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?…

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

o-UNIVERSITY-OF-KENTUCKY-570

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

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

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

 

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

 

Here are three important characteristics of money:

 

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

 

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

 

 

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

 

From the above we can go on to say:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

From the above we can go on to say:

 

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

 

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

 

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

 

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

 

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

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

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

 

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

 

New International Version

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

 

Parade or Crying In The Rain

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

 

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

 

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

 

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

 

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

 

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

 

Note that ‘new normal’; it is important.

 

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

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

 

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

 

Lets see.

 

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

 

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

 

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

 

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

 

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

 

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

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

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

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

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

 

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

 

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

 

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

 

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

 

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

 

Quantitive Easing firstly:

 

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

 

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

 

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

 

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

 

And the answer they got was this:

 

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

 

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

 

So what did this mean?

 

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

 

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

 

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

 

A hyper victory for Globalisation.

 

And how can Japan and Europe recover?

By doing exactly the same thing.

And why haven’t they ‘recovered’ yet?

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

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

 

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

 

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

 

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

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

1 Corinthians 4:9

Lest Ye be Vexed……..

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

 

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

 

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

 

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

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

 

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

 

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

 

From Janitor

 

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

 

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

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

 

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

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

 

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

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

What do Capitalists claim Capital is then?

What do Capitalists Capitalism is then?

What do Capitalists claim mean by ’ investment’?

What do Capitalists mean by ‘return on investment’?

 

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

 

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

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

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

What do you understand by the term ‘accountancy’?

What do you think accounts are for?

 

 

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

 

noun

noun: currency; plural noun: currencies

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

 

 

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

 

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

 

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

 

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

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

 

I also can (sic)

 

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

 

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

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

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

From Seneca

 

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

 

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

 

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

 

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

 

The second problem with your suggestion flows directly from this:

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

 

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

 

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

 

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!

 

 

BIS

 

crackinworld

 

“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..

bush_bathtub

 

 

 

Crackernomics 14/15 The Devil And The Law Or Articles Of Faith

 

The news that the Bank of England is preparing to release the minutes of their emergency Credit Crunch deliberations, (suitably censored of course), is a confirmation that 2014 was a time of consolidation and the consequences of five years of Credit Crunch shenanigans coming to the fore. It was a time of tying up loose ends and setting the stage for the next round of change.

 

With this in mind I would like to briefly review two of the most important events of 2014: The tapering of the Federal Reserve bond buying programme and the Brisbane G20 meeting in which the rules for the ongoing management of ‘systemically important’ banks were broadly finalised.

 

The Tale Of The Tapering

 

It has been an article of faith on the radical side of economics that there would be no substantial winding down of the Federal Reserves QE programme, yet the Tapering duly appeared in the latter half of the year when the Fed stopped its ongoing purchases of privately issued money in the form of ‘bonds’.

 

In response to this development insurgent pundits chose to focus on the fact that QE as a global phenomenon was still ongoing. They observed that Japan was engaged on a new round of QE; the infamous ‘Abenomics’, and Europe is supposed to get in on the act later in the year with a big fat euro-helping of bond purchases (at least according to Mario Draghi and the ECB..)

 

So is tapering on or not?

Is QE still on or not?

 

Tapering for the USA is on, for Japan it is not and for Europe it will probably never begin. This is because unsurprisingly, conditions are different in America, Japan and Europe.

 

O.K. then, this leads us to the question: What is different between America and Europe and Japan?

 

America and England- the main Saxon economies, have experienced some sort of economic ‘growth’ although this is hardly traditional (certainly not export and manufacturing led), and it is mainly credit based. They have managed to do this because they have partially at least, restructured both their societies and economies. Which leads to the question: What is the nature of this restructuring?

 

  1. Both America and Britain are some way along the road to establishing a Permanent Credit Economy. This means: Increased deregulation and a shrunken state.
  2. Discontinuation of the work and social rights and safeguards that have been a feature of developed economies since the end of WWII and most importantly of all:
  3. An end to the consumer society, by which I mean an end of freely disposable income.

 

Remember! Saving is free disposal of income the same as spending is; this freedom is the essence of the ‘consumer society’. Prohibiting saving is a deliberate infringement of this freedom.

 

In contrast to America and Britain, Japan and Europe have so far significantly failed to restructure both society and economy.

 

Despite two decades of a kamikaze war on saving, Japan is still a ‘bank it’ society. Why is this?

