Banking and Conspiracies

[littlebabyjesus]

Aha, now that makes innate intuitive sense to this economics layman!

Britain is far more a capitalist country than thailand. Does this explain why inflation has had such a negligible effect here compared to Britain in the time frame i've just mentioned?

And does it also explain that an illegal substance, and thus untaxable, has been immune from inflation in britain in 25 years?

It hasn't been immune to inflation because the seller can buy less with the proceeds now. Its price has gone down. The standard answer would be that much more is grown in this country now, so the price has effectively gone down. The same is true about cocaine, mind you, so I'm not sure about that explanation.

 

[littlebabyjesus]

Er, but it can be used in that way. Furthermore because the Jews were restricted to certain forms of economic activity and were coralled into ghettoes, this reinforced their Otherness. The Other is always regarded with suspicion and, more often than not, form the butt of the conspiracy theories of the dominant culture/ideology.

Money lending, iirc, is forbidden by the Xtain bible, This automatically makes Jewish people inherently 'evil' in the eyes of Xtians. This attitude persists to this day.

All true, and all of which must be put to one side in order to have a sensible discussion. Shouting down ANY talk of richest bankers internationally cooperating with each other to their mutual benefit does nobody any good.

 

[littlebabyjesus]

Is phil arguing once again for a rejection of the Enlightenment and return to Platonist values by picking on one aspect of the Enlightenment/modernity - the labelling and classification of human activity concerning exchange of G&S as economics and how this terrible calumny called capitalism has resulted, and completely ignoring the 000s of years previous to this with individual treatise on price movements, the existance of interest/usury since humans first started exchanging goods for services (there are records of interest being levied in barter societies for the loaning of cattle on the surplus derived from use of said bovines)...also, how Eurocentric is this? The Chinese have had interest as well as money for millenia...which would also suggest that capitalism has been around for millenia as well, just not as the dominant social force (which back in the day was usually a combination of religion and demagogic idolatry - something Plato was very much in favour of as well...)

This doesn't stop it from essentially being a con-trick. All the best cons have venerable histories.

 

[Blagsta]

Blagsta, it don't help when those who apparantly know call it all simple. It might be to you, but it ain't to others. What is not so simple is explaining it to those to whom it is not so simple, so obvious.

You got it in you to explain to me why the money would be worth less? After all, how can a fifty pound note be worth less when the numbers don't change?

Because if everyone has more access to money, its not worth as much. See Douglas Adams in the Hitchikers Trilogy when they crash on pre-historic earth. They decide to make the currency leaves. Making the exchange rate two decidous forests to one ships peanut. If money is easier to access, its not worth as much.

It ain't rocket science.

 

[Blagsta]

No there won't. There hasn't always been 'economics.' In fact there has only been 'economics' for a century (before that it was 'political economy,' a very different concept), and the idea that 'economic' activity is a discrete field of human behavior is only three centuries old. The concept of 'economics' is a capitalist ruse, designed to exempt market behavior from ethical strictures.

Economics is the study of how we distribute resources. That's it.

 

[kyser_soze]

Oh yeah, I don't deny that it's a con-trick, but it's also one that everyone participates in and agrees works, as things like the direct lending phenomena show. You're also failing to address the idea that interest as a concept developed indepdently across several different civilisations - Judaic & Chinese specifically, but it emerges elsewhere as well - suggesting that waving the obligatory anti-cap flags around isn't enough.

My point is that phil has a long history of equating capitalism and money with the devil (a POV I can share but not for the same reasons) and using it as a stick to bash empiricist philosophy of the kind that emerged post-Enlightenment for 'allowing' it to happen.

 

[littlebabyjesus]

Oh yeah, I don't deny that it's a con-trick, but it's also one that everyone participates in and agrees works, as things like the direct lending phenomena show.

My point is that phil has a long history of equating capitalism and money with the devil (a POV I can share but not for the same reasons) and using it as a stick to bash empiricist philosophy of the kind that emerged post-Enlightenment for 'allowing' it to happen.

I think most people don't really understand the con, though.

Regarding point 2, yes he does.

 

[A Dashing Blade]

What if the banks were instructed to call in all their loans from all their debtors in exactly one week's time. And in that same time companies were instructed to print loads of extra bank notes. These were then distributed to the people with the condition that they took just enough to pay off their debts.

Then on the appointed day, the banks got all their money back, the people lost all their debts, and we could all start again.

