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Money creation and banks on Radio 4's 'Thinking Allowed'

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Well worth listening to, thanks; describes problems arising from the crash using 2 different perspectives, and identifies that the promise to repay private sector debt (400% of GDP) cannot be met,  but stops at that point without rolling forward to consider what might happen next.  It would be good to find any description of policy options that sound remotely credible, but few people acknowledge the fundamentals, and current perceptions will be valued more highly until defaults kick in, I suspect. 

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Laurie Taylor on Thinking Allowed is almost always interesting.

One of his guests in this episode is Ann Pettifor from an organisation called PRIME.

She states that money, being a promise, has no limit to its creation, and therefore there can never be a shortage [presumably, credibility eventually runs out?]. She mentions that she thought the chancellor disingenuous when he said there is 'no pot of money under my desk'.

She said one of the first economists to 'get it' was John Law, and recommended the work of Cambridge sociologist Geoffrey Ingham on money, saying that money concerns social relationships, and sociology is a better tool for understanding it (and predicting future crashes) than mathematics.

She also bemoans the lack of education at school on money creation, which has led to the point where most economists and financiers don't know about it.

The other guest agreed, but went on to show that he disagreed by saying that monetising government debt would debase the currency and lead to inflation.

Ann Pettifor was against globalisation's free flow of money across borders saying that it has increased inequality.

She bluntly stated at the end we have made no structural changes since the G.F.I. of 2008 and that there are three ways out of too much debt, and that paying it down is no longer achievable, inflating it away is politically unpalatable, and that left (unsaid)  eventual default.

 

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23 minutes ago, Millaise said:

Laurie Taylor on Thinking Allowed is almost always interesting.

One of his guests in this episode is Ann Pettifor from an organisation called PRIME.

She states that money, being a promise, has no limit to its creation, and therefore there can never be a shortage [presumably, credibility eventually runs out?]. She mentions that she thought the chancellor disingenuous when he said there is 'no pot of money under my desk'.

She said one of the first economists to 'get it' was John Law, and recommended the work of Cambridge sociologist Geoffrey Ingham on money, saying that money concerns social relationships, and sociology is a better tool for understanding it (and predicting future crashes) than mathematics.

She also bemoans the lack of education at school on money creation, which has led to the point where most economists and financiers don't know about it.

The other guest agreed, but went on to show that he disagreed by saying that monetising government debt would debase the currency and lead to inflation.

Ann Pettifor was against globalisation's free flow of money across borders saying that it has increased inequality.

She bluntly stated at the end we have made no structural changes since the G.F.I. of 2008 and that there are three ways out of too much debt, and that paying it down is no longer achievable, inflating it away is politically unpalatable, and that left (unsaid)  eventual default.

 

Ann Pettifor is a close friend and ally of Steve Keen. That last point is handsomely illustrated by the following chart from the BoE's November Financial Stability Report.

It's 2007 all over again.

credit2.jpg

 

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54 minutes ago, zugzwang said:

Ann Pettifor is a close friend and ally of Steve Keen. That last point is handsomely illustrated by the following chart from the BoE's November Financial Stability Report.

It's 2007 all over again.

credit2.jpg

 

 

Not to mention total UK debt to gdp (chart up to 2011).

 

total-uk-debt

 

 

hunt+2.png


 

Quote

 

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/02/tories_withdraw_support_from_t_1.html

 

That said, at Davos, for example, perhaps the biggest talking point was McKinsey's epic study of the respective debts of major economies, "Debt and Deleveraging".

This is not pleasant reading if you're British.

It shows that - of the world's biggest and richest countries - the UK and Japan are far-and-away the world's most indebted countries.

This is on the measure that adds together the debts of households, companies, government and financial institutions, and then compares that sum with GDP, or what the country produces.

On that basis, in 2008, the UK's debt to GDP ratio was 469%, the highest in the the world, compared with 459% for Japan. The ratio of heavily indebted America was "just" 300% in US.

 

 

 

Some of the figures in the charts and in the link don't quite match but for sure they're close enough that the message remains the same.

