Having an ugly sister isn’t great. Having two is awful. Having them both visit at the same time is a disaster. That’s where we are. Inflation and her ugly mirror-twin, deflation, have both arrived.
A lot of people argue about whether we will have Inflation, hyperinflation or deflation. In Currency Wars and in Inflation/Deflation, back in august of last year, I argued that we already had and would continue to have both. I argued that we have two different dynamics at work, one based on and in the sovereign currencies, the other on and in debt backed paper. It seems to me that we have had inflation in those things which are bought with and depend on cash, but deflation in those ‘assets’ held in and traded in debt, such as mortgages and debt backed bonds.
Even if you were to allow that we do have different parts of the economy based on different kinds of assets, valued and traded in different kinds of ‘money’, you might still expect that eventually the two opposite forces would either cancel each other out or one would triumph over the other.
But think of two vortices spinning side by side. The way they can co-exist and lie side by side, is if they flow in opposite directions, one clockwise, one counter. Exactly as cogs in a machine spin against each other in opposite directions. Exactly as real vortices do spin off on either side of a flow and do co-exist by spinning in opposite directions.
And where vortices do spin side by side, they actually re-enforce each other. This is what I think is happening now in the global economy and within economies as well. I believe, though seemingly opposed to each other, inflation and deflation are coexisting and amplifying each other. Deflation in one part of the economic system is now feeding and amplifying inflation in the other and that inflation is in turn feeding back to fuel further deflation. We have, I now think, a positive, amplifying feedback between the two. And that strikes me as dangerous and unstable.
I may think this, the question is can I make it stand up for you?
Debt backed currency
First can I convince you of the idea of a debt backed currency? I have written about this many times but it won’t hurt to summarize. All money is a promissory note. The note in your wallet says somewhere on it, “I promise to pay the bearer.” What makes money ‘work’ is that it is a promise that is universally accepted, so that no one worries they are going to be stuck with a piece of paper that someone else won’t accept as payment. Now a mortgage or any other debt agreement, also says on it “I promise to pay.” And that promise is the basis of all the securities and paper which are in turn, based on the underlying mortgage or debt agreement. Securitization turned these agreements in to a currency by slicing, dicing and standardizing all the mortgages and debt agreements into promissory notes which people could buy, sell and exchange. They could be transferred between people as payment. In all these respects debt backed paper became a currency which the banks controlled and printed. BUT, because the banks controlled it they could also debase it. And so they did. They gradually replaced the truly gold AAA rated mortgages with rubbish, tin mortgages but wrapped them in a think veneer of gold foil called insurance. On the outside they looked AAA gold but inside they were sub-prime tin.
Such fraud makes you rich in the short term and allows an ailing empire to totter on past the time when it was solvent but in the end, as every greedy idiot in history can attest, it always crashes in on itself. And so it did in 07-08. When it did, we got massive deflation. Paper once accepted as worth what was printed on it, was suddenly called into question and no longer accepted at face value. The bank’s currency failed, what it was based on devalued and huge, titanic amounts of wealth were destroyed. It simply evaporated. The bubble of debt backed and debt based wealth defaulted and so did the circulation of that currency.
What made this bust different from previous ones was that normally the people holding the worthless and devaluing paper are you and me. This time the banks found they were holding more of it than we were. So if it had been allowed to be written off it would have been them more than us who would have suffered impoverishment. And that would not do at all.
Inflation and Deflation
So now for the sake of clarity let’s define inflation and deflation. Inflation is when more and more money chases the same amount of stuff, which tends to drive prices up. Deflation is when less and less money chases the stuff and so prices tend to fall. To become a problem both trends need a mechanism to amplify the trend.
In inflation, the classic mechanism for increasing money in the system, is wage increases. Prices go up. To compensate people agitate for higher wages. Higher wages puts more money into the system to chase the same goods and the price responds by going up again. You can describe the result as goods becoming more expensive or money becoming worth less. It amounts to the same predicament for buyers and sellers alike.
