Friday 3 October 2008

Is That Coffee I Smell?

It seems the American people are waking up to a bitter fact.
It's not there.

As in, the money.

As in, the banks are all going bust.

Now that's a problem. When banks aren't making a profit. When the balance sheet of a bank does NOT consist of a nice big column in the black.

Because if the banks don't have a huge reserve in the black WHO DOES?

As a general rule, no matter what situation emerges, war, recession, hurricane, alien invasion, one thing you can say for sure.
At the end of it all, the banks will be better off.

It stands to reason. The total share of all the money that is theoretically in existence that the banks can claim legal title to, must, simple mathematics tells you, rise. Year in, year out.

So if banks are going bust then what REALLY is the problem?

The problem is this.
Do you know how interest is really paid? Ever thought about it?
By increasing the total amount of money in the economy.

So,in 1800, let's say there are a million gold coins on the island of Britain. The banks charge 10% per annum rate of interest.

Now we can't all borrow from the bank and be able to pay it back. Not in this system. The value of the coins is fixed. Ultimately, if all the money ever lent is to be repaid, more must be got from somewhere else.

And it was.

The economy continually expanded. There was continual economic growth. What most of these supposedly really intelligent economists miss the point of, is they try mystify the term 'economic growth'. They kind of confuse themselves to forget the actual point that there must LITERALLY be more cash tokens in the system, year in, year out. Otherwise an economy based on interest and lending, will run out of steam.

Now this actually happened. It happened in 1929. What happened was banks started to go bust- they COULDN'T recall everything they were owed because not enough people could pay up.
The world really had reached it's limits. All the tokens in the world were in the same economy. No more anywhere to bring in.

But banks need paying in tokens.

Thing is, these were pretty dangerous times. And there were a lot of false messiahs wondering round. Rather than concede that Marx was right, and potentially hand the world over to his Pseudo-disciple who was busy slaughtering millions of Kulaks, or create tribal ethnic states based on quasi-medieval ideas predating Capitalism, as the Germans decided to do, a cunning plan was hatched.

Don't have a fixed value for the tokens. OK, the world can't provide any more. Just print the tokens out of paper AND KEEP ADDING TO THE TOTAL FUND ENOUGH TOKENS TO ENSURE THAT INTEREST CAN BE PAID.

Good solution, hey?

Thing is, this had been tried before in many places. And everyone knew that it was potentially a dangerous solution. You can't add indiscriminately. You really have to keep the amount of tokens you add in every year down. The money can't be devaluing so fast that people notice themselves getting poorer too quickly.

But they are going to be, in relative terms.

Because in spite our seeming affluence, we're not actually paid as well as we think. We are only able to enjoy such high standards of living due to a luxury our grandparents didn't have.

What they owned, they owned. They paid for it.

We don't. If we really had to pay in cash for everything we had or used, do you think the quality of life for the average citizen would be what it is?

And it's had to be like this. They really have HAD to keep REAL outgoings down. Wages, basically. The average earning. To keep down the amount of REAL tokens in the system.
And they've kept spending, that all important activity, sustained on fantasy tokens.

While they sit there and think 'What the f**k are we going to when we just can't sustain this any more? Because one day, the fantasy money, the money that DOESN'T exist, the tokens we count as spent by someone somewhere, but not repaid, actually outnumbers the tokens that actually exist and are accounted for in World Finance?'

And whilst the cold war was going on, there were more pressing problems. There always are.
And anyway, do they care? Do you really think they care? No! They just hope, as they long have, it will happen in their children's lifetime instead. And if it comes now?

Their world. They will be sitting in their mansions, protected by their security guards, as the police gun you down for trying to get food from the supermarket which has been boarded up, food still in it, because there's no money at all to keep the wheels of the finance system going.

And now they're trying- and will do everywhere- to load this burden on to the taxpayer.

Let's look at this for what it is.

They're asking you to do even more work for less.

And this is where you need to wise up and ask the important questions;

  1. Have we run out of fuel?
  2. Is food scarcer?
  3. Have human transport systems broken down?
  4. Are there less people to do the jobs?
  5. Has any material point about the world changed?

So why DO we need to repay any money at all?

WHO are we ACTUALLY repaying?

What has ACTUALLY changed?

Nothing. Not really. Just our finance system doesn't work any more. Everything else still does.

So, the banks are bust. The world has run out of money.

Do we need it any more?

The sole real purpose of money, is it's a token. To exchange for goods or services. Basically, it's sole real purpose is to track entitlements. You've got a five pound note in your hand, you're entitled to five pounds worth of something.

It's obsolete. The concept is obsolete.

