all along!

 

As David Graeber puts it:

‘Why did the Bank of England suddenly admit all this? ‘

And the answer?

‘Well, one reason is because it’s obviously true.

Hang on a minute, its obviously what you want to hear, but does that mean it is necessarily true?…and even if that is so, truth did not seem to be a consideration before…To be fair, David Graeber senses that this is not really an adequate explanation so he offers the following elaboration:

‘The Bank’s job is to actually run the system, and of late, the system has not been running especially well. It’s possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.’

 

Which itself leads to many more questions than it answers; Why has the Bank of England decided to deep six the elite it served so faithfully now? Better to turn to the paper itself, which after a first reading the text turns out to be a little more subtle and nuanced than might be supposed from reading the Guardian opinion piece about it.

 

In fact the paper itself turns out to be essentially a semi-orthodox defence of QE that smuggles a number of unorthodox ideas in the body of the argument, a kind of intellectual Quantitive Easing if you will. Nevertheless, the concessions it makes appear to be remarkable.

 

Still it would be good to keep this question in your mind as we proceed:

Why would the keepers of monetary orthodoxy need to make concessions to opposing points of view and why now?

 

Lets have a look at the concessions themselves. First of all the concession that private banks make money:

 

‘The reality of how money is created today differs from the description found in some economics textbooks:’

 

  • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

 

  • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.

 

The paper goes on to say that ‘lending’ out and ‘multiplying up’ of existing deposits in banks is little more than a childs bedtime story:

 

‘While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality’

 

So bank lending is not related to deposited money from the public in any way; the money is created from scratch. However, the paper repeatedly and forcefully argues this is not carte blanche to print:

 

‘Banks themselves face limits on how much they can lend. In particular:

 

  • Market forces constrain lending because individual banks have to be able to lend profitably in a competitive market.
  • Lending is also constrained because banks have to take steps to mitigate the risks associated with making additional loans.
  • Regulatory policy acts as a constraint on banks’ activities in order to mitigate a build-up of risks that could pose a threat to the stability of the financial system.’

 

Having disposed of deposit and money multiplier orthodoxy, the Bank of England goes on to attack the Monetarist quantity of money theory as another bedtime story:

 

‘In no way does the aggregate quantity of reserves directly constrain the amount of bank lending or deposit creation…..

Rather than controlling the quantity of reserves, central banks today typically implement monetary policy by setting the price of reserves — that is, interest rates’.

 

Cutting through the circumspect language, the core message is clear: The quantity of money is not a concern for the Bank of England. Targeting money quantity is voodoo economics; in other words the amount of money in the economy does not directly lead to inflation or anything else. The right wing shibboleth of hyperinflation through excessive printing is dismissed as a childish preoccupation, just like deposits and money multipliers.

 

Now we have got all that out of the way we can have a look at how things really work:

 

‘Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England’.

 

Let us be absolutely clear; this means the end of ‘risk’ as a supposed factor in the activities of banking. The ‘risk’ that lenders undertake in return for the ‘reward’ of interest is the risk of not making a profit – NOT the risk of losing their money. If a money lending institution makes no profit it will cease to exist just as surely as if it had lost all the ‘money’ it had ‘bet’ on various business enterprises.

 

And the paper freely admits that profitability is the province of the central bank. The Bank decides what will be profitable and what will not be profitable through the medium of interest rates. It must logically follow that the amount of ‘risk’ in the economy is entirely the creation of the central bank. (If you doubt this for even a second, just consider that this is exactly what ‘Too Big To Fail’ actually means…).

 

David Graeber makes this point quite elegantly in his Guardian piece:

 

There’s really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit.

 

And here is the Bank of England making the point ever more clearly:

 

‘The ultimate constraint on money creation is monetary policy.

 

By influencing the level of interest rates in the economy, the Bank of England’s monetary policy affects how much households and companies want to borrow. This occurs both directly, through influencing the loan rates charged by banks, but also indirectly through the overall effect of monetary policy on economic activity in the economy. (my emphasis). As a result, the Bank of England is able to ensure that money growth is consistent with its objective of low and stable inflation.’

 

Leaving the last bit aside for a moment, this again makes explicit the proclamation function of interest rates that I have discussed before. Bank money loans are made and bank deposits called into existence on the basis of the central bank proclamation of what will be profitable. Risk is not a factor. Amounts are not a factor. The only significant factor is the proclamation of profitability as expressed through interest rates. This is precisely democratised money theory as applied to credit.

 

Lets apply this radical orthodox/unorthodox anlaysis to the historical devleopment of democratised money and see what we come up with.

 

The economy is divided into two spheres; state and private.

 

  1. High interest rates are a central bank proclamation.

 

They proclaim the extent tow which the economy will be profitable by decree; i.e they say you should be able to make at least this much (base interest rate plus bank mark up) on any investment you undertake.

 

Profitablility expressly and explicitly means efficiency.Too many low productivity workers is inefficient- rationalise them. Government lending for social services is inefficient- cut back on it and so on…

 

This rationale describes the intent and effect of the famous Volcker interest rate rise that kicked off the Monetarist project in earnest. High interest rates served the Monetarist objective of diminishing the state and all ‘indulgent’ inefficient capitalist business.

 

  1. Low interest rates are a central bank proclamation.

 

They proclaim that the economy will be not be profitable by decree. i.e. they say you should be able to make little or nothing (base interest rate plus bank mark up) on any investment you undertake.

 

Lack of profitablility expressly and explicitly means inefficiency- many low productivity workers employed in low wage, low value added service sector jobs. Government lending for Quantitive Easing and TARP supported by low interest rates

 

This describes the intent and effect of the famous Bernanke interest rate slashing that kicked off the Q.E. project in earnest. Low interest rates served the Monetarist objective of making the state the entire guarantor of the post credit crunch economy, protecting all ‘indulgent’ inefficient financialised business.

 

High interest rates in the 80’s signalled shrinking the state, the end of ‘socialism’ and the consumer society post war settlement.

Low interest rates in the ‘00’s signalled an UNPRECEDENTED EXPANSION of the state in order to usher in an age of socialism for the rich….

 

Next time, Q.E.

But bear this in mind;

 

If banks really do print money, how come you never hear of anyone caught trying to get through airport customs with bunches of bank statements hidden in their underpants?…

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Using Democratised Money Theory to Understand Bitcoin

imagesPoints from previous posts on Democratised Money Theory can be taken and applied to Bitcoin and other Cryptocurrencies. This can give an interesting insight into all forms of money.