Where does inflation come into this scenario?

I'll give that one a try . . .

Freeze time for a sec.

Then (say) double the amount of money in everyone's pocket/bank account whatever.

What's going to happen?

Answer, a lot of people are going to go "Whopee! Christmas has come early, I can go and buy that new coat/car whatever that I've had my eye on."

But hang on as sec. The amount of goods in the economy hasn't doubled remember.

So, a lot more demand is going to be chasing the same amount of goods/things/consumer durables whatever, you get the picture.

Hmmmmm . . . so then what will happen is that buyers will be prepared to pay more for scarce things and sellers will hike their prices as they know that peeps will have the money and be prepared to pay more.

Which is inflation.

 

[kyser_soze]

I think most people don't really understand the con, though.

Regarding point 2, yes he does.

People understand the con well enough, they just know that for the majority of people it works, and will continue to work just about well enough for them to remain content within their own impoverished ideas of what contentment are.

Cos this isn't a conspiracy - unless you consider a conspiracy something that we all participate in, are aware of but refuse to acknowledge.

 

[fela fan]

How have wages fared in that time?

Well, i'd say that they've gone up, but by very little. At most probably about 25%.

Things are starting to change these days, particularly in bankgok. But the country is being invaded by dark capitalist forces such as the IMF (1998), and world bank policies and 'free' market agreements and the like where locals have to buy from specific american companies...

As for britain, i bet inflation in the 16 year period in terms of renting or buying a house has totally outstripped the typical worker's salary...

 

[A Dashing Blade]

Shouting down ANY talk of richest bankers internationally cooperating with each other to their mutual benefit does nobody any good.

The "conspiracy" only extends to those times when extreme events threaten financial stability and then the "co-operation" involves a lot of arm twisting (Argentian and LTCM bailouts are examples).

 

[littlebabyjesus]

People understand the con well enough, they just know that for the majority of people it works, and will continue to work just about well enough for them to remain content within their own impoverished ideas of what contentment are.

Cos this isn't a conspiracy - unless you consider a conspiracy something that we all participate in, are aware of but refuse to acknowledge.

Do many people really stop and ask just why it is bankers make obscene amounts of money? Why is the job of moneylender so well paid?

I think people take a gross injustice as simply the order of things, not realising that they are being conned. Mind you, the impoverished majority of the world are no doubt more keenly aware of it. Remember not to fall into the trap you accuse others of - eurocentrism. For the majority of people it damn well doesn't work and they know it.

 

[kyser_soze]

As for britain, i bet inflation in the 16 year period in terms of renting or buying a house has totally outstripped the typical worker's salary...

Buying has, rental inflation has been static, and overall wage inflation has just kept ahead of actual inflation. Main downward drivers on inflation in the UK have been lower consumer prices, lower energy costs relative over a 10 year period (2006 was a supplier-derived pricing blip, not a long term trend in upwards prices).

The UK is still in the longest low overall inflation period it's EVER had, coupled with the longest stable growth rate since about 1995 IIRC 0 it's average about 2.5% a year. But all these numbers can be found easily at the ONS and Treasury websites, as well as typing 'UK inflation critics' into Google to find a good summary of recent criticisms about how the current UK inflation rate is decided (largely from Tories who fail to point out that were such indicators used during Thatcher's time it makes them look even worse) and criticising the whole notion of an 'average' inflation rate - what we should be doing is creating our own personal inflation rates based on how we live...

 

[fela fan]

I'll give that one a try . . .

Freeze time for a sec.

Then (say) double the amount of money in everyone's pocket/bank account whatever.

What's going to happen?

Answer, a lot of people are going to go "Whopee! Christmas has come early, I can go and buy that new coat/car whatever that I've had my eye on."

But hang on as sec. The amount of goods in the economy hasn't doubled remember.

Firstly that is a different scenario to the one i painted, in mine there would be no spending, just a cancelling of debts. Leaving one with all of their work income to be then spent how they want.

But anyway, if we continue with your scenario mate, i would suggest there are many more times goods and consumer stuff already in the shops to easily deal with a doubling of demand. Shops are replete with stuff!

In addition, my point is that everyone is already buying all those new coats and cars now anyway, just not with their money.

 

[Fruitloop]

The problem with phil's analysis of capitalism is that it leads nowhere. What sort of political praxis would result from equating commodified labour with Satan? How is it to be combated, with daily scourgings and a hair-shirt?

