Spelling It Out or It’s Not You, It’s Me

You can often hear proponents of the ‘Austrian’ school and others on the ‘right’ calling for the market to set base interest rates. This bizarre call is a non sequitur – meaningless.


The market is made up of both buyers and sellers and their interests are necessarily conflicting. The market does not ‘speak’ with one voice; by definition, it cannot. How can it set anything?


It is like asking a field of runners halfway through a race to come to an agreement on where the finish line should be…


Of course the market can’t collectively determine anything. Firstly, when the market ‘speaks’ it is the preponderance of individual views of within the market. When the market ‘speaks’ it is the result of something; it is a reaction; the exact opposite of being the cause of something.


Secondly, for communication to convey meaning it has to be the result of some form of reason. For the market to actually express a meaningful point of view it would be necessary for it to consciously arrive at a point of view, enunciate that point of view and stick to it.


But the market changes, literally from second to second because the balance of forces within the market changes from second to second. Even if you were to somehow accept the idea of ‘speech’ from the market, you have to accept that the meaning of that speech will change in a couple of seconds time. Even if you try to argue the market has a mind, you have to accept that the market can never make that mind up.


Because although the buyers and sellers who make up a market are supposed to be rational agents expressing their own rational self interest, the cumulative consequence of their actions is not. These are the ‘animal spirits’ of ‘fear’ and ‘greed’ that everyone agrees the market expresses.


Market religion claims that by means of alchemy the market changes base instincts into what is best for everybody inside and outside the market. Somehow something even better than considered reason appears spontaneously!


The market cannot speak because it cannot have an established continual rational point of view and it cannot create a rational point of view because it is made up of conflicting impulses. If there was no such conflict it wouldn’t be a market.


It does not matter whether it is a pre-centralised system of private banks or a modern central bank system, a rational market ‘mechanism’ to set base rates is impossible.


It follows from this that if base interest rates are to be set for any given period, they have to be presented to the market in advance by somebody outside the market, working to some kind of rationale. And every nation and collection of nations operates on this basis.


So what is behind the call for base interest rates to be set by the market? The main reason given is that interest rates are seen to be all going one way. Since the Credit Crunch and the implementation of ’emergency measures’ central banks have followed a Zero Interest Rate Policy.


Of course, it is becoming harder and harder to see ZIRP as an ‘emergency’ measure after seven years or so. Direct government dictat has the consequence of shredding the rhetoric of supposed central bank independence.


And ZIRP disguises a secular decline in interest rates that has been taking place in the Anglo Saxon economies since the 1980’s. Economists on left and right have no way to explain this outside of tautology: Interest rates are low, well…. because interest rates are low.


I argue that base interest rates are proclamations made by an authority, be that authority elected government officials or ‘independent’ central banks.


The interest rate setting authority makes a proclamation; sometimes characterised as an offer depending on how you wish to portray it. Depending on how many individuals take up that offer, the issuing authority amends the offer next time, this is the market reasoning justification for the system.


If an increasingly large number of people take up the credit offer at a given interest rate the interest rate is increased to stem the ongoing flow of credit applications. If a decreasingly small number of people take up the credit offer at a given interest rate, the interest rate is decreased to stimulate the flow of credit applications.


You might ask: Why don’t authorities amend the interest rate from hour to hour or even minute to minute – why do they only change the interest rate quarterly?


The answer is they need time to collect, collate and process the information. Because their decision is supposed to be based on reason to some extent. You might not agree with their reasoning, but you wlll see that if a central bank announced that base interest rates will be 1.5% for the next hour based on a ‘hunch’, the economic system it was set up to administer wouldn’t last for very long!


In other words the system we used to have and the system as it is now are not the result of arbitrary choices, they operate at the exact limit of development allowed by politics and technology at any given time.


Since the system is not really open to arbitrary change what does that say about the decisions that the system makes? It means that the decisions it is making at this time are the only possible decisions it can make given the limitation of politics and technology. If we understand the constraints of politics and technology we can understand what the decisions have to be.


