There is much talk of a plan emerging for addressing the Eurozone’s current economic problems. The broad terms of the plan are that Greece may be permitted a partial default on its debts. But given the consequent impact this “haircut” would have on major banks in other European countries (such as France), plus the risk of default becoming the economic equivalent of herpes, we learn of the strategy for implementing a grand fiscal firewall (a modern day Maginot line as it were!). This takes the form of the European Financial Stability Facility (EFSF) being expanded to something like three trillion Euros.
Illustration by Steve Finney
Not much of the mainstream media has explained where this funding will come from, except for a perceptive interview on Radio 4 by Paul Mason this Sunday. The Eurozone plans to put forward something in the region of four or five hundred billion Euros, but leverage this up to the three trillion. It will achieve this by raising the money in the (private) Capital Markets by pledging various assets (presumably sovereign) as collateral against future tax revenues. In the words of Zerohedge “Europe has just boldly gone where even Goldman’s Abacus has not dared to go before courtesy of the ECB’s acceptance of a CDO squared Enron Special SPV”.
To anyone who has studied the wonders of modern finance, this shares some similarity to the Capital Asset Pricing Model (CAPM). The theory goes that the price of a company share (stockholding) reflects the summation of all future dividend payments (incorporating the dilution of dividends expected further in the future owing to money being devalued over time). Therefore the price of a share now, reflects all future income generating capacity of the underlying company. In a way, it states that you can have the full cash worth now which is equivalent to the amount it would take the company to earn in something like 10-15 years. So the mere act of selling the share realises this future value and you have the income that the real world hasn’t actually produced yet. All wrapped up with the almost zealous denial of uncertainty surrounding whether the future could turn out better or worse than expected. The theory says that the price now IS a complete and true reflection of the future.
Amazing! Finance has proclaimed itself capable of undertaking time-travel, alchemy and telepathy, all in one simple move.
But we know it isn’t really alchemy, telepathy or time travel. Instead, the future income of these sovereign states is about to be mortgaged beyond belief, rendering them perpetually (and undemocratically) in hock to the buccaneering money changers. This is in effect just another side door bailing out of the banks and their reckless lending. Not a true default as such (i.e. no debt destruction has occurred) but a further transfer of debts onto taxpayer shoulders. And this time a supra-national example of that poisonous strategy of “privatised profits and socialised losses”. But there is something even more sinister about this recent stab in the back to taxpayers. They are not just stealing the built up wealth, income and assets of the ordinary people of these countries (as in the privatisations and asset stripping of Greece), but they are cunningly filching the European citizens’ future too.
The ECB is probably being leaned on by Washington to do everything in its power to prevent debt destruction. Whenever any stresses occur in the system the Washington modus operandi is to fail to accept the losses and double down the bets. Ever since the financial crises of the 1980s onwards (e.g. Mexico, 1987 crash, S&L, LTCM etc.), the strategy has been to expand dollar liquidity & financial sector leverage. The cost for servicing this build-up of unsustainable debts is pushed outwards to the innocent citizens of periphery countries and onto the shoulders of future generations.
If the EU approves the plan to expand the EFSF then they are embarking on a gigantic Collateralised Debt Obligation, taking the yet-to-be earned income of European taxpayers and throwing it at the banks to prop up their traumatised balance sheets. Ultimately just lining the pockets of the wealthy bankers from this leveraged up booty.
In short, they are plundering from the future because it’s not around to protest against it.
Yet Mr Waylat,at MarketOracle,asserts in this morning’s tome,that The ECB/BoE et al will print and print and succeed.In this “post democratic”era,steps of making whole the unworthy is what is required and demanded by the “inner ring”,yet the mathematics says NO!I wonder which will succeed?I’m going long guillotines!
I think rope is a better investment, its more portable and is accessible to the low income market. Lamp posts could also be a growth area as many are likely to be damaged
I think you have the essence of it there Hawkeye.
I’m sure it’s transparent to most of us posting/reading here that the underlying philosophy is yet again policy making that is entirely by and for the banks and financial sector. Their only concern for the rest (majority) of society is to limit the amount of blood sucking to a level that +just+ keeps it alive and able to service them. And policy makers in the EU seem more than happy to throw any country into the emergency intensive care unit to determine where the boundary of that is.
