Pyramid Schemes Or Vector History Or I’m Ready for My Close Up Or There is no such thing as a Disintegrated Society Or Is There?

The structure of pre-capitalist societies is often depicted as a Hierarchical pyramidal structure with the mass of people forming the widest part of the pyramid at the bottom and then progressively smaller echelons forming each tier as it moves towards the top. We can call this a Standard Hierarchy Model and make a simple diagram of it something like this:

shm

 

In this model wealth and power moves upwards from the bottom of the pyramid to the top and wealth and power in the form of patronage is redistributed down from the top to the bottom. In establishment rhetoric this is portrayed as the ‘classic’ ‘oppressive’ state structure.

 

Establishment history argues that this oppressive state structure belongs both to our pre-capitalist past and contemporary non capitalist societies such as North Korea, (which in Establishment ideology are essentially the same thing). But Establishment history argues that in contrast to all other types of societies, present and past, the pyramid structure is modified within capitalist societies.

 

The crudest Establishment description of hierarchy modification is in the Inverted Hierarchy Model. This model shows the mass of people benefiting from capitalism relatively and absolutely more than any other echelon in the pyramid. The argument is that the lower down you are in the oppressive pyramid model the more you benefit from the Inverted Hierarchy Model. We can show it like this:

ihm

In this model it is argued that power ‘democratically’ flows away from elites, up to the mass of people. Then patronage is redistributed down from the mass of people to the elite through the democratic process. As proof of this redistribute process the Inverted Hierarchy Model argues that the mass of people receive invisible, intangible social goods. These include the right to be an individual, the right to express opinions in free speech, sexual freedom etc, As an added bonus these riches get progressively larger and more encompassing with every passing year!

 

This Inverted Hierarchy Model is obviously overtly ideological and tends to be used mostly in Anglo Saxon societies and in particular the USA. But that doesn’t mean that is has no basis in history and culture. The objective is to try to understand what basis it actually has..

 

A more subtle Establishment argument is to agree that we live in a base heavy pyramidal structured society but to argue that who is at the top of the pyramid and who is at the bottom regularly changes over time. In other words the structure remains constant but the composition of the pyramid is open to change. This model accepts the implied need for the state to guarantee some kind of equality to mitigate the nature of the pyramid but characterises this as the need for equality of opportunity.

 

In contrast, anti Establishment arguments emphasise the fact that the structure of the pyramid remains constant irrespective of the composition of any particular echelon. Any movement of elements within the pyramid is limited and inconsequential. It follows that if the pyramid is incapable of internal change, change must come from outside.

So the basic mainstream Establishment position is:

The Capitalist form of society is a pyramid but it differs from previous social pyramids in that its composition changes and will continue to change over time.

The anti Establishment position is:

The pyramid is essentially the same as previous pyramids, has not changed and will not change until political force (usually from below), makes it change.

 

On these two essential positions the matter rests and has rested for some time. But it is possible to conceive of social structure in a different, dynamic way. This dynamic understanding can illuminate the observation people understand the pyramid structure not in abstract or random ways, but in ways that are exactly the inevitable outcome of the relationship between elite and the rest of society and the way this relationship has developed and been subjectively experienced.

 

Instead of the Establishment series of ongoing pyramid ‘snapshots’ or the opposition ‘oil painting’ of a single static pyramid, we can imagine the pyramid form instead as a dynamic vector on a graph representing a flow of wealth and power from the base of the hierarchy to the top and then back down again. This model integrates movement into the basic model itself. It is the difference between the dissection of a cadaver and studying the flow of blood through a living body.

 

Lets go back and look at the classic ‘oppressive’ pyramid structure from the perspective of this Hierarchical flow model. It looks like this:

hsm

Wealth and power moves upwards from the ‘peasants’ at the bottom to the ‘King’ at the top and is then redistributed by the King back down through the lords and barons and so on until a residue of wealth reaches the bottom again. In this model the elite is the mechanism of redistribution and the ‘King’ is the personification of the elite. We are taught that this is how medieval European society or contemporary non capitalist society such as North Korea is structured.