The classic mechanism for deflation, taking money out of the system, is for people to earn less and then buy less, which in turn classically comes from unemployment or the fear of it. This drives prices down. As prices go down, manufacturers find they are making less, and lay people off. Unemployment and the fear of it goes up and people are less able or inclined to spend. Prices fall as a result.
I am not saying this is how inflation and deflation always work. I offer these just as simple starting places.
Clearly inflation and deflation are diametrically opposed. One is driven by more money, the other by less. But, I think they have become mutually self re-enforcing because of the way finance and our economies have evolved. So now let’s go back and look at how we got here.
How we got here.
In the run up to our present mess we had a vast and sustained increase in money, credit, debt and asset value/wealth. In short we had inflation. Now you might object that you didn’t see prices in the shops going up, so what am I talking about? But the vector of inflation doesn’t have to be consumer goods. In the last few decades inflation has been in house prices. The huge increase of house prices above any increase in your money’s buying power caused and carried huge inflation. To buy a house took much, much more of your money and labour. So property was the vector, the carrier, of inflation, But what was driving it?
Inflation is classically seen as driven by wage increases. They are what put money in to the system, driving the inflation in prices. But it’s not that simple. Inflation is a creature of ‘the good times’. And the good times are not driven solely, or even primarily, by wage increases, If mere wage increases were really all that powered inflation and the ‘good’ times that precede every bust, then we would all be safe. The ups and downs would all be minor and correcting the down-swing would be simple. But the ups are NOT fueled by wage increases alone. They are mostly fueled by debt/credit increases, which pile on top of and hugely amplify wage increases. People don’t generally spend the money they have. The banks get in on the act and say, ‘but you can have more’. And so people spend money they don’t have, by borrowing it. What inflates the good times is not earnings but debt. And the great thing about debt is that it can go up much faster than earnings. Earnings are in there somewhere, near the bottom, but earnings are always dwarfed by the debts on top of them. And this is where it gets complicated, divisive and hugely more painful.
The banks fuel ‘good times’ by lending. Not a bad idea. It’s how we buy houses. But it must be policed because avarice ans stupidity are always ready to run riot if allowed. Not content with lending the banks, left to their own devices, will always super lend. Like supersize but corporate. They get obese on debts and so do we. The banks not only lend us money, they borrow it themselves, in order to lend us more. Just like us, they don’t spend/lend the money they have but they too spend/lend the money they don’t have. To lend more they borrow and lend that. Which is what Leverage is.
The is a difference between our borrowing and theirs, however. No matter how insane our borrowing becomes there is still sometimes a limit when a bank manager says ‘no’. The banks don’t have a bank manager around to say they can’t have any more. They are the bank managers and they are not sensible. They are greedy and reckless and in some cases profoundly morally retarded. In dire need of very special help.
So while, in the ‘good’ boom times, we borrow at multiples of 6 times earnings and now ruefully admit this was insane, the banks borrow at 30-80 times their earnings. Leverage is roughly the bank’s equivalent to our multiples of earnings. So you can see that the scale of our stupidity is dwarfed by theirs. And they are supposed to be the experts!
So how we got here is the banks had an orgy with each other, of epic proportions, of lending and borrowing, till none of them could see straight. The result of this unfortunate state of affairs was that when the bust came, when the bubble of confidence, that the night of debauchery was never going to end, burst, it was not just us who found we had loans we couldn’t pay. The banks found they had MASSIVE loans they could not pay.
So property was the carrier or vector of inflation, while debt is what drove it. In the end inflated wealth was held by us in our properties and by the banks largely in the form of debt – both ours and their own.
Then the property and debt bubble burst and the securitizing machine stopped and we had sudden, massive deflation.
What happened then?
The banks were in massive debt. None of them could afford to buy anything. There were no buyers and since the money to buy securities came largely from selling securities the entire market seize up. With no buyers, the value of the securities and more exotic financial products based on them, all collapsed. So it was not just a collapse in the price of houses. That happened obviously. But over and above that there was a collapse in the market for the securities, and the debt backed currency which the banks had created, and debased.