 

Japan never established a welfare state in the way that it would be understood in Europe or even America. Instead it created a full employment model, which in theory made welfarism mostly unnecessary. In essence, saving was a necessary part of preparing for retirement since the state was only going to offer minimal protection. This worked until the labour market was deregulated in the post 1980’s Big Bang. Once the Japanese ‘job for life’ went away , a culture of saving and insurance became even more important. This is why Abenomics is insane. In essence it is like trying to frighten people out of buying insurance!

 

Remember! Saving is free disposal of income the same as spending is; the essence of the ‘consumer society’. Prohibiting saving is a deliberate infringement of this freedom

 

(As I write I hear on ‘Max Keiser’ that the Japanese savings rate has gone negative for the first time since the 1950’s and wages are falling rapidly too..but the next big question will be where has this money gone?)

 

Europe, especially Southern Europe, is markedly different form the Anglo Saxon and Northern German economies. Here the problem is that the post WWII state never managed to establish the depth of control necessary to implement something like the QE economic restructuring programme. Spain, Italy, Greece and Portugal, (did I hear someone mention Eire?), are all characterised by the fact that they have found it impossible to create a stable geographical and political boundary, never mind such a thing as a stable North European civil society. Fundamental structural weaknesses are increasingly being brought to the surface by national elites trying to implement austerity on behalf of German led Europe. One effect of this is the appearance of Cultural Constituencies (see previous post).

 

So what is going to happen next?
America will raise interest rates towards 21/2 % (as per my earlier forecast) which will mean that fully half the worlds economy is serviced by privately issued democratised money.

‘Hang on a minute!’ , I hear you say,

 

‘That’s impossible! There is no way that the Anglo Saxon elite will rise interest rates with the economy in the fragile condition it is in.’

 

But your analysis assumes that this is an economic decision and it is not. It is a political decision. It is the next step in the normalisation of privately issued democratised money. It is exactly the same in this respect as the dynamics controlling what happens in Europe. And China. And Eurasia.

 

And what will happen when American interest rates rise?

Intellectually we will come face to face with the lurking horror, the heart of darkness that has threatened to emerge from its cave since this all began in the 1970’s.

 

The Devil and the Law: Bankrupt Bankruptcy

 

The year end season finale of the democratised money project was the announcement of new rules for the resolution of banks in trouble at the Brisbane round of the G20, usually known as the ‘Bail In’ rules.

 

Proposed by the Financial Stability Board and titled the ‘Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution” this G20 endorsed plan was created to establish a stable ongoing banking framework to support democratised money.

 

I cannot emphasise enough the importance of this document, because it specifically lays out the boundaries governing the survival of individual banks and the growth of democratised money.

 

One of the fundamental mistakes made by the insurgent economic opposition is to argue that it is financial institutions that are being protected by the Monetarist state. This is wrong. It is not specific institutions, but democratised money that is being shielded and protected by the international legislative framework that is being put in place.

 

In fact, hard core Monetarists would be quite keen to see one or two small to mid sized banks go to ‘resolution’ to refute the charge of crony capitalism. When this happens the insurgents will be dumbfounded; they will not be able to understand that the failure of these one or two banks guarantees the survival of democratised money because it legitimises the system as being ‘fair’.

 

To this end the resolution document specifically states that the derivatives held by financial institutions will be given unchallenged precedence over all other creditors. In other words, they will not be paid a proportion of what they are owed on a pro rata basis like other creditors, they will be paid in full, off the top.

 

The international law says that derivatives cannot be written down like private debts. They are above private debts and sacrosanct. They are sacrosanct because they are money- democratised money with the full weight of national governments behind them. And this is now international law.

 

This is the significance of the bail in. Not that it will affect ordinary small scale bank customers, but that it places state money deposits at the mercy of democratised money. And ordinary people are not going to stand up for the rights of large scale investors, are they?

 

Again to reiterate:

 

It is not Banks being given precedence over individuals. It is Democratised Money in the form of derivatives being precedence over State Money in the form of deposits.

 

Even more shockingly, this document effectively proposes an end of bankruptcy for banks, to be replaced by the process of ‘resolution’ I referred to above.

 

As I observed in ‘Crackernomics’, bankruptcy is a Capitalist Sacrament; the equivalent of the Last Rites of the Catholic Liturgy. It is the means and justification by which a dying Corporation passes on to the afterlife. It is supposed to be the fair and equitable legal basis for the entire concept of limited liability. For it to be effectively abandoned is astounding.

