A SHAME Or Why Crackernomics Matters

crying-sad-clown-23899989

It has been 7 years since what has come to be generally called ‘The Credit Crunch’ exploded in the world economy. And now after those 7 years Monetarists are ready to declare complete and unconditional victory in their battle to fundamentally and irrevocably alter the global economic and political landscape.

 

‘Alternative’ voices on the ‘left’ and the progressive ‘libertarian’ movement have totally failed to mount any sustained attack on the physical and intellectual structures that Monetarists have put in place. They have conceded every substantial point in economics and politics in the post Credit Crunch world. As a consequence there is nothing to stop the Monetarists concluding their takeover of existing systems and creating new global structures to further their plans.

 

Monetarist global restructuring is a massive and risk laden enterprise. But at every step of the way; at every major juncture when there was a danger of the Monetarist plan coming unstuck, the one thing that Monetarists have been able to count on is the unfailing inability of their opposition to understand the significance of the situation and take appropriate action.

 

As a consequence of these repeated failures what began as a hard beating has turned into a humiliating rout. Were this the extent of our woes it would be bad enough. But intellectual and moral collapse means that the very ideas that could underpin any chance of an alternative being created in the future are being corroded to the point where they will be soon be unsalvageable.

 

Those who claim that alternative economic and organisational forms will somehow spontaneously spring up as a response to the Monetarist onslaught are worse than naive. They are perhaps the most destructive force we face. Not only do they not challenge the new world order, but their ideas and prescriptions are built upon the very forms that give rise to it. They reinforce it. They guarantee its total victory.

 

You may disagree with this prognosis.You may think it overly gloomy. Or you may accept some of it but take comfort in the fact that ‘life’, your life and the lives of those you care about will go on, maybe not as well as before, but go on nevertheless. And in some sense you are right. It might be possible to put your head down, shut your mouth and try to get on with things the best you can within the situation you find yourself.

 

But that is simply to rationalise and accept loss. To turn your face away from the horror of your situation. Because once lost, freedoms are not retrieved, no matter what you might say to console yourself. Within half a generation people will not even remember what those freedoms were. They will become incomprehensible marks and signs in a book that mean nothing. Your children will be taught to despise them just as you have been taught to despise the freedoms and the dignities that existed before Capitalism. Or even the freedoms and the dignities that existed before WWII…

 

…Just like Winston Smith scribbling in his notebook. The real tragedy behind 1984 is not that it is so bad, it is that it is not so bad. People adapt. After a while the amputee can’t even remember what it was like to have two legs. That is not rhetoric, it is reality. And those who are most adaptable, best at forgetting, rise to the top just like Darwin says they must. We are programmed to forget.

 

Make no mistake, this is fundamentally about freedom. If you imagine yourself as an individualist and a libertarian who is happy to see the welfare state being dismantled and the post war liberal corporatist settlement being torn up, don’t kid yourself that the state is actually going to shrink as a consequence of all this. Not for one second.

Because if there is no butter on offer there will surely have to be plenty of guns. Now you are going to find out what a big state is really all about…

 

When I began writing the ‘United States of Everywhere’ I did so out of a sense of increasing incredulity at what I was seeing unfold. I saw the Credit Crunch and Q.E. as clearly the product of Monetarism, after all Q.E. was simply Monetarist ideology taken to its logical conclusion.. Was this analysis overly simplistic? Bernanke and Greenspan, all admitted Monetarists were advocating unprecedented printing of money while dismantling the post WWII welfare state. What else could this be but hard core Monetarism? I thought that many others would see this as clearly as I did and argue from this context. But they did not.

 

I tried to understand what could be stopping the majority of people from drawing what I thought were fairly obvious and uncontroversial conclusions. I began to wonder if there was something more deep seated within ‘western’ society that could account for this. I began to question the fundamental idea of progressive politics and of the left. Not whether they were ‘right’ or ‘wrong’ but whether they had ever really existed in any meaningful sense. And I began to research more closely what had actually happened in the Credit Crunch instead of relying on anybody elses (including the self-proclaimed opposition) analysis. And this was when I really became uneasy.

 

When I looked at actual information, I quickly became aware that what was being reported as the course of the Credit Crunch and Q.E. was not what was actually happening. And if this failure to report was true of the ‘establishment’ it was doubly true of the ‘opposition’. I could rationalise to myself that I understood why the ‘establishment’ would seek to put a certain spin on what was happening but I could not understand why the ‘oppostion’ would as well. It was clear to me that the problem was not just what was coming out of the opposition but what was going in. The input was just as distorted as the output. Why was this?

