The Global Financal Crisis In Simplistic Terms

[scepticus]

I like para 5....but ZIRP doesnt exist in the real world.

define real world.

[Bloo Loo]

define real world.

anywhere away from Central banks.

[scepticus]

anywhere away from Central banks.

arbitrary. Like saying, 'anywhere away from the manor' in the middle ages.

Anyway, without central banks and without money a strict balance of credit and debt would be enforced because all such credit/debt relations would need to sum to zero. Still zirp isn't it?

In fact only central banks make PIRP possible, in this day and age.

[Bloo Loo]

arbitrary. Like saying, 'anywhere away from the manor' in the middle ages.

Anyway, without central banks and without money a strict balance of credit and debt would be enforced because all such credit/debt relations would need to sum to zero. Still zirp isn't it?

In fact only central banks make PIRP possible, in this day and age.

With a central bank buying stuff and setting rates without buying stuff...there is no reality here....So to a point, your electronic nothingness is valid, but I would contend only in the shadow banking world...where all this mess resides.

Capital being created from profits on capital within the shadow banking system is all make believe.....and it is here that I believe you are correct..its all imaginary....Its the piling on of financial assets as collateral to buy more financial assets almost to infinity, well as far as money velocity can allow, that means the whole system is unstable.

[frederick]

Do we in the west deserve a better living standard to those of people in China? No, they have to live on very little and have to work really hard, we dont want that, but soon will learn we have no choice, comming very soon $4,000 a year living standards like they have in the parts of the world that export to us, if we're lucky that is.

[libspero]

in plain English maybe?

When Sceppy speaks to mortals he doesn't always manage to explain in a way we can comprehend.

I usually end up feeling as confused as Chandler in this sketch (the guy on the right)..

http://www.youtube.com/watch?v=PQDJVhc2q3E&feature=related

[scepticus]

With a central bank buying stuff and setting rates without buying stuff...there is no reality here....So to a point, your electronic nothingness is valid, but I would contend only in the shadow banking world...where all this mess resides.

without central banks shadow banking would be the entire reality.

Its called inside money.

A central bank capable of running negative nominal rates is not a central bank, but just a clearing house, existing only to facilitate "private sector" human relations. Such a central bank does not need to create its own money after the initial float is established. The nominal level of the float is irrelevant.

A world constructed just from inside money with no outside money is the only stable reality for a democratic society using computers. The only stable attractor for money-yield in that scenario is 0. Not nirp or pirp but zero. Shocks may cause excursions but eventually balance must return.

There are many other realities but they are not stable hence they can't persist.

[Bloo Loo]

without central banks shadow banking would be the entire reality.

Its called inside money.

A central bank capable of running negative nominal rates is not a central bank, but just a clearing house, existing only to facilitate "private sector" human relations. Such a central bank does not need to create its own money after the initial float is established. The nominal level of the float is irrelevant.

A world constructed just from inside money with no outside money is the only stable reality for a democratic society using computers. The only stable attractor for money-yield in that scenario is 0. Not nirp or pirp but zero. Shocks may cause excursions but eventually balance must return.

There are many other realities but they are not stable hence they can't persist.

we dont want a stable ponzi in the shadow banking area.....that is the entire area where bankers were able to build up their "wall of money" that they persuaded the real world the money was coming from in the early 2000's.

They were able to bamboozle regulators (official story) and take risks with each other in the knowledge that the risky counterparty could always use the self same "assets" they valued so highly could be used as collateral at the Central Bank for cash.

[winkie]

In the information age, there is only debt, no money. Debt is information. Only debt can be sent electronically.

Ergo, all social economic relations in technological society must be structured via debt.

Equity is just debt-information with no nominal zero lower bound. The only difference between them is rules, human constructs that are not absolute, but self-referential.

Once upon a time, there was money all agreed on because there was no technology to send it through the ether, it was a physical thing. Some decades ago that link finally ceased to exist.

Ergo, debt had to expand to fill the gap left by the absence of money so as to completely structure human economic relations. The mechanism by which it expanded is secondary to the inevitability of expansion. Any way would have done.

That debt expansion has now reached maximum extension, such that credit and debt stand on equal terms. Hence Zirp.

In a culture dominated by money-thinking, no-one knows what to do next now that there is no money absolute. We are no longer collectively constrained by money, so we seek alternative constraints to structure society. The GFC is the search for new constraints which are stable.

