On the Road to Recovery..

On The Road To Recovery

 by Trevor Bacon

I nearly stood there holding the paper up high to proclaim my utter contempt at the headline. My habit when entering a supermarket is to first, after getting the obligatory metal basket or trolley,  to stop at the square news-stand, reading the headlines as I proceed around. About two weeks ago I glanced the headline in the Murdoch  Sun that  said “Gazza is dying as we watch”; my god they are finally printing some real news for once, then I realised that they were not talking about the plight of the Palestinians in the occupied territories but the last chance saloon  for the legendary blubbering alcoholic Newcastle footballer. So much for real news!

Anyway, it is not the rights and wrongs of the Palestinian conflict that exercised me that particular day, no, it was the headline in the Daily Express. As I said, in my opening line, the headline was so egregious that just for a moment I got ‘that feeling’, that feeling where your almost hanging on the edge of doing something.  As if  balancing on a high wire  where even the thought of making an utter fool of myself or possibly being taken to the nearest mental health unit by the police was not a deterrent.  The headline that incensed me was something to the tune of  “Property Prices To Rise By 4.4%.”

express headline

House prices will rise by 4.4 per cent next year, according to an influential City organisation

In fact it wasn’t even headline that really got to me, other than the clear leading implication that this was a good thing. No, it was  the sub heading that went on to say that the value of houses was rising and leading the economy out of the great recession.  So there I was in the entrance to Tesco and about to say what I will say here instead.  No, it is not house values that are increasing it is the price that you the punter is expected to pay. House prices are increasing, that is true, at least in the South-east, but not the value. Value and price, particularly  with regard to property are clean different things. You may say with honesty that more banks are once again willing to lend but you can’t say that in such an economy that these properties  are actually worth any more than they were worth last week or last month or that it is a good thing.  No, again, strange as it may seem for a government  so ideologically opposed to Keynesian Stimulus and market manipulation, that they are doing exactly that; using the governments ‘Funding For Lending Scheme and quantitative easing to pour money into cheap loans for unaffordable properties.

bibble house

In Tesco 200 Grams of mushrooms have increased in price by nearly 100% since about 2008 but do we see headlines in the conservative ass licking Daily Express extolling the virtues of what is nothing more than fungal inflation? NO! No we don’t.  If I were to go around the shop and do a straw poll of people on what they thought about the rising price of mushrooms would they unanimously say that it was an indication as to the positive health of the economy? No!  No they would not.  They would say it were either a case of profiteering or inflationary forces but I bet a pound to a penny that they would not be cheering in the aisles shouting “Hurrah for good news, the great recession is finally at an end.   I’m paying double for mushrooms.”  

The difference between mushrooms and houses is that most people have little financial interest in the world of mushrooms whereas most people do have an interest in the world of mortgagees and houses. If you are a home owner, or more often, a mortgaged owner then at the moment you may feel reasonably pleased. Interest payments are at an all time low and, if the Daily Express is to be believed, the value of your home is rising.  This gives you a warm and comfortable feeling, maybe I ‘can’ draw out some equity, and maybe I ‘can’ afford those two weeks in the sun or ‘that’ new car. If you’re a saver, you may feel just be a little different, your interest has been at an all time low and even long term investments are hardly keeping up with inflation. Ditto with young people.  If you’re saving for your first property, things have not been a bag of laughs for you either.

During the first phase of the housing crash, it was almost impossible to get a mortgage without a large deposit.  This situation has got somewhat better as of late and I suspect that this is the real reason why house prices are moving upwards again.  The only problem is that in some respects we are back to the situation ‘pre crash’ where banks were lending on very small deposits for houses that were way beyond traditional price ratios compared with the general  economy.

Shelter, a national housing charity recently stated that if a chicken had risen in price at the same rate as houses since the nineteen eighties the cost of one would be about £55.

chicken-white

Given that Chickens are still within the range of about £5 to £15 suggests that any retraction we have in house prices so far is negligible and that in real terms houses are still in a huge bubble.

