Global financial system implosion begins

[laptop]

For what it's worth, there is zero chance of me watching anything like that without a compelling case for doing so being made using the written word.

One of the things that the written word is for is speed.

Another is that if someone can't summarise an oral argument, they haven't understood it, so their recommendation is worthless.

Which leads to a third: people are easily convinced by speech they haven't understood, whereas when we can see the argument all at once the holes show.

I would imagine that at least some other people feel the same way.

See above.

 

[Dr Jon]

It's not an unreasonable request. IMO, if you can't precis your argument in a few simple sentences then you don't really understand it or believe in it.

OK.

Fiat currency is like issuing beer tokens, regardless of whether the beer - or the barley, water & hops to brew it - (and integrity of the ecosystem that allows their production) exists or not.

 

[littlebabyjesus]

OK.

Fiat currency is like issuing beer tokens, regardless of whether the beer - or the barley, water & hops to brew it - (and integrity of the ecosystem that allows their production) exists or not.

Fiat money is issued in the form of a loan, and the loan is possible because two actors have agreed the price of something - someone is selling for that price, another wants to buy at that price, so the money is issued to facilitate the transaction, the bank's balance sheet representing both the credit and debit side. Without that real world transaction of real things (whatever those real things might be), the money cannot be issued, there is no need for it to be issued.

 

[Dr Jon]

Fiat money is issued in the form of a loan, and the loan is possible because two actors have agreed the price of something - someone is selling for that price, another wants to buy at that price, so the money is issued to facilitate the transaction, the bank's balance sheet representing both the credit and debit side. Without that real world transaction of real things (whatever those real things might be), the money cannot be issued, there is no need for it to be issued.

yes dear

 

[littlebabyjesus]

yes dear

You really have no argument, do you? Tell me where I'm wrong. I've actually taken some trouble, done some work, to try to get to grips with this. Your response shows me that you have not.

 

[Dr Jon]

It's a funny money trick, designed to facilitate the transfer of wealth from the poor people to the obscenely rich.

... and the bailout trillions came from where, exactly?

Merely betting slips, created out of nothing, to keep the punters happy from rioting and the tables open for another session.

 

[8ball]

yes dear

Would it be uncharitable to assume you're plugging a film by some of those people who don't understand how fractional reserve banking works?

 

[Dr Jon]

Would it be uncharitable to assume you're plugging a film by some of those people who don't understand how fractional reserve banking works?

But it doesn't work. That's the point.

 

[8ball]

Actually on watching some of it, you seem to be underselling it a bit. They've cut people together in a way that tries to tell a story but there are some insights in there - largely about corruption. It doesn't dwell too much on misapphehensions of financial systems, which is something. It does seem to have a bit of a Tea Party flavour, though, and like all of this stuff, the real elephant in the room is never mentioned*.

* - That may be unfair - I've not watched all of it yet.

 

[8ball]

Ok, I've watched enough of it now to see that ayatollah has completely hit the nail on the head. There definitely are good bits and interesting stuff in there, as ayatollah says, and it's a reasonably entertaining lightweight romp touching on lots of different things, but the fundamental weaknesses have been pointed out perfectly already.

In short: wot he/she said (#4307).

 

[littlebabyjesus]

It's a funny money trick, designed to facilitate the transfer of wealth from the poor people to the obscenely rich.

... and the bailout trillions came from where, exactly?

Merely betting slips, created out of nothing, to keep the punters happy from rioting and the tables open for another session.

Which trillions? The QE bit did indeed come out of a money trick. As in the Bank of England wrote out an iou to itself. It holds both sides to the balance sheet and makes a rather vague promise to right that sheet at some point in the future. There were reasons for that, though. Pay back debt more quickly than debt is taken out and you cause deflation. That is what was happening after the collapse in the confidence of the private sector to borrow in the wake of the credit crunch. And QE was a response to that.

But it is because the BofE holds both sides to the balance sheet and the money wasn't created in response to demand for it that QE has had such a sluggish effect on the real economy. The demand for that new money wasn't there and creating the money doesn't create the demand. I think QE was misguided, but I'm guessing that my reasons for thinking it was misguided are very different from yours.


Thing is, money is a 'trick'. What else could it be, and how is that a problem?

 

[8ball]

I think QE was misguided, but I'm guessing that my reasons for thinking it was misguided are very different from yours.

Where do you stand on the idea that the net effect of QE, given time to filter through, is that of the confiscation of wealth?

 

[littlebabyjesus]

Where do you stand on the idea that the net effect of QE, given time to filter through, is that of the confiscation of wealth?

If the BofE destroys the money it has created by 'paying back' its loan to itself, its net effect on the money supply will have been neutral. That's a big if. Japan shows no sign of paying back its QE and I don't expect Britain to any time soon if ever. I rather suspect that it will remain in perpetuity for the medium term, and in the absence of runaway inflation, there's no immediate need to do it.