This EU ‘solution’ is another major step on the road to what Michael Hudson calls ‘debt peonage’ for ordinary citizens. And further diminshing the role of governments’ responsibility toward citizens’ wellbeing to the point where representative democracy is meaningless. We’re very close to that now, especially Greece. If they do not default & exit the euro now, their coup d’etat by big finance, with the complicity of their corrupt leaders, will be complete.
Of course, this is the modus operandi of the IMF etc., on behalf of their global banking masters, over decades perpetrated on ‘third world’ countries’. Load up the debt, with complicity of corrupt or incompetent (or both) leaders, to unsustainable levels, then foreclose. The actual mechanisms of achieving this may differ, but the outcome & effect is the same.
With apologies to Hawkeye for being a little tangential to the topic (but not entirely), I came across some very good youtube presentations by Prof Richard Werner, co-author of positivemoney.org submission to the UK ICB.
From this year, a series of short, very accessible explanations of how money is created (& allocated) in the UK banking system. As he says, not at all how most people imagine or are led to believe by MSM. Well worth passing on, especially to people needing a simple introduction.
http://www.youtube.com/watch?v=zIkk7AfYymg&feature=related
http://www.youtube.com/watch?v=r7qOuY9ZJ8w&feature=related
http://www.youtube.com/watch?v=wDHSUgA29Ls&feature=related
http://www.youtube.com/watch?v=4uNGoyslFSc&NR=1
From July 2007, in his previous role as an investment analyst talking frankly about the fraud that is mainstream macro economics & global finance.
http://www.youtube.com/watch?v=qfX_rNOeTXw&feature=related
http://www.youtube.com/watch?v=qfX_rNOeTXw&feature=related
Well worth watching.
On a side note, the only apparent difference in basic principles between positivemoney.org & MMT with ‘functional finance’ is the former’s proposal for full reserve banking. MMT has a preference for separation of high street & ‘investment’ (casino) ‘banking’ but not on a full reserve basis. I haven’t quite got to the bottom of the technical arguments, but I understand it’s a relatively minor issue in comparison to the major areas of agreement & the transformation their key policies would make possible.
No apologies needed Mike
However, it might be an idea for there to be an ongoing forum or page on here for discussing this in more detail, as MMT and its relationship to other radical monetary reform ideas deserves a central resource base (currently scattered across numerous posts).
Maybe Golem can help by setting up a “Monetary Reform” page on here?
Incidentally, I might be seeing Richard Werner present later today at this NEF event:
http://www.neweconomics.org/events/2011/08/18/banking-seeking-a-new-paradigm
Also worth considering is coming along to Steve Keen’s book signing in London next Tuesday:
http://www.debtdeflation.com/blogs/2011/09/04/debunking-ii-launch-correction-university-college-london/
All the best,
Hawkeye
Steve, nice image, but I think it works much better without the baby.
Not just compositionally, but it’s a little over egged philosophically – and nutritionally: it looks way too well-fed!
Now to read the article…. : )
Yes, I suspect you’re right about the baby. I put this image together for myself, not imagining it would ever be seen by the likes of yourself. The baby is my Grandson, he’s actually 6 years old & as tough as they come.I put him on it because to me this whole thing is about his future. I want him to keep the option of being able to stay chubby. Glad you like it.
Senile Grandad alert, 3 yrs old when the photo was taken.
It’s all David Bowie’s fault: http://goo.gl/iUigM !
What we are seeing is the shoring up of a bankrupt ideology which has served the interests of those with most wealth and power in the market for four decades, eclipsing all the gains made by social democracy in terms of reducing inequality, increasing opportunity through the provision of universally affordable education and (in Europe at least) healthcare, and providing a minimal degree of social security to the poor and disabled. In one decade all those gains are being wiped out to the disadvantage of the vast majority – but the ideology remains intact.
Neoliberals like to have their cake and eat it – claiming the advances in the lives of those living under western capitalism are the result of market forces when, in fact, as Ha-Joon Chang has eloquently argued, most of those gains have come in spite of free markets – through the intervention of the state to provide education/healthcare/pensions to those who would otherwise be frozen out by the market – yet bringing benefits to capitalist society by providing a good stock of human capital with the income to maintain an internal mass market – creating a healthy symbiosis between the public and private sector which neoliberalism, with its fanatical devotion to ‘market mechanisms’ – largely a cover for the corporate takeover of the public sphere (http://goo.gl/Rqqlw) – is intent on destroying, at any cost.