 

As I deconstructed what I read I realised that the securitisation of mortgages (bundling and re-selling), was a self sustaining system and that mortgages were being created to ‘feed’ the mortgage securities system and not the other way round! This was a self sustaining, potentially unlimited system and it was actually a license to ‘print’ money! In fact Securitised Mortgage Bundles (financial instruments) were money. What else can they be? What else can the term ‘financial instrument’ actually mean but money?

 

Financial:

pertaining or relating to money matters; pecuniary:

 

Instrument:

a tool or device used for a particular purpose; especially : a tool or device designed to do careful and exact work

 

I initially called this process the ‘Privatisation of Money’ but I realised that this terminology would be confusing because people understood money as private anyway. They were unaware of the social aspect of money. I realised that this process was actually better characterised as the Democratisation of Money.

 

Only later did I appreciate the significance of this.

 

The nearest analogy I can think of is that of a scientist drawing conclusions from a set of data. If the scientist draws an incorrect inference from data even if he does this knowingly, he is still operating within the terms of science, although bad science.

 

But when a scientist makes up data to conform to a pre arranged conclusion that is ‘Democratisation’. And if those conclusions are used to make a drug which kills lots of people that is the Credit Crunch. And if the scientist and the drug company he works for is let off by the Courts with paying a fine for all the damage they have caused, that is the United States of Everywhere.

 

After this I drew a link between Monetarist policy and privatisation. It went like this:

 

Monetarists seek to manage the economy through control of the money supply.

They seek to maximise privatisation.

They will seek to merge privatisation and Monetarism.

They will seek to privately control the money supply.

 

Is this analysis so incredible?

Is it so unbelievable?

I can’t understand why it is not generally accepted.

 

Well, that’s a shame of course but none of the above explains why Crackernomics matters to you, now.

 

Because all around us, if you look you will see that the opposition is starting to adapt to the new reality.

All the right wingers who were screaming about hyper-inflation and the Austrians who said there never could be a rise in interest rates and the radical leftists who put their faith in SYRIZA and all the countless others, the Gold Bugs and the Bitcoiners and all the rest are all starting, bit by bit, to make their accommodation with the way things are going to be.

 

Of course there will be back biting and recriminations and score settling and grumbling and selling out and all that stuff but when the smoke is settled the Monetarists will have got everything they wanted.

 

And the reason for that is the opposition have never really understood why they are fighting.

 

They have never really understood what they are fighting for.

 

And that is a shame.

 

The only way anyone can really appreciate what is actually at stake is through understanding Crackernomics and the Democratisation of Money.

 

For this reason I have no hesitation is recommending that you spend a little of your time reading ‘Crackernomics’ (it is free to download).

 

And I have no hesitation is suggesting you recommend it to anyone you think might be interested.

http://www.smashwords.com/books/view/312882

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CULTURAL CONSTUENCIES : FALLOUT .Economic Circles

krugman

 

The Austerity Delusion Paul Krugman Guardian April 29 2016

http://www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion

‘It is rare, in the history of economic thought, for debates to get resolved this decisively. The austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it. Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media’.

 

In the aftermath of a shock Conservative general election victory there is inevitable fall out across the mainstream left and nowhere more so than in the Labour Party camp.

 

I argue that ‘classical’ economics has become increasingly irrelevant in the new world. Comprehensive state control of the economy means that there is no economics now; only politics –and that is one party politics.

 

Since there is no way to manifest and resolve differences through economics, culture is re-emerging as the defining pivot around which social conflict is based. With this in mind I argued that the Conservative victory was essentially the result of playing to a cultural constituency and not any economic rationale.

 

Nevertheless, despite the widespread admission among the left that culture is raising what they regard as its ugly head, many on the ‘left’ are not willing to kiss goodbye to old fashioned economics just yet.

 

Two camps are emerging to contest leadership of the English opposition in the aftermath of the elections. In the blue corner we have ‘Blairism’ and in the red corner ‘Keynesianism’ is being dusted off for a re-run against austerity.

 

The nominal question being asked is: Which of these two economics can best offer an alternative to the program of the Conservatives over the next five years?

 

Blairism was concocted as a replacement for the Keynesianism that had become   discredited as a result of 1970’s industrial production collapse. Tony Blair famously signalled the end of independent political or economic perspective when he abandoned the Labour Party commitment to Clause 4 and wealth redistribution. Whatever opposition in Britain would be from now on, it would not be based on alternative political economy.