As for its effect on the real world, well, it has been in the UK two things: first and foremost, it has given banks money to buy more govt bonds, thus reducing the price govt has to pay for its debt (the main reason it was done, btw, imo). Its other effect has been to give the banks money to loan to those it considers very safe bets, ie the already rich. Hence the way that the housing market has become stretched, with the value of the lower end going down and the upper end going up. So in that sense, it has served to increase inequality.

QE is not totally irrational, though. Where people are paying off loans faster than people are taking them out, that can cause an economy to freeze up. Short-term, it may have achieved its aim of avoiding an even deeper recession - because this is precisely what wasn't done in the aftermath of the 1929 crash, when the money supply decreased sharply.

 

[Dr Jon]

Which trillions?

.. like these:
The Federal Reserve's 'breathtaking' $7.7 trillion bank bailout

 

[8ball]

So do you reckon the money supply is still less than it was in 2007/8, given the QE taps are still on?

 

[yield]

The LIBOR-rigging investigation is just getting up steam, I think.

This forex-rigging thing has barely got the firelighters smouldering...

Yes too soon to tell.

Where do you stand on the idea that the net effect of QE, given time to filter through, is that of the confiscation of wealth?

I agree with lbj's post.

In the short term it is a confiscation of wealth from savers to help borrowers.

QE drove down interest rates to the point where they're below inflation.

 

[littlebabyjesus]

So do you reckon the money supply is still less than it was in 2007/8, given the QE taps are still on?

I looked into this a while ago and posted about it. But without looking up the links again, there is still a worry, yes. Hence BofE interest rates remaining close to zero.

My explanation for this concerns the rate of return on investments falling. This is a crisis of the structure of capitalism, and Japan is the example that we are probably following, 20 years after them. They cannot escape the trap. And I don't think we will either. A new model of investment is required, one that doesn't require a certain rate of return.

We may be seeing the slow death of capitalism as we know it. imo.

 

[Dr Jon]

... the real elephant in the room is never mentioned

Which one? Resource depletion, population, ecosystem collapse or climate change?

*looks at watch*

*goes to pub*

 

[8ball]

This is a crisis of the structure of capitalism, and Japan is the example that we are probably following, 20 years after them.

To what degree do you reckon this is down to the decline of the productive economy and its replacement with a variety of Ponzi schemes (I'm chiefly thinking of the housing "market" and the lunatic fringes of the financial sector)?

 

[8ball]

Which one? Resource depletion, population, ecosystem collapse or climate change?

The one you still haven't mentioned, and won't.

 

[littlebabyjesus]

To what degree do you reckon this is down to the decline of the productive economy and its replacement with a variety of Ponzi schemes (I'm chiefly thinking of the housing "market" and the lunatic fringes of the financial sector)?

Good question. The Ponzi schemes - marxists would call it the creation of fictitious capital, capital whose value depends on expectations of future production - are there. They collapse as and when confidence in them collapses. But the productive economy is always the thing upon which the ponzi schemes are built.

And it does appear that investment in productive things is increasingly not seen as providing appropriate rates of return. Short-term, whatever they may say politically, this will see governments funding big infrastructure schemes to boost the economy. Whatever Osborne says he will do, he will do this. And short term at least, he will get the funding from a private sector that is scared of investing in anything else.

The other side of this is the remorseless quest from capital for new things to gain a rate of return from. Privatisation (commodification) of education, health, etc, provide these things. But my guess is that these are desperate measures that won't make too much difference. Unless they can privatise the air, they will run out of investment opportunities soon enough.

 

[8ball]

Interesting post <strokes beard sagely>

I'm going to stick my neck out and say I really don't know how things are going to pan out. It seems that the only ideas those in power have, now that a large source of ficititious capital has failed, is to look to other fictitious sources. I'm not convinced the big infrastructure schemes are always a bad idea because we definitely need to update some of the kit. The question is what happens after that. And at what point the cost of resistance starts to factor heavily against the profits garnered from the theft of the Commons.

 

[littlebabyjesus]

They're looking desperately for new sources. Hence the NHS reforms.

As to what happens after that, yes, that is the right question. Capitalism requires profits. If those profits are taken from an economy in zero-growth, that means that most people's real wages are going down. We're already seeing that. And given that capitalism cannot rely on an ever-growing population to supply its returns, something will have to give.

I don't know what the end result will be of the majority getting poorer while the minority continues to get richer. We've already had that situation since before the credit crunch, for at least the last 10 years. But it isn't a comfortable position for the minority - far better for them if the majority gets very slowly richer, too.

 

[8ball]

They're looking desperately for new sources. Hence the NHS reforms.