 

Democratised Money Theory:

 

Money is a contract – a set of words and images that embodies a decree. (This is the decree gold and silver bugs get confused about when they refer to fiat money). This decree element is a vital component of a money contract. It decrees the economic environment for the life of the money contract. This decree is expressed in form of the central bank interest rate in respect of that specific contract.

 

Applied to Bitcoin:

 

Bitcoin is a set of words and images that embodies a contract. This is what Bitcoin is in its totality that and nothing else. In its form, Bitcoin differs from government money in how and where that contract is recorded. In the case of Bitcoin the contract is recorded in programming code form. This is the decree that Bitcoin embodies, which is intended to function exactly the same as the decree embodied by government issued money. Programming code embodies the method and thence the rate at which Bitcoins can be ‘mined’ or Bitcoin ‘decrees’ made. It effectively decrees the rate of creation of decrees!

 

But this is really no more than a marketing device. By making the issuing of Bitcoin decrees ‘automatic’, the creators of Bitcoin are seeking to obscure their role as the Authority which delineates the terms and form of Bitcoin. They do this precisely because the people who might adopt Bitcoin don’t like the idea of conforming to a given authority. The ‘anonymity’ of ‘Satoshi’ is more of the same marketing…. a personification of the commons; ‘Everyman’ and ‘No One’

 

Bitcoin is a commercial contract as opposed to a state sponsored contract in the case of Government Issued Money.. Despite the best efforts of Bitcoin advocates to obscure the fact, Bitcoin is at its core a business proposition and in this it differs fundamentally from state issued money which is at its core a political proposition.

 

This points to a fundamental difference. State issued money is derived from the commons, crypto currencies are not. Crytocurrencies, like all ‘democratised’ currencies, represent an exact inversion of the developmental dynamic of state issued currencies.

 

State issued currencies began their existence in the commons operated for the benefit of all, and were appropriated for the benefit of a minority. This process culminates in the creation of specific forms of privately issued Democratised Money.

 

Democratised currencies such as derivatives and Bitcoin were created and developed by a minority supposedly for the benefit of all. Democratised money and Government Issued Money begin at opposite ends of the money spectrum and move in opposite directions.

 

There is no point in simply describing the differences between state issued money and democratised money as they are now. At best this will offer you a blurred snapshot of the development of money in the 21st century. You have to describe the trajectory of development of both democratised privately issued money and state issued money simultaneously and how they will affect each other as they develop.

 

Democratised Money Theory:

This money contract is mounted on a transferable medium. Something that can be securely transferred from one owner to another. The contract is issued by the relevant legal authority which is the body authorized to mount that specific proclamation upon that specific transferable medium.

Applied to Bitcoin:

 

The Bitcoin contract is recorded as code which can be transferred from one processor to another. The proprietary name that is given to the contract and its mode of transference is the ‘Blockchain’. The blockchain in its totality serves as both decree and record of Bitcoin whereas individual notes serve as decree or record of government issued money. But the blockchain cannot be owned by any one person; unlike a money note (or all money notes), which can be transferred, stored and even destroyed by its owner. (Although interestingly it is a crime to modify and deface modern banknotes. Now why would that be?…)

 

(As a secondary point of interest, bank credits are not money despite what many insurgents argue. Bank credit transactions require a separate and autonomous mode of record, disqualifying them as money.)

 

There may be some confusion over the designation of the ‘relevant legal authority’. In this case it is the creators of the blockchain code and the issuers of Bitcoin. The authority to do this is vested in private property which is a totem of capitalist states. Satoshis have legal authorization to issue Bitcoin, although final rights are reserved by national governments.

 

Democratised Money Theory:

 

The validity of a money contract depends on the extent to which it decrees the nature of the real economy. The ‘value’ of that money contract is an expression of its validity. In other words: The money contract is valid to the extent that it decrees the nature of the real economy. Not ‘reflects’ the nature of the economy, decrees it. It is valuable to the extent it is valid. This comprehensively defines the value of money.

 

Applied to Bitcoin:

 

Trade and creation are ubiquitous in human society. Human beings purposefully alter the environment around themselves continually and without exception. This is the real economy. The control of this alteration is the purpose of politics and economics. Money is one method of implementing this control. A piece of money is a decree of who will do what where and when. It is specific to the extent that this serves the purpose of the issuer. It is generalised to the extent that this serves the interest of the issuer.

Bitcoin contract is specific in that it serves the interests of ‘Satoshi’ to create a privately issued digital currency through ‘mining’ and recording transactions on the Blockchain.

The Bitcoin contract is generalised to the extent that it operates as a store of wealth and to a much more limited extent as a means of exchange and transfer.

 

I have previously used the example of a train ticket to illustrate another aspect of money but the metaphor can be useful in this context too:

 

  • All train tickets are contracts.

All pieces of money are contracts.

 

  • All train tickets are the same in function and distinct from other contracts.

All money is the same in function and distinct from other forms of contract.

 

  • You need a valid train ticket to access the rail system.

You need a valid piece of money to access the economy.

 

  • Train tickets are specifically valid in terms of the journey you are permitted to undertake

Money is specifically valid in terms of the economic activity you are permitted to undertake

 

  • A specific train ticket contract decrees a type of journey will take place

A specific piece of money contract decrees a type of economic activity will take place

 

  • A train ticket is valid to the extent that the journey it decrees will take place, does take place

A piece of money is valid to the extent that the economic activity it decrees will take place, does take place

 

  • A train ticket is valuable to the extent it is valid

A piece of money is valuable to the extent it is valid.

 

(NB. Claiming gold is naturally money is like getting on a train with a piece of Stephenson’s Rocket in your hand and claiming it gives you a right to ride!)

 

The decree aspect of Bitcoin is well illustrated by the apocryphal ‘10,000 Bitcoin For A Pizza’ story.

 

Bitcoin, like any form of money, does not reflect reality or the economy. If it did, then the first Bitcoin would be designated as worth the totality of the economy, the first and second would each be worth half the economy, the first, second and third would each be worth one third of the economy and so on… This is obviously nonsense

Since money does not reflect the economy as it is or was, it must instead decree the economy as it is going to be.

 

In the case of the Bitcoin Pizza, 10,000 Bitcoin didn’t call the pizzeria that made the pizza into existence.

It didn’t call the flour purchase for the pizza into existence.

It didn’t bring the pizza man into work to make the pizza. All this stuff was already there.