 

Fast forward twenty years and post Credit Crunch, Blairism itself was utterly discredited. The gap between rhetoric and reality encapsulated in an infamous speech to the City of London in which Chancellor Gordon Brown opined that the world was witnessing the emergence of a ‘Golden Age of Banking’. Then came, well you know.

 

Following a leadership election Ed Milliband appeared waving the banner of ‘Not Blairism’. That’s not rhetoric on my part – ‘Not Blairism’ is literally what Miliband said he was campaigning under! And now that ‘Not Blairism’ has been roundly defeated there seems to be nowhere left for the ‘left’ to go.

 

Except perhaps back to Keynesianism, or Neo Keynesianism anyway.

 

Which brings us to Paul Krugman and his lengthy Guardian piece: ‘The Austerity Delusion’

 

Written shortly before the British election, it captures the essence of the Neo Keynesian argument; there was no need for Austerity and no economic justification for it. More surprisingly, Krugman then argues that it is only in Britain that a residual attachment to austerity remains,

 

‘I don’t know how many Britons realise the extent to which their economic debate has diverged from the rest of the western world – the extent to which the UK seems stuck on obsessions that have been mainly laughed out of the discourse elsewhere’.

 

Even a superficial survey of developed economies would quickly show that this is wishful thinking. All across the globe there is a sustained attack on levels of government spending on social programs. This is Austerity by any definition. The difference between those countries that have severe Austerity and those that don’t is the willingness on the part of the broad population to oppose such attacks and its ability to do so. Austerity is not the consequence of any intellectual difference on the part of politicians and economists.

 

Krugman argues that the drive for Austerity is motivated by business and media interests that are ideologically committed to ending the welfare state and which used the Credit Crunch as a pretext for doing so. This is essentially a variation on the ‘Shock Doctrine’ analysis popularised by Naomi Klein and this observation is surely basically right.

 

From this position Krugman continues that Austerity is essentially an optional choice   and that politicians could go another way should they decide to. The Keynesian alternative of deficit borrowing and spending can be used to refloat the economy or at least offset the effects of cyclic crisis. He argues this has happened to some extent elsewhere. He is at a loss to explain why it hasn’t happened in Britain.

 

‘Is there some good reason why deficit obsession should still rule in Britain, even as it fades away everywhere else? No. This country is not different.’

 

And since Krugman cannot think of a good reason why there should be Austerity, he is persuaded to think that maybe there is no Austerity, at least not any more:

 

‘The key point to understand about fiscal policy under Cameron and Osborne is that British austerity, while very real and quite severe, was mostly imposed during the coalition’s first two years in power’

 

‘Given the fact that the coalition essentially stopped imposing new austerity measures after its first two years, there’s nothing at all surprising about seeing a revival of economic growth in 2013’.

 

So British polity is labouring under the grip of an ideology – except that it isn’t !?!

 

Krugman readily understands that his analysis will require some clarification:

 

‘By this point, some readers will nonetheless be shaking their heads and declaring, “But the economy is booming, and you said that couldn’t happen under austerity.” But Keynesian logic says that a one-time tightening of fiscal policy will produce a one-time hit to the economy, not a permanent reduction in the growth rate. A return to growth after austerity has been put on hold is not at all surprising’.

 

‘Keynesian logic’ says that permanently lowering wages and benefits for the working population will not permanently lower their purchasing power and affect demand in the broader economy?

 

How does that work then?

 

No answer I am afraid, because Paul Krugman has moved onto more important matters. Not only is there not really any Austerity but it turns out that the media that Krugman said helped introduce Austerity never really supported it anyway:

 

‘…what’s with sophisticated media outlets such as the FT seeming to endorse this crude fallacy? Well, if you actually read that 2013 leader and many similar pieces, you discover that they are very carefully worded. The FT never said outright that the economic case for austerity had been vindicated. It only declared that Osborne had won the political battle, because the general public doesn’t understand all this business about front-loaded policies, or for that matter the difference between levels and growth rates. One might have expected the press to seek to remedy such confusions, rather than amplify them. But apparently not.’