So what has caused this new-found faith in the house buying public that could not be found in the intervening years since the crash? The answer is ‘Quantitative Easing’ and funding for lending .  Quantitative Easing  is a fancy name for an economic strategy that pre WWII Germany found so unsuccessful and probably led to the rise of nationalism’s all over Europe and WWII itself.  Of course, you will hear from its advocates that this is nothing like the money printing of Viamar Germany and that we are not about to see old ladies with barrows full of Deutsch Mark trundling down the high street to buy a loaf of bread.  And those supporters would be right, for one thing most money is no longer printed.  Since the introduction of banking computers’ systems, most money is simply tapped from a keyboard into existence as strange and disquieting as that seems. No, they are right in as much as we haven’t seen anything like the hyper inflationary activity associated with such events but then, neither did Germany, until of course it happened. When it did, it happened with such speed that there was nothing to stop it but that’s another story.  No, the grand plan is this; money is being quantitatively eased into existence. This quantitatively eased money is then used to buy back government bonds (government debt) back from the banks. This leaves the banks with cash to invest and the government with debt that it has been bought back through the use of money that it invented. So far so good….. I think??? (Think Left, Quantitative Easing)

So, to sum things up we have banks heavily backstopped  by the government, lending  to allow first-time-customers to buy overpriced properties and mortgage payers to release equity on these very same over priced properties in order spend into the economy.  This apparently, is the secret to ending the great recession even though it  all sounds like an ever increasingly complex spirals of debt. They, the LibCons and their cheer leading media whores may like to think that this kind of behaviour is, like a vigorously agitated toilet brush, going clear the blockage, but in reality I fail to see how it helps in the longer term.  The simple fact is that as much as we Brits like to kick the crap out of the lazy, feckless Greeks and others it may come as some surprise to this audience that Great Britain has just about the same public debt and exponentially more private debt to deal with.

Max Keiser, or one of his guests described the British economy and this particular policy strategy as follows, it’s like a terminally ill cancer patient given morphine.  While the effects of the drug are still obvious the doctor declares that the patient is on the road to recovery. Finally, property forms great chunks of the British banks balance sheet. That.is to say that the loan is backed by the house that it bought. The house is the tangible asset.  When house prices fall so does value of collateral that the bank can hope to recover should the debtor default. When house prices fall less people are willing to borrow on the perceived value of their houses.  Since the economic crash began the UK and most other affected governments have done everything within their power to stem the house price collapse and promote yet more lending. To do this the government have not only sacrificed savers, by instituting the lowest interest rates possible (negative in real terms) but also Nationalised banks and provided vast sums of liquidity. The banks in turn used this money to build up capital reserves  and not  to lend. So through the Bank of England the government hit back by providing what can only be described as stimulus to  get the economic ball rolling.  This of course is something that they said would not do given their unfaltering belief  in Neo Liberal economics. The simple fact is that the banks were not lending into the economy because in their view the problem had been caused by such lending in the first place and that a good economic argument for doing so did not exist and in that argument the banks were not wrong.

(See Think Left, Max Keiser and the Carry Trade)

The simple and unpalatable argument is that it is a fallacy to think that a healthy economy is dependent on house price inflation. Again, if the price of potatoes were to double, would that induce economic activity? No, it may prompt farmers to turn over land to grow more potatoes and force the population into substituting another staple such as rice or pasta but it would not benefit the overall economy, it would merely distort it.

This reminds me of an observation of Stacy Hurbert about a tribe of South Sea Islanders who, during the war, came into contact with American military that set up base. When the military  left after the war the Islanders invented what was known as a Cargo Cult that manifested itself in Islanders playing the parts of airfield staff. They cleared parts of the island to make a crude runway and make a tower for one of the tribe to sit  with a pair of half coconuts positioned on each ear. Others ran around with bat shaped paddles as they had seen the servicemen do. They thought that if they did this that  the cargo planes would return. In some ways this is what our governments are doing by artificially trying to maintain house prices without attending to the rest of the economy. Distorting the economics of house prices is just as flawed thinking as that of the islanders.

Our governments are using vast resources to maintain what is in reality a superficial economic effect. This is an effect of what I consider to have been an already a very flawed system at the best of times.  It will provide nothing but a cosmetic makeover that sooner or later will be seen for what it is, a way to fool a few people for a few more years. Stimulating growth through stimulating lending is a disaster, even by their own warped and antisocial economic  perspectives.  God Help Us All!

Dear Ed Miliband – forget about Disraeli, focus on the Greenbacks.

Quote

Shameless filching of Ellen Brown’s open letter to President Obama April 8th 2009.

Dear Ed Miliband

Your focus on Disraeli is all very well but why won’t you look across the Atlantic to his contemporary Abraham Lincoln?  Like you, he also had to find the way to finance what needed to be done but was initially blocked by the predatory banks.

You can solve our economic crisis quickly and permanently, by implementing the same economic solution that allowed Lincoln to win the Civil War and thus save the Union from foreign economic masters.

 

The bankers had Lincoln’s government over a barrel, just as Wall Street has Congress in its vice-like grip today. The North needed money to fund a war, and the bankers were willing to lend it only under circumstances that amounted to extortion, involving staggering interest rates