Well, exactly. The way we currently draw up balance sheets mean that once that is done people become poorer by any reasonable measure of the term, yet what is currently ticked off as expenditure magically becomes 'productivity'. It is a kind of bullshit very similar to the red herring targeted in that film. It is a shame* how so much potentially productive energy is sidelines into such distractions, and puts me in mind of the antisemitic silliness I saw at the Occupy camp in my area, before it fell apart.

The idea of 'real capitalism' in that film is a sad chimera too. It is hard to discuss such things without finding ourselves arguing at cross-purposes - the idea of 'capitalism' in that film is as pretty and doomed as the caricature of 'socialism' that you can read about in the Daily Mail.

* - massive understatement

 

[yield]

But it isn't a comfortable position for the minority - far better for them if the majority gets very slowly richer, too.

I wonder how much of the minority really think that? The one percent. Or maybe the point one percent?

The transient super rich, oligarchs, oil sheiks, hedge fund managers and that couldn't care less.

 

[littlebabyjesus]

I wonder how much of the minority really think that? The one percent. Or maybe the point one percent?

The transient super rich, oligarchs, oil sheiks, hedge fund managers and that couldn't care less.

I don't know. It is objectively, provably true. You're probably right that most individuals don't worry. Maybe my aversion to violent revolution is misplaced, because riots work. An uprising by exploited Pakistani workers in Dubai would make a difference. That they don't do this shows the effectiveness of the means of terror held over them. And I don't for one second blame any exploited worker there for putting the well being of their family first.

 

[8ball]

I wonder how much of the minority really think that? The one percent. Or maybe the point one percent?

The transient super rich, oligarchs, oil sheiks, hedge fund managers and that couldn't care less.

Such estimations can obv only be a guess, but many of the richer people I have crossed paths with are very aware that if no one can afford to buy their companies' products, that the house of cards tumbles. They don't seem to have any better solutions than a lot of us, but I don't think they are completely unconcerned (sociopaths notwithstanding).

Concerns about inequality aren't such an odd thing to hear at business conferences. A lot of the 'rich' are people who have bought into the capitalist myths and profited from doing so, but they're not all completely stupid. The people at the top have further to fall.

 

[littlebabyjesus]

Such estimations can obv only be a guess, but many of the richer people I have crossed paths with are very aware that if no one can afford to buy their companies' products, that the house of cards tumbles. They don't seem to have any better solutions than a lot of us, but I don't think they are completely unconcerned (sociopaths notwithstanding).

Concerns about inequality aren't such an odd thing to hear at business conferences. A lot of the 'rich' are people who have bought into the capitalist myths and profited from doing so, but they're not all completely stupid. The people at the top have further to fall.

There is that as well, of course - who will but the products? The solution to that question has been to move production to a cheaper country, but said cheaper countries run out.

The UK has been outsourcing semi-skilled work to India, which is now outsourcing some of the less skilled stuff it gets from the UK to the Philippines, but there is nowhere for the Philippines to outsource to. And in the UK, the suppression of wages caused by the outsourcing to India has started to hit sales. The serpent will end up eating itself, and the worst thing is that because all the production was aimed at UK consumers, India and the Philippines are left with nothing when the UK pulls out. But the UK has stopped training people. It is left with a skills gap in its own country and a shrinking market for its goods. It has fucked itself from both ends, and everyone loses.

 

[8ball]

There is that as well, of course - who will but the products? The solution to that question has been to move production to a cheaper country, but said cheaper countries run out.

Agree totally. And the 'rich' are not ignorant to this either.

In fact, some of those who some of us might call the 'rich' or at least very comfortably off, are themselves seeing their jobs being outsourced (by which I mean junio 'director level' jobs. Any imbalance in any playing field is now being exploited for any possible fragment of advantage. What happens when the 'race to the bottom' actually gets there is likely to be very ugly.

 

[littlebabyjesus]

Agree totally. And the 'rich' are not ignorant to this either.

In fact, some of those who some of us might call the 'rich' or at least very comfortably off, are themselves seeing their jobs being outsourced (by which I mean junio 'director level' jobs. Any imbalance in any playing field is now being exploited for any possible fragment of advantage. What happens when the 'race to the bottom' actually gets there is likely to be very ugly.

The example I gave - UK-India-Philippines - is a real one. It is what is happening in publishing. I'm not poor by any stretch - income £30k - but my wage has been frozen for the last five years and is not going to go up any time soon. And publishers are enacting recruitment freezes. They are not training a new generation. Instead they are investing in India. But Indians do the job rather badly, and will soon be demanding higher wages. An Indian doing my job might get 5k maybe. But they won't do it as well as I do it, and more importantly, they are not the market for the books. The companies are not interested in creating an Indian book market. Their production is solely aimed at the place where they are a part of a wage-freeze/workforce reduction. So where will the buyers come from? The books are less good than they used to be and the market has less money than it used to have. They kill themselves.