 

And if you find Krugmans account of the activities of ‘sophisticated’ media outlets such as the FT confusing, wait until he turns to the‘left’:

 

It has been astonishing, from a US perspective, to witness the limpness of Labour’s response to the austerity push. Britain’s opposition has been amazingly willing to accept claims that budget deficits are the biggest economic issue facing the nation, and has made hardly any effort to challenge the extremely dubious proposition that fiscal policy under Blair and Brown was deeply irresponsible – or even the nonsensical proposition that this supposed fiscal irresponsibility caused the crisis of 2008-2009.

 

And not only the British labour party but just about everybody else East of New York:

 
‘… the whole European centre-left seems stuck in a kind of reflexive cringe, unable to stand up for its own ideas. In this respect Britain seems much closer to Europe than it is to America.’

 

It almost beggars belief that Krugman is seriously trying to imply that Democrats under Obama have offered ANY serious alternative to Austerity and that this response can be compared favourably with anywhere else in the world. And yet here we are.

 

How can Krugman have drifted so far from reality? The answer lies in his ‘Neo’ Keynesianism.

 

How does Neo Keynesianism differ from classic Keynesianism? Let’s look at Krugmans characterisation of his opponents as ‘Austerians’; obviously a play on Austrians

 

‘People holding these beliefs came to be widely known in economic circles as “austerians” – a term coined by the economist Rob Parenteau’

 

Which is something of a revelation, at least to me. I certainly had never heard of ‘Austerians’ before I read this article; but then again, I don’t move in ‘economic circles’.

 

Krugman is obviously reluctant to name his opponents as Monetarists, which is what they are. What could be the reason for his coyness?

 

Democrats in the USA and the Labour Party in Britain both accepted the basic principles of Monetarism over twenty years ago- ‘Blairism’ in Britain and ‘Clintonism’ in the USA. Krugman has no interest in discussing this history because if did, he would have to criticise the so called ‘left’ as much as the so-called ‘right’- if he was really a Keynesian, that is. And whatever else he is, Krugman is essentially a party man.

 

Outside of ‘economic circles’ the whole world knows that Labour is up to its neck in the Monetarist project even if Krugman is reluctant to come right out and admit it. Instead the truth is obliquely referred to by Krugman when he observes that :

 

‘ the crisis occurred on Labour’s watch; American liberals should count themselves fortunate that Lehman Brothers didn’t fall a year later, with Democrats holding the White House’

 

This is breathtaking, absolutely astounding, cynicism. Krugman is hanging the pretence that Democrats can lay claim to anti Monetarist Keynesianism on the fact that they weren’t actually caught with their paws in the Monetarist cookie jar in 2008!

Let’s recap;

 

  1. The economy is now controlled by the state. This is Monetarism.
  2. There is no possibility of economic conflict as we have previously understood it. Now conflict is cultural.
  3. Blairism expressed this truth (see my last post)
  4. But Blairism was discredited by the Credit Crunch
  5. Now Labour needs an alternative to Blairism. The remains of the ‘left’ hope it can be built on Keynesianism.
  6. But this can’t happen because no genuine Keynesian could support a Monetarist Labour/Democrat party. So now we have got Neo Keynesians, which are Keynesians that accept Monetarism.
  7. Neo Keynesians argue that so long as we don’t actually get caught directly implementing Monetarist policies, we can perhaps convince people that we are Keynesians (sort of).
  8. If we do this we can pretend that there is some kind of economic alternative.
  9. Which implies that some kind of economic debate is possible.
  10. Which means that the debate does not necessarily have to come down to culture.
  11. Because if it does, we are well and truly f*cked.

 

 

That more or less covers everything. Oh, except for:

 

Putting all the cynical narrow political interests of ‘economists’ like Krugman aside, would it be possible to actually implement some kind of Keynesian alternative to Monetarism?

 

Regretfully, the answer is no.

 

As it develops Capitalism increasingly makes stuff that is increasingly useless by processes that are increasingly inefficient and chaotic.

 

But not to worry, Capitalism has an app for that.

It is called economic collapse brand name ‘Creative Destruction’.

 

All the bad stuff is wiped away and we can all start again. Which is fair enough. Except that when ‘Creative Destruction’ was first cited as a good idea, there were a lot less people who lived in a much more resilient and sustainable way.

 

In USA for example, the European population lived in relatively dispersed settlements with reasonable access to necessities such as food and water. When there was the inevitable economic crisis and clear out in the late C19th, it could be weathered by the population without much government interference.

 

But by the early C20th, urbanisation and the concentration of populations meant that it was not possible to have a Capitalist clear out without catastrophic social consequences and unrest. So the state had to get involved.