But what it did, was to call this specific pizza into existence.

Bitcoin like all other money, decrees how the world will be from now on.

 

Once the Bitcoin Pizza transaction was successfully completed, the Bitcoin became both decree and record and its value was accordingly modified.

 

Democratised Money Theory:

 

A money contract is valid to the extent that everyone complies with the terms of the decree it embodies. A money decree is complied with to the extent that the amount and terms of money contracts issued compare with the amount and terms of economic activity undertaken for the same territory and time span.

 

Applied to Bitcoin:

 

Here is a ‘sketch’ graph which roughly illustrates the dollar value of Bitcoin since its beginning. The graph is useful in illustrating the decree function of Bitcoin. I have marked five significant points on the graph:

NEWGRAPH

1.Bitcoin the beginning has no recording function, so no value added there. The mining protocol decrees Bitcoin is virtually valueless.

 

2.Bitcoin records some few transactions; ‘wealth store’ value increases. This leads to an increase in mining which decrees Bitcoin is again virtually valueless.

 

3,4.The number of Bitcoin records begins to accumulate rapidly, especially in relation to the number of fresh decrees issued because it is becoming harder and more specialised to ‘mine’. The increased cost of ‘mining’ is effectively a decree of greater value.

 

5.The validity of recent decrees increasingly comes under question. Bitcoin is having trouble making the real world conform to what it proclaims. This is reflected in the recording function. Bitcoin falls in ‘value’

 

 

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Kentucky Fried Crackernomics Or Would You Like A Breast Or A Leg? Or The Mark To Market Of The Beast Or When the S**t Hits The Fan

o-UNIVERSITY-OF-KENTUCKY-570

‘Since 1971, U.S. citizens have been able to utilize Federal Reserve Notes as the only form of money that for the first time had no currency with any gold or silver backing.

This is where you get the saying that U.S. dollars are backed by the “full faith and credit” of the U.S. Government. In other words, Nixon implied; take our paper dollars or don’t’.

http://buygoldandsilversafely.com/gold/what-really-backs-the-us-dollar/

 

It can’t be often that a concise and illuminating illustration of the nature of money pops up in the nexus between tattoos and professional sports. Once in a blue moon perhaps. Nevertheless….

 

Here are three important characteristics of money:

 

  1. Money is a contract- a set of words and images that embodies a decree. (This is the decree gold and silver bugs get confused about when they refer to fiat money). This decree element is a vital component of a money contract. It decrees the economic environment for the life of the money contract. This decree is expressed in the central bank interest rate in respect of that specific contract.

 

  1. This contract is mounted on a transferable medium. Something that can be securely transferred from one owner to another.

 

 

  1. The contract is issued by the relevant legal authority– which is the body authorised to mount that specific proclamation upon that specific transferable medium.

 

From the above we can go on to say:

 

  1. The validity of a money contract depends on the extent to which it decrees the nature of the real economy. The ‘value’ of that money contract is an expression of its validity.

 

In other words: The money contract is valid to the extent that it decrees the nature of the real economy. Not ‘reflects’ the nature of the economy, decrees it. It is valuable to the extent it is valid. This comprehensively defines the value of money.

 

5. A money decree is valid to the extent that everyone complies with the terms of the decree it embodies. It follows from this that a money decree is valuable to the extent that everyone complies with it.

 

6. A money decree is complied with to the extent that the money contracts issued compare with the amount of economic activity undertaken for the same territory and time span.

 

Which brings us to Kentucky Wildcats fan Rock Wright and his tattooed leg.

 

What is fascinating about Rock’s tattoo (and his leg to a lesser extent..) is that it functions more or less the same way as money. In fact, Rock has sort of turned himself into a piece of money!

 

Lets compare Rock and his leg tattoo to my three important characteristics of money:

 

  1. Money is a contract- a set of words and images that embodies a decree. (This is the decree ‘insurgents’ get confused about when they refer to fiat money).This decree element is a vital component of a money contract. It decrees the economic environment for the life of the money contract. This decree is expressed in the central bank interest rate in respect of that specific contract.

 

Rock, (the legal issuing authority*) has created a tattoo that makes a clear decree about what the future sports environment (economy,)will be. The subject of the decree is the activity of the Kentucky wildcats. The environment,(economy), the Wildcats are operating in is the Championship league. The term of the decree is up until the championship concludes with one winner which will be the Wildcats at which time Rocks money/tattoo will be retired as a decree and become a record.

 

  1. This contract is mounted on a transferable medium. Something that can be securely transferred from one owner to another.

 

Rock can transfer his allegiance from the Kentucky Wildcats to the Cincinnati Dipsticks (I’m grasping ), any time he wishes. Rock is not exactly a transferable medium, but in many societies tattoos were used as marks of ownership and allegiance. And marks like this may be used as such again…

 

  1. The contract is issued by the relevant legal authority– which is the body authorised to mount that specific proclamation upon that specific transferable medium.

 

*Rock is both the medium and the issuing authority as he owns his own body and can do with it what he likes.. Since this is the case, he has control over his body and what gets tattooed on it -at least for now….

 

From the above we can go on to say:

 

4.The validity of a money contract depends on the extent to which it is corresponds to the real economy. The value of that contract is an expression of its validity. It is valid to the extent that it corresponds to reality. It is valuable to the extent it is valid.

 

The validity of Rocks tattoo should be fairly obvious. If the Wildcats get spayed in the championships neither the tattoo or Rock himself is going to look too smart to anyone who sees them. If Rocks decree comes off he looks like a pretty cool, smart guy (at least to some people),  if it goes wrong, well Rock has got a plan for that too. Rock has got ‘faith’ in the Wildats and gives them ‘full credit’.

 

  1. A money decree is valid to the extent that everyone complies it.A money is decree is complied with to the extent of the amount of contracts issued compared with the amount of economic activity undertaken.

 

Because only Rock has got a Wildcat tattoo decreeing 40-0, the tattoo and the decree don’t look too good to most people right now- faith is medium to low. But if every fan in the league as well as every member of every team (including the Wildcats opponents!!) had a tattoo like Rock, a Wildcat Championship victory would be a shoe in. A self fulfilling prophecy. The decree would be ubiquitous and in full force.  Just like successful, valuable money is in any given territory.

 

There is something more we can say about tattoo money. The article refers to ‘Tyler Black’ who also had a decree tattoo just like Rocks.:

‘We still like Wright’s odds more than Tyler Black’s.