 

The fundamental Capitalist critique of an oppressive state structure like this is that the ‘King’ collects wealth and power from the people and then redistributes it to the power structure that protects him and the echelons below him from the people he collects wealth from in the first place. In other words the process of redistribution reinforces the redistributive structure in place and makes it impervious to change. This can be called a Force System.

 

The people pay to the King and the King pays the bodyguards and so on downwards thought society. Redistribution and force are intertwined. Wealth is redistributed throughout society through the Force System.

 

This process is characterised as a ‘crony system’ by Capitalists. It is also often misrepresented as a Forced System as opposed to a Force System. Capitalists argue that because redistribution is done through the force system it is ‘forced’ – it cannot be to any extent voluntary. They argue that this is morally unfair and/or economically and politically inefficient. They argue that it must inevitably collapse, and if it doesn’t decent people should work to bring about that collapse anyway and by any means necessary.

 

You should note that Germanic capitalist ideology viscerally detests Force System   because it does not reward the personal character traits that German culture and personality  admires and promotes.

 

The Fate of Kings

 

In a fully ‘feudal’ society everybody is effectively employed by government. Your economic boss is very often literally the general who leads you to war. And this political/economic model is reproduced right up to the very top. The commercial and the political is entirely integrated and entirely consistent , (which is to say that the logic of society is reproduced throughout society to the same extent). All of society is integrated and consistent.

 

The king is the guarantor of the system and the network. Consider the fate of Gaddafi in Libya and Ceausescu in Romania. Consider also what is in store for al Assad if his enemies get their way. This fate of kings is not random or happenstance. The fate of the King is absolutely entwined with the fate of the redistributive system.

 

Rather than a feudal society It would be more accurate to call this an integrated society because economics and politics are fused and every echelon is fused to the one above and below it by means of the redistributive system.

 

The popular capitalist ideological critique is that systems like this are static. Everybody is in a place within the system. Nobody can be outside the system and nobody can move within the system. Of course if they see any evidence to the contrary of their assertions they simply ignore it.

 

This criticism fits within the capitalist list of accusations which run from popular to true in descending order:
It is static

It rewards ‘bad character’

It is dangerous for ‘the people’ (which really means it is dangerous for people like us!)

 

If the capitalist system was the opposite of an integrated society it would be a disintegrated society wouldn’t it ? Could there be such a thing as a disintegrated society? A society like this would be a society that is defined by the belief that: ‘There is no such thing as society’. Could such a society exist? If so how could it exist?

 

With the advent of Capitalism instead of one income and dispersal system there are now two systems within society. Where there was only the integrated feudal political system there is now also a separate capitalist ‘economic’ system that mirrors the feudal political system. This can be called a Split Stream Model because there are two separate streams of income and redistribution. It can be shown like this.

ssm

Wealth and power rises and falls on a ‘commercial’ stream (blue) and a parallel political stream (red). Both streams are integrationist which is to say they concentrate wealth upwards towards the elite and then redistribute it.

 

Notice that this model does not differentiate between a ‘feudal’ and ‘capitalist’ elite. There is no need to try to manufacture a fundamental political or cultural conflict between the feudal and the capitalist elite in this model. They have separate income streams and dispersal networks but they are not fundamentally different.

 

This is in stark contrast to capitalist establishment history, (and Establishment anti-Capitalist theory!), for which it is very important to claim that capitalist elite are different from the feudal elite, because they have been transformed by an intangible, magical process called ‘Enlightenment’

 

I’m Ready For My Close Up

 

This Split Stream Model can be regarded as the basis for the idea of a ‘Golden Age of Capitalism’. In as far as Capitalism can be said to be progressive, the justification for it lies in this model.