We had deflation at both the ‘ordinary’ level of you and me but also at the level of banks and what they buy and sell: loans, securities, debts and bonds. The markets for these dried up and prices went down. Or would have, but they weren’t allowed to. And this is where it all started to pull away from democratic control and fairness, to become a policy of vast subsidy for the super rich at the expense of everyone else.
Several things were done to prevent deflation from utterly eviscerating the banks and their rotten assets.
Mark to market was suspended. Which meant losses at the banks were not recognized and could therefore be denied and hidden. Of course the loans were bad and the assets were, and still are, rotten. Which meant that no matter what public denials and what false accounting, behind the facade the banks weren’t getting the cash flow coming in from their loans/assets. Which is where the bail outs came in. Without cash flow the banks would go under. The bail outs replaced their cash flow with ours. Our cash flowed to them so they could pay it onwards to those to whom they owed money. Net result, the banks stay in business, our money is gone. Their loans are satisfied on a day to day basis, ours grow till the point that we now have debt problems and difficulty raising funding. Which of course the banks insist we solve by cutting public spending on everything but them.
But being kept alive was only the first part of what the banks needed. They also needed and wanted to make profits. Partly to pay us back but mostly so they could draw huge bonuses and strut about as the lords they they feel themselves to be. For that they need more money. Hence QE2 and the on-going money pumping exercises of buying bonds and assets with newly printed cash.
All this borrowing and printing has flushed a few trillion into the global financial system. And in each country it has inflated the money supply. Leading many to warn of and expect rampant inflation. Which we have not yet had. Why? Because all the new money has been printed into a vortex of deflation. The central banks felt, correctly, that they would get away with all this printing because it was largely off-setting a storm of deflation.
And here, I think, we come to one of the first lies told about this crisis and can perhaps shine a little light upon the policies followed. From the beginning of this debacle our governments and central banks have talked about trying to ‘stimulate’ the economy and have said how they urged the banks to ‘lend to the real economy’. What used to rile me was the blatant stupidity of saying you wanted to stimulate the real economy but then pumping the bail out money in to the banks who were never going to lend cash to anyone and didn’t. Yet the ‘stimulus’ nearly all went through them. Why? And of course the clear answer is that it was a lie, a convenient, public pacifying lie to say the bail outs were stimulus. They were not. The fact that they were all passed to the banks makes it clear that the main intent was to provide cash flow to the banks and so keep them alive. The sop to the conscience of the liars is that they could say to themselves, that once the banks were saved, they would lend and thus stimulate the economy. Only they didn’t lend in to the real economy. At least not ours.
The bail outs were to keep the bank breathing. Full stop. The rest was lies.
So this doesn’t get so long thast people start losing the will to live and so I can go to bed I’ll break it here.
Part two to follow
great analysis.
Good post. I'd would have added the following.
The global banks are the sponsors of the system. It is the banks that have sold the monetary system to politicians and it is the politicians that impose the system upon society.
In the 20th century, there has never been a debate as to what monetary system each country should adopt. The politicians took it upon themselves to impose our current Debt Based Fiat Monetary System.
A DBFM system can only survive in an inflationary environment. This is not opinion. This is a mathematical truism.
Inflation, as you rightly point out, is the expansion of the monetary base and credit. But this expansion can indeed occur when wages are rising (i.e. during the 60s and 70s) or the same result can be achieved by manipulating interest rates lower. A 30 year chart of interest rates will unmistakably show a progression from the top left to the bottom right which would otherwise be impossible in a capitalist free market.
Thank you David, I look forward to part II
Hi David,
I wondered when this post was coming 🙂
Looking forward to part II very much.
So in a nutshell, governments are printing real money to replace the toxic assets of the banks. This does not show in inflation as the assets the cash is replacing are worthless. So the banks currency and wealth is inflating.
To pay for this our currency is deflating. Our economies are being hollowed out and our currency debased, leading to higher prices of essentials like fuel and food and our services cut beyond the bone.