With this in mind, we should address the fact that the main decision of central banks seems to be not to make any decision. Interest rates are effectively at zero and staying there. We have the quarterly ritual of: ‘Will they, won’t they move off ZIRP?’ and the answer so far is always no.


This is problematic for me as I have argued that moving towards a new baseline average interest rate of 2.5-3.5% is the next step in the implementation of Democratised Money. I have also argued that international exchange rate blocs are a fundamental requirement for the international framework for Democratised Money. And neither of these things has happened yet.


It is possible that the delay in normalising interest rates and creating exchange rate blocs is linked to the Pacific and European TTIP agreements. Trade blocs like Pacific and European TTIP are an inevitable part of the Democratised Money world. It could be that nothing else will be done until they are both securely in place. Now that the Pacific TTIP is moving forward again, the increase in interest rates and exchange rate blocs will be implemented.


But I think there is another reason for continued ZIRP and it comes from the internal ‘logic’ specific to this exact time and place.


All central bank rate setters, be that the Federal reserve, The ECB or the Bank of England are ‘democratic’ to the extent that they vote to decide about where to set base rates but that is as far as the democracy goes.


Nobody elects the members of any central bank committee, they are there by appointment. So they cannot claim any democratic mandate per se. The justification for being there is actually an inversion of a democratic argument.


Independent central bank advocates argue that political control of base rates by an elected official is detrimental to market confidence in that rate. The rate setter needs to be able to operate independently of democratic ‘pressure’ e.g. pressure from electorates. Democratic voting is the method by which rates are arrived at, but technocratic reasoning is the justification.


But this line of argument presents certain problems.


The post 1970’s call for independent banking was justified by the Monetarist shibboleth of inflation. This was supposed to be the one and only overriding consideration. Monetarists claimed that if inflation was under control and the money supply regulated all would be well. But as the Credit crunch and resulting QE opened the door to direct political interference reasons had to be found to provide cover for and justify direct interference. And so the mandate of central banks was modified to include macro-economic ‘stability’.


When the situation was ‘stabilised’ to some extent it was suddenly found that central banks also needed to target unemployment and so interference would have to continue.


When employment seemed to recover somewhat, central banks discovered that broad economic growth must also be added to their macro economic mandate.


When growth seemed to recover somewhat central banks discovered the ‘productivity gap’. When it became apparent nobody really believed in the productivity gap or understood what it was, central banks discovered the threat that interest rate rises posed for developing economies and that is where we stand today.


The specific logical conundrum is this: If central banks are indeed identifying problems and fixing them as they claim to be, then they either have to find new problems to fix or to stop interfering in the market at some point. On the other hand, if central banks are identifying problems and not managing to fix them, then something is seriously wrong with the central bank system itself.


The upshot of this is that insurgents continually claim that central banks have failed to solve any of the serious macro economic problems. The establishment claim that they have solved a number of problems and are effectively managing the new ones that always seem to be appearing.


But what unites establishment and insurgents is the claim that central bank interference in the economy is somehow voluntary and limited. The establishment claims that the central banks will stop interfering at some point in the future because they will have fixed all the problems. The insurgents claim that the central banks interfere because they want to protect their fraudulent ponzi scheme etc.


But I argue that Monetarists have no choice but to interfere to in order to protect democratised money. Once the creation of privately issued money began, everything else that followed was inevitable.


The purpose of QE and ZIRP is to defend and promote the growth of privately issued democratised money. The Fed and the Bank of England cannot and will not stop with emergency measures until they believe that derivatives are completely integrated into the global financial system in a way that means they can never be removed.


It is this imperative to protect democratised money that has been the real reason behind the ongoing interference in money markets. It is this imperative that is the logic behind QE and ZIRP. And it was the belief that the project of irreversibly integrating democratised money has largely been achieved that led to the recent hints of a rise in base interest rates in America and Britain.


But the Fed cannot bring itself to pull the trigger. They are trapped in their own logic.


