Tag Archives: debt and deficits

A Banking Debate

Wall Street, NYC
Wall Street

Introduction

Since the financial crisis of 2007-8, one suggested target reform has been the monetary system itself.  This reform is based on the recognition that money in the modern economy is a rather peculiar phenomenon.

There are two popular conceptions of the nature of money, both of them incorrect.  (Note that when we talk about money, it is entirely artificial to separate cash, in the form of bank notes and coin, from what we hold in bank accounts. To all effects and purposes, for the vast majority of us, they are the same and completely interchangeable.)

The first conception is that money is a fixed quantity determined by the government, which is either accepted by convention or because you can go to your bank and get a certain quantity of gold for it. (Presumably not many people have actually tried this!) The second is that banks can issue new money to lenders as a multiple of pre-existing deposits, depending on how often depositors demand cash. This is frequently referred to as ‘fractional reserve banking’. Continue reading A Banking Debate

Lying in the Cause of Austerity – ‘Budget Hero’

“Budget Hero” – Public Media’s Most Despicable Financial Propaganda is the title of a great anti-austerity piece by William K. Black on the New Economic Perspectives site. It appears that some very strange and economically ignorant people have designed an on-line game to demonstrate their destructive view of how the economy works.

Bill Black is an expert on regulatory policy and fraud prevention and is the author of The Best Way to Rob a Bank is to Own One.

The ‘Budget Hero’ game is basically rigged to show that only major public expenditure cuts can avoid budget blow-up, irrespective of what the real impacts of those cuts might be. As Black points out, this rules out the sort of negative impacts of austerity we have seen in the UK and Europe. It’s evidently not even possible to adopt a policy of offsetting tax increases.

As I have pointed out before, and this confirms, only dishonesty can defend this type of policy.

Is Banking Government-sponsored Counterfeiting?

Banking as Fraud

I’ve got involved with one or two on-line debates recently in which the issue of money in commercial banking is seen as a fraudulent process by which value is stolen from citizens. Usually the central bank is seen as the government’s enabler in this process, and so to blame for the resultant misallocation of credit or ‘malinvestment’. This is a view to be found among adherents of the ‘Austrian’ school of economics, and ties in nicely with their extreme views of the efficacy of markets and the villainy of governments. Even if they do not believe the only money used should be gold, they believe that its value should be tied to gold and that central banks consistently devalue the currency by setting too low the interest rates  at which commercial banks borrow from them.

While the Austrians’ views are so dogmatic as to be fairly easily ignored, there has also been a recent tendency among some campaigners, such as Positive Money or GolemXIV,  to blame the current discrepancy between rewards to the rich and punishment for nearly everyone else on the banking’s ability to ‘create money out of thin air’. According to this view the banks then profit from this costless activity by lending it to us at interest, either directly or indirectly via government. Continue reading Is Banking Government-sponsored Counterfeiting?

Cameron and Osborne sunk my Economy

A version of this post appeared on LabourList on 1st August 2012.

Economy Boat
The ‘Economy’ in calmer waters (Photo by Kerstin)

The charge sheet against Messrs Cameron and Osborne as the architects of the coalition’s economic strategy is growing, and it may not be long before they, like their buddies Andy Coulson and Rebekah Brooks, find themselves in the dock.Not perhaps the dock of the Old Bailey, but the dock of public disgust at their approach to the economy.

 It is forgivable to get economic strategy wrong – for those who have understood Keynes’s real message, uncertainty is the prime feature of economics. What is unforgivable is to propagate clear untruths about the recession that is threatening the livelihoods and incomes of so many. Continue reading Cameron and Osborne sunk my Economy

Bailouts and the Future of Banking

Long piece today by the Guardian’s economics leader writer, Aditya Chakrabortty, on the cost of the banking crisis, bank misconduct and what should be done about it. I agree wholeheartedly with the thrust of this piece, and indeed said much the same two and half years ago in my piece on the Guardian Cif site. Aditya’s piece concludes that

any investigation needs to understand how to reform the finance sector so that crises like these don’t recur; and so that banks actually work in the public interest rather than hire propagandists to pretend they do. Because in the end, financial reform is not about technicalities, but about politics: deciding what role banks should play in an economy, and what kind of economy we want.

However, he says also that:

According to the IMF, the British stuck £1.2 trillion behind the finance sector. Read that again: well over a trillion pounds in bailouts, and loans and state guarantees on bankers’ trading. In just a few months, and with barely any public debate, every household subbed £46,774 to the City. A sliver of that money eventually went unused; as for the remaining hundreds of billions, we have no idea just how much we’ll get back – or when.