All to feed the parsites why aren't we rioting in the streets?
Good article.. logical and convincing.
"All to feed the parsites why aren't we rioting in the streets?"
Absolutely!
@Adam
"governments are printing real money to replace the toxic assets of the banks"
That's right. I think it is worth emphasising that prior to Securitisation bank loan orgination was a private debt contract.
Up until Gordon Brown came along, banks had to clear up their own mess. Privatised profits and privatised losses. There wasn't much scope to pass on any toxic waste.
Securitisation creates the very conditions both for poor loan origination in the first place, and then the mechanism for transferring the crap to the taxpayer:
http://forensicstatistician.files.wordpress.com/2010/11/icb-submission-nov-2010.pdf
"The reliance on markets to be a reliable determiner of credit risk has been shown to be theoretically and empirically false. Instead, the turning over of banking functions to a seemingly competitive market …. has masked a more serious issue of the mis-selling of credit and gargantuan risk transfer to the public purse."
Inflation has risen quickly in Ireland, despite rising unemployment, deflation of house prices etc.
Is some of this due to the rise in commodity prices ? & is the same kind of speculation that drove up the prices of wheat happening in the oil market ?
I assume that the earthquake isn't going to help the Japan's shaky economy
Lovely stuff Golem.
Simultaneous inflation and deflation is a hard one for people to get their heads around. A clear explanation of how it can arise is very valuable.
I also look forward to part 2.
Thats nailed it golem,
I thought at the time 'we' should create a load of new banks, one for every town/city/ county/ region, take our money out of the others and the government matching local deposits, and watch the fun. I could barely believe the first thing they did was f-up lloyds, which was probably sound.
I nicked this from-
The market oracle
http://www.walayatstreet.com
Uk interest rate forecast part2
Bankster's Holding a Gun to the Heads of British Tax Payers
The bankster elite are holding the tax payers of Britain hostage under the threat of financial armageddon, the fraudulent banking sector converts the tax payer funded profits into hard cash that the bankster elite pockets as bonuses.
The BoE lends the banks at 0.5% that then go off to buy government bonds (yes the greedy fools also used BoE bailout cash to buy PIIGS debt just before they started to go bust) on leverage and then the BoE prints money to buy the bonds back from the banks at 3% thus generating an instant profit in the region of 55% RISK FREE. If that is not evidence of a Bankster Elite controlling the real levers of power i.e. the ability to print money than what is ? It also explains why the banks are not lending to businesses and individuals as why should they take on the risk of lending when they can make many times that risk free
Like you this guy blows me away, this is worth a listen too, if you eant to start a bank http://www.bbc.co.uk/programmes/p0044mmw
Golem
I think it's quite wrong to portray the actions of the BoE or Fed etc. as purely being in the banks interests. There are swathes of the population that would be hammered very hard by a serious rise in interest rates which would almost automatically lead to a serious drop in house prices. As you pointed out many times, the banks are bust. But a run on the banks would jeophardise fwebfbwe
If (or more likely when) the property and equity bubbles in europe burst then it won't be just the banks getting a very rude awakening. As guidoromero rightly pointed out, we are reaching the end of the long downwards trend in interest rates, the debt bubble can no longer grow. QE appears to be an experiment in blowing air in to a bubble that is growing more ragged by the minute.
I don't see much evidence of inflation to be honest. Yes the prices of many commodities are rising. That may be due to speculative behaviour, geopolitical events, or, most likely, the inevitable result of demand growing while supplies are dwindling. Golem,
I think it's quite wrong to portray the actions of the BoE or Fed etc. as purely being in the banks interests. There are swathes of the population that would be hammered very hard by a serious rise in interest rates which would almost automatically lead to a serious drop in house and equity prices. As you pointed out many, many times, the banks are bust. Another run on the banks would jeopardise the entire system, particularly in a place like the UK where banks compose such a large part of the stock market and therefore pension fund portfolios too. Once pension funds are on the ropes then life gets very hairy as they potentially end up having to sell assets in to a falling market to meet their obligations.