By citing an increasing number of different reasons for intervening, the central banks built for themselves a new group of constituencies. Effectively Inflation, GDP Growth, Unemployment, Productivity gap and Developing economies all represent constituencies that the central bank committees have come to claim to represent. And this is the argument that has largely been successful in justifying the central bank approach to the markets. It is a polygamous marriage of convenience. But to raise interest rates will undermine the interests of this collection of constituencies and bring to the fore the question of what the purpose of the central banks actually is.


This is the reason central banks are reluctant to begin raising interest rates. They cannot say they have fixed the central problem and ‘new normalise’ base rates without saying what the problem they have fixed, is!


The collection of constituencies that central banks have gathered together as a justification and cover for the democratised money project has proved to be very useful. But at some stage there is going to have to be a parting of the ways and at that moment a lot of people are going to be asking the central banks: ‘Did you ever really love me?’


A SHAME Or Why Crackernomics Matters


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?



pertaining or relating to money matters; pecuniary:



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.


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



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

David Graeber



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?…

Plugholenomics or There’s No BISness Like ShowBISness or This Boot Was Made For War Kings or Crack(ernomics) In The World or Thank God It’s Only A Motion Picture!







“Only when the tide goes out do you discover who’s been swimming naked.” – Warren Buffett

Here is a paradox.

The area round the plughole remains the last place to dry out when you are emptying the bath. The place where the actual hole is, is the last place to feel the effects of the hole. All the rest of the bath dries out first. You would think that the place where the hole first appeared would be the first to become dry, wouldn’t you?


Same with money.


In previous pieces I have described the international war on state issued currency led by America. Interest rate reduction (Zero Interest Rate Policy), and quantitive easing have been used to lower the value of all state issued currency in comparison to stateless Democratised Money or derivatives.


When the Derivatives boat started sinking in 2008, International Monetarists used ZIRP and QE to blast a massive sinkhole in the financial earths crust draining out state money liquidity. The theory was that if the sea level could be made to drop faster than the derivatives boat dropped, the boat could not sink!


State money liquidity flowed into the massive financial chasm caused by Monetarists. But it flowed from the periphery first. It is the developing world that became dried out as the sea emptied. The plughole still has liquidity at this time. Ironically, Despite the fact that USA is leading the war on state money, it is their national currency that remains one of the strongest.

Here is another metaphor:


When an atomic bomb detonates you can see the shockwave blast pushing outwards, but this is rapidly followed by a vacuum that develops at ground zero, which then sucks IN all the stuff that was initially blasted outwards. QE and ZIRP blasted ‘free’ money out from America into the developing economies- the initial shockwave. Now that money is being sucked back into the vacuum at ground zero. First the periphery was blasted one way now it is being blasted the opposite way.

It is this flow, first outwards and then inwards that is causing all the devastation. It is this flow that is the real cause behind the oil price shocks that are causing financial carnage among oil producers. But it is not just the developing nations that are feeling the effects of this flow.


Basel, Switzerland is the home of the Bank of International Settlements and the Financial Stability Board. In fact they share the same building, which is incongruously shaped like a massive Roman boot. It is ironic that the Swiss franc has been caught up in the blast, exploding in comparative value compared to the Euro and destroying Swiss export viability.


It is the Bank of International Settlements and the Financial Stability Board that are creating the legislation for the new Democratised Money World Order. Yet in doing this it seems they are laying waste the very territory they are situated on and protected by. Do you think the time might come when even the Swiss population have had enough of them and break out the pitchforks?


Perhaps the most appropriate metaphor would be that of a magma chamber that forms the reservoir for a volcano. First the magma chamber expands upwards then it contracts, then it blows.


The first hole in the financial earths crust was planned by the Monetarists. Now It appears that another fissure has opened up . This one was unplanned and unforeseen. I wonder what is going to happen next…..

‘Painting’ by George W Bush..





Commentary 9 November 2014


update12 November 2014

They Will Have Blood



Ed Miliband is being slowly skinned alive by the press in England. Every day there is a fresh story detailing Millibands latest fall in the polls and  warning of the terminal damage he is doing to Labours chances of getting elected next time. It’s not only the press pack who are on Milibands tail. It seems that an ever larger group of his own MP’s are openly briefing against him as well. So what is the cause of all this dissension and hostility? What is so wrong with Ed Miliband that wave after wave of insults are to be  heaped upon his head?