 

In Crackernomics I examined the bankruptcy procedure and what it means, (used to mean). I also argued that the legal changes created by the democratisation of money would be as significant and far reaching as those of the end of Soviet Russia. This vindicates that view.

 

One of the fundamental principles of Capitalism itself has been quietly dispensed with.

 

As if these two developments were not astounding enough there is another philosophical change, more subtle and perhaps more pernicious for that.The difference between ‘failed’ and ‘failing’. Because banks aren’t going to fail anymore. Instead they are going to be ‘failing’ and they could be failing without actually having failed for a long time- maybe forever. Which means there might never be an ending that is understandable to the majority of their creditors and shareholders.

 

That is what ‘resolution’ really means.

 

‘Its Not Me, Its You’ , Or Irreconcilable Differences

 

In recent correspondence Dave Harrison from ‘Trade With Dave’ made the following very pertinent observations:

A). Zero interest rate policy means no more time value to money.  

B) Mervyn King’s “divorced currency” model could also mean politics divorced from economics.

 

What binds politics and economics together is the law. Law is the formal expression of will of the society that creates it. Law as applied to the material conditions of a society creates an economy.

 

When Dave Harrison points to Kings ‘divorced currency’ model as the future he is really pointing towards a system that has chosen to seek to circumvent its own foundational principles. And the means by which it is doing this can best be expressed as an end of accounting.

 

Just as elites abandoned ‘mark to market’, (which means saying what any given stock or bond is actually worth here and now) so zero or limited interest rates means abandoning any idea of what state money is worth here and now. And that is very important, because if people ever got a real idea of what State Money is worth here and now they might start asking some awkward questions.

 

In the same way the derivatives that infest the books of ever major financial institution can never actually be brought to the book and reconciled. Because if they were, then their value relationship to state money would have to be examined and that would lead to some awkward questions etc.

 

The Devil and The Law Or ‘If She Be a Witch’…

 

Henry the Eighth famously divorced himself from the Catholic Church in pursuit of a divorce from Catherine of Aragon. He then married Anne Boleyn. And when he did not want Anne Boleyn anymore he famously got Cromwell to argue that the marriage to Anne was just as invalid as his wedding to Catherine!

 

And who could argue the point? They had gone along with the first crime, how could they stand against the second?

They were damned if they did and damned if they didn’t.

 

Once the state has interfered in the markets, rigged and controlled them, how can it ever claim that there are ‘free markets’ again? If you argue for the state to get out of the economy, then you negate everything that has happened since 2008. But this is madness, what is done is done, it cannot be undone. Free markets are over whether you like it or not.

 

You cannot become a virgin again, no matter how much you regret your first night! You can only live in a fantasy world of regret or face reality. No- one except a madman will ever dare argue in favour of ‘free markets’ again.

 

If you abandon your first principles you make yourself a liar from then on no matter what you do to try to fix it. This is what is meant by the devil turning on you.

 

 

 

 

 

 

 

 

We Need to talk About Kapitalism or Big or Just Because You’re Used To Something Doesn’t Mean You Like It..

updateTue Nov 19 2014    The Guardian is the latest to report on  an impending bottleneck in cocoa production resulting in sharply rising prices…

http://www.theguardian.com/lifeandstyle/wordofmouth/2014/nov/18/save-our-chocolate-expert-tips-halt-cocoa-shortage?guni=Network%20front:network-front%20main-4%20Pixies:Pixies:Position3

I was predicting exactly this development four years ago in commodity supply as a direct result of the democratisation of money. I even accurately predicted the excuses that economists would make to try to explain this bottleneck away!

‘The result of all this will be an increase in basic commodity inflation. Foodstuffs and other resource commodities will begin to exert a kind of internal ‘barter’ value irrespective of money value. When ‘Classic’ economists observe this effect they will claim it is a by-product of increased global scarcity’

July 12 2010 Effects of The Democratisation of Money.

NOBODY else correctly predicted this development and even the response that economists would make to it. Which is all the more remarkable given that I made this prediction four years ago. Which all goes to show that understanding The Democratisation of Money is the only way to really understand what is happening now and what will happen in the near future…
http://www.smashwords.com/books/view/312882

starthere

 

Big-1988-tom-hanks-20525083-640-480

We Need To Talk About Kevin is a prize winning novel and a film. A mother reflects on the development of her son in light of a disaster: the boy has massacred students and staff at his high school but not before killing two other members of his family- his father and his sister. The boys mother is left to deal with the consequences of this mayhem and her part in it…

 

‘We Need To Talk…’ can be read as satire as much as anything else. From the privileged position of hindsight we are invited to watch the undermining and eventual collapse of the American dream- not just for one family but for everyone around it.