We are capable now, with modern technology of working out what we've got, who put in what and how much people are entitled to as a result of their efforts.

Without having an administering system charging us 10% per annum for the privilege of milking us.
Because really, that's all banks are.
We don't actually need them, because we don't need such a primitive token system any more.

The only thing you can do is scrap the banks and scrap the money.

All you ACTUALLY need is a system for relating the relative value of things and their relation to human energy put in. And for this to be traceable and held in a global database of some form. Hey, it already is. Just with an anachronistic accounting system and a great black hole to throw the interest in.

And why not have it a nice little simple system? Contribution points. Get rid of credit completely. So much work is worth so many contribution points. And these points entitle the possessor to material goods.

And if you took people's tax, bills and basic living costs at source- since you might as well, after all that's kind of kind of the logic behind direct debits- and paid people daily the surplus they accrued, there wouldn't actually be any need for credit either.

A simple system of contribution points.

Money really is an anachronism.

Because really, think about out, if we're sitting here thinking that because of money we're ALL of us going to have to work harder for less, then let's face it...

It's MONEY that is the problem. In itself.

The best solution is to scrap the whole banking system.

Wake up, smell the coffee!!!


Anonymous said...

An interesting explaination. While I am totally inqualified to examine the merits of this, it did not make it a less interesting read. Great post...

Anonymous said...

Well I'm not going to get many points under this system.

But I did work hard and contribute to society for many years and with my hard earned savings I lend money to the banks and to companies by buying their bonds and shares and expect to get a return for that so that I may live.

Interesting read as Bud said, but I am sure it's not that simple. What we consume is goods and very few of us make goods. This system evolved because it worked and it worked for a very long time.

Unfortunately the "clever" people got carried away with their own cleverness and it has become so complicated that very few see or even understand the big picture, least of all those who are supposed to be running the whole shebang.

Anonymous said...

two things about goods: 1. most of them are completely unnecessary for survival and probably even for happiness, health and justice. 2. that being said, it's not inconceivable to trade labour and skills for goods. you can trade anything for anything really, you just have to come up with an agreement that works for both parties.

i agree with you crushed, the paper economy is not working. a lot of folks have already switched to bartering as much as possible in the cracks of this system, which, as you point out, are getting bigger.

Anonymous said...

So work more earn more contribution points - It is a very interesting idea - and you covered things I had not thought of in ages - so thank you for the refresher. happy weekend to you! Cat

Anonymous said...

Phishez is back last I heard. Thought you'd want to know.

Relating to the constantly expanding economy, which relies on the constantly expanding population to coincide with constantly printing more money, the West and parts of the East are now facing a major crisis of declining population. What happens when we have the same number of 'tokens' in the system, but massive amounts of elderly dying off with very few youth to replace them? First of all, there aren't enough people to maintain the work necessary simply to keep the cities going. So the mega-meccas will shrink. Businesses will look for labor everywhere they can. But it simply isn't there. Japan is facing this already, hence their great interest in robotics. They don't know what else to do except to build mechanical men. It's not a bad solution if it can be made to work. But whatever the outcome of that, this is a crisis our national 'leaders' have never faced before. There is very little information available to advise them as to what to do.

And as for the American banking crisis, I worked in a massive American bank headquarters for 3 years. What I saw made me wonder how this didn't happen sooner. I dealt with the big mortgage giants Fannie Mae and Freddie Mac. What I saw with them made me wonder when the sky was going to fall. I studied our politicians who created this nightmare - former President Jimmy Carter, who originated it in 1977, and former President Bill Clinton, who made it worse back in 1992 or 93, along with a very complicit Congress. There is a good reason that our politicians are scrambling to appear as if they are doing something about the situation. The reason isn't that they understand economics and care about people's futures. The reason is that this is an election year and their responses can affect the outcome of the election. If they did absolutely nothing the markets would work it out. If they simply repealed Carter and Clinton's bad legislation and removed the authority of militant 'civil rights' groups to bully banks into coughing up bad loans, the problem would disappear within 12 months. But by fiddling with the controls, as FDR did at the start of the Great Depression, they all get credit for 'doing something' and probably will be reelected. Meanwhile, what they're doing, like FDR's New Deal, will likely prolong the crisis and make it worse.

Anonymous said...

A brilliant synopsis.

Why not dispense with credit ?

Well it's certainly going to be curtailed but, as you say, this means coming down to earth with a bump.

We AREN'T richer than our ancestors. We have been living beyond our means. We have also been living beyond our stations and our global position (about to be corrected) has been artificially maintained.

Your conribution points system will mean relative poverty.
And possibly exploitation of the people by the state.