Actually, I can kind of see that being a bit of a hit in some corners of the left milieu.

There's a lot to be said for a holistic and dialectical approach to a subject as an antidote to overly rigid systematisation, but to bin reductive accounts of either social or natural phenomena is to renounce the possibilty of effective intervention, since the main reason for the persistence of reductive accounts is their instrumental utility. Look at genetics, which has consistently been derided for its hopeless reductionism, and yet has enabled foetal and parental diagnosis of genetic disorders, cloning, genetic modification, stem cell therapies, as well as having vast explanatory power in terms of how characteristics are passed on from individual to individual. What comparable agency has been enabled by supposedly superior approaches? Damn all as far as I can see.

The same is true in my opinion in terms of politics - whilst it's probably a bad idea to sell your soul to reductive analyses, the extreme alternative produces an academic politics whose utility is purely analytic - far from explaining the world in order to change it, it explicates into existance a world that is utterly resistant to our attempts to control it.

 

[kyser_soze]

Do many people really stop and ask just why it is bankers make obscene amounts of money? Why is the job of moneylender so well paid?

I think people take a gross injustice as simply the order of things, not realising that they are being conned. Mind you, the impoverished majority of the world are no doubt more keenly aware of it. Remember not to fall into the trap you accuse others of - eurocentrism. For the majority of people it damn well doesn't work.

OK, not majority, but certainly sizeable minrity - and I don't just mean US, Europe etc. Look at the numbers: China and India estimated 400mn people EACH who have a basket-comparable standard of living to the West (i.e. don't earn as much but can spend equally - call it the Big Mac index like wot the Economist does); EU is approximately 400 million people, of which 10% live in poverty (poverty that still leaves them better off than those in poverty elsewhere on the planet); US 20% poverty on a population of 350mn. Japan, Australia, plus hundreds of millions more around the world who DO have a decent standard of living - I'd guesstimate that about 40% of the planet's population live in conditions that are certainly NOT poverty, another 20-30% in what some would consider poverty (anyone see the article on the big Indian slum a couple of weeks ago in the Observer - they don't consider themselves to be living in poverty) and others wouldn't, with a remaining 30% in dire poverty.

 

[fela fan]

Buying has, rental inflation has been static, and overall wage inflation has just kept ahead of actual inflation. Main downward drivers on inflation in the UK have been lower consumer prices, lower energy costs relative over a 10 year period (2006 was a supplier-derived pricing blip, not a long term trend in upwards prices).

The UK is still in the longest low overall inflation period it's EVER had, coupled with the longest stable growth rate since about 1995 IIRC 0 it's average about 2.5% a year. But all these numbers can be found easily at the ONS and Treasury websites, as well as typing 'UK inflation critics' into Google to find a good summary of recent criticisms about how the current UK inflation rate is decided (largely from Tories who fail to point out that were such indicators used during Thatcher's time it makes them look even worse) and criticising the whole notion of an 'average' inflation rate - what we should be doing is creating our own personal inflation rates based on how we live...

Lots of figures there. I can't believe that renting a house now costs only about 16 lots of roughly 5% more than 16 years ago. Can you confirm your statement kyser?

I know that in 2000 when i went back to britain to live for a while, for four months i worked full-time, renting a bedsit in a poorer part of london. The rent, the tube journeys, and government tax took 90% of my salary.

I'd say that 18-25 year old folk these days have much less disposable income than back in the early 80s. I know some people have much much more, but that seems to be limited to jobs that put almost fuck all back into the community.

 

[fela fan]

OK, not majority, but certainly sizeable minrity - and I don't just mean US, Europe etc. Look at the numbers: China and India estimated 400mn people EACH who have a basket-comparable standard of living to the West (i.e. don't earn as much but can spend equally - call it the Big Mac index like wot the Economist does); EU is approximately 400 million people, of which 10% live in poverty (poverty that still leaves them better off than those in poverty elsewhere on the planet); US 20% poverty on a population of 350mn. Japan, Australia, plus hundreds of millions more around the world who DO have a decent standard of living - I'd guesstimate that about 40% of the planet's population live in conditions that are certainly NOT poverty, another 20-30% in what some would consider poverty (anyone see the article on the big Indian slum a couple of weeks ago in the Observer - they don't consider themselves to be living in poverty) and others wouldn't, with a remaining 30% in dire poverty.