 

The capitalist commercial blue vector shows Capitalism concentrating power upwards through the capitalist production process and then redistributing wealth and power back down through the very same capitalist production process. It should be very clear that unlike a feudal system wealth and power are NOT redistributed back to the people they had been extracted from. And wealth and power are NOT redistributed to everyone throughout society. But they are redistributed comprehensively nevertheless.

 

Imagine yourself standing on any point on the blue vector in other words, imagine yourself as part of the commercial vector. As part of the process, from your point of view Capitalism really does redistribute wealth and power; you can see it happening, it is happening to you. You are part of an alternative to the feudal redistribution system.

 

This is the form of society that traditional (sometimes ‘libertarian’ and even Neo Conservative) Anglo Saxon history focuses on. This is the basis and justification for Neo Conservative ‘trickle down’ rhetoric and at the same time the reason for its ‘Libertarian’ opposition returning again and again to the period of the American Constitution, and even sometimes the French Revolution.

 

We can look again at the Inverted Pyramid Model from this perspective. For someone at the apex of the blue vector the pyramid is indeed inverted.. power and wealth comes to you and you redistribute it. And that is why this model forms the basis for all pro-market, particularly Saxon rhetoric. Think of it as a snapshot of Germanic capitalism in early adulthood; fresh-faced and looking at her very best. It’s the same snapshot that Capitalism still uses on her Facebook page, although it’s a long time since she looked anything like that….

 

There are two systems co existing, but one of them has a clear future where the other does not. A new Divergent Split Stream Model begins to assert itself where economic wealth and power is no longer distributed back down through the lower echelons. The feudal vector system comprehensively redistributes wealth. The capitalist vector no longer does.

What this means is that in effect the capitalist vector is getting its government for free….It can abandon its obligations outside of the state. That model looks like this:

dssm

As a consequence of capitalists abandoning any social obligations they may have felt they had, the feudal system progressively impoverishes itself in comparison with the capitalists. This is effectively the moment of overt capitalist revolutions, the moment when ‘feudalists’ and ‘capitalists’ understand the true meaning of what is happening and what its inevitable consequences will be. Then comes a decisive political battle. Ironically it is when capitalism stops actually being progressive and revolutionary that an actual capitalist revolution becomes necessary!

 

And now things get really interesting.

The post revolutionary redistribution system bypasses the elite entirely. This is the Split Stream Welfare Model and it looks like this:

sswm

The top echelon elite have taken themselves out of the redistribution process altogether but they are still protected by it. The elite are effectively disintegrated from the system. The difference between an old fashioned ‘oppressive’ pyramid and a modern system is that the people used to pay wealth and power to the King to distribute to his bodyguards. Now they pay to the bodyguards directly. This is called democracy. The system is streamlined.

 

And if the red vector looks familiar from the models above. It should because it is the same one.

Now the Split Stream Welfare Model reproduces the feudal distribution system, but outside of the elite. That is what ‘welfare’ redistribution actually is; a reproduction of the classic feudal non capitalist redistribution system but at a lower level of society. If redistribution is really feudalism, is the left really ‘feudal’?

You betcha!

So what is a ‘progressive’ then?

‘Back To The Future’ Next time….

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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?’

‘Saxism’ or If It Bleeds It Leads or Beyond The Pale or The Sorcerers Apprentice or ‘Duck, Donald!’ or Or Crazy Like A Fox

The consensus in the press was that remarks made by Donald Trump in the Presidential debate would more or less be the end as far as his political ambitions went. The basic MSM line was that ‘blood out of her eyes and wherever‘ comments wildly overstepped the mark in civilised discourse.

Journalist Megyn Kellys challenge was clearly designed to put Trump on the wrong side of women voters in the Presidential debate and mark him as Beyond the Pale in civilised society. However, instead of offering some kind of lame mea culpa for past transgressions, Donald chose to adopt a combatitive tone himself, forcefully attacking Political Correctness and by extension Megyn Kelly for adopting it..