What we are seeing is the end game of the neoliberal project, in which a few major corporations (very far removed from the idealised liberal economics of Adam Smith – who must be turning in his grave on a regular basis, so many times have his works been distorted and misrepresented by his ‘followers’) make a final grab for anything of value still surviving in the public sector (the NHS being a major prize in the UK, the eradication of welfare and pensions another).
This can only be achieved by perpetuating the fiction that ‘greed is good’ (Adam Smith’s invisible hand); markets are omniscient (the Efficient Market Hypothesis); government intervention is at best ineffectual (Ricardian Equivalence), and that ‘tax is theft’ and slashing rates on the wealthiest will ‘trickle down’ (the Laffer Curve).
Neoliberalism ticks all those boxes – almost as if it was invented as a rationalisation of the self-interest of the top 5%!
As a result, the current paradigm cannot be challenged (witness the temerity of the Labour Party to challenge such shibboleths of the market fundamentalist faith). To suggest that rising inequality might not be good for capitalism is to be cast into outer darkness, excommunicated by the mainstream media, and starved of funding.
Until that top 5% realise that this mutant form of capitalism needs to be saved from itself (i.e. those that own, control and write for the mainstream – aside from a few authorised ‘mavericks’ who sustain the pretence of pluralism – the ‘think-tanks/propaganda machines that dictate policy, and the corporate executives who rig the market) it’s difficult to see how we can be saved from a complete collapse of the debt-based money system.
“Listen, and understand. That terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever . . .”
Excellent analysis – I hadn’t read this post fully before I also namechecked Arnie in my post below!
It’s an apt comparison, and along with The Matrix, goes to show how life imitates art…
“The Eurozone plans to put forward something in the region of four or five hundred billion Euros, but leverage this up to the three trillion. It will achieve this by raising the money in the (private) Capital Markets by pledging various assets (presumably sovereign) as collateral against future tax revenues.”
Hawkeye, who are the ‘investors’ who will provide that funding through the Capital Markets?
I ask, because if it’s banks, then the debt is just on a merry-go-round…..
Or is it sovereign wealth funds, China, Qatar, UAE etc?
It would be very interesting to know *who* exactly has that spare 2.5 trillion Euros to ‘invest’, and who will then ‘own’ Europe after this debacle?
#MrShigemitsu
I would say that it would likely be the active investors that employ excessive leverage such as banks and hedge funds, rather than sovereign wealth funds. New credit will have to be created otherwise a whopping whole is going to appear in some other asset class if those investments are withdrawn!
Therefore only those who can actively generate the credit (from thin air) will be able to invest in this (or at least lend the money to a hedgie to invest in it).
Even Nouriel Roubini appears to be agreeing with Zerohedge that it is nothing less than a CDO Squared monster:
http://twitter.com/#!/Nouriel/status/118793674707574784
OK so let me get this right…the banks and hedge funds are going to create 2.5tn Euros, to invest in the EFSF, which will then be loaned to PIIGS, who will then use it to pay back….the banks and hedge funds!!!
Does this make ANY sense at all?
No. But it’s the only way to keep the current system running. The alternative would be a complete restructuring of the financial system, a recognition that using the private banking system to create credit with compound interest leads inexorably to Ponzi-style finance and is ultimately unsustainable, an admission that the only way to address the issue of debt created out of nothing, fuelling a property boom which serves to ‘collaterize’ more debt .. and repeat … is some kind of ordered debt write-off (‘Debt that cannot be repaid, won’t be repaid’).
But this acts against the short-term interests of those running the current system. Look at it from their point of view.
Only when those interests recognise the longer term imperative to save capitalism from itself will that change.
Thanks Charles Wheeler, just as I feared then.
So it would seem that no-one is going to do the right thing – like the Terminator, the bankers and their lackeys will never, ever stop and what’s horrific is that all this austerity is for nothing – the “markets” have apparently already written off the Euro (“it’s toast”) and are hovering, vulture-style to pick at the European carcass.
Everyone might as well default now and get it over with.
#MrShigemitsu
This article from Chris Martenson (posted on ZH) has a nice diagram of the EFSF nexus of links:
http://www.zerohedge.com/news/guest-post-economy-ropes-and-going-down
SWFs provide the initial capital (the 440bn) but the leveraging up occuring in the SPV suggests thats banks are the main investors. The diagram also highlights that the SPV is providing the money to the Banks to then lend to prop up the PIIGS (and / or cover the banks’ backsides if they default).