If (or more likely when) the property and equity bubbles in europe burst then it won't be just the banks getting a very rude awakening. As guidoromero rightly pointed out, we are reaching the end of the long downwards trend in interest rates, the debt bubble can no longer grow. QE appears to be an experiment in blowing air in to a bubble that is growing more ragged by the minute.
I don't see much evidence of inflation to be honest. Yes the prices of many commodities are rising. That may be due to speculative behaviour, geopolitical events, or, most likely, the inevitable result of demand growing while supplies are dwindling. It may to a small extent also reflect the dollars waning desirability as a reserve currency. But commodity prices are pretty far removed from the prices we pay on the high street. We are still very much within accepted norms.
The majority of the populace have chosen a life a carefree, consumerist fun. I lose track of the number of people here in Finland who love the euro because they no longer have to do the mental arithmetic involved in using a foreign currency.
People voted for this system. People walked away from anything that resembles responsibility or political involvement, so I think they can live with the consequences. Let the central banks throw money any direction they want. It's surely a last, desperate attempt at keeping the party going for all. My recommendation is to collect your coat from the cloakroom and then enjoy a final round of cocktails while standing next to a fire exit 🙂
Hope you have a great weekend with your family David, it sounds like you need a break.
ooops, no idea why the first three paragraphs ended up duplicated. Really lame to post from the same computer my wife uses for gmail…. Evening all.
Superb summary!
A very concise round-up. Great job. You have to keep on saying the same thing over and over agin, until people get it.
@ David Lloyd
"The majority of the populace have chosen a life a carefree, consumerist fun."
"People voted for this system. People walked away from anything that resembles responsibility or political involvement, so I think they can live with the consequences."
It's very easy at times to slip into this mindset when you begin to despair about a situation like we are in at present and how the general population seem to be ambivalent about all that is happening around them. I think that, living under the utopian guff of the global, self-regulating, free market, people inevitably feel powerless and impotent; it's not that they do not want change, its just that feel it is impossible to achieve, and thus become cynical and politically lethargic.
It is important however to stay positive; the three impending massive hits of (a) financial armageddon, (b) peak oil and (c) climate change will inevitably show this system up for what it really is, a deeply flawed utopian dream. Hopefully we can snap out of our sleepwalk into a desperate future in time.
High quality Bloggs like DM's are a very important means of spreading the word, and I feel a sea change, especially on the financial aspect, is gradually feeding into the wider society
As said before, the bloke in the street asks, what happened to all the money?, to which the answer is, it never existed in the first place ans what we are doing now is inventing new debt that Central banks and Govts hope to become real money to cover the money that never existed in the first place.
But the problem I have with these types of analysis is the scientific approach to economics and finance does not work. economics is part math, part psychology, part myth and fiat money is a reflection of that.
We are in the same boat as France was at the end of WW2 when de gaulle told the French people a noble lie about their war record in order to give the French People a future and not turn in on themselves.
Now its fine and Dandy talking about Property ponzi schemes that bankers came up with, but what about the ponzis that the politicos come up with on a much bigger scale? that off unfunded public sector pensions?
Afterall they are doing the same thing as the bankers do, creating debt and obligations that they hope will turn into real cash in the future.
No wonder the pols where in on the deal, they needed the banks to create the money…….no mention of this in INSIDE JOB.
fiat money is a world of myth, what is needed is some sort of dual currency system with property/land and energy traded internationally and nationally in hard money and the soft political fiat money for everything else.
It depresses me when folks blame the consumer who lives in a city with houses, shops, advertising and not much else, your average Joe who's minds work with patterns and trying to be a better norm. Evolution is screaming at them not to break the mold.
If you woke up to your house on fire would you try to wake up the others in the house or would you run outside and then say "Won't somebody wake them up?"
G's blog is only good to people who google, Who are the bondholders? Or Zombie Bank Death Squad.