Taking thailand as an example of a developing world country that i can talk about from personal experience without quoting any numbers from other sources: i'd say many of the poorer sections of society are poorer than just a decade ago. They've spent more money, but that is a result of policies designed to make them take on debts they never even considered before. Debt is literally being encouraged, and also forced onto people who comfortably lived before with enough food, clothing, shelter, and smiles.

Their standard of living is worse, and they're working harder.

As for your poverty, maybe it's coz they've used debt to get more... but is it a time bomb?

 

[fela fan]

Because if everyone has more access to money, its not worth as much. See Douglas Adams in the Hitchikers Trilogy when they crash on pre-historic earth. They decide to make the currency leaves. Making the exchange rate two decidous forests to one ships peanut. If money is easier to access, its not worth as much.

It ain't rocket science.

No, i still don't get it.

If everyone had the same access to money, but their own rather than a bank's or money-lender's, then the same amount of spending could continue. The only difference would be the banks would make less money. Which arguably (as presented on this thread) they never had in the first place.

I'm not looking for answers in a book i don't have. You said it was simple, so explain it!

 

[A Dashing Blade]

Firstly that is a different scenario to the one i painted,

No it isn't, cancel everyone's debts and what's the net effect? More money in pocket (money that would otherwise be use to service debt repayments) = more spending.

in mine there would be no spending, just a cancelling of debts. Leaving one with all of their work income to be then spent how they want.

See above, the extra spend is unavoidable.

But anyway, if we continue with your scenario mate, i would suggest there are many more times goods and consumer stuff already in the shops to easily deal with a doubling of demand. Shops are replete with stuff!

Recent sharp spikes in global commodity prices would suggest that, at the very least, there are substantial bottlenecks in the world economy.

In addition, my point is that everyone is already buying all those new coats and cars now anyway, just not with their money.

And my point is that they're getting even more money in the scenario you postulate.



TBH, my post that you quoted was, more than anything else, designed to demonstrate to you how inflation is produced

 

[fela fan]

TBH, my post that you quoted was, more than anything else, designed to demonstrate to you how inflation is produced

"So, a lot more demand is going to be chasing the same amount of goods/things/consumer durables whatever, you get the picture.

Hmmmmm . . . so then what will happen is that buyers will be prepared to pay more for scarce things and sellers will hike their prices as they know that peeps will have the money and be prepared to pay more.

Which is inflation."

You're assuming demand remains the same.

What if it lowers, then won't that cancel out the extra supplies?

And it seems to me that demand has been created by marketing and advertising and lending. Most certainly i'm watching over the last few years how those three forces are operating in a developing country.

So it seems to me that they first increase the demand...

 

[A Dashing Blade]

You're assuming demand remains the same.

I was assuming ceterus paribus conditions yes.

What if it lowers, then won't that cancel out the extra supplies?

Potentially, yup
In practice though, print a load of money and give everyone in the country £1000, would you really bet money that overall demand would fall?

 

[slaar]

No, hang on a minute. That's what i was always told when i was at school and any time thereafter that i tried to get my head around this: that inflation would come about if we just printed more money to make more available to the people.

I never got it then, nor do i now. This inflation answer i mean.

Y'see there is a negative amount of money (debt) buying an awful lot of goods. Most goods have been bought without the owners having enough money of their own. Doesn't inflation come from spending money you haven't got?

And back to my original question: why has dope never been subject to inflation? Compare the average cost of a pint, a house, and the average worker's salary in 1982 to 2007. Then realise that dope is the same.

There's a lot of dodgy stuff put out in economics i reckon. However much anybody explains, it never sounds right to me.

(1) Debt is not a negative amount of money, it's a positive amount of money.

(2) This is a good start for you to read, inflation is a complex phenomenon, some people think it's 100% driven by increases in money, as per Dashing Blade's simple thought experiment, others think it's driven by other things.

http://en.wikipedia.org/wiki/Inflation

(3) In relation to another post your suggestion that there's enough spare goods lying around in the shops to soak up, say, a doubling of the money supply is not very likely. For an example of a situation where the government is printing money like it's going out of fashion and there are not enough goods you only have to look at Zimbabwe today:

http://news.bbc.co.uk/2/hi/business/6248245.stm

The Zimbabwe government are blaming retailers for putting prices up for causing inflation, which is a typical and amusing response when what is driving inflation is massive financing of government budget deficits by printing money.

