[Kfor] \\ GOD EXISTS. MONEY IS DEAD [TM]

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The Ponzi Scheme extends beyond the financial system into every aspect of democratic society,
from human rights, to art, to science, to perpetual progress, 

Contemporary Corporate Democracy is an unsustainable jumbo sized brainwashing Ponzi Scheme.


GOD EXISTS.  MONEY DOES NOT. [TM]




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I am as big a fan of taking the historically informed and long view as anyone, but there's a problem with these explanations. They don't explain very much. "People have always been idiots" and "Idiots always mess things up" might be useful rules of thumb, but they do not tell us very much about the specifics of what's been happening in the economy for the last 30 years. Indeed, I am inclined to think that the popularity of these stories in the major media has something to do with their polite uselessness. No one who matters is going to get upset if you start pointing the finger at human nature. The current mess is everyone's fault, so no one in particular is to blame.

Serving, as opposed to retired, central bankers cannot get away with world-weary musings about man's timeless folly. They have to be a little more specific. And what they say matters. To a remarkable extent the central bank version serves as a kind of intellectual gold standard. A British commentator or journalist can take what the governor of the Bank of England says, change the word order a little and send it to their editor without fear of challenge.

So what does the current governor, Mervyn King, say caused the economic crisis? In a speech in Liverpool last month King gave a condensed version of The Bank of England Explanation. And, yes, I am trying to make what he said sound like the worst thriller Robert Ludlum ever wrote. Anyway, what does King think is at the root of all our current woes - the stuttering global economy, the Euro crisis, and Britain's particular cocktail of low growth and high unemployment? King finds the origins of the current mess in the financial sector and he is emphatic that "four years into the crisis it is surely time to accept that the underlying problem is one of solvency not liquidity - solvency of banks and solvency of countries".

Government and consumers have borrowed too much, in other words. This is an interesting admission and a fairly remarkable one, given what it tells us about the ability of independent central banks to maintain financial sector stability. But King is even more interesting when he sets out "the causes of the unsustainable build-up of debt in Europe and elsewhere". There was, he says, a "continuing imbalance between those economies running large current account surpluses and those running large current account deficits". Capital flowed from Asia into the United States, the United Kingdom and elsewhere to finance "unsustainably high levels of consumption" in both the public and the private sector.

Now there's no doubt that trade imbalances played a part in the buildup of debt in the UK, the US and other countries. And some of the money that flowed back from creditor nations was used to fund public and private consumption. But the plot of The Bank of England Explanation has a hole in it. King fails to note that the Asian tigers didn't provide the capital for the vast bulk of credit expansion in the West. This is an important omission.

In Britain a reliable authority tells us that in the decade before 2008 "the indebtedness of the financial system doubled", from 3.5 times GDP to more than 7 times GDP.

(The reliable authority is, of course, Mervyn King.)

UK GDP in 1998 was around £0.87tn. By 2008 it had increased to around £1.4tn. So, financial sector indebtedness rose from about £3tn to nearly £10tn in 10 years. The Asians lent the British some money, for sure. They did not lend our banks £7tn, more than twice China's total GDP in 2008. Avid consumers though we may be, we didn't buy that many flat screen televisions.

So if our appetite for imports wasn't a major cause of the UK's growing indebtedness, where did all the money come from? Some of it came from rich Western investors. As income inequality grew, the people who like to think of themselves as winners lent the people they privately call losers the money they needed to pay for increasingly expensive housing, household bills, transport, education, healthcare and so on. Productivity was growing. But the rich were capturing a larger and larger slice of national income. Easy credit was what the rest of us had instead of pay rises. Some of the money went on cartoonishly big cars and irritating electrical gadgets. Most of it didn't.

Creating debt

The other source of credit expansion is a little more arcane. Banks have rarely noticed power to create money in the form of debt. Banks used this power to lend money to purchasers of residential and commercial property, thereby inflating an asset price bubble. This new money was lent back to the banks, increasing their debt levels. The banks also lent more and more money to one another to finance speculation, creating trillions in new debt.

This is the key point to bear in mind. The consumption of imported goods from the hard-working regions of the world accounts for only a tiny fraction of the UK's total debt growth.

Under the benign gaze of Mervyn King, private banks created heaps of new money in the form of debt. This conjuring up of money is a central cause of the banks' insolvency and hence of the economic crisis. Once we grasp the role that income inequality and money creation by banks played in the crisis we can begin to see how our current problems can be addressed in both the short and long term.

We don't have to become more like the Chinese to set the economy back on track. This is good news for anyone who doesn't want to live in an authoritarian regime where an unelected elite lord it over an ill-informed and depoliticised population. Central bankers probably have more mixed feelings.

After decades of enthusiastic tax avoidance and evasion, asset price inflation, and general chicanery, the rich have more money than they know what to do with. This is not an empty figure of speech. There aren't enough profitable investment opportunities in the real economy to soak up the money in private hands - all those bonuses and dividends and ill-gotten gains.

The tax system must recognise the needs of the nation as a whole and transfer this idle wealth to those who will either invest it sensibly or spend it into circulation. This is necessary even if it means dismantling the offshore archipelago that constitutes Britain's latest gambit in the game of empire. If governments have been spending more than they take receive in tax, it is time to start taxing the rich again.