Black, also a Kentucky diehard, had a 2014 Kentucky national championship tattoo branded on his leg before last year’s SEC tournament, even though the Wildcats lost 9 regular season games.’

 

Now that we have more than one money decree tattoo, we can start to build up a history of ‘Wildcat Tattoo Money’. Comparing the relative validity of each tattoo while at the same time taking them in their totality means we can build up a picture of this currency over time. Just like we can with ordinary currency. And if everyone in Kentucky had a tattoo for every season….

 

New International Version

‘There is a time for everything, and a season for every activity under the heavens:’

 

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Parade or Crying In The Rain

 http://www.theguardian.com/business/2015/mar/18/federal-reserve-expected-end-zero-interest-rate-era

 

I have argued (in a different context), that the second world war ended not with the declaration of VE day or VJ day, but with the fall of the Berlin Wall forty or so years later. Challenging the date of victory challenges an entire perspective on the meaning of the Second World War.

 

Your perspective on the Second World War rests on understanding the objectives of each side and to what extent each side achieved those objectives. In other words understanding objectives is a necessary part of understanding what constitutes victory.

 

The Victors in the second world war did not achieve all their objectives on VE day or VJ day, that only happened with the re-emergence of a reunified Germany. The Saxon elite fought a long, silent war to achieve the reunification of Germany for forty years after the official cessation of hostilities. This might lead you to ask who the real enemy was….

 

The same is true with the Battle Of The Credit Crunch. We are coming closer to a declaration of victory and the announcement of a victory parade. As far as the mainstream economic data coming out of America and Britain goes, the Saxon team is on the home straight.

 

We are informed that unemployment is falling. Economic growth is (sort of), gaining traction. Compared to the basket case that is the rest of the world economy, things are not too bad, Saxon elites lay claim to some kind of normalisation in Britain and the USA. And so it is reliably reported, interest rates are going to move upward towards the ‘new normal’.

 

Note that ‘new normal'; it is important.

 

But first, take a quick look at the crowd behind the barriers as the great and good prepare for their triumphant circuit. Hoots of derision and catcalls greet the declaration that Fed interest rates will rise- after all haven’t we heard this over and over the past decade? Why will now be any different?

These catcalls are at least in part, justified. The hoi polloi have noted that whenever one of the floats breaks down or a bit player falls over while executing a tumble, a rain of digital ticker tape money descends from the skies distracting the attention..

 

This parade still isn’t really going anywhere they argue, so how can they do without the free Federal Reserve supplied ticker tape?

 

Lets see.

 

There are differing positions regarding interest rates –they are either going up, or down, or staying the same. The three possible options for the future of the economy are:

 

  1. That an economic collapse will come. There are not many still pushing this line outside a dedicated few on the libertarian wing of economics. And when a collapse of some kind is predicted, it tends to be focused on an outside factor such as war with Russia.

 

  1. That interest rates will stay low or even fall further because the financial system cannot afford to see them rise- this is because modern finance is in essence a Ponzi scheme that needs a constant influx of free money from the government. Increasingly there is a new twist in the discussion on low interest, the international blowback element. The argument here is that raising interest rates in the USA will screw the world economy and therefore America will come under increasing pressure will stop this happening.

 

3.Interest rates will rise to a new normal interest rate (see Guardian article).

 

Discounting the possibility of outright collapse, I would argue that the stay low or go lower faction is missing an important trick. Since they don’t believe interest rises are possible, they don’t analyse the proposed extent of any possible rise. This is a major error because insight into the specific target rate that central banks are seeking to achieve gives real insight into their thinking.

 

The new figure for a target interest rate is given in the Guardian article as 2.75%-3 %. What would an achieved rate of 2.75% or 3% actually mean for the Saxon elite?

It would mean that they had achieved the real objective of the Credit Crunch war; to secure a permanent, secure position for Democratised privately issued money in the form of derivatives in the world economy.

Long term interest rates since the post WWII period have averaged around 5%. The significance of this figure is that it represents the total ‘book’ value on state issued money as I explain here:

https://unitedstatesofeverywhere.wordpress.com/2014/02/13/the-great-escape-or-moby-dick-in-space/

Since the interest rate is an expression of the total state money economy, it follows from this that 2.5%, half the long term average rate,would represent half the traditional post war American economy given over to democratised money.

 

3%, which is 60% of the long term interest rate average, would represent 60% of American economic activity denominated by the American state and 40% given over to democratised money.

 

By way of comparison what would it mean if central bank interest rates in Eurozone or Japan stay low? This would reflect the extent to which these respective economies have been supplanted by derivatives. The lower the interest rate, the higher the proprtion of your economy that has been leached to derivatives.

 

The derivatives/state money balance is expressed through the ‘health’ or otherwise of the banks. One of the key mistakes the economic ‘insurgents’ make is to confuse the defence of democratised money with the defence of banks and bankers. Since the banks and financial institutions are the purveyors of democratised money, they are inevitably saved alongside the democratised money they produce. But this does not mean that this was the prime intention of Monetarist politicians in implementing QE. This is a perfect example of needing to understand the real objectives in a war before you can understand the meaning of defeat or victory.

 

The specific crisis that sparked the Credit Crunch was a failure in interbank lending. Financial institutions did not want to make temporary loans of state money to each other because they feared the massive and unknown amounts of derivatives that they all carried on their books. This was effectively admitting that there was a possibility that the value of these derivatives was heading towards zero..

 

But this was never a liquidity problem. This was an exchange rate problem between the value of state issued money and privately issued democratised money. The problem was that democratised money was effectively worth nothing compared to state issued money.

 

Quantitive Easing firstly:

 

Bought these derivatives at their maximum possible denominated value using state money. This is exactly the same as a central bank intervening in currency markets to lower the value of your own currency while propping up the value of another currency (democratised money).

 

At the same time QE lowered interest rates effectively to zero. Opening up a channel of ‘sabotaged’ money to the banks. This effectively declared the ongoing state denominated economy to be dead. (see previous two articles) because money issuance effectively acts as an economic proclamation about what the nature of the economy will be so long as that particular example of money is around…

 

On the surface (remember the difference between real objectives and stated objectives) this QE money was supposed to go into the real national economy through the banks to stimulate economic activity. It other words it was advertised as being standard state issued money. But what it actually did was go into international speculation or was just recycled to the central banks. In other words it was actually sabotaged or denuded state money. (see previous articles)

 

I do believe that there were a number of politicians who genuinely believed that there was a possibility that this sabotaged money could have gone into the national economy. And of course when it became clear that this was not happening they asked the question: Why not?

