Wednesday, March 21, 2007

Money (redux)

Here be dragons...

A few weeks ago I blathered on about inflation, debt, interest rates and the grand-daddy of all conspiracy theories -
Bankers Control the World!!!

To properly understand the Bankers Control the World!!! conspiracy theory the student theorist must first be comfortable with the concept of the Business Cycle...

The Business Cycle explained aka 'How to turn made-up money into tangible assets in 10 easy lessons...'

  1. Banks create lots of money out of thin air
  2. They lend that money to people at low interest rates
  3. Because so much money is pumped into the system its value falls
  4. Because money is worth less prices rise
  5. People have to borrow more and more made-up money from banks to pay those higher prices
  6. After a few years, banks hike up interest rates and reduce the amount of money in circulation by cutting back on lending
  7. Prices fall, as do many people's incomes
  8. The size of outstanding loans, however, does not fall
  9. People can no longer afford to service their loans and are obliged to turn their property and businesses over to the banks
  10. Repeat every 15-20 years or so

The terms 'banks' and 'bankers' are used very loosely and refer more to the people behind the banks and bankers than the banks and bankers themselves. We are, after all, talking about a hidden ruling reptilian elite

All of this Bankers Control the World!!! stuff, all of it, is insane nonsense, obviously.

For example, when faced with the news that house prices in London have risen by 22% over the last year and the average price of a home in London now stands at £366,302 (sorry, that was yesterday, it must be topping £380,000 by now) the delusional conspiracy theorist will blame the eye-watering price rises on cynical manipulation of the money supply by scheming bankers.

Whereas the clued-in people, the rationalists who really know how the world works, will know that high levels of property inflation are due to non-conspiratorial factors such as...

"Wealthy City financiers, foreign buyers and big income earners are driving the demand in London and with quality stock at an all-time low, there is an exacerbated effect on prices"

All very sane and rational.

Only a couple of problems though

First off, it's a matter of record that people are borrowing shit loads of money to buy property - not 'wealthy city financiers' or mysterious 'foreign buyers' but ordinary people being obliged to saddle themselves with buttock-clenching levels of debt to buy a home.

Second off, there's the small matter of the former Governor of the Bank of England openly 'fessing up and admitting that, yes, he and his buddies had deliberately stoked up personal debt and inflation to unsustainable levels...

"In the environment of global economic weakness at the beginning of this decade ... external demand was declining and related to that business investment was declining.

"We only had two alternative ways of sustaining demand and keeping the economy moving forward: One was public spending and the other was consumption.

"Now of course it's true that taxation and public spending may influence the economic climate, may influence consumer spending.

"But we knew that we were having to stimulate consumer spending; we knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.

"But for the time being, if we had not done that the UK economy would have gone into recession just as has the United States.

"That pushed up house prices, it increased household debt ... my legacy to the MPC if you like has been 'sort that out'."

Or put another way '
Why have a recession in 2001 when you can have a full-blown depression a few years later?'

Or put another way 'We could have stimulated the economy by building infrastructure that would have served the nation for generations but decided to encourage everyone to go out and buy shit instead'

Or put another way 'Me and my mates decide the price of your house, your monthly outgoings, how much you earn, and even whether you have a job or not. And there's fuck all you can do about it'

And because ordinary people don't understand, haven't been educated to understand, how money works, bankers can pull shit like this again and again without ever being strung up from the nearest lamp post. Hats off to whoever figured this money-lending game out in the first place. He was a clever dude. Destined to burn in Hades for all Eternity, sure enough, but definitely clever.

The really intriguing part of this business is the fact that a lot of people are expecting, have been waiting for, the UK economy to go tits up - for years now. But, like the proverbial watched pot, it stubbornly refuses to boil over. Somebody or something will pop the bubble eventually but who, or what, and when?



paul said...

But, like the proverbial watched pot, it stubbornly refuses to boil over. Somebody or something will pop the bubble eventually but who, or what, and when?

If economics was a science then it would be able to predict these things. Until it does, we are left with little but to ponder Keynes' 'animal spirits'.

The best explanation, to my mind, of the debt expansion problem/con is by michael hudson where, amongst other things, he points out the incompatibilities between the exponential curve of compound interest and the s-curve of reality.

He's also a refreshing exponent of the reality of the free lunch.

Wolfie said...

Very succinct Stef, and quite correct.

Napoleon Bonaparte, when shown an interest table, said, after some reflection: ‘The deadly facts herein lead me to wonder that this monster Interest has not devoured the whole human race.’ It would have done so long ago if bankruptcy and revolution had not been counter-poisons.


And because ordinary people don't understand, haven't been educated to understand, how money works, bankers can pull shit like this again and again without ever being strung up from the nearest lamp post.

Not quite true, this cycle has been going on since the middle-ages in Europe. Most wars and revolutions have had their basis in either the beginning or the end of a debt-cycle. Its just once the killing starts it becomes indiscriminate and everyone forgets why they were doing it in the first place; such is history and the fog of war.

Anonymous said...

Global Ruling Class: Billionaires and How They “Made It” ... very interesting piece for yourself and your growing audience.

Richard said...

See Eustace Mullins.

Shutter said...

I did happen to notice that then Steady Eddy retired to a modest 300,000 acres of Cornwall, he seemed to have done rather well out of presiding over the credit boom - maybe Mrs G had the foresight to place her pelf in shares in the major banks as their value soared - perish the thought yer 'onor.

Anonymous said...

Check out this video ... Will the dollar survive?

(Hope you chaps have a goldmoney account).

Stef said...


Graduate-level conspiracy studies courses include a module devoted to the theory that most revolutions are subverted by the corporate elite in such a way that the vengeance seeking mobs are invariably misdirected into stringing-up, guillotining and generally exterminating the wrong people.

There's a quote attributed to Russian revolutionary activist Christian Rakovsky that goes something like...

And so this fact, so colossal that it misled the
imagination of the people of that epoch, passes unnoticed with Marx. Something strange ... Is that not
so? It is possible that from this strange blindness of Marx there arises a phenomenon which is common to all future social revolutions. It is this: we can all confirm that when the masses take possession of a city or a country, then they always seem struck by a sort of superstitious fear of the banks and bankers. One had killed Kings, generals, bishops, policemen, priests and other representatives of the hated privileged classes; one robbed and burnt palaces, churches and even centres of science, but though the revolutions were economic-social, the lives of the bankers were respected, and as a result the magnificent buildings of the banks remained untouched ... According to my information, before I had been arrested, this continues even now ...

Stef said...

@anon/ richard/ anon/ paul

Thanks for all the links and references

I've got half a dozen browser tabs open and a fresh mug of coffee...