 

[Fez909]

Fela:

Imagine you'd been in debt for a few years and then suddenly somebody paid off everything you owe. Would you then think, "Great! I've got all this extra money to save now!" or maybe, "Great! I now have £100s extra to spend each week on the stuff I couldn't afford before!"?

Probably most would want to do the former, but end up doing the latter - voila! inflation.

 

[Fez909]

One thing I'm having trouble with regarding this whole usury thing and the 'debt based economy' is why? I can guess what the answer will be (to keep The Rich rich and The Poor poor) but why does no one speak out about this publicly?

Why has a government never tried to issue money for free?

 

[Jazzz]

Er, no there isn't.

"Bills" are debt instruments which, when issued, have a maturity of less than with less that 1 year / 18 months. They are normally issued at a discount to redemption value and pay no coupon ie they are issued at the net present value of 100 in (say) 1 years time. Thus thy may be considered to be zero-coupon bonds (you may also model them as bonds with a long first coupon payment but that will f**k up your asset swap spreads). They are generally issud to manage "short term" monetary flows.

"Bonds" generally pay a coupon annually (dollar & euro bonds) or semi-annually (sterling & ex-commonwealth) and can have maturities out to 50 years.

Variations on a theme would, for example be FRN's (Floating Rate Notes) whose coupon gets reset every three months against the current 3 month libor/euribor (whatever) rate, inflation bonds whose where the coupon is inflation + a small amount, callable bonds, amortising bonds etc etc etc

There is no differencer at all "between money created by the government in the form of bills, and that produced by bank loan (of which government bonds are a form)" and indeed, Govvie bonds are not a form of bank loan (actually they are the exact reverse)

A bond/bill is simply an IOU. The coupon (interest paid) or discount price depends on the credit rating of the issuer (Government or Corporate) vis a vis the risk free rate at maturity of the redemption currency.

Any further questions please don't hesitate etc.

I understood fela fan was using 'bill' to mean as Thomas Edison was in my earlier quote, to mean cash, which is not the same as a bond at all; it's interest-free. As in 'dollar bill'. Hope this clears up any confusion.

I think it's quite fair to describe money created by government bonds as being that of bank loan. We need not concern ourselves with details of maturity etc. It's true, if you or I buy a government bond, that doesn't create money. The money is created when the central bank (Federal Reserve, Bank of England) or maybe another bank buys the bonds. It does this with money it creates out of nothing. So money is borrowed into existence by means of the bond.

Any questions etc etc.

 

[slaar]

One thing I'm having trouble with regarding this whole usury thing and the 'debt based economy' is why? I can guess what the answer will be (to keep The Rich rich and The Poor poor) but why does no one speak out about this publicly?

Why has a government never tried to issue money for free?

What do you mean 'for free'? People aren't charged for holding money.

 

[Bob_the_lost]

No, the issue is treated with contempt because people have internalized capitalist assumptions to the degree that they look 'natural,' and so they perceive any challenge to those assumptions as insanity or conspiraloonery. My choice of terminology is instructive not disruptive: I use the language that was used of capitalism for thousands of years, because it is important to understand that it was universally understood as the work of the devil. If many people today are so naively literalistic that their understanding is stymied by the belief that Satan 'does not exist,' that is not my problem.

It causes disruption. That's not a maybe, it's a fact. Get used to it.

 

[Jazzz]

Just to clear something up - sorry if I'm a bit slow.

The Bank of England (and other banks as well?) creates the money in circulation, but it only lends that money at its base rate. This is the only way money gets itself into circulation.

If the above is true, then where do the BoE's profits go? As it must make huge profits, surely.

Sorry, still being thick.

Is lending money at interest the only way money comes into existence?

Also, how does one register oneself as a bank and start creating some money to lend out? I'm bored of working for a living.

There's three ways that I know of that money comes into existence: they are

1) Created by central bank (by purchase of government securities)

2) Created by other banks (fractional reserve lending)

3) Printing of cash

of the three the last is interest-free.

The Bank of England was nationalised in 1946 - for 272 years it was a private corporation! The Federal Reserve is still private. It's owned by a consortium of private banks.

I think to indulge in fractional reserve lending, you will need an account at the Bank of England

 

[Fez909]

What do you mean 'for free'? People aren't charged for holding money.

What I mean: assuming the situation described in this thread is true, and nobody has yet said otherwise, 'free' is without the interest charged on the issue of the bond.