I have some concern with these numbers. And, as I suggested in response to David Malone also, I think this is important. Continue reading Bailouts and the Future of Banking

Economics and Perception

I’ve read with interest the recent Labour List posts of Owen Jones and Emma Burnell. I think on the politics Emma is right, but on the economics Owen is right to call for a fresh plan of action.

Politics these days is a performance, and it’s increasingly a self-interested one where concern for the greater good is either absent or on the back burner. How we tackle that is an important issue in itself, but let’s just assume for now that the general welfare of the UK population is really at issue.

Ed Miliband is a human being, with all the faults and idiosyncrasies that entails. When they see him through the lens of the media (as most only do) some people will instinctively find him sympathetic, others will not. On what grounds, who knows? In the end, whatever this effect, it only has to allow Labour to be voted for ahead of the parties of his rivals, Cameron and Clegg. Continue reading Economics and Perception

Austerity is political

Fifth Avenue and Trump Tower, New York City
Wealth, US style. The glass monstrosity of the Trump Tower reflects the evening sky

This article was published on LabourList on Thursday 12th January 2012.

That there is ‘no money left’ is presented to us as an economic fact of life. The Conservatives have embraced it and the Liberal Democrats accepted it. Led by the authors of ‘In the black Labour’ we are at risk of falling in with the inevitability of public squalor and private misery. Yet let the fog of this delusion lift briefly and we see around us the extraordinary wealth of a modern developed nation. The imperative that apparently forces us to accept a significant reduction in the quality of life of the majority of the population is almost entirely political. We should reject it. Continue reading Austerity is political

Commentary on GolemXIV in Edinburgh

David Malone, a documentary film maker, perhaps better known these days as blogger on the financial crisis and its causes – operating under the name GolemXIV – gave a talk in Edinburgh on the 6th of December.

He’s quite a charismatic guy and gave an effective talk in a church with no aids other than a radio microphone. I hope that he will continue to campaign against the current acceptance of continuing economic policies that will undoubtedly make the majority of us worse off. I have offered him this commentary in the hope of improving our mutual understanding of the problems faced and how we might deal with them.

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Dear David,

I was at your talk in St John’s in Edinburgh last Tuesday night and was impressed by the eloquence and passion with which you make the case that the current economic situation is a travesty of democracy and fairness. With that view I am in complete agreement, and I think you have the qualities needed to get the required message across. Continue reading Commentary on GolemXIV in Edinburgh

Union Action Against the ‘Cuts’

Maid of the Loch Paddle Steamer
British Industry as it used to be!
This post was published on LabourList on 13th September 2010.

The TUC conference starts today, and union leaders are declaring war on the coalition’s deficit-reduction strategy. Although some union leaders are talking about ‘civil disobedience’ campaigns and co-ordinated strikes, TUC general secretary Brendan Barber is taking a more cautious and constructive line. He wants a ‘political campaign’ that depends not just on a negative stance against the ‘cuts’.

He is absolutely right to take this approach, for two major reasons. Firstly, while it is absolutely right that individual groups of workers make the case that removing their jobs are false economies, it is too easy for the coalition to claim that without reducing the deficit and the interest payments that are attached to it ‘things would (or will) be worse’. And the reason it is so easy is because there is a lack of understanding of the economic paradigm that underpins the coalition’s rhetoric. Sadly this economic paradigm was shared by the 1997-2010 Labour governments. Continue reading Union Action Against the ‘Cuts’

Downgrading Moody’s

Moody’s threatened to downgrade Spain’s debt yesterday. Why do we pay any attention to anything they, or the other ratings agencies, say?

In conclusion, I have tried to show that Moody’s managers deliberately engineered a change to its culture intended to ensure that rating analysis never jeopardized market share and revenue. They accomplished this both by rewarding those who collaborated and punishing those who resisted…The adjusted European CLO Rating Factor Table appears to have been adopted for the sole purpose of preserving Moody’s European CLO market share despite the fact that it might have resulted in Moody’s assigning ratings that were wrong by as much as one and a half to two notches….every single investor in a Moody’s rated European CLO may have a claim against Moody’s for damages associated with the fact that their CLO investments were not priced correctly.

Testimony from Mark Froeba, former Moody’s Senior Vice President, to the US Financial Crisis Inquiry Commission, June 2nd 2010.