 

And so far, the popular backlash against Trumps ‘caveman’ attitude hasn’t happened. Instead Trump seems to be holding his own in the court of public opinion. If anything the tide has turned somewhat and the question become: ‘Was Megyn Kelly put up by Fox news to take Trump down?’

 

Corporate conspiracy theory probably has some substance to it but the whole story is somewhat more subtle and interesting than mere corporate infighting.

 

The first thing to understand is the Trump shtick. The innovation lies not really what Trump is seeking to do but his method in going about it. Trump offers a variation on the well worn and well known:

 

‘I buy direct, in volume, and pass the savings on to YOU, the customer!’

 

spiel familiar from a thousand adverts and infomercials.

 

It is standard knowledge that Oligarchs buy politicians through donations and influence public opinion directly through investments in the media.

 

General wisdom is that Oligarchs use this method because they are essentially unattractive to the public. Rubbing the public nose in the methods of the Oligarch system won’t go down well in the long run so national politicians and national media operate respectively the HR and PR departments of American Oligarchy Inc.

 

Donald Trump represents a challenge to this way of thinking essentially saying:

 

I can do media as well as anyone; I have my own reality show- ‘The Apprentice’. I am at least as an attractive a public proposition as Jeb Bush et al. And I have got the money so I don’t need to beg anyone for funding. Lets do Direct Oligarch rule and cut out the middleman passing on the savings onto YOU, the customer!’.

 

It is not surprising that this approach resonates with a lot of people In the home of the Infomercial. But you don’t have to think very hard to see it is pretty deadly for media and politicians in general if this kind of thing were to catch on. This is the main motivation for the establishment to go after him. On an instinctive level it’s all about protecting livelihoods.

 

But what is really interesting is how designated driver Megan Kelly decided to go for Trump. The key to Trump is that he says he is the ‘whole package’, but Megyn is here to tell him he isn’t. Because he isn’t a woman. He doesn’t get women. He doesn’t get the post-post war settlement. He doesn’t get Whiteism. Of course it could have been a black or Hispanic journalist telling Trump this stuff on prime time TV, but that might have been just a little too much….

 

In other words, the whole ideological structure- expressing post war Germanic ideas of sexual and racial identity, family life, personal relations and morality that exists alongside basic capitalist economics has to be taken account of. And the priesthood (not in the exclusively male sense of course..) of this religion has to be taken account of and Donald has to bow down.

And this is where we come to the comedy and the tragedy of the matter:

 

Even if Trump wins he loses. Even if he isn’t cowed by Megyn Kelly or any one of ten thousand media/politician types that stand between him and his goal;

 

EVEN IF HE WINS THE PRESIDENCY he STILL loses.

 

Because actual plain vanilla capitalism, based on Economic Rationale, just won’t cut it anymore. Because capitalism is over. That is what Donald Trump and his campaign means.

 

The essence of the Trump campaign is the final triumph of cultural constituencies. Because under Trump capitalism itself is now just another cultural constituency in the United States of Everywhere.

 

Trump can no more apply for the real job of CEO of Americorp Inc than he can run a real recruitment process on his ‘Apprentice’ TV show. It’s not real if Trump is in it. Trump wouldn’t be interested if it was real.

 

Like Mickey Mouse in the Sorcerers Apprentice, Donald Trump is seeking to usurp the magic of the Germanic Cult of Capitalism.

 

He seeks the keys to the Magic Kingdom so that he can bring the savings direct to YOU, the consumer. But just like Mickey he is more likely to bring the whole thing crashing down around your collective heads.

 

Currency Wars or
Bet Your Bottom Dollar

 

For the third day the Peoples Bank Of China is lowering the exchange rate for the Yuan/Renminbi and nobody is sure what exactly it means.

 

It could be that currency wars involving competitive devaluation of national currencies to gain a trading advantage are finally here. After all they have been predicted for long enough. This is the negative interpretation.

 

Or it could be that China is trying to integrate itself into the global system by doing whatever it takes to make the Yuan a free floating potential SDR reserve currency. This is the positive interpretation.