In a word- decency.

Ed Miliband refused to go along with the stitch up on Syria last year. He refused, for whatever reason to sign off on the slaughter of Syrian men, women, and children and the installation of a Takfiri Pol Pot style regime in Damascus. And that makes him unreliable. That makes him downright dangerous. And so he either has to get in line or get lost. And that is what this is all about. Don’t be surprised if a new line of attack on Assad is unveiled over the next couple of weeks. The BBC is running a week of ‘Syrian themed’ coverage- I don’t need to tell you what the general tone of that coverage is. And you don’t have to have a degree in media studies to see where this is all leading. And Ed has got to decide just how badly he wants to be Prime Minister. The going cost is roughly about, one soul.

But they will have blood either way- Milibands or Assads.


update10 November 2014- The Sin of Wages

CBI calls for childcare subsidies and tax cuts for working families


Business lobby claims radical ideas are needed to raise the living standards for families and low-income workers

The Confederation British Business  -CBI,  is trying to call the Monetarist attack dogs off the people! Well, they are actually advising the dogs to bark more and bite a little less. Presumably they think that the mangled and torn victims of the past six years might just give up the ghost unless they get a little relief. You could argue that this is more about image control than real economics and no doubt there is an element of that  in these policy recommendations. But nevertheless, it’s hard to avoid the feeling that a substantial section of the real economy (which includes management and bosses) is getting seriously nervous about the deflationary effects of ongoing austerity and wage stagnation. (see the Yellen submarine below). So they are looking to the state to subsidise some kind of consumer revival through deficit spending.  Of course, the other option would be to remove some of the restrictions on trades union activity that would be GUARANTEED to get wages moving upwards again. But that is not something the CBI or the Monetarists are prepared to consider- is it.


starthere1.New World Disorder- The Secret Economy and Everybody Gets To Go To The Moon

Can you have a system of disorder – Or is that a contradiction in terms?

I was chatting to Dave Harrison @ tradewithdave.com  about transitioning to a new digi/crypto economic system and the implications for the global world order. Will national systems be superseded by a single global system that is even more controlling and oppressive? I argued that the new system would be based on disorder rather than order:

I remember a recent  item on BBC news covering Chinese exploration of the Moon and the way that this impacted ‘traditional’ national rivalries and the ‘Cold War’ etc.

The long and short of it was that the tide was inevitably running against ‘small state’ economies and in favour of ‘big state’ economies when it came to resource intensive projects like space exploration, mass transit systems etc. In other words all the things that will define progress in the future require complex, system wide integration to achieve them- the very antithesis of privatisation.

The interviewee observed that it would be in the interests of ‘small state’ societies (primarily the Anglo Saxon bloc) to promote the all out privatisation of moon exploration etc as this would level the playing field; Chinese private companies competing with American private companies. This is basically what is happening in the global economy, we are not transitioning to a NWO, we are transitioning to a New World Disorder.

To the extent that all national economies have been infected with Democratised Money (derivatives,financialisation etc), their respective national economies and political structures  have been weakened. The USA led the way into QE and is the first to end it. Other economies are being forced down the same route as a consequence of Americas actions. But the USA economy has not been repaired as a consequence of QE, it has been permanently restructured. This is supposed to happen to all world economies.

The upcoming Pacific and European trade agreements are meant to irrevocably destroy the power of national states and societies to regulate their internal affairs…. Imagine you could permanently tilt the chess board so the pieces kept sliding off. It would make it hard to know who was winning and losing wouldn’t it?

You can think of this as the difference between a naval battle fought between ships that float on the surface of the water and a naval battle fought between submarines

2. We All LIve in A Yellen Submarine- The Secret Economy 2



Q.E. purchases have been concluded in North America which of course immediately led to the argument over what this means in particular and what Q.E. means in general.