Edited by billybong

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She states that money, being a promise, has no limit to its creation, and therefore there can never be a shortage [presumably, credibility eventually runs out?

The words 'credibility' and 'credit' are both derived from the latin word 'cred', which means 'believe' And nearly all money now exists in the form of bank credit.

That's why Austerity is to Money what Chicken Blood is to Voodo Magic- both provide the tangible pain and sacrifice required to lend credibility to the incredible.

By demostrating a willingness to inflict pain on it's population the State sends a message of good faith to it's creditors (believers?)

The irony is that austerity as a wealth creation strategy seems to be counter productive- so in the very act of signalling their creditworthiness they are undermining the economy from which the borrowed money must be paid back.

Greece is the poster child for austerity- the more austerity it imposes the smaller it's economy gets- but it's not about the money, it's about the pain- as long as the chicken bleeds the voodoo economists will continue to claim that the magic is working.

It's funny- we imagine ourselves to be living in the age of pragmatic realism, but our entire civilisation is now hanging by the slender thread of belief that the one's and zero's that exist only in the memories of our computers actually represent real wealth.

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4 hours ago, wonderpup said:

 

It's funny- we imagine ourselves to be living in the age of pragmatic realism, but our entire civilisation is now hanging by the slender thread of belief that the one's and zero's that exist only in the memories of our computers actually represent real wealth.

Quoting this bit as it's so true it has to be repeated. Nail on the head. 

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12 hours ago, Millaise said:

She bluntly stated at the end we have made no structural changes since the G.F.I. of 2008 and that there are three ways out of too much debt, and that paying it down is no longer achievable, inflating it away is politically unpalatable, and that left (unsaid)  eventual default.

It seems we're not trying the Japanese route of increasing public spending liked by Pettifor;  'austerity' is throwing people out of work, which seems likely to shrink GDP and hasten default.

The bubble is being kept for as long as possible using low interest rates/QE; inflation is not regarded as a problem at moderate levels.

Default seems inevitable, but no-one can predict how/when this will happen.  Economists were happy to be handsomely rewarded for many decades to make forecasts but it no longer seems to be part of their remit.  There could be a sudden financial collapse like 2008 (eg collapse in house prices), or a slowly building tide of bad debts,  further denting GDP. Either way, I'd take it as a given that the banks will be bailed out again, and ministers express astonishment that someone else has been irresponsible.

If money is socially constructed, and based on promise as Pettifor suggests, then these broken promises suggest to me that it is sterling which will take the hit.  Or have I got it wrong?

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10 hours ago, winkie said:

Like the mirror image of the growing inequality curve.;)

Indeed.

With the US apparently already back to pre 2nd world war levels of income inequality and the UK almost there as well - although the majority in the US will likely on average still enjoy a better standard of living than the UK - just looking at gdp per capita figures alone as well as average wages etc (as well as the massive difference in average house sizes - you could fit nearly 6 UK homes in an average US home). 

Interestingly the common language of English in countries seems to have been a disadvantage to income equality since WW2 - although between WW1 and WW2 the common language seems to have been an advantage - at least compared to many countries in continental europe and Japan - in some of those countries an amazing 28% of national income going to the top 1%.

It seems that the 1970s and 1980s were the decades with the most income equality although maybe it didn't seem like that to some people at the time (and of course in the countries referred to in the charts below on average the UK still had the tiniest homes - so not only is income inequality rising rapidly in the UK but it has to be endured while living in the tiniest homes).

http://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts

chart-01

https://ourworldindata.org/income-inequality/

 

top-incomes

 

 

Edited by billybong

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12 hours ago, wonderpup said:

The words 'credibility' and 'credit' are both derived from the latin word 'cred', which means 'believe' And nearly all money now exists in the form of bank credit.

That's why Austerity is to Money what Chicken Blood is to Voodo Magic- both provide the tangible pain and sacrifice required to lend credibility to the incredible.

By demostrating a willingness to inflict pain on it's population the State sends a message of good faith to it's creditors (believers?)