G, you should try dropping in tags like Jordan's outrage at regulatory scam or Justin Beiber wants full reserve banking with gvernment issued debt free money.
Richard hit the nail on the head when he said he'd go campianing for G if he didn't live in Norway. you still can Richard, we can all campaign for G and he doesn't have to run for office either.
It's called doing G's work, not the big G if your into that sorta hype in the sky but the little G stuck on the Earth thanks to gravity.
Or just grow a pair and tell them where to shove it in 13 days 22 hours and 57 minutes.
Fantastic summary of what has happened cannot wait for the next instalment keep up the good work!
Big Banks
Big Government
Big Corporations
Big Media.
There is still an awful long way to go before people get off their backsides and deal with this.
The entire pensions sector will have to be wiped out (which it will) before we wake up.
It won't be taxes, if won't be fuel costs, it won't be house prices, it won't be wage-freezes, it won't be unemployment, it won't be devalued savings, inflation or currency collapse.
All of these can be sweetened away with platitudes and massaged with distractions.
Fear of poverty in old age -everyone was promised comfort and bags of cash in retirement- is maybe the only thing the bulk of us have in common. Take away that 'birth-rgiht', and finally the sparks will fly. Then the haves and the have-nots might meet in battle.
Possibly a crazy idea, but couldn't this be used as the basis of a civil disobediance campaign ? http://www.yourstrawman.com/l
Sorry it's not a proper link.
Excellent piece Golem. I just want to take up a couple of points. First, I don’t believe that bankers are any greedier as people than other sections of society. Their institutions have simply evolved very quickly in the last thirty years under a new strain of DNA called “market fundamentalism”: the belief that markets are always right and where they are unbalanced, they will self correct. Thus any government interference (regulation) in the market is always wrong.
This current situation is evidence of the massive failure of the Thatcherite/Reaganite experiment. The deregulation of banks sped up with the fall of the Soviet Bloc in 1989: Glass-Steagal repealed 1999; the decision in 2004 by the US SEC to allow banks to increase their leverage ratios from 10:1 to 30:1 are two examples.
Banks like any other business exist to make a profit. But you are right; banks have everyone over the barrel. Either we bail them out or they drag us all down with them. What we need to focus on is how to change the Too Big To Fail reality.
This is an informative and active comment thread.
i also think, as John above says, that ultimately it is a political matter. We can't expect banks to do anything that is not about profit. They are simply a 'machine', with human characteristics perhaps, but essentially detached from anything else.
We also forget that the despised bankers are largely just the most connected up 'technologists' and technique developers. they ARE the cutting edge of something.
The bankers are people who are quite smart. They operate at the very edge of legality. Their smartness is all to do with their ability to be as close to that margin as possible, using the technology that is available.
In essence, we have a philosophical problem.
John is saying-"change the borders of legality" but I think we also need to understand that technology affects how we see such problems. We are now operating in a communicating, part-globalised world, whether we like it or not and whatever happens, we probably do not have the freedom to simply shift these operating borders without considering how it impacts on this larger community.
I had a fleeting thought this morning that the Japanese catastrophe is going to be very important in shaping how we think and respond to these issues.
Their technological solutions have been limited in their ability to protect them. indeed the situation with the nuclear power plants is very significant. Golem has written about the precarious Japanese economy and I think it will be very difficult for them to maintain their technologically aggressive/high investment stance. it could really have devastating economic impact throughout the world.
i suspect, this event is going to be quite pivotal in our uncomfortably, interdependent, de-acculturated, globalised world.
Sounds like Anonymous might be planning to leak some BOA data 5am tomorrow.
In the meantime, I thought the video they link to was interesting on several counts.
It is basically aimed at the general US public, trying to get them to understand that they are being ripped off by the banking system.
http://www.youtube.com/watch?feature=player_embedded&v=ZPWH5TlbloU
Interesting in that it is quite slick and highly-produced – I wonder who or what funded it (hmmm). Secondly, it isn't too far off the mark, with only a bit of conspiracy theory. And might be quite effectively stirring, what with all the revolutionary fervour we are seeing worldwide at the moment.