 

But most people seem to agree that nobody knows what the Chinese are up to exactly.

 

Which is frankly, a load of bollocks.

 

The idea that the PBOC is screwing around with the exchange rate without talking to the Fed is ridiculous. And if the exchange rate alteration is such a big shock why no big brouhaha from America over the move?

 

So what is the deal?

 

Well first of all you can bet your bottom dollar that the PBOC has already let the Fed know that it will be devaluing the Yuan on international markets. And in plenty of good time. You can also bet that the PBOC has let the Fed know what the new target value is and what the time frame for achieving this target exchange rate is.

 

It would be hard to explain why China was doing this if its purpose is to gain an advantage in supposed currency wars.

 

So why is China doing this?

 

Well it could be that China is seeking to fully integrate the Yuan into the global system in the near future.

 

But I suspect the fundamental reason for this movement is because China no longer wants to use up large amounts of dollar and dollar denominated reserves in preserving the exchange Yuan/Dollar rate at the previous exchange rate.

 

Especially as it knows that preserving this exchange rate will become increasingly difficult.

 

Why would this be?

Because the Yuan is going come under increasing exchange rate pressure vis-a-vis the Dollar.

 

And why would this be?

 

Because the dollar exchange rate is going up .

 

And why would this be?

 

Because American interest rates are going to rise sometime soon.

 

 

 

In Reply to RossC or The Iago Strategem.

220px-Edwin_Booth_as_Iago

I received the following from RossC :

 

‘Hello I have followed your blog and read most of your Book/PDF not to the end yet so it may be in there but how do we take down the monetarists? how do we shift the battle field so much that it is possible to defeat them?

 

There is I assume no going back to socialism as few would want to so how do you jump past what is and what would you present to the people to make them want to follow.

 

I am a New Zealander and we have had 30 years of monetarist policies with constant privatization, destruction of the left and the other same old things house boom, wage stagnation and attacks on welfare yet still we vote national (tories to you) and even with a labour government we get only small changes.

 

We do have an MMP electoral system with 70% voting this leaves 30% outside the system a large portion young or poor non-voters.

 

What shape should any future look like to oppose the monetarist system?

 

Cheers’

 

RossC, Thank you for your comments:

 

‘how do we take down the monetarists? how do we shift the battle field so much that it is possible to defeat them?’

 

There are two aspects to your question.

 

  1. The short term need to stop this specific phase of the Monetarist program and
  2. To address the underlying causes that brought Monetarism about.

 

Monetarism and the Democratisation of Money is the project to privatise the issuance of money, that is to privately control what money is issued, what kind of money it is, and when it is issued.

 

Why is this a problem?

 

Because this project seeks to destroy the Social Aspect Of Money– the fact that money ‘in common’ is in itself is a social good.

 

If your neighbour has a nice garden and a clean tidy house it benefits you and it benefits everyone in the neighbourhood, even though individual people in the neighbourhood don’t actually own any of the house. You benefit from the social aspects of the house. It is part of THE COMMONS. Of course if the house is scruffy and run down then you and everybody else suffers correspondingly.

 

Though people find it hard to understand, money basically has the same social aspect. The kind of money in circulation, where and when it is put into circulation affects the well being of everybody. The social benefits of money as a common good benefit everyone, even people who don’t actually own any money!

 

This is the antidote to Monetarism.

 

Just as Monetarists believe that there is no such thing as society in general terms they also believe that there is no such thing as society in monetary terms.

 

From what I have said that we can understand the Monetarist project as the destruction of the social benefits of money. Our response should be to restore and expand the social benefits of money. That means we have to understand and explain the social benefits of Government Issued Money in common.