Anonymous said...

You think you things are messy now, just wait and see the fight over who decides what a person's contribution is worth.

Anonymous said...

Imagine if America stopped all the aid they hand out,to ALL countries, you would see the rest of the world whinge then .

Anonymous said...

Bud- Not entirely mine, in origin. The basic theory is outlined in a book written many years ago by a larger than life German gentleman with fuzzy hair and a big beard...

jmb- You'd still accrue tokens, much as now. The idea would be (as I've said before) we'd all work a set amount of hours (25 a week or so) to pay for our share of the necessities. What we now pay in tax and bills. For anything over we'd accrue points we could spend on what we liked.
But as now, those who'd worked up to say, sixty, would be exempt. They'sd get their basic necessities free. Anything more, well, it would have been up to them to build up a contribution points surplus.

It wouldn't mean that much was different, really. Just more transparent and less convulted flaws.

Benji- I actually think it holds back our production. I think we would produce far more of what we actually needed and wanted if we scrapped the dynamics of the present system.

I suppose what I'm proposing is a simple system of relating the value of everything to eachother without needing the tokens any longer to express those relationhips.

Just have a fixed index.

Cat- I think it would retain the same dynamics of incentivising people to put in.
Point is, they'd be putting in something useful. Loopholes to milk the system wouldn't be there. Bye bye rogue traders and con artists. At least in theory.

Steve- I do know :)
The sidebar has some symbolism.

The workerless factory is a very real concept today. I have a mate who'se actually sen them. But problem is as things stand, it 'costs' too much to build them.

But that's just a systemtic flaw. all it actually means is that it is hard to organise the labour and resources to construct them. That's a problem with the limitations of finance in acheiving long term human progress.

Well, one thing about Capitalist economies is that although they're really not good and getting increasingly worse, generally they're run better when run by people who believe in them and want to make them work.

My view is though I'd prefer NOT to have a Capialist system, while we do I tend to vote for the party promises the measure which most fit in with the ideology of the system we actually live under.

E-K- I don't think it will.

Problem is, right now, the world has got used to a bank of unspent tokens. We actually DON'T produce to anything like our potential.

We have so many artifical brakes on production and distribution caused by the finance systems and its rserves of disused tokens.

We're not living beyond our stations I don't believe. Because we;ve proved we can produce it,, even with the artificial inefficiency of the global infrastructure.

Scrap credit and finance and we'll all, globally, live like the western middle classes.

I believe this, I really do.

X-dell- It would be related on an index, a bit like the Dow Jones, contribution to resources.
Your contribution's value would depend on the resources available that day and the skills you had inputted.

Nunyaa- Imagine if they didn't need to, because we had a global infrastructure- as in means to produce and distribute, of equal quaslity across the globe and democratically controlled by the global population?

Anonymous said...

interesting :-)
somehow, i envision that the idea of contribution points would probably eventually get converted into money, and we'd start it all over again someday, maybe...? ;-)

Anonymous said...

I wish that I could say something more pertaining to, but the truth is, I don't understand too much about the economy. Or maybe I understand more than I think I do.

First of all, I've realized for a long time that something was wrong. I lived in a smaller town where you had a pretty good idea of what people earned and there were all of these working class people living in big mcmansions. Not only did they have their houses but their furniture, cars, boats, clothes, vacations etc... One of my friends has remortaged their home about 3 times and has $25,000 in credit card debt. Right now, she is spending her entire paycheck to pay down her credit card. They live off his, which isn't enough and makes them use their credit cards more.

My sister and I used to talk about how all of what we saw around us was an illusion. They weren't actually doing better than we were, they just had better credit and looked like they were doing better. They were also more willing to be in debt.

Second, if one was paying attention and was willing to spend time exploring alternate forms of media, some experts have been talking for a long time about how we were in the new age of the robber barons. And in the late 20's things were just like they are now. Lots of nouvea (gosh, can't spell today.) rich. Taking baths in champagne.

I've been wondering for a long time if something like this could happen. All the indicators were in place. If little old me could see this why couldn't those big, bad economists see it? I think it is not only greed but hubris. They just couldn't admit they were wrong and they didn't want the party to end.

I've gone on google several times and typed in...are we heading for another depression? Most said no, though a few indicated that the conditions were in place but basically said that The people on top knew what they were doing and wouldn't let that happen.

I think if this has taught me anything, it has taught me that we are smarter than we think and that they are not as smart as we give them credit for. Trust yourself. Question authority. Look around. Pay attention. That's what I have learned.

Anonymous said...

Crushed. One reason we are not so well off is because of pretty high rates of taxation and other stuff that is taxation by other names.