As the article says:
“As far as I can tell the complexity serves one main purpose and that is to baffle enough of the populace for long enough to allow a significant transfer of public wealth to occur in broad daylight into private pockets. In this regard Europe and the US seem to be identical.”
Thank you Hawkeye.
“but the leveraging up occuring in the SPV suggests thats banks are the main investors. The diagram also highlights that the SPV is providing the money to the Banks to then lend to prop up the PIIGS (and / or cover the banks’ backsides if they default).”
So, in other words, a debt merry-go round…?
Why not just write offl the debt now, before all this gets even crazier?
You gotta watch this. Time for the tumbrils I’d say…Protesters in Wall Street while the bankers toast them with champagne from a balcony. Could be iconic.
http://www.youtube.com/watch?v=nQd7k-TlsKM&feature=feedu
Hawkeye it has to be in Sovereign/Treasury funds in order for the costs/interest and pawn levy to be paid first by increased national taxes then added to by increased EU contributions.
The banks will play a role by debenturing their debts at full costs and face values, while levering the investment through their fractional. Who said $550bl into $3trl won’t grow?
Abrecadabbra – as long as that wheel of fortune keeps spinning they’re all winners.
MrShigemitsu
“Why not just write off the debt now, before all this gets even crazier?”
Golem wrote about this a few months ago:
https://www.golemxiv.co.uk/2011/05/how-to-destroy-the-web-of-debt/
Yes, I remember – but even more urgent now, it would seem.
Meanwhile: TINA rules.
A good summary of the official alternative:
http://bilbo.economicoutlook.net/blog/?p=16275
As I understand it, this is a bit of an operation twist too. The banks actually providing this leverage will be able to show it as teir 1 capital on their books. So this non existant money is not going to exist in several parallel financial universes.
My head hurts.
Operation Twist made mortgages more predictable and pensions more volatile, effectively making the pensions work harder (now) to bring value to future money (to be paid out in the future when the mortgage is due).
Effectively monetising future pensions now because personal debt has reached the limits.
They aren’t just stealing the future so that they can retire to their boltholes in Davos, they are stealing the future so that they can gamble with it.
That is one of the reasons for the attack on Government pension schemes even though a lot of schemes are self-funded, pensions are being rounded up as collateral.
Sorry to hi-jack the debate Hawkeye, but MMT ?
Functional Government Finance (FGF) is a much better tag.
Is there any kind of methodology for transitioning from a failing current state (with or without major social upheaval) to FGF ?
Are there any functional models of applied FGF
Are there ‘real world’ examples of FGF or near FGF economies
The people who currently run things benefit enormously from the way things are currently run.
Does FGF offer stability ?
Is it Safe ?
As others here know, I’m very enthusiastic about MMT & the accompanying use of ‘functional (government) finance’.
As far as the ‘monetary’ operations side of MMT goes, it’s proponents state categorically that aside from non-debt net government spending, all other monetary operations are actually what is done in reality now. (But that mainstream/neoliberal economists either pretend or simply don’t know how the present mechanisms actually function.) Bill Mitchell probably has the most detail on this (& most current events MMT commentary) on his blog:
http://bilbo.economicoutlook.net/blog/
Also central to MMT macro economic thinking is an ‘accounting’ methodolgy – which is a key identifier for those few economists who saw the ‘bust’ coming and, importantly, could back up their assertions with robust, logical explanations. (ie they weren’t ‘lucky guessers’)
Prof Steve Keen has done a great deal of work with this in his ‘Debunking Economics’ & has no criticisms of MMT’s understanding. Keen has been highly critical of the mainstream approach based on flaky ‘modelling’, empirically wrong ‘assumptions’ & most important the exclusion of the effects of debt & credit. (The latter particularly explains why all the major institutions did not either see the bubble/bust building or consider it important – yes, it’s that bad!)
As far as monetary operations go, there are no significant ‘structural’ changes needed, as I understand it. (But please read the source material for more detail on this.)
So, functional government finance can be readily adopted. Are there any examples? Well, Bill Mitchell’s blog is again the best source for this. Mitchell generally argues that the post WWII period, up to the oil price crisis of the early seventies, demonstrates a very similar approach in operation. Particularly in the US, UK & Australian economies. That is to say that governments considered near full employment to be the primary goal of policy & that governments had a major role to play in both stimulating demand & employing directly for the public purpose. Whilst this was financed by ‘borrowing’ particularly in the early period, in reality it was never considered neccesary to repay the debt. The assumption was that economic growth quickly diminished both the debt size & the debt service cost in real terms. It was a very successful period. I grew up in the UK at the tail end of this period & can atest to this. Employment was readily available, wages & standards of living grew. As did the quantity & quality of public services in health, education, welfare benefits etc. I got a full & substantial grant (free, gratis) to go to university. There was some means testing & contribution required of wealthier parents, but the sums were not onerous at all for parents on average incomes. I graduated debt free & had no difficulty finding work.