 

Ambiguity as to who is guilty and who is innocent is never far from the surface. The cartoonishly optimistic American dad refuses to see a dangerous pattern emerging in his son- even as it results in the loss of an eye for his daughter. The mother cannot see beyond her own neurosis in her dealings with her child. The cult of fame and celebrity works to magnify whatever poison is growing inside the boy.. All these factors lead us to question whether the oncoming catastrophe could have been avoided and if it could, who is at fault for not preventing it?

 

I have visited this idea before in ‘MAD or It Was Only A Matter Of Time…’ Posted on February 19, 2014. I drew attention to the character of Ely wandering through a hellish post apocalyptic world who says;

 

‘We knew this, or something like it, was going to happen’.

 

This is particularly poignant on the Centenary Anniversary of the 1st World (Germanic) War. Lots of people knew the War To End All Wars was coming without what exact shape it would take. And the same is true of the war that followed it. And the same is true now. You know something is going to happen. Its shadow looms but we cannot tell what the shape behind the shadow is.

 

Very, very few people are really stupid or completely blind to the truth, though lots of commentators like to imagine that the majority of the public is. It is a way of explaining the recurring disasters that plague human society. The truth is that like Kevin’s parents, people are emotionally invested in the beliefs and groups they are part of.

 

Our economic/political system and the society that supports it, did not come down from heaven, nor was it the result of a logical quest by the brightest minds on the planet to find the best system possible. It is the historical product of a specific society and its people at a certain time.

 

Like a child reflects its parents so this system reflects the people that created it. And they see themselves in it. In the same way that parents contemplate the end of their children, the creators of this system contemplate its end as the end of themselves. And they are right. The end of Capitalism will be the end of Germanic culture as a world force in human history. So they will NEVER willingly turn against this system. And they will ultimately always justify it, no matter what. Because their very identity depends upon it. This is the death grip embrace between a society and the people within it.

 

Which brings us to the myth of the changeling; the belief that a child has been substituted by another creature that looks and sounds the same, but is very different underneath. The name of the changeling in this case is Crony Capitalism; the product of Globalists and Neo Feudalism who smuggled this cuckoo into the Free Enterprise nest. The complaint of crony capitalism is the same as a parent complaining that he does not recognise the boy he sees rampaging through college on the six o’clock news.

 

Whatever our economic system was in the past, it is very clearly now unable to exist without abandoning the systems and controls of the past. Isn’t this what is really meant by ‘too big too fail’?- That the consequences of a free market can no longer be supported by the system? That we are committed to a system that can no longer support its own internal logic?

 

Since logic is no longer supportable, the parent invests in the myth of the idealised child was with ever greater determination. Libertarians tout a return to the golden youth of free enterprise in the midst of an unprecedented state control of the economy; like an accountant deciding to blow his retirement fund on a Harley Davidson and a set of leathers. And this would not matter so much, might even be funny in a way, if it were not for the tragedy that we can see approaching.

 

Can you see any way that state control of the economy can be replaced by a return to ‘free markets’?

Can you see any way that ordinary people will ‘freely’ agree to the mass impoverishment this would cause?

 

Can you see any way that the debts that have been run up by the advanced economies can be paid off without destroying the economy as we have known it?

Can you see any way that advanced economies can run a massive permanent debt, (openly acknowledging it will never be paid off), and still call themselves capitalist?

 

Can you see any way that China will agree to be managed FOREVER as a junior partner in its own sphere of influence by America ?

Can you see anyway that America can avoid trying to manage and retard China’s growth without its own interests being permanently, irrevocably damaged?

 

Can you see any way that NATO and Europe can continue to expand without impinging on Russia’s fundamental interests?

Can you see any way that Europe can avoid the expansion necessary to secure its economic interests in Europe and Eurasia?

 

And if you can’t face all that, you can perhaps face this one little truth:

 

Is the Quantitive Easing ‘allowance’ Anglo Saxon parents pay to this boy every week really a gift?

Or do they pay it because they fear what he will do if he doesn’t get it?…

 

Isn’t it really protection money?