Almost immediately as USA called time on purchasing, Japan has started another round of  Q.E. and Europe has started QE-sort of. This leads some to conclude that a kind of international round robin is taking place with economic blocs taking up the slack and injecting liquidity into the global system as the USA wound down its buying operation. The argument is that all major nations cooperated in the aftermath of the credit crunch and this is just a continuation that co-operation by other means.

Others  see Japans QE as tantamount to economic warfare, lowering the value of the Yen and exporting deflation to its competitors. They see this as evidence of a breakdown in international co-operation.


Central banks taking on corporate and government paper is the same as a submarine taking on water to create negative buoyancy-which is really controlled sinking- (for understandable reasons not a phrase widely used by submariners!). The captain takes on enough water for the boat to safely sink to the level beneath the surface he or she wants. Of course this is done on the understanding that at some point the boat will expel the water and return to the surface. But there is always the unfortunate possibility that too much water is taken on board, in which case the only way the boat is going is down.

There are some real indications that the English and American boats have taken just about all the water on board they are able to. Commodity deflation is taking place and despite supposed rises in employment, wages are failing to grow. Worldwide deflationary tendencies. Genuine danger.

When the major economies agreed to drop interest rates as an immediate response to the Credit Crunch, it did not really mean that they were collaborating on an international plan. In essence they agreed to move from old fashioned naval warfare where each party could see the other vessels to clandestine submerged conflict now you have to guess there the other side is. A global game of ‘Battleships’ as it were.

3.Credit and Credit Crunch

Steve Keen appeared on a recent episode of Max Keiser . He is probably best known for arguing that at some point the revenue generated from credit fuelled growth will no longer be sufficient to pay the interest on that credit, resulting in a financial collapse. He has dubbed this inflection point a ‘Minsky moment’. Here is some of what I contributed to the discussion thread:

The broad thrust of Steve Keens argument is that Capitalist systems have been shown to be unable to achieve a self sustaining equilibrium, especially in regard to the production and valuation of credit. An emphasis on credit in this context is an important insight, especially in respect of the financialisation of Anglo Saxon economies since Milton Freakman.

But Steve Keen is wrong when he argues that the latest round of credit is the cause of renewed growth in certain economies, in particular the Saxon Axis economies. This credit growth is a symptom and not a cause. The cause of recent ‘growth’, (for what its worth), is the successful restructuring of the economy in line with Monetarist doctrine. Interestingly, this explains some of the anomalies we have seen in recent growth figures. We know that the Anglo Saxon economies have been growing; this would be expected as they are the most ‘flexible’ and open to labour market ‘reform’ (zero hour contracts). But we have also seen growth in both Spain and Ireland, both nominally outside the Anglo Saxon bloc. What these economies both do have in common with England and America is that their populations have taken a fearful hiding over the past couple of years and it is reasonable to suppose that they are now willing to go along with terms, any terms, that are offered.


Growth is essentially a measure of the level of economic interaction between the component parts of an economy. When the components, (you and I),of an economy refuse or fail to interact it is because either we don’t want to, (we don’t like the terms), or don’t need to,(we are self sufficient).

Keynesianism differs from Monetarism in that it sought to induce economic interaction as opposed to coercing it. The essence of Monetarism is the systematic destruction of any possibility of self sufficiency for the vast majority of the population, forcing interaction within the economy. They call this ‘supply side economics’. I call it the Participation Economy. You are forced to participate in the economy under the terms dictated by the Monetarists.

When Monetarists proclaim they will do ‘whatever it takes’ to maintain the system, what this means is that they are prepared to supply the means (QE),  to allow the finance sector to wait the real economy out, until the real economy is forced to participate (come crawling back) under Monetarist terms…In other words we will take the credit offered, as opposed to wages, because credit is all we can get.


MAD or It Was Only A Matter Of Time…or I Wouldn’t Start From Here..or May The Road Rise Up To Meet You


‘Oh my God. I’m back. I’m home. All the time, it was… We finally really did it.