....so does that now mean in the future we will be going to work to earn debt....debt will be the new wealth, if you do not have access to debt you will be poor, the more debt the better, the lucky ones will be paid to hold debt because the risk of them repaying not that they will want to will be greater?

[scepticus]

we dont want a stable ponzi in the shadow banking area.....that is the entire area where bankers were able to build up their "wall of money" that they persuaded the real world the money was coming from in the early 2000's.

They were able to bamboozle regulators (official story) and take risks with each other in the knowledge that the risky counterparty could always use the self same "assets" they valued so highly could be used as collateral at the Central Bank for cash.

it was you who said central banks were not real. Therefore the financial ecitivities that go on outside the sphere of the central bank must be real.

You can't have it both ways.

[Guest spp]

'Currency' is predominately electronic and bonds, where the latter pays interest and this is exponentially advancing the overall growth of the national debt. The bulk of the 'currency' being created is through the issue of debt, and this once again pays interest.

With a very high % of the national debt being accumulative interest payments...might the Titanic actually blow up?

[Bloo Loo]

it was you who said central banks were not real. Therefore the financial ecitivities that go on outside the sphere of the central bank must be real.

You can't have it both ways.

I think you have it reversed...Central banks do create FIAT...which is a representation of real wealth....or is supposed to be...Are you suggesting QE money is a representation of real wealth?

[frederick]

Has nobody got it at all, everone blames he same scapegoats, no one points out the f**king obvious problem, we have been living beyond our means, and we've been doing it for years, eventually the money will run out, er like it is all over Europe. Then living standards will have to correct, exept the correction has hardly started, globalisation wasn't about raising Chineese living standards to ours, its about dropping our to thiers, and there is damn all we can do about it, and balaming "the bankers" is about as silly as blaming "the Jew in the 1930's" :angry:

[wonderpup]

Do we in the west deserve a better living standard to those of people in China? No, they have to live on very little and have to work really hard, we dont want that, but soon will learn we have no choice, comming very soon $4,000 a year living standards like they have in the parts of the world that export to us, if we're lucky that is.

A slight problem arises: if we end up as poor as them- who is going to buy all their products? We can't all be low wage export led economies because there would a huge supply and no demand.

The cunning plan of the elites to keep all the money for themselves turns out to have weak spot- the resulting lack of demand destroys the economic base upon which their wealth stands- a mountain of IOU's signed by an increasingly deadbeat world population might turn out to be worth a lot less than expected.

Something wicked this way comes- and it's name is default.

[winkie]

Has nobody got it at all, everone blames he same scapegoats, no one points out the f**king obvious problem, we have been living beyond our means, and we've been doing it for years, eventually the money will run out, er like it is all over Europe. Then living standards will have to correct, exept the correction has hardly started, globalisation wasn't about raising Chineese living standards to ours, its about dropping our to thiers, and there is damn all we can do about it, and balaming "the bankers" is about as silly as blaming "the Jew in the 1930's" :angry:

Sorry, but how can you live beyond your means if there is no money to borrow.....you can only live beyond your means if you borrow more that you can realistically pay back....look at Europe they are needing more money to pay back the existing loans, wages, pensions and interest, that will be used then they will require even more, then more, more more.

[scepticus]

I think you have it reversed...Central banks do create FIAT...which is a representation of real wealth....or is supposed to be...Are you suggesting QE money is a representation of real wealth?

you have totally lost me now.

central bank liabilities are not a representation of wealth, they are simply a mechanism to facilitate actors in the economy to maintain and structure their debt/credit relations.

wealth is only to be found in the good and useful relations between men and women and in the things they have built all around them and the knowledge they hold. Money whether fiat or metal isn't wealth in itself, and doesn't represent wealth either, it is just oil for the process of wealth creation.

[wonderpup]

Has nobody got it at all, everone blames he same scapegoats, no one points out the f**king obvious problem, we have been living beyond our means, and we've been doing it for years, eventually the money will run out, er like it is all over Europe. Then living standards will have to correct, exept the correction has hardly started, globalisation wasn't about raising Chineese living standards to ours, its about dropping our to thiers, and there is damn all we can do about it, and balaming "the bankers" is about as silly as blaming "the Jew in the 1930's"

You are conflating two issues- one the current crisis and two the long term sustainability of the worlds economic system.