 

And the answer they got was this:

 

‘It is far more profitable for us to invest overseas. The more profit we make the sooner we will repair our balance sheets. The sooner we repair our balance sheets the sooner the crisis will be over. So what is it to be: repair the Credit Crunch or national investment?’

 

Faced with this question the useful fools folded and chose repair the credit crunch.

 

So what did this mean?

 

It meant that wealth extracting opportunities in Britain and America were competing with wealth extracting opportunities anywhere in the world for this QE money. The Monetarists has succeeded beyond their wildest dreams. They had ripped off the cover from Anglo Saxon economic society and exposed it completely to the winds of international competition!

 

And when did Anglo Saxon society begin to ‘recover’?

 

When it began to compete with the terms and conditions and profitability of the most exploited parts of the world. So you have a recovery for the monetary system but no recovery for you….

 

A hyper victory for Globalisation.

 

And how can Japan and Europe recover?

By doing exactly the same thing.

And why haven’t they ‘recovered’ yet?

Because they are still trying to hang on to the shreds of their respective societies.

But we have got Abenomics and we have got ECB QE so it won’t be long….

 

I can’t write much more because the thought of this is making me sick to my stomach, nevertheless;

 

So the Saxon economies become more profitable in comparison to the global economy so the QE cash returns ‘home’. So the overseas economies enter a period of crisis because of the withdrawal of QE liquidity, so their terms and conditions have to fall, which draws the hot cash back to their economies, which means our economies are less competitive by comparison, which means another attack on our terms and conditions.

 

And they expect you to stand there in the rain clapping and cheering as they march past…..

New International Version
For it seems to me that God has put us apostles on display at the end of the procession, like those condemned to die in the arena. We have been made a spectacle to the whole universe, to angels as well as to human beings.

1 Corinthians 4:9

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Lest Ye be Vexed……..

Subsequent to my post: ‘If I had A Hammer’ some of the main points I made were discussed on a Maidsafe.org thread

 

(https://www.maidsafe.org/t/negative-interest-rates-and-when-robots-will-set-monetary-policy/3262/14)

 

probably via Dave Harrison @ TradeWIth Dave who contributes significantly to our overall understanding of new forms of money as they appear and evolve.

 

Despite the wise injunction not to ‘Listen at doors…’ I nevertheless proceeded to absorb and then respond to the comments I found there.

I am always keen to discuss my analysis since this is the best way I know to develop and deepen my own understanding of the Democratisation Of Money. Furthermore I am always in favour of the most robust kind of discussion on the basis of the premise that it is impossible to edge a knife on a block of butter. If you really want to sharpen your understanding sparks must fly!

 

The whole thread became increasingly unwieldy so I am anable to reproduce it in any kind of coherent order here. Obviously, you can see it all at the address above.

 

I have dealt with the points I think are most illuminating. I have put the points in bulleted quotation marks and my answers in italics.

 

From Janitor

 

  • ‘Duh… Worthless paper has no intrinsic value. That wasn’t too hard!’

 

Money is not paper or gold or anything else, it is a legal instrument recorded on a transferable object. Nothing is money until it is designated as such by the relevant legal authority. The mortgage on you house is written on paper, does that mean it is worthless because the paper is worthless? What nonsense! The value comes from what is printed on the piece of paper, not the paper itself.

  • ‘A real money is always worth something because even copper or iron money can’t ever be cheaper than the material it’s made from.’

 

I’m pretty sure this sentence doesn’t actually make sense; nevertheless refer to Greshams Law:

http://en.wikipedia.org/wiki/Gresham%27s_law

 

  • ‘I don’t know where he got the idea that money produces wealth. Money is wealth which produces nothing. That’s exactly what it’s supposed to do – be a medium of exchange and store of value. Money doesn’t “extract” anything, no clue where that Perry guy got those nonsensical ideas.’
  • ‘I don’t know where he got the idea that money produces wealth.’
  • ‘A currency of course doesn’t produce wealth’,

Capitalist economics claims that money produces wealth. If they do not:

What do Capitalists claim Capital is then?

What do Capitalists Capitalism is then?

What do Capitalists claim mean by ’ investment’?

What do Capitalists mean by ‘return on investment’?

 

  • ‘…it just helps it circulate. It doesn’t extract wealth,’

 

Even in its simplest terms, this statement is plainly self contradictory.

How can wealth ‘circulate’ unless it is extracted from one place so it can be ‘circulated’ to another?

In what form can wealth ‘circulate’ if not in the form of money?

What do you understand by the term ‘accountancy’?

What do you think accounts are for?

 

 

  • Because this post is about the nature of money, I think you should define “money” (it seems you mean “currency” rather than “money”?)

 

noun

noun: currency; plural noun: currencies

a system of money in general use in a particular country.

 

 

What do you imagine the difference is between ‘currency’ and ‘money’? Define this difference. If you know of any valid legal difference in the definition of currency and money please explain it. I used the term money specifically and advisedly.

 

  • Money (such as gold) has inherent value. You can coat airplane windows with it, enhance conductivity of connectors in your iPhone, etc. A currency can be intrinsically worthless, but then you could make it clear which one you are referring to to.(sic)

 

Gold can be used as money, but so can shells, pieces of paper etc. Money is a legal instrument. (see above). Aeroplane windows are irrelevant.

 

  • “It is a license, a legal permit, to extract value from within the society.”

But in a free society there’s no way to limit that. I don’t have to accept your money, I can pick any of several private currencies or forms of money that circulate around.

 

I also can (sic)

 

-(?) For some reason you have been unable to finish this sentence- were you confused? What did you mean to say?

 

Janitor says:’ I don’t have to accept your money’

This is simply wrong: You do have to accept my money in settlement of debt, legally ordered payments, in payment of taxes etc etc . Look up the meaning of ‘legal tender’. The government has mandated this. Your statement is evidence of painful ignorance.

  • “If there were an infinite number of possible profitable ways to utilise money what would the effect be on interest rates? Despite the fact that there would be little or no risk, interest rates would be high.  They’d be high because there’s more demand relative to supply. Money is supposed to be scarce, otherwise it’d be worthless or close to worthless and people would not want to hold on to it (or denominate their labour or products/services in it).

 

This does not in any way refute the point that interest rates are a product of demand, not risk; in fact you simply restate the first part of my point, albeit in a somewhat less elegant way.