To me the interest is not so much the content, so much as the fact that there are other disparate groups pushing the same message as David, trying to get people to see what is going on.
@john
"Banks like any other business exist to make a profit. But you are right; banks have everyone over the barrel. Either we bail them out or they drag us all down with them. What we need to focus on is how to change the Too Big To Fail reality."
Sorry John – can't agree… they are not (an were not) "too big to fail". If Darling and Brown had shown some cajones they could have overseen their controlled failure – with new banks (without the toxic assets) opening the next week – all depositors money intact (not bond holders though) and we would all be in a a better place (see Iceland for reference as to how it is done).
@ John, MacPuddock
"Firstly, I don’t believe that bankers are any greedier as people than other sections of society.
"Banks like any other business exist to make a profit."
At the risk of sounding utterly naive, I take issue with this somewhat fundamentalist precept of contemporary economic received wisdom.
Firstly, are banks like any other business?
Economists capitalist cheerleaders would by turns have us believe that, yes, banks are just like any other business (the same way they regard energy, potable water, food, breathable air, etc. as just another commodity) and at crunch times, no, we are told banks are very special businesses without which the sky would fall down and civilization as we know it would crumble. They can't even decide if banks belong to the industrial sector or to the services sector – the so called "banking industry" or "financial services sector". The confusion is not without basis because some would have us believe the banks are the facilitators while others go so far as to suggest they are the very creators of wealth generation, although most here would use David's phrasing, "Debt generation".
And whom exactly do they primarily serve, other than themselves – as is becoming increasingly evident. (Note: Warren Buffett credited them as a manufacturing industry, their product being financial weapons of mass destruction.)
As effective controllers of the money which EVERY individual, business and nation must use to function in society, they fulfill a unique role of great significance within the economic model and constitute a very special business indeed, – unlike any other.
Mervyn King touches upon this in his recent Telegraph interview.
"The Governor makes a point of visiting manufacturing and service industries all over the country. Such firms pay far lower rewards than financial services but have “an incredibly successful record. They care deeply about their workforce, about their customers and, above all, are proud of their products”. With the banks, it’s different: “There isn’t that sense of longer-term relationships [hence the demise of the local bank manager]. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.”"
Which brings me to the second part of my challenge, are there no businesses whose raison d'etre is to make a profit?
Is Golem in the business of making documentaries and writing purely to make profit? Is a engineer, a doctor, a farmer, a lawyer, a teacher, etc. in business purely to make profit or might they want to contribute to society in a beneficial way? I do believe bankers are greedier than other sectors of society. I'm not saying there are not others whose primary motivating factor is to make profit, but there are many whose motivation is to contribute to society in a meaningful way for which they hope to be comensurately recompensed.
Finally, with reference to some ideas from Ivan Illich's "Tools for conviviality" and Joseph Tainter's "Complexity, problem solving & sustainable societies", it seems that banks are yet another instance of a "tool" which no longer effectively serves its user and with ever increasing complexity has offered diminishing real-term benefits to society, to the extent that it is now rendering society subservient to its needs and in the process threatening societal stability.
@ John, MacPuddock
"Banks like any other business exist to make a profit."
At the risk of sounding utterly naive, I take issue with this somewhat fundamentalist precept of contemporary economic received wisdom.
Firstly, are banks like any other business?
Economists capitalist cheerleaders would by turns have us believe that, yes, banks are just like any other business (the same way they regard energy, potable water, food, breathable air, etc. as just another commodity) and at crunch times, no, we are told banks are very special businesses without which the sky would fall down and civilization as we know it would crumble. They can't even decide if banks belong to the industrial sector or to the services sector – the so called "banking industry" or "financial services sector". The confusion is not without basis because some would have us believe the banks are the facilitators while others go so far as to suggest they are the very creators of wealth generation, although most here would use David's phrasing, "Debt generation". And whom exactly do they primarily serve (other themselves, as is becoming increasingly evident)? (Note: Warren Buffett credited them as a manufacturing industry, their procuct being financial weapons of mass destruction.) As effective controllers of the money which EVERY individual, business and nation must use to function in society, they fulfill a unique role of great significance within the economic model and constitute a very special business indeed, – unlike any other.