The irony is that austerity as a wealth creation strategy seems to be counter productive- so in the very act of signalling their creditworthiness they are undermining the economy from which the borrowed money must be paid back.

Greece is the poster child for austerity- the more austerity it imposes the smaller it's economy gets- but it's not about the money, it's about the pain- as long as the chicken bleeds the voodoo economists will continue to claim that the magic is working.

It's funny- we imagine ourselves to be living in the age of pragmatic realism, but our entire civilisation is now hanging by the slender thread of belief that the one's and zero's that exist only in the memories of our computers actually represent real wealth.

Bank of England even published in 2014 that private banks create around 97% of the money supply. Surprisingly only the Guardian really picked up on it, while everyone repeats soundbites such as 'there is no money left'  and 'living within our means'. Money can and is printed out of thin air, which is mostly put towards mortgage lending. 

If bank lending was forced towards productive areas, you could help the HPI issue and productivity puzzle in one go. Sadly this would mean less profits and share dividends. So it won't happen. Yet. 

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9 hours ago, Assume The Opposite said:

 

Bank of England even published in 2014 that private banks create around 97% of the money supply. Surprisingly only the Guardian really picked up on it, while everyone repeats soundbites such as 'there is no money left'  and 'living within our means'. Money can and is printed out of thin air, which is mostly put towards mortgage lending. 

If bank lending was forced towards productive areas, you could help the HPI issue and productivity puzzle in one go. Sadly this would mean less profits and share dividends. So it won't happen. Yet. 

My highlight.

It would also mean more potential competition in the UK to the banking and financial sector (some would say the property sector as well it being a fully paid up associate member of the parasite sector with property/land being used as lending security) so that's another reason why it won't happen until the banking and financial sector is reined in.

Edited by billybong

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16 hours ago, wonderpup said:

It's funny- we imagine ourselves to be living in the age of pragmatic realism, but our entire civilisation is now hanging by the slender thread of belief that the one's and zero's that exist only in the memories of our computers actually represent real wealth.

What does actually represent real wealth?

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1 hour ago, One-percent said:

Health and happiness, nothing else essentially counts. 

I'd guess most people would agree and I'm no exception. I don't think anyone would define happiness as an electronically stored number though.

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2 minutes ago, Sterling Loss said:

I'd guess most people would agree and I'm no exception. I don't think anyone would define happiness as an electronically stored number though.

You are clearly not an accountant or banker then. :)

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43 minutes ago, Sterling Loss said:

I'd guess most people would agree and I'm no exception. I don't think anyone would define happiness as an electronically stored number though.

There is a healthy looking beggar who sits in our local shopping centre for hours every day, he may well be happy to do so day in day out. Would you say he has real wealth?

I doubt even a monk would say that. The monks probably worked towards a purpose. The steps towards attaining that purpose could count as real wealth.

Thinking about the question what is real wealth, well I would say thinking about how most people in this country go about their every day lives that we have real wealth in the infrastructure we all use and share with each other, the relative safety in which we live, the fact that most of us have enough to eat, clothes to wear, shelter, heating, education, health care, the shared society we live in. 

 

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What does actually represent real wealth?

Imagine that overnight all the memories of all the computers in every bank on earth were wiped, including the backups- all gone. No more money in the ATM's. The stuff that was left, the crops, the machines, the skilled people, the houses and the factories- all that represents real wealth.

But the strange truth is that if those banks were wiped out our civilisation would collapse into chaos because there would be no way to decide who should eat those crops or ride in those machines or employ those skilled people- it would all fall apart.

And in our utter stupidity we give the power over this incredibly dangerous resource called money to a collection of greed obsessed testosterone fuelled morons in the city and then act surprised when they break the world.

Edited by wonderpup

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5 minutes ago, wonderpup said:

Imagine that overnight all the memories of all the computers in every bank on earth were wiped, including the backups- all gone. No more money in the ATM's. The stuff that was left, the crops, the machines, the skilled people, the houses and the factories- all that represents real wealth.