It’s worth noting that the UK was also in massive debt due to the war at the beginning of this period. Of course, there was no massive & unproductive ‘financial’ sector hoarding or ‘casino’. Investment surpluses were largely recycled to useful productive purpose in the ‘real’ economy.
Government ‘debt’ was not considered an issue – nor was it, the thriving economy could easily afford it. The only constraints were largely labour and material resources. (The key constraints to avoid inflation that MMT recognises & say must be responded to by reducing net government spending.)
The reason it all hit problems began with the oil price rises of the early seventies. The price rise was massive & sustained (think 2008, but sustained for a decade) & the entire economy, as now, depended on energy. This, external, ‘cost push’ inflation created major economic disruption & no governments could do much to stop it.
This was the opportunity for the anti-government neoliberals who hated the idea of health services, welfare & a fair share of productivity gains accruing to workers, to push back. Greatly helped by their friends in the MSM (& to some extent by some greedy beggar-thy-neighbour unions, to be fair, & some ineptitude of the ‘left’ politicians) the blame for economic woes was transferred from external energy price shocks to (left wing) government policy. Monetarism, greed-is-good & the ‘trickle-down’ fallacy took hold. Enter Thatcher & Reagan & the regained power of their corporate & bankster backers.
The rest, a they say, is history. Labour stopped recieving any significant share of productivity gains. Inequality grew, wealth did not ‘trickle down’. Unemployment remained much higher than before even during the business ‘up’ cycles & socially devastating for many. Various asset bubbles grew periodically and enriched the few at the cost to the many of the following busts & recessions.
The banksters grew in power & got governments to enable even greater use of their core scam – the creation of money out of nothing as debt (erroneously termed ‘lending’). Things like privatisation of public assets, the private pensions scam in UK and student loans, not grants etc. etc.
All culminating, as we now know, in the creation of a massive casino of leveraged (more debt money creation!) financial ‘products’ which have absolutely no ‘productive’ purpose. And of course, they’ve done this in such a way that the losses – bad debts – are very difficult to write off, as ‘capitalism’ would rightly demand. Rather the ‘solutions’ being pushed on the admittedly compromised, corrupt & intellectually ‘captured’ ‘authorities’ is……yes!….more debt (debt money creation for private banks) and debt service, privately or via governments, for ordinary citizens.
Nothing less indeed, than what Michael Hudson (& others) terms a financial ‘coup’ over ‘democracy’.
So what we need is to get rid of the corrupt politicians, political & public service/’advice ”system’, similarly ‘captured’ MSM, and reinstate government that operates as it was intended, in the interests of the (non-rich) majority.
MMT & functional finance offers a framework for that purpose which is infinitely better than we have now. Could it be worse? Not likely, it may need some adjustments as we go, but no, not a chance it could be anyway close to as bad as we endure now. (IMHO!)
The market is our friend! It really is. It is showing governments and banks that they are accountable, not to voters, but to the market. Distortions can exist because they are not factored into the naive market models foist upon us by banker friendly e CON omists. These distortions are all part of the real market. They too, are subject to market dynamics. The credit machine runs at high speed until it stops dead, caused by lack of demand as people realize money/credit is no longer being created fast enough to sustain the illusory market in tulip bulbs.
Thus a crash. The appearance of a crash has arrived, but the real one is still coming! It will be made to last as long as possible as those subject to illusion can be made to part with certain assets that are currently underestimated. Then after the crash, those assets, obvious ones, really, no magic in the market, resume their relative worth and produce cash.
Cash is king! Credit is dead! If Japan had resolved their issues then this would be obvious to many more people than to those who now know it. One point: tsunami can be a weapon see my blog!
The Germans have squashed the idea:
“German finance minister Wolfgang Schauble said it would be a folly to boost the EU’s bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.
“I don’t understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense,” he said.
Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is “scaring the world”.
“It’s always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government,” he said.
The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into “cascading default, bank runs and catastrophic risk” without dramatic action.