Wages in the UK get hit by tax and "national insurance". Then you get to pay more of your wages in tax on say petrol, then they ad sales tax (VAT) to that.

I don't think you are right about interest either. Your example seems to rely on all the money being lent out, so there would be none left to pay interest with.

If I borrow 100 euro then the bank gives me 100 to do something with. I have to pay that back in 10 intsalments of 10 euros each, plus (say) an extra 2.5 euro with each. That comes out of wages I earn. Saving in retrospect if you like. The inteerest is the penalty I pay to do that.

I guess you hanker after the gold standard also?

Anonymous said...

Dear Benjibopper:

two things about goods: 1. most of them are completely unnecessary for survival and probably even for happiness, health and justice.

Marvelous to read this. Through very robust and honest exploration I know this to be true in my living experience. They are unnecessary also for peace, for joy and for freedom, and furthermore work against them!

Regarding trade/barter -- I am currently exiting the workforce and preparing to live an existence based on the giving of kindness (in many forms). If 10% or so of that kindness is voluntarily returned to me, that will be enough for me to survive and to further my peace, joy and freedom!

I don't advocate this is the solution for everyone but it may be the solution for me!

Also I seriously hope you are not really bopping Benji -- or rather that Benji is not a dog.

Anonymous said...

Eve- Have a bit more faith than that!

No, I can't se why it would. The point is, money is an anachrinism. It's like thinking cars would return to horse drawn carts.

Have a little faith :)

Behind Blue Eyes- The sort of debts you describe are not uncommon, and getting commoner.
When I worked in loans, I can remember one couple whose monthly outgoings on loand repayments and credit card minimum payments exceeded what they earned a month between them. It was a total tragedy- no way they could even get a consolidation loan.

Its not an illusion, because in a very real sense human society still produces it, so the prosperity is real.
That's we should never forget. We CAN do it.
As a society, we can create this standard of living.

It's the concepts of who owns what that are an illusion.

We are heading for a depression, yes. The one that was staved off in the thirties.

Because what was staved off in the thirties wasn't just a depression.
It was a revolution.

And that's what will come in time, I think- I hope.

Moggs- But Moggs, can't you see its an illusion?

Look, reality is, if they can produce it, they'll make sure we can get it. So they'll lend us the money.

It's got nothing to with wages, we'll always enjoy the standardof living the infrastructure can give us. They're not going to produce goods NOT to sell us, because we don't have th cash. They'll give it to us. As they have ben doing.

But- duh- Why don't we just do that? Scrap the silly finance system.

Make the stuff, give it out.
Nice and easy.

You're entiltled a share, based on what you contributed to society.

You think I''m being wildly simplistic. Am I?
Think about it, re-read what I've written again, you'll see I'm noy.

What's happened is these economists have turned simple transcations into mustical rites. They take a simple thing- GROWTH- and make it sound complicated, when it isn't. It means what it says, nothing more.

The point is to do with tokens in the system.

I don't hanker for the gold standard, no.
What I do realise is that when it became impossible to maintain a currency actually linked to a tangible commodity- gold in an intesrests economy, what that actually meant, was the world economy had reached its material limits.

I challenge any economist to argue with me on that. I'm sure they will, but they'd be talking bollocks. As they're doing now. globally.

FWG- All finance systems are based on a kind of barter.
Just at one point everyone agreed that the fixed index for bartering, would be silver.

This is what I'm getting at- financiers like to mystify the whole process.

All it is is a way of working out equivalent values so that things can be fairly distributed. No more, no lesss.

Anonymous said...

It seems the American people are waking up to a bitter fact.
It's not there.

When I read this I got all excited because I thought you were saying that America is not there! And I thought -- "Thank god. Finally some consolidation from a trustworthy source that nations are a complete fiction."

Alas, that search continues.

But great post. I hope my understanding is correct that the way we administer our currency system (interest/ownership) and whether we use paper and call it "money" or instead use a digital process and call it "points" are two completely different things.


Anonymous said...

Crushed, it’s not an illusion. It’s a construct a tool an artefact. Though I guess maybe we are talking definitions here.

You could as easily call the football leagues an illusion, about half the population wish they were…

Effectively there is already a system that share entitlement, based on what you contributed to society…

Money is the system that we use to assess an individual’s contribution to the system.

An assessment is made of the worth of an individual’s contribution and they are paid accordingly. They then get to swap the money for goods and services, often in turn assessing what value they are willing to place on those goods and services.

The assessment is not always perfect, when you consider, say a sporting star’s level of reward against a Nurse’s, but I bet most other systems would turn up similar problems like the old Soviet Union used to for instance.