 

Enter Keynesianism.

 

The basic idea of Keynesianism was to use government spending to buy up all the useless inefficiently made stuff that capitalism has produced and so avoid the catastrophic social consequences and unrest that would come from the inevitable clear out we would otherwise have to go through.

 

And this worked pretty well for a bit until we were just about surrounded by all the useless crap that had been made and we were running out of money to pay for more…

 

Enter Monetarism.

 

The basic idea is that the state cannot afford to pay to buy all the useless stuff that is being produced, since in theory the amount of useless stuff is limitless.

 

So the state is going to have to control what is being produced. But the state will try to keep this control to a minimum.

 

And this worked reasonably well until the turn of the century when the state found itself having to interfere more and more to try to control what was produced and what was done with the stuff once it had been produced.

 

And this took us finally to the Credit Crunch in 2008. And with Q.E. now the state is all in.

 

So contrary to what the Neo Con/Neo Liberal whatever say about the Neo Keynesian whatever, a return to Keynesianism would actually represent a step backward from the existing level of state interference in the economy!

 

Its Monetarism and Cultural Constituencies from here on.

 

 

 

 

 

 

 

 

 

Do Banks Create Money? or No Big Deal

 

 

To get a real insight into whether banks do indeed create money, we must first sharpen the focus of our enquiry:

 

If banks do create money, what kind of money do banks create?

 

For instance, do banks print foreign money?

 

It has been rumoured that in the past North Korea has printed North American dollars, but for the most part this practice is frowned upon and we can say that generally banks and governments refrain from printing each others currencies.(Although that might change in the Eurozone quite soon).

 

Do banks create their own private money? Is there such a thing as Lehman dollars?

Banks printing money in this form is not generally held to be the case, (at least not yet), but we can come back to that later.

 

Since it is clear that private banks don’t create money in general we have refined the question to:

 

Do banks create the national money used by you and I? Or to phrase it using democratised money theory language: Do private banks issue Government Issued Money?

 

And of course, when you put it in these terms, the answer has to be ‘no’.

 

Problem solved to my satisfaction at least.

 

But maybe not quite to yours.

 

In my last post I commented on a quarterly bulletin of the Bank of England that seems to suggest that banks do indeed create the majority money in circulation in the form of debt. This capitulation to the radical interpretation of economics piqued my interest. Putting aside the question as to whether banks do or don’t create money, why would the Central Bank retreat from earlier positions and just as importantly, why would it do so after all this time?

One plausible reason for a tactical concession to the insurgents is to better position the Monetarists for the next assault in their ongoing campaign to control the future of money.

 

It could be that central banks are positioning themselves so that it is not such a big shock when they come clean about derivatives being money. The message will be; Sure, private banks and financial institutions print money of one kind or another; they always have. So what’s the big deal? Perhaps the arrival of this political concession actually means that the time is approaching when the shadow economy will be coming out of the shadows.

 

This would be a reasonable assumption if there is a need for some kind of normalisation of interest rate policy. It will be impossible to significantly and permanently raise global interest rates without some corresponding amendment of national and international banking and exchange rules. These rules would need the justification of a new worldwide orthodoxy on money and banking. This might be the actual truth behind all those predictions of a world currency.

 

If orthodoxy were to concede that derivatives were to be regarded as a form of money it would confirm what I have been arguing for more than five years. But I don’t think I will be celebrating my intellectual success. Any successful attempt to conflate bank credit or anything else with Government Issued Money can only serve one purpose: to discredit and denigrate cash money. And that is nothing short of a disaster for you and for me.

 

There is a horrible synchronicity here between both orthodox and unorthodox wings of the monetary conflict; Monetarists and radical Bitcoiners. The message from Bitcoiners and Monetarists alike is leave government cash behind, the battle has moved on.

 

Bitcoiners argue that their cryptocurrencies are democratic and free from central bank oligarchy control and therefore better than cash. Monetarists argue for a technocratic ‘non politicised’ control of money issuance; effectively privatisation of money control in a credit card world. Both result in the end of cash money guaranteed by the state, under political control. Both result in the privatisation of the issuance of money.

 

In the light of these developments the strategic imperative for us is to ague for the sole primacy of Government Issued Money as the only form of currency. Let me explain why.

 

There has been a constant attack on the use of cash for at least two decades and this attack has been centred around the point of contact between cash and banking. The introduction of numerous legal requirements on bank reporting of activity as well as private petty restrictions on how much cash you can depots and withdraw have had a chilling effect on cash based banking.