 

Then you make the strange generalisation: ‘money is supposed to be scarce’. Based on what theory? Can you provide a definition of scarce? You suggest that people would not want to denominate goods and services in any particular money if it were not scarce. People within a given territory have no choice as to whether they have to hold the currency of that territory. They are required to hold that currency-in order to pay taxes for example, as I explained above. You either repeat what I say, in which case you are sort of on the right track, or else you deviate from my description and go into a ditch…

 

  • “And what would be the effect of an opposite environment of high risk and few profitable ways to utilise money? Then interest rates would be low because there would be little or no demand for money.I’m not sure this dual (high risk + few profitable ways to utilize it) hypothetical setup is valid.

 

Really? Because that is the setup we are in right now!

 

 

  • If risk is high, interest will be high. That’s regardless of how one wants to utilize money. If there are few investing opportunities, interest rates would be low because of a relative lack of demand.

 

You try to characterise ‘risk’ as some invisible abstract force of nature that cannot be located within concrete tangible reality. By conflating risk and interest you hope to glide past their supposed relationship: ‘If risk is high, interest will be high’. is a statement of religious faith dressed up as economics. There is no risk outside of investment opportunitiesor the lack of them. If there is, show me where it is!

 

  • Currently in the world there is too much capacity in most industries worldwide, so consequently although risk is small, there’s no demand for money (actually individual currencies, but since you didn’t make this distinction I’m playing along) simply because building another steel mill is likely to make that debt bad (i.e. you won’t make money from it).

 

‘Currently in the world there is too much capacity in most industries worldwide’ Another meaningless generalisation! Raw material producing industries and finished commodity industries to say nothing of services, cannot be lumped together in this way.

 

From Seneca

 

  • Interesting, but he doesn’t address the effect of inflation and deflation. In a deflationary period the value of money increases, so despite ZIRP/NIRP, which doesn’t increase the nominal value of a particular amount of money, the “real” value still increases over time through deflation. I think that undermines his entire argument? At least, if the deflation fully compensates the decrease in interest rate, then it does.

 

This goes right to the heart of my argument, which I am afraid you haven’t really understood. You cite the beneficial effects of deflation on the value of money as a way of offsetting the non-beneficial effects of ZIRP. You argue that in theory at least, deflation and ZIRP could effectively’ net-out’, meaning that there would be no losers in a system which would be in your terms, self regulating.

 

The first and most obvious problem with this is that it is highly unlikely that the people who are disadvantaged by ZIRP are the people who would be advantaged TO EXACTLY THE SAME EXTENT by deflation. When I put it in these terms I am sure you can see what I mean. In other words, if you are getting no interest on your savings, you are told you must take the money out of the bank and buy a boat with it, why?- because you will save a lot of money! But what happens if you don’t want to buy a boat?

 

From this it should be clear that even if ZIRP/Deflation could by some stretch of the imagination be described as OVERALL neutral, it has to be admitted that it causes massive wealth transfers from individuals within the system. Because it effects different MONEY FUNCTIONS differently.

 

The second problem with your suggestion flows directly from this:

Deflation and Inflation are in no sense ‘real, they are estimations based on aggregated information produced by governments. They are primarily political tools. I am sure you are aware that the methodology for calculating inflation/deflation figures has been regularly amended in every major economy, usually to suit the political requirements of the time. There is no clear, real and genuine way to calculate deflation, so the idea that this misty, indeterminate figure from the future can be used to offset the very real concrete lack of interest from today is a bit of a stretch….

 

The third problem is the main one I was trying to describe and it flows from the above two points I have made. You are describing monetary policy as a totality which is to say, you are concerned with the TOTAL amount of money netted out. But money is not like that. It is not a single contract that comes to maturity and is then paid out. Money is constantly being issued and retired, there is never a time when it is accounted for in totality. The amount of money and the ‘real’ value it represents is a constantly moving target. So there will never be a time when it will be possible to say what the discrete outcome of any action will be. The only way to understand money is as a series of ‘waves’ of contracts and the effect that these contracts have IMMEDIATELY. The effect of the money issued during the credit crunch was to save the lives of the banks. It does not matter what the ‘real’ value of this money was, in terms of the banks or the overall economy, without it the banks would have died. Just like a billionaire would die in the desert without a single bottle of water to keep him alive.

 

Money is not a totality- it is a collection of functions.

 

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If I Had A Hammer Or A Sailor Went To Sea, Sea, Sea…

 

Money can most usefully be understood as a collection of functions.

 

Functions are the possible uses that something can be put to if you should so choose. You can use a knife to cut cheese or spread butter, they are two different uses of the same implement.

 

The design of an object determines what its possible functions are. It is possible for the creator of an object to enhance or limit the functionality of any given object by altering the design of that object. If you were to make a hammer out of glass instead of hardened steel it would considerably limit its function to hammer nails!

 

At the same time it is possible for users of an object to take advantage of, or modify the functionality of an object in ways that were not approved of or foreseen by the creators of that object. A car can be used to carry out a bank robbery or to knock down a tree, neither of which was it expressly designed for.

 

It follows from this that the total functionality of an object is the nexus of purposes between the creators of that object and the users of that object. Money is no different from any other manufactured object in this respect.

 

The creator of any given piece of money is in the last resort, the government. This is specifically because any piece of money is a legal instrument. Money is nothing other than a legal instrument, nor can it ever be anything else. It follows from this that the functions prescribed for a piece of money by its creators are limited and defined by law.

 

Money has no significance outside of these legal limitations. So for example you cannot use money to legally buy another human being. It does not matter even if somebody freely wants to sell himself to you, such a function of money is not permissible. No such agreement would be legally enforceable.

 

Further, this invalidity is not limited by the amount of money involved in such a transaction. There is no amount of money you can offer for a person that would make such a deal a ‘fair exchange’. This is a simple legal limitation of money.

 

But money is not only defined by the limitations on its use, but by the positive functionality it offers to its users. This positive functionality means that in some real sense, the use of money is entirely voluntary. If any given government cannot provide a legal framework of functionality that serves the interests of the users of that money, then they rapidly turn to alternatives.

 

Money is a way of channeling and controlling trade, but where any particular instance of money fails, trade finds a way. Trade (as human interaction) is ubiquitous, like air and light.

 

Which brings us to interest rates. Earning interest is – was, a positive function of modern money, that is to say it is a positive reason why people wanted the kind of money that is available now.