In the longer term, we cannot continue to allow private banks to create new money out of thin air. The supply of debt is too important to be left in the hands of institutions that have proved hopelessly unequal to the task. By all means let private lenders fund innovation. But they cannot be permitted to blow asset bubbles or fund speculative Ponzi schemes. The central bank must become the transparent overseer of a system of credit that responds to the stated needs and wishes of the people who must ultimately foot the bill.

That would be everyone, by the way.






\\ M9ndfukc.MaCht.Fre! - GOD EXISTS.  MONEY DOES NOT.


We spend a lot of time thinking about money, one way or another. We think about how to get our hands on it, how to keep it safe and how to spend it. When we aren't asleep, there's a good chance that we're paying attention to money. But while money is never far from our thoughts, there is something curious about our relationship with it. For all that we use it to get through the day, most of us don't know what it is. 

I mean, we know what it can do. We know how much we have, more or less. We know what things cost and so we have some idea of what we can afford at any given moment. When we start thinking about the future, how long we might live and how much money we'll need, we tend to want to think about something else. But money itself escapes our calculations. For the most part we don't think to ask where it comes from or what it is, in itself. The advantages of having money and the consequences of having none loom so large that we seldom stop to wonder about money as such. 

Today is as good a day as any to explain where money comes from and why it matters. On Thursday, the Bank of England announced another £75 billion of "quantitative easing". If you don't know what that means or vaguely think it has something to do with "printing money", it is probably because you don't know what money is. All will be revealed in what follows. OK. Are you ready to know where money comes from, to know the truth jealously guarded from the dawn of recorded time? 

Money is lent into existence by banks 

There's nothing complicated going on behind the scenes. The great secret is that there isn't really much of a secret. Yet the truth about money eludes us for most of the time. 

The economist and ironist JK Galbraith once wrote that "the process by which banks create money is so simple that the mind is repelled. When something so important is involved, a deeper mystery seems only decent". Offered the unadorned truth, stripped of any technocratic flim-flam, we can scarcely believe it. It seems preposterous that money should have such humble origins, as though it is beneath money's dignity that it should begin life at a banker's keystroke. 

The truth about money creation is a bit like the end of The Wonderful Wizard of Oz, when it turns out that there is no all-knowing wizard, only an old man behind a curtain, making things up as he goes along. It's a lot like The Wonderful Wizard of Oz, in fact. Frank Baum's book is a parable about currency reform, written at the height of the struggle in America between the architects of corporate finance and those who wanted the money supply to be controlled by the public. The 1939 film adaptation brought the story to a vast new audience, but somewhere along the line, the author's original point was somehow lost. I know, that such a thing could happen in Hollywood, of all places. 

So, banks create money through the act of lending it. They don't have to limit themselves to lending out the money deposited with them. In fact, they can end up lending huge multiples of the money they hold in reserve. When they authorise a loan or extend credit in the form of an overdraft, the money is conjured out of nowhere. The banks then receive interest on the loan. The interest is how banks make their profits, so they want to lend out as much as possible for as long as possible, even if the lending is unsustainable in the long run. This is what Chuck Prince was getting at when he said in July 2007 that "when the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing".

As the authors of Where Does Money Come From?, a handy guide to money creation published by the New Economics Foundation, point out, banks prefer to lend money against existing collateral. As a result they have a really bad record when it comes to supporting start-ups and small and medium-sized enterprises that want to expand or innovate. But they are brilliant at inflating bubbles in commercial and residential property. Perhaps mindful that the money they lend out has an immaterial quality, bankers crave the solidity of bricks and mortar.  

I said earlier that the Bank of England has announced another round of quantitative easing. Quantitative easing (QE) occurs when central banks create new money and use it to buy interest-bearing assets. So far QE in Britain has been used to buy government and corporate bonds. This has supported asset prices and relieved the pressure on the other banks. The banks exchange assets of uncertain value for cash backed by the credit of the government. 

If you think it's a little odd that one national institution, the Bank of England, is buying bonds issued by another, the Treasury, you're right, it is. The government doesn't want you to think too hard about it, in case we start thinking that they, like the wonderful wizard, are making things up as they go along and hoping for the best.

No one is claiming that finance and economics aren't complicated. But this shouldn't blind us to the fact that they both rest on a cardinal simplicity - the money-creating power of banking institutions. Those who profit from this underlying simplicity have had no great desire to enlighten the public. Their control of the money supply has never been subject to democratic debate. It is doubtful that this control would survive any such debate. As protesters gather in the world's financial districts, I hope they will be able to bring reform of the banking system out of the shadows.

The established order can cope with riots. It cannot cope with a reasonable conversation about the role of the banks in misallocating capital and creating crises. 

Britain's Chancellor of the Exchequer, George Osborne, has already indicated that some of the money conjured up by the Bank of England should find its way to small and medium-sized businesses, in a tacit admission that the financial sector in its current form cannot adequately support productive industry. Private and unaccountable control of the money supply - the very archetype of unconstitutional privilege - has failed and this failure is bringing misery to millions around the world.

A discussion began in the spring of this year in North Africa, about the society and economy we want. Europe and North America are now joining in. The problems we face are complicated, it's true, but they are not as complicated as some would like to make out. We will begin to see how to solve them when we have a clear understanding of the fundamentals of social organisation, including the origins and nature of money.

It is an understanding that those who are currently powerful would rather we didn't have. After all, as another great American ironist, Walter Karp, put it, "usurped power is only secure as long as it remains unregarded". For too long, the banks have shaped the laws of economic exchange in private. Even in the midst of a debt crisis their privilege has so far evaded our understanding. It is time that it became the object of our steady and patient attention.