The bankers can be blamed for the current short term crisis because it was their reckless expansion of credit over the past decade that caused it- but you are right that this took place against a wider imbalance in the worlds economy.

The problem with the idea that we will have to 'live within our means is the reality that developed world consumption is a vital component in how the world economy works. The Chinese and the Germans like to point their fingers at profligate consumers in other countries- but the reality is that their own economies are totally dependant on those same profligate consumers- the world needs consumers as much as it needs producers- otherwise it doesn't work.

The flaw is not a simple tale of ants and grasshoppers- it's the failure of the global elites to ensure that the wealth gains from greater productivity have been shared more evenly- which has lead to a global failure of demand that now threatens to bring down not just the west but China too.

Ironically the system did in fact attempt to correct for this via default on unsustainable debts but the elite decided that their love affair with free markets ended when it came time to take their losses.

[Nuggets Mahoney]

Has nobody got it at all, everone blames he same scapegoats, no one points out the f**king obvious problem, we have been living beyond our means, and we've been doing it for years, eventually the money will run out, er like it is all over Europe. Then living standards will have to correct, exept the correction has hardly started, globalisation wasn't about raising Chineese living standards to ours, its about dropping our to thiers, and there is damn all we can do about it, and balaming "the bankers" is about as silly as blaming "the Jew in the 1930's" :angry:

At least two posters, myself included, had already raised that point.

Many people in the UK aren't exploited as such they're just engaged in pointless makework to keep their minds off things and absorb productive surpluses.

Cheap imports have helped mask, and fuel, the thievery of the 'scapegoats' you refer to.

Next step not so cheap imports and the mask will fall.

[Bloo Loo]

you have totally lost me now.

central bank liabilities are not a representation of wealth, they are simply a mechanism to facilitate actors in the economy to maintain and structure their debt/credit relations.

wealth is only to be found in the good and useful relations between men and women and in the things they have built all around them and the knowledge they hold. Money whether fiat or metal isn't wealth in itself, and doesn't represent wealth either, it is just oil for the process of wealth creation.

funny, but I was under the impression that money created by governments, Bonds, were exchanged for FIAT which comes from borrowing at the Central bank.

As the Bonds (gilts) are to be repaid by the tax take of the Government, which comes from wealth creation, then it follows that FIAT should represent a portion of wealth generated by the whole nation.

Bailing out banks using assets for collateral that effectively they cant sell, and therefore have no value, really is non reality at its finest.

[isg]

People are greedy

They are not that smart

They listen to the media and self proclaimed experts

They have short memories.

[tio]

In simple terms? I think it was the JP Morgue that first proclaimed that they had created a risk free debt product via extending existing financial products called derivatives. One of these derivative products contained the loans and another type was formed to contain the associated risk, sold separately. It is only important to understand that the debt/risk dynamic normally expressed by bank reserves (to cover bad debt) had become unhinged via these 'products'. Now in 1999 'they' repealed the Glass Steagall Act and in 2000 along came the Commodity Futures Modernisation Act, this effectively permitted the whole banking sector to just go nuts with 'harmless' debt, in fact they all managed to balance a mountain of debt on pin heads of capital, not caring in fact whose capital it was or where the associated risks ended up. It was hubris. The debt derivatives were so complex that to unravel them was considered akin to making a living pig from 400lb of sausage meat (RBS binaries ..), the insurance companies that bought the risk were as robust as the morning mist. Oops. Now these things and the banks that hold them are pretty much worthless, how much would you pay for a case of wine knowing that one of the bottles contained poison? Game Over.

[Panda]

Now these things and the banks that hold them are pretty much worthless, how much would you pay for a case of wine knowing that one of the bottles contained poison? Game Over.

Thats my new sig, great quote, sort of sums it all up......................

[JohnLennon]

“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”

- Thomas Jefferson

[Ah-so]

“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”

- Thomas Jefferson

Actually it is a bogus quote. He never wrote any such thing.

Please add this to the pile of made up Rothschild quotations.

[Bloo Loo]

Actually it is a bogus quote. He never wrote any such thing.

Please add this to the pile of made up Rothschild quotations.

tell a big enough truth and people will actually beleive in it.....Helen Goebbells.