 

Here are some of the social benefits of Government Issued Money that Monetarists are destroying and the way that they can be restored:

 

 

Social Benefits of Government Issued

Money In Common

Why Is This A Benefit? How Monetarism (Democratised Money) Is Removing This Benefit How Can We Restore This Benefit?
The right to privacy Government issued Paper money can be exchanged and stored in private. You can conduct your financial affairs in line with your own best interests by means of free association giving you comparative rights with those wealthy enough to buy privacy. The Shadow Economy is privacy for bankers FROM public scrutiny.   Transferring more and more economic activity to digital banking and the Permanent Credit Economy means all public activity can be tracked and permission given or withheld by a digital economy elite. (Ditto Bitcoin). Remove all legal limits on amount and purpose of cash transactions. Strictly control information that can be gathered and passed on bank activity. Advise people to hold as much cash as possible. Rebuild the cash economy. Make the Shadow Economy (Democratised Money) illegal.
The right to enter in and out of the economy at will. By having access to money notes that can be entirely held outside the economy, each individual can maximise personal financial benefit by choosing where and when to interact with the wider economy. By destroying bank interest and forcing growing dependence on the Permanent Credit Economy this is the Participation Economy. By allowing banks to operate with below minimum reserves. By maximising the amount of money held by individuals in cash. By forcing all parts of the economy to accept cash as payment and payments to be made in cash if required. By restoring interest rates to long term averages. By making derivatives (D Money) illegal.
The right to collective negotiation with the state on taxes and benefits. Collective groups will have more leverage than individuals when dealing with the state. By preventing any democratic political access to the control of the issuance of money Make monetary policy the subject of democratic process. Make illegal any money issuance outside of political process.
The right to collective negotiation with private entities Collective groups will have more leverage than individuals when dealing with private entities. By destroying the cash wage economy, the traditional employment model and trades unions. Restore the cash wage economy the traditional employment model and trades unions.
The right to commonly decide interest rates Interest rates can be used to promote the kind of economy and job availability that maximises benefit for the most people. By preventing any democratic political access to the control of the printing of money Make monetary policy the subject of democratic process. Make illegal any money issuance outside of political process.

 

 

Money in common is a social good. Money that is privatised, Democratised Money, is a destructive force. Its purpose is to destroy the post war settlement that benefited the ordinary people of the developed world to such a great extent.

 

The points in the above table outline a short to medium term strategy for dealing with Monetarism. What about a longer terms strategy, dealing with why Monetarism has come about?

 

A couple of the points RossC makes illustrate this very clearly.

 

‘There is I assume no going back to socialism as few would want to so’

 

This is a strange thing to say. Socialism has never been more popular among the rich and bankers. The entire financial system is run as an international socialist syndicate. It is widely accepted in right wing as well as left wing circles that what we have now is ‘Socialism for the rich and Capitalism for the poor’. How can we explain this bizarre set of circumstances? We have to turn to the study of WHITEISM.

 

 

‘ how do you jump past what is and what would you present to the people to make them want to follow’.

 

We must explain the Social Aspect of Money, this is the missing part of the opposition response to Monetarism and Austerity. Monetarists have succeeded in promoting the idea that it is in the best interests for a small elite to control the money supply. This is the essence of their attack and this is the place we must meet them head on.

‘ yet still we vote national (tories to you) and even with a labour government we get only small changes.’

 

There is a direct relationship between the Democratisation of Money and Whiteism. There is no long term answer without understanding and addressing Whiteism.

 

The key to take away from all this is that:

 

There are social goods that we all hold in common. Monetarism seeks to take advantage of the fact that most people do not understand the importance and the benefits of these social goods. They hope that this ignorance will allow Monetarists to hijack these social goods permanently and to use the massive power this gives them to institute a new permanent global power system.

 

We have not lost control of these social goods yet, although the entire purpose of Monetarist propaganda is to try to convince us we have. Call this the IAGO STRATEGEM.

 

Our battle is to inform people of the existence and benefit of these social goods in particular COMMONLY HELD MONEY and to convince them to fight to defend them.

 

This is the battleground where the fate of Monetarism will be decided…..

 

Write again soon….

 

@P

 

 

 

 

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

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.

 

 

 

 

 

 

 

 

 

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?…