But the strange truth is that if those banks were wiped out our civilisation would collapse into chaos because there would be no way to decide who should eat those crops or ride in those machines or employ those skilled people- it would all fall apart.

And in our utter stupidity we give the power over this incredibly dangerous resource called money to a collection of greed obsessed testosterone fuelled morons in the city and then act surprised when they break the world.

Nice argument wonderpup. The slight flaw is that I'm not convinced that most people are no longer skilled in any practical sense, so compounding the issue of your analysis 

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Nice argument wonderpup. The slight flaw is that I'm not convinced that most people are no longer skilled in any practical sense, so compounding the issue of your analysis

It's true I couldn't grow a potato to save my life- but I can paint pretty pictures.:D

I've tried in the past to propagate my pet meme 'Court Jesters of Capitalism' but sadly it's yet to catch on.

But....having shoehorned it into the conversation I have to exaplain what it means again-right?:P

So it goes like this- most of the population are employed to do things that are not really that essential for life- like me and my landscape paintings or the man who runs a shop selling dog toys ect ect- utterly useless tatt is what most us are in the business of making or selling or transporting halfway across the globe.

But-like the court jesters of old- we have to do our little thing, we have to caper and dance no matter how pointless it may be in order to eat and pay our rent- hence most of us are not really serious producers of serious value, we are the court jesters of capitalism doomed to a life of spurious psuedo activity that has no other purpose than to amuse or distract or entertain.

God I'm really depressed now.

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6 minutes ago, wonderpup said:

It's true I couldn't grow a potato to save my life- but I can paint pretty pictures.:D

I've tried in the past to propagate my pet meme 'Court Jesters of Capitalism' but sadly it's yet to catch on.

But....having shoehorned it into the conversation I have to exaplain what it means again-right?:P

So it goes like this- most of the population are employed to do things that are not really that essential for life- like me and my landscape paintings or the man who runs a shop selling dog toys ect ect- utterly useless tatt is what most us are in the business of making or selling or transporting halfway across the globe.

But-like the court jesters of old- we have to do our little thing, we have to caper and dance no matter how pointless it may be in order to eat and pay our rent- hence most of us are not really serious producers of serious value, we are the court jesters of capitalism doomed to a life of spurious psuedo activity that has no other purpose than to amuse or distract or entertain.

God I'm really depressed now.

That's a lovely metaphor. I've taken the view that we determine our own meaning and purpose (think this might possibly be a bit existentialist).   I left my meaningless commercial job, obsessed with pointless targets, statistics, not achieving anything to work with and help people in the NHS.....guess what happened!! 

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16 minutes ago, wonderpup said:

It's true I couldn't grow a potato to save my life- but I can paint pretty pictures.:D

I've tried in the past to propagate my pet meme 'Court Jesters of Capitalism' but sadly it's yet to catch on.

But....having shoehorned it into the conversation I have to exaplain what it means again-right?:P

So it goes like this- most of the population are employed to do things that are not really that essential for life- like me and my landscape paintings or the man who runs a shop selling dog toys ect ect- utterly useless tatt is what most us are in the business of making or selling or transporting halfway across the globe.

But-like the court jesters of old- we have to do our little thing, we have to caper and dance no matter how pointless it may be in order to eat and pay our rent- hence most of us are not really serious producers of serious value, we are the court jesters of capitalism doomed to a life of spurious psuedo activity that has no other purpose than to amuse or distract or entertain.

God I'm really depressed now.

But that's all fine and good.  We need beauty and nice things.  We would be a lot poorer without them.  My worry (I read too much end of times fiction :rolleyes:) is if the shtf then there are a lot of us, me included, who would not be able to survive on our practical skills.

just got to have faith that tptb can keep those plates spinning I guess 

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32 minutes ago, wonderpup said:

It's true I couldn't grow a potato to save my life- but I can paint pretty pictures.:D

Neither could I. I could however dig a small hole put a potato in it, maybe water it from time to time if there was no rain, and a few months later after the plant has flowered dig up some more potatoes that had miraculously grown from the original potato I had put into the hole in the ground.

We may not be as helpless as we think we are.

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