 You Maniacs! You blew it up! Ah, damn you! God Damn you all to hell! ‘

The Destruction of Creative Destruction

The term Creative Destruction has come to be associated with neo-liberal economics but it comes from Karl Marx, the unacknowledged father of modern ‘right wing’ thought. Marx is sometimes accused in historical biography of fathering an illegitimate son. Whether this particular accusation stands up or not, the famous Germanic features of The Moor can clearly be seen in the lineage of Monetarism and Neo-Liberalism.

Marx coined the term ‘creative destruction’ to describe the ceaseless process whereby Capitalism consumes everything that it creates; previous methods, institutions and even capital itself are burned up to make way for a new cycle of expansion and growth.

The phrase was adopted by Austrian/American economist Joseph Schumpeter:

Capitalism […] is by nature a form or method of economic change (…) that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.’

Schumpeter was forced to draw sombre conclusions about the future of capitalism as a result of his observations. Since like a frenzied shark, capitalism could and would eat even its own entrails when circumstances allowed it, how could even the most fundamental aspects of the system be guaranteed to stay in place?

This proved to be Marx’s irrefutable argument. If capitalism does indeed develop by a means of creative destruction, does that not make it inevitable that in the end it will consume the very fabric of the system itself by a process of destructive cycles?

After all, the observation that all societies finally collapse is a piece of accepted wisdom that far predates Marx. Marx’s achievement was simply to describe how collapse would happen this time around.

 It’s A Mad, Mad, Mad, Mad, World.

 Around the time that creative destruction was entering the modern lexicon another phrase was becoming popularised; M.A.D. or Mutually Assured Destruction based on the idea that the Soviet Union and America would never launch all out thermo nuclear war because it would result in both countries being effectively destroyed. In an incredible leap of something, it was widely accepted that this meant that balance had somehow been reached and that this balance somehow rested upon logic.

But this is not what MAD suggests at all. What MAD suggests is that Russia and USA WILL INEVITABLY destroy each other. What MAD suggests is that being diagnosed with a terminal condition puts your winter cold in perspective. MAD suggests is that there is some small comfort in knowing HOW you finally buy the farm before it actually happens. MAD is a form of, well, controlled madness.

The implications of MAD are that once Russia and America went down this path they sealed our fate. We are living in a bubble of time before inevitable destruction comes.

The threat of thermo-nuclear annihilation and recognition of the essentially destructive nature of capitalism give rise to a sense of profound foreboding in western thought and by extension, western popular culture. This foreboding finds popular expression in apocalyptic books and movies.

If not the last, then perhaps the next to last word in such literature is ‘The Road’ by Cormac McCarthy; a work that could as fairly be called ‘postal’, (in the modern American sense of the word), apocalyptic as opposed to post apocalyptic. The book, the audiobook and even the film can be found on the Internet and I would heartily recommend that you seek out all three, but with the gentle warning that this is ‘family’ entertainment in the sense it is about family, rather than the traditional Hollywooden sense of the phrase.

All dramatic constructions have an inflection point and in the film adaption of The Road, the crucial expository scene is carried by the considerable presence and acting skill of Robert Duvall. Duvall’s character is only onscreen for a relatively brief time, but his wonderfully understated dialogue lays the basis for the whole narrative. Staring through the flickering flames of a campfire with milky cataract occluded eyes ‘Ely’ tells us that: (I paraphrase)

‘We knew this, or something like it was coming for a long time’

Which links us in the here and now with the terrible twisted landscape we see before us. But even as we watch the screen and accept that we have this terrible foreknowledge, Ely tells us we are effectively powerless;

‘Even if you knew, what could you do to prepare for this?’

And it is true that destruction on the scale of ‘The Road’ would make even the most comprehensive of preparations look irrelevant. So is this Ely’s and our awful fate; to move towards disaster, fully conscious and yet be unable to do anything to change our destiny?

There is the old Irish joke of the tourist who is wandering round the roads out in the countryside and happens upon a local man. The tourist asks for directions:

‘Excuse me, can you tell me the way to Limerick?’ asks the tourist

The Irishman ponders for a short while and then says

‘Well, I wouldn’t have started from here’

This story bears a little scrutiny. First there is the simple joke that illustrates the Gaelic way of gently telling the man he is a fool, that he is lost and he should not even be out here. But as so often with Gaelic humour there is another deeper (blacker), joke wrapped up within a joke. The real, deep humour is that the tourist would never for a moment consider going back to where he came from and starting his journey again. Because that is his nature. That is why he got lost in the first place.