Mervyn King touches upon this in his recent Telegraph interview.
"The Governor makes a point of visiting manufacturing and service industries all over the country. Such firms pay far lower rewards than financial services but have “an incredibly successful record. They care deeply about their workforce, about their customers and, above all, are proud of their products”. With the banks, it’s different: “There isn’t that sense of longer-term relationships [hence the demise of the local bank manager]. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.”"
Earlier I mentioned the big G. I apologise to any God fans at my flippant remark. The misseses father is the caretaker at the local church and my bezzy mates are hindu, sikh, muslim, buddhist and I was brought up buddhist, although I'm now following the teachings of Bill hicks. In all these religons including the later you're going straight to the uncool place for usary if you're a banker. A lecturer once told me punish the behaviour and not the child so I think most can be forgiven if they change their behaviour. Some can't change though and are doomed. DOOMED
The thing we have to grasp is that presidents get shot for messing with the greedys plans. I can't remember the last time somebody decent shot a banker to stop the rot. They are more than happy to oblige when the tables are turned. Addicts are dangerous. Polititions have never ever won a drug war. If anything they promote them.
On a lighter note. Jamie, you have knowledge of riot etiquitte. Is it possible to hang around in front of the march and wait till it gets to you and join in at the front? Or walk in front of the march? Or will they make you go to the back of the que? I fancy standing still and letting everybody walk past me. Is that possible or do they whinge?
David,
I do like your analagoy of the two vortices. I'd say that this is a manifestation of Gresham's Law which states that bad money drives out the good money.
The good money is proper state-backed sovereign currency; that which we use for normal transactions.
The bad money is the privately created bank credit. This was born into existence on false expectations of relentless growth.
Rather than debase the bank money (to correct for the overly optimistic home valuations for instance) which would be disaster for the banks, it has been allowed to contaminate the good money. Hence we see inflation in the real economy affecting the cost of living.
The Austrian prescription would be to release the pressure from the Bank money by letting it blow the reactor building roof off.
Instead we are trying to contain it within the core, with no plausible means of cooling down the excess toxic debt.
How long before the reactor containment vessel (i.e. the real economy) blows?
Haweye,
Exactly!
Check out page 9 of this pdf for an image of two spinning vortices of opposite charge
http://www.scientificexploration.org/journal/jse_09_4_phillips.pdf
john,
Weird paper. I am always intrigued by papers like this one. I always wonder what grain of truth might have spurred people to their honestly held beliefs. Lovely diagrams of the vortices. Thanks.
Hi Golem When I first saw this in a book years ago I thought yea-right but when I saw that a proper scientist had looked into it and found something, worth putting his career/reputation on the line for, I gave it a look. In mainsteam science the maths says that when a particle approaches the speed of light it gets heavier until at the speed of light its infinitly heavy. photons for instance. I just cant see it. But what if it was a bubble in a liquid that radiated [3D] as a wave after it imploded, –
http://www.subtleenergies.com/ormus/oc/chaptr01.htm
To any power of sight which we can bring to bear upon it this koilon appears homogeneous, though it is not probable that it is so in reality. It answers to scientific demands in so far that it is out of all proportion denser than any substance known to us–
quite infinitely denser–belonging to another order and type of density altogether. For the very kernel and nexus of the whole conception is that what we call matter is not koilon, but the absence of koilon. So that to comprehend the real conditions we must modify our ideas of matter and space-modify them almost to the extent of reversing our terminology. Emptiness has become solidity and solidity emptiness.
This is some rabbit hole
http://www.smphillips.8m.com/
I really enjoyed the wave program still call to mind those two levels of independent waves in the tank with bafflement.