The danger for Germany is that America will lose patience, with unpredictable consequences. The US Federal Reserve is currently propping up the European banking system in a variety of ways, including dollar swaps.”
http://www.telegraph.co.uk/finance/financialcrisis/8793010/Germany-slams-stupid-US-plans-to-boost-EU-rescue-fund.html
So what happens if the Fed decides enough is enough and pulls the plug?
Neil,
“So what happens if the Fed decides enough is enough and pulls the plug?”
Well then the score card will look something like this:
US: 1
Europe: 0
China: 3
It might help the US in the short term, but really the only true benefactor is China / BRIC bloc.
As ZH keep reminding us, this is a three way fight:
http://www.zerohedge.com/news/currencytrade-wars-begun-they-have
Indeed. But can someone please explain how the Euro has been maintaining its value (against the pound, at least) thus far? Why isn’t it being allowed to float (sink) down?
Neil
I guess because if the Euro goes down, then it will take the pound and the dollar with it (maybe the Yen too). You have to remember that all fiat currencies (although technically floating) are in fact locked in a strategic embrace. They are all merely reflections of the petro dollar standard;the bedrock of international trade. To some extent then the US does have a vested interest in protecting the Euro, but only enough that it sweats more than the dollar does:
” the strategy has been to expand dollar liquidity & financial sector leverage. The cost for servicing this build-up of unsustainable debts is pushed outwards to the innocent citizens of periphery countries and onto the shoulders of future generations.”
The CDU’s deputy leader Wolfgang Bosbach:
“The first medicine didn’t work, and now we are simply doubling the dose,” Wolfgang Bosbach told the Wall Street Journal last night, in relation to the Greek debt crisis. “My fear is that when the big bang happens, it won’t just be us who will have to pay – but generations hereafter.”
http://hat4uk.wordpress.com/2011/09/29/crash-2-eurozone-bailout-bombshell-as-lenders-draw-line-at-20-haircut/
I think the main reason that the dollar, euro & pound have all remained in a reasonable range is more to do with the fact that all their banking sectors are so interlinked that a major shock in one area is considered a shock to all. And in the extreme circumstances of the domino effect from a significant default, no one is able to quantify any likely large differences in effect, one currency area to another. Markets also know that in this (extreme) situation, authorities will work together. (There has been some small rise in the dollar likely reflecting the flight to safety of US treasuries,)
But, in terms of the economic fundamentals that drive currency fluctuations over time (which are there to see in euro vs $ or £ rates since the euro’s inception) they are absolutely free floating currencies.
That’s my take on it anyway!
I wonder what you lot make of this.
http://goldnews.bullionvault.com/guersney_experiment_credit_creation_gold_standard_051920083
Its not exactly Positive Money’s proposals but it shows that there is more than one way to skin a cat. I’ve never understood why a Government with its own sovereign currency has to borrow its own money from private banks. At the end of the day, those that hold the purse strings hold the power. As I understand it, prior to the banks issuing currency in the UK the sovereign issued tally sticks. And during that period there was no government debt. As usual, we tend to ignore the lessons of history.
Can someone answer me a simple question to help me understand? I’ve been following this crisis unwind and tried to make some sense of it. Unfortunately it just makes me angry! No, actually I’ve gone past angry now.
There is talk of an EU tax on financial transaction which is reported to be going to cost the City of London £40 billion a year. It this is true, at 0.1% tax rate, that indicates transactions of £40 trillion! It is £40 trillion right? That doesn’t even take into account the 0.01% on derivatives (whatever they are), which would push this last figure up higher, correct?
How the hell is any ordinary mortal supposed to understand how big or small a 3 trillion euro bailout is when we are faced with such incredible figures? I know we’re all being screwed, I’d just like to know by how many zeros.
Richard
Not sure that anyone can put a finger on it. Speaking as a statistician perhaps the best method of determining how much we each are getting screwed by is to take the mean per capita income and compare it with the median per capita income. The median would be the level of wealth that the typical person in this country has (i.e. upper working / lower middle class person). Whereas the mean would be upwardly skewed by the ultra-high net worth individuals. The gap is the amount (per person) getting screwed by the growing income inequality.
If we presume that the figure is likely to be something like £10k (i.e. mean income is probably about £35k in the UK, whereas median about £25k), then that sums up to £600bn of pilfering.
That would just show the current level of filching though, not the stealing of our futures!