 

Interest is validated as an expression of the contemporary social value of money in terms of itself. In other words, interest on money is paid in money to express its value at that specific time. This additional money that accrues to owners of money by virtue of possession expresses the fact that money is valuable. Interest proclaims that all things being equal, anyone within society should/will be able to use money to extract value.

 

It is a license, a legal permit, to extract value from within the society. ‘Extract’ value is important, as you will see in a minute.

 

This definition of interest is of central importance because it contains within it a model of the society into which the created money will go. It makes plain that there WILL be opportunities to use money profitably (in a way which can extract value), within the given society.

 

It follows from this that the interest function is in essence a statement about a given society. And it is fundamental to the way that modern capitalist societies differ from pre capitalist (‘feudal’) ones. Modern capitalist societies will offer opportunities for wealth extraction/ transfer, non capitalist societies do not guarantee this. This is the fundamental rhetoric and ideology of capitalism.

 

From this positive functionality of opportunity an apparent negative functionality is implied: That it is possible that there might be limited or no opportunity of profitable use that can be made of a given amount of money. This possibility is defined as ‘risk’.

 

But this can be shown to be a demonstrably false argument by means of a simple illustration:

 

If there were an infinite number of possible profitable ways to utilise money what would the effect be on interest rates? Despite the fact that there would be little or no risk, interest rates would be high. Because there would be high demand for money After all, what would incentivise the lending out money when there were countless easy ways to directly invest it at high returns?

 

And what would be the effect of an opposite environment of high risk and few profitable ways to utilise money? Then interest rates would be low because there would be little or no demand for money. In this environment, investment opportunities as opposed to money would be at a premium.

 

This directly refutes the idea that interest is an expression of risk. It is precisely the opposite. The amount of interest charged is NOT a reflection of risk it is a reflection of the lack of risk.

 

Further it directly refutes the idea that money produces wealth. Money extracts wealth from profitable opportunities. Without these profitable opportunities money is worthless.

 

As I argued above, interest is a statement about a society. So what does the MONETARIST refusal to obtain interest from the money they issue- ‘ZIRP’, say about society now?

 

It says that there will be no ways to profitably extract wealth. It is effectively the end of a capitalist society.

 

It is worth unravelling this.

 

I argued that money is a designed artefact.

I argued that money is a legal instrument. It follows from this that the production of money is a legal process.

The charging of interest by central banks when money is issued is part of this legal production process.

Money that is designed to be produced without this initial interest charging process is designed to be different from money that is produced with interest charging.

It is designed to be a different kind of money.

It is a different kind of money.

It has effectively been sabotaged, in the same way that a hammer that has not been sufficiently hardened has been sabotaged.

A sabotaged hammer can be called a ‘semi- hammer’

Sabotaged state money can be called ‘semi state money.’

This sabotage is deliberately carried out by Monetarists

 

To return to the hammer analogy, the total number of hammers being produced might be the same or even increased. But the quality of the hammers being produced has been diminished. The overall stock of hammers is being progressively corrupted as useful hammers are retired and replaced with ‘semi hammers’.

 

What this means is that it becomes progressively harder to find a useful hammer to knock nails in with.

 

Doesn’t this correspond to what you have seen in the real economy? Despite the fact that there has been a record production of money, activity in the real economy is actually shrinking- how else can the deflation we have seen be explained?

 

How else to explain phenomena like stock ‘buy-backs’ where management use cheap ‘money’ to buy back their own company shares and boost value by increasing the earnings ratio. This is effectively turning shares into a kind of money surrogate.

 

The explanation for this is that when there are no useful hammers to be found, you are forced to improvise an alternative, (the back of an axe head for example) to knock a nail in. This would be a surrogate hammer, and now since there is less and less useful money around, shares are being used as surrogate money.

 

The saying goes:

‘To a man with a hammer, everything starts to look like a nail’.

But to a man with a nail to knock in, quite a few things can start to look like a hammer.

 

To put it another way:

 

The sea exists over space and time. But the sea is not a totality. The action of the sea is a collection of waves over time. The waves vary in size, shape and force over time. You are encouraged to see money as a totality, but in fact it is a series of legal instruments, that differ in design over time. The interest rate is one of the characteristics that can vary.

 

Monetarism has built a series of wave breaks and artificial reefs that systematically change the size and shape of the waves that break upon the shoreline. And these modified waves of money issuance are being used to smash up the coastline you have known.

 

It is not nature.

 

It is deliberate systematic human intervention.

 

Breton Fisherman’s Prayer (Anonymous)

 Dear God, be good to me;
The sea is so wide,
And my boat is so small.

 

‘I do not know what I may appear to the world, but to myself I seem to have been only like a boy playing on the seashore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me.’

Isaac Newton

Read more at http://www.brainyquote.com/quotes/quotes/i/isaacnewto387031.html#OzXCS8TfgJEApOs2.99

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SYRIZA Is A Cultural Constituency

syriza1

European Commission President Jean-Claude Juncker stated, “there can be no democratic choice against the European treaties.”

In 2014/15 Year of Culture I described SYRIZA as a ‘cultural constituency’, as opposed to a traditional political movement whose raison d’etre is economic rationale. This means that SYRIZA and movements like it are not motivated by economic objectives in the traditional sense. This is a consequence of the fact that in the developed economies economics is no longer a central driving factor in the creation of policy by authority. Since policy is no longer oriented around economics the response to authority can no longer be oriented around economics. Cultural constituencies are evolving to fill this hole left where economics once was.

My analysis was made was before SYRIZA actually came to power. Since then they have been duly elected and have carried out the first in a series of negotiations with the EU and the Troika with regard to the Greek debt.

The outcome of these negotiations have caused massive confusion on all sides of the so called ‘left’ and ‘right’. Even the Germans, who appear to have scored a substantial victory, are somewhat baffled by the ease with which they achieved this outcome. The result of the negotiations just does not seem to make sense. What can account for SYRIZA’s apparent total capitulation?

If you try to understand what SYRIZA seeks to achieve in terms of economic rationale you will never be able to understand their approach and motivation. You have to compare SYRIZA to my definition of a cultural constituency to understand what this movement really is and what it will do:

  1. I said that SYRIZA as a cultural constituency would be:

Condemned by the post war establishment; Pundits and politicians of the post WWII order are not going to like these groups. And they are going to act against them.

From ‘Zero Hedge’

‘Let us begin with what should be indisputable: the Eurogroup agreement that the Greek government was dragged into on Friday amounts to a headlong retreat….