Which brings us back to the road we are presently travelling and creative destruction.

Risk we are told, is integral to the healthy functioning of the capitalist system. Without risk there would be ‘moral hazard’.  Destruction of your enterprise and the fear of destruction of your enterprise is what keeps you honest and efficient. However, by the same token, overcoming risk and its effects is integral to risk management. Risk management exists precisely to offset the effects of risk that is a constant threat to all capitalist enterprises.

With all the time and effort that has been expended on risk management in the past five decades, is it so unbelievable then that a method should finally be devised by these enterprises to remove risk from their day-to-day activities. ?

Isn’t this so? That effectively there is no meaningful risk involved in the operation of the biggest enterprises?

Creative destruction we are told is an integral part of the capitalist system and has been part of that system since it first ‘appeared’. But was it not inevitable, that since every aspect of capitalism is destroyed by its successor, that one day ‘creative destruction’ itself would be destroyed?

Isn’t that what has happened since financial institutions have been declared ‘Too Big To Fail’? And are these same institutions now not bigger and more concentrated forms of economic and political power than when the crisis started?

Crackernomics tells us that either

The system is basically sound and that what we are seeing is somehow the result of aberrant criminality

Or that what we are witnessing is somehow a natural phenomenon like a sandstorm or a tidal wave but that either way the system is sound and is the only viable option we have.

Crackernomics never invited the Crackers to consider whether they should not tear up the topsoil on the Great Plains, held in place by a delicate eco-system that had adapted for thousands of years to maintain the system in balance. It told them that this is the right and only thing to do. It told them to Stay On The Road they had set out on.

That we have come too far to go back now.

And when the great dust storm appeared on the horizon like the Wrath Of God the Crackers stood, although now blinded, finally able to see what had been staring them in the face all the time.

“Now I am become Death, the destroyer of worlds.”

Robert Oppenheimer

 May the road rise up to meet you….




The Great Escape Or Moby Dick In Space




‘as they prepared for their journey and waved goodbye and “slipped the surly bonds of earth” to “touch the face of God.”

President Reagan’s remarks following the loss of the Space Shuttle Challenger and her crew. 06.07.04

Escape Velocity

You may have seen Sandra Bullock and George Clooney floating around in CGI space in the recently released film ‘Gravity’. This is a fascinating film for a number of reasons, but in the context of Mark Carney’s often-repeated‘ escape velocity’ it is particularly interesting.

Escape Velocity’ is an odd phrase to describe the economic conditions necessary for a reduction in the emergency measures that have been in place since 2009. A more orthodox approach to ‘perception management’ would employ images like  ‘laying the foundations’ of solid growth or ‘building’ on previous tough decisions, or even ‘husbanding the fragile buds’ of economic recovery. But here we are getting away from the mundane, even ‘surly’ realities of economics as we have known them. We seem to be:

‘Going boldly, where no economy has gone before.’

The first part of our journey to the stars, the escape bit, is something I have referred to only recently in ‘Great Expectations #1’:


I described the new reality that the Bank of England, independent as it is from any concerns you or I might have, is now free to pursue inflationary or anti-inflationary policies as it chooses. As it has grown more comfortable with this overt expression of its freedom, it’s ‘coming out’ as it were, the Bank has felt less and less compelled to invent ‘reasons’ as to why it follows this policy or that policy.

In 2008, like the Captain of the Pequod, the Bank of England claimed a mandate, (From God? From Destiny? – like Ahab they never made it clear from whom) to hunt the Great White Whale of Monetarism; INFLATION. They spent the next four years following this semi-mythical beast around without making any real attempt to harpoon it; if anything the Bank seemed content to throw trillions of tons of krill into the water to keep Moby Dick around!