 

At the same time cash has been increasingly frozen out of commercial activity- many utilities are virtually impossible to purchase with cash unless you use prepaid cards and are extorted by the utility provider for the privilege.

 

For the past six years or so this attack on cash has been masked by the attack on savings deposits expressed through negative interest rates. Not only do deposits not pay interest, but bank accounts and their supposed contents are rapidly losing their legal status.

 

The end game in all this is bail ins where banks simply convert deposits into shares, which you are not even allowed to freely trade! If bank credits really are money as the Bank of England paper argues, on what basis is this being done? Follow the actions not the words and you will at least begin to question any supposed conversion of monetary orthodoxy to radicalism.

 

It is possible to cut through the confusion between cash and credits illustrated by comparing the decision to hold goods, cash or credit.

 

Let us say that due to deflation you decided to put off purchases, that is to say to hold cash or bank credits. Are the risks and benefits the same in each case?

Holding and using cash offers the benefits of anonymity and privacy. Does bank credit offer this?

Cash money offers the benefit of dealing with no ratification, in other words no-one oversees and confirms any deal you might choose to make. Does bank credit offer this?

Cash money is legal tender, it has to be accepted in settlement of debt. Does bank credit offer this?

Cash money offers complete liquidity. Does bank credit offer this?

Bank credit is subject to seizure, forfeiture and conversion (as in bail ins). Does cash money suffer from this?

Cash money clearly offers a number of benefits and guarantees that bank credit cannot. Bank credit suffers in the comparison with cash money.

 

It should be clear from this that as bank credits become denigrated by the state it increasingly becomes necessary for central banks to delegitimise cash to at least a corresponding amount. Because if only a very small minority of the general population decided cash was the better option that would cause a lot of problems.

 

Only around 3-5% transactions are cash and this proportion will significantly diminish further if Monetarists have their way. But if usage of cash was to increase significantly, the plans of Monetarists would start to run into serious trouble in short order.

 

Firstly, cash is hard to take back in a way that credit is not. Paying off bank created debt ‘dissolves’ credit money but cash money has to physically be withdrawn from the economy which is much more difficult to do- this means hard inflation. The kind that central banks cannot control except by raising interest rates.

 

But even more important is the relationship between cash money and banking reserves. Cash money is directly created by central banks and obviously bank deposit credits are not (this is the essential complaint of unorthodox economics). The creation of cash money directly affects the amount of reserves required to be held by each private bank and by the central bank.

 

Bank credits can be created forever without necessarily altering the requirement for reserves. If people take their physical money out of the banking system for use they are effectively calling it into physical existence– forcing the banks to actually print and therefore again forcing them to raise interest rates.

 

These two reasons why bank credits are not Government Issued Money are still within the bounds of standard economics but there is a further more fundamental reason within Democratised Money theory.

 

I have argued previously that money makes a proclamation as part of a general contract between issuer and user.

This proclamation takes the form of the Base Interest Rate which determines the nature and scale of the economy. It is something that is universally applicable to the same extent. It affects everyone equally.

It is inextricably bound up with the specific contract of the money itself. Once this printed money proclamation goes out the door of the central bank it cannot be undone.

 

The cumulative effect of these non- undoable operations is the recorded element of the currency. You can’t undo a money issue interest rate or the effects it has on the economy but you can use the next money issuance to offset the effect. In other words vary the interest rate from issuance to issuance.

 

In contrast, bank credit is a specific, not a general contract. Credit is offered on an individual basis. The ‘proclamation’ from the lender is concerned with what the individual borrower must do, not the general economy. Because of this the issuance of bank credit requires a separate individual contract, unlike money where the contract is part of the money. This ‘money’ creation through debt is subject to ratification by the legal system; it can be undone if deemed onerous or illegal, unlike cash money.

 

The cumulative effect of credit creation by private banks does have a massive effect on the economy. But it is not a general effect like money, it is a cumulative private effect. When you borrow from a bank you have to deal with the economic power structure as a lone individual instead of as a citizen member of society dealing with a central bank. In other words it is the ultimate codified example of divide and rule.

 

If as I argue, Monetarists want to create a Permanent Credit Economy, (that is a decentralised planned economy, with banks deciding who gets credit to do what),

Then deceiving propaganda giving bank credit the status of money can only be to their advantage.

 

We should oppose it.

 

 

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?…

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:’

 

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

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

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