Such a thorough failure is not, and cannot be, a matter of chance, or the product of an ill-devised tactical manoeuvre. It represents the defeat of a specific political line that has underlain the government’s current approach.’1

 

From ‘The World Socialist Website’

 

‘It has taken less than one month for the Syriza government in Greece, led by Prime Minister Alexis Tsipras, to repudiate its anti-austerity election program and betray, totally and utterly, the impoverished working people whose votes placed it in power.’2

It is fairly clear from these two examples that the insurgent ‘left’ is firmly against SYRIZA from the get go. And I don’t have to try very hard to find examples on the European right that are as at least as negative. The left more than anything, is a product of the post WWII political order. The left is the direct product of economic rationale- the belief that economic interests dominate all other considerations, to the extent that the class of people who have the same interests can consider themselves international socialist ‘brothers’! It is no wonder then, that this left would be in the forefront of the move to attack a new configuration like SYRIZA since it represents a direct and mortal threat to the ‘socialist’ project.

So who, if anyone, will have a good, (or at least not very bad), word to say about SYRIZA?

The answer to that would be the Monetarists in the Anglo Saxon bloc. Here The World Socialist Website finds evidence of collaboration:

‘A comment by Financial Times columnist Wolfgang Münchau, published on the eve of today’s meeting of the euro zone group of finance ministers, points to significant differences over German-led insistence that the demand of the Syriza-led Greek government for debt restructuring should not be met.’3

 

‘The publication of such a vigorous comment in one of the world’s major financial dailies points both to the considerable opposition in financial centres to the policies of the German government and to the fact that the Syriza program, far from representing some far-left agenda, is a thoroughly bourgeois program enjoying some measure of support in ruling political and financial circles’. 3

‘Münchau’s comment is significant from a number of standpoints. It underscores the opposition to the austerity agenda, at least in its present form, emanating from sections of the US, British economic establishments, with support in some parts of Europe’. 3

  1. I said that for SYRIZA as a cultural constituency that:

Economic demands (are) secondary or irrelevant.

 

As regards the debt, the text mentions that “the Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely.” In other words forget any discussion of “haircuts,” “debt reduction,” let alone “writing off of the greater part of the debt,” as is Syriza’s programmatic commitment.1

 

Virtually everybody is at a loss to explain the totality of SYRIZAs economic climbdown. In order to try to explain what has happened, all parties have tried to portray SYRIZAs actions as the consequence of ‘losing’ the negotiations.

‘It is clear from the above that in the course of the “negotiations,” with the revolver of the ECB up against its head and resultant panic in the banks, the Greek positions underwent near-total collapse. This helps to explain the verbal innovations (“institutions” instead of “troika,” “current arrangements” instead of “current program,” “Master Financial Assistance Facility Agreement” instead of “Memorandum,” etc.). Symbolic consolation or further trickery, depending on how you look at it.’1

The trouble with this explanation is that the outcomes we have seen don’t come from an unsuccessful confrontation with the EU because there has not been any confrontation with the EU!

At no time has the EU and its interests been directly threatened nor will it be. Search as you might you will not find ANY evidence of a single concrete threat made by SYRIZA’s Tspiras or Varoufakis against the EU because there isn’t one. Not one. Is it seriously possible that SYRIZA could not think of a single thing to threaten the EU with? Because I could think of about ten serious threats they could make in less than a minute

So it is clear that SYRIZA has not climbed down because it never climbed up in the first place. Once you understand this it becomes obvious SYRIZA never intended to confront EU on economic matters. In fact, SYRIZA has used the negotiations with the EU to buy time to launch its attack on those it perceives to be its real enemies and the real reason it came into existence. Which leads us to:

 

3. I said that SYRIZA would be

 

Willing to compromise on periphery, completely unwilling to compromise on core; creating new spheres and forums for co-operation, even international organisations that encompass Cultural Constituencies. But less and less willing to negotiate with their own national governments.

  

 

What is the periphery and what is the core?

The periphery, by definition is the EU and from this it follows that compromise with the EU was always going to be inevitable for a cultural constituency. The CORE with which SYRIZA will not compromise is the deep Greek state, by which is meant the oligarchs and those who have been in power since the end of the post WWII emergency including PASOK and the parties of the right.

This brings us back to the post WWII order and brings SYRIZA and movements like it into sharper focus. The post WII order in its totality rests on left/ right and economic rationale. But these things have been increasingly undermined and it was always only a matter of time before this was reflected in politics. But the details were always going to be unclear up until the time that they weren’t- that time is now. SYRIZA is going to war with the post WWII order.

 

4. From this it follows

They make permanent rather than transitory demands; the removal of American military bases from Japan instead of a change in interest rates.

  

Permanent demands are ones which which will be difficult or impossible to overturn. To overturn austerity is by definition transitory since austerity is an emergency temporary measure. To disenfranchise the Greek oligarchs would be permanent.

 

  1. And finally and most importantly:

Profound realignment of politics within constituencies; Less and less will traditional areas of contention and politics operate within cultural constituencies. The members will tend to see what they have in common over what they have in difference.

 

This will prove to be the acid test of my analysis- specifically what will be the future of SYRIZA over the next couple of years or so.

The standard analysis will predict a breakup of the SYRIZA alignment under the pressure of dealing with the demands of the negotiations and failure to achieve economic concessions from the EU.

Under my analysis these traditional areas of contention based on economic rationale will become less and less important and will be replaced by a new network of agreements and understanding. What this means is that SYRIZA will not come under pressure to implode as is expected.

Instead we will see a period of bloody trench warfare between the post war establishment in Greece and SYRIZA. The establishment will do everything it can to cause strife between Europe and SYRIZA to distract SYRIZA from its core objective of attacking the oligarchy. SYRIZA in turn will do everything it can to promote peace with Europe so it can focus on the Greek elite.

  

 

1. Revolt In Athens: Syriza Central Committee Member Says “Leadership Strategy Has Failed Miserably” 02/24/2015 12:28 -0500

http://www.zerohedge.com/news/2015-02-24/mutiny-athens-central-committee-member-slams-syriza-leadership-strategy-which-failed

 

2. The capitulation of Syriza and the lessons for the working class 23 February 2015

http://www.wsws.org/en/articles/2015/02/23/pers-f23.html

 

  1. A revealing Financial Times comment on the Greek debt crisis

By Nick Beams 16 February 2015

http://www.wsws.org/en/articles/2015/02/16/munc-f16.html

 

 

 

 

 

 

 

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