Despite these inducements, the whale seems to have submerged for some time now, and so it was briefly replaced by our Captain with employment as a target. But employment provided only poor sport as a metric and as I predicted we would soon be driven to set our sights and our harpooners on something new. That something called out of the depths turned out to be:


What is the OUTPUT GAP?

It is ‘something to do with productivity’ Captain Ahab/Carney says, which is something we have never fished for before..

Well, how big is THE OUTPUT GAP?

The Output gap is 1.5 %, or is it 6 %? -Nobody seems to know which, doesn’t really seem to matter… we will know it when we see it says our captain.

From the Telegraph:

Mr Carney is asked: How will households understand the Bank’s new focus on productivity?

 Carney says that firstly, the economy has been stronger than we thought and that the Bank had expected that productivity growth would pick up alongside the recovery, which hasn’t happened.

So an economy can be strong and yet not productive? Care to elaborate? No?

What we’ve done is we have been more cautious in our assessment of productivity growth. Productivity does not get back to pre crisis growth until three years from now. We‘ve given our assessment of spare capacity and we’re going to update that regularly.

So that means Ahab intends to take the ship around the Cape of Good Hope three or four more times before he has to answer to the Quakers back in New England

And that is when Ahab/Carney nails his gold doubloon to the mast..

 Interest rates will not reach the 5pc levels seen before the crash for some time, the Bank also suggested. It said the “new normal” for interest rates was likely to be between 2pc and 3pc.

There she blows! – Now we have finally got something we can sink our harpoons into! – the New Normal of between 2 and 3 % bank of England base rate.

So what does a semi permanent interest rate of 2-3% mean or more importantly, (as Ahab correctly observed), what does it represent? it represents a permanent reduction in the earning power of money issued by the British State e.g. the earning power of the currency to you. So where has this earning power gone? It has been allocated to derivatives. It has been allocated to privately issued Democratised money.

Think of a £5 note as a betting slip. The odds quoted on the slip are the risk of holding the slip- the risk of gambling.

They are nothing to do with the odds of the horse winning a race or a football team winning a match. The horse race, or the football match is simply a trigger point.

The odds are literally a reflection of how a bookie will pay off everyone who bets with him. They are not a reflection of anything else. The Bank of England base rate is simply a reflection of how viable the Bank of England is- nothing else.

We need to get this absolutely clear. Here is an example:

Let’s say you went to a bookie and said you wanted to make a £1 bet that the moon will be discovered to have been made out of green cheese within five years (or if you like, will turn out to be a hollow spaceship a la David Icke.)  Since this is patently going to not turn out to be the case, what is to stop the bookie offering you odds of a million to one against, just to get the business? After all there is no risk that he will have to pay out is there?

But the bookie cannot offer you odds of a million to one unless he has taken a million pounds worth of business in to pay you out in the event that you should win. But surely he doesn’t have to have a million pounds in the bank just to cover the possibility I win. I am not going to win. So why can’t he just take the chance?




Now lets apply this to the Pound gamble. The Bank of England traditionally pays odds of 5% on their British economy book. These odds are a reflection of the likelihood that the British pound will be able to pay out, that the British pound will be worth something in a year’s time etc. The viability of the British book rests on the amount of business that the British book is doing, just the same as the book on the moon being made of green cheese. The Bookie cannot offer 1 million to one unless he has the business in to cover the bet. The Bank of England can only offer 5% interest if it has the business in to cover the bet.

And the Bank of England has given some of its business away.

It has given that business to Derivatives- to Democratised Money privately issued by the financial institutions. So it cannot pay out at 5% any more- it simply does not have the business to cover the odds. Now it is going to pay at 2-3 %. The British book has been shrunk. The business has gone to privately issued, Democratised money.

Like Ahab on the Pequod, once the coast has disappeared from view, the crew is at the mercy of it’s captain. Of whatever fancies come into his head. And we know from the story, don’t we that this was always Ahab’s design, right from the very beginning…

Like a rocket launched into space we will soon be permanently living in a new low/zero gravity monetary environment, with thinning bones and weakening heart, but free from earth…

 Can you hear me Major Tom…?

‘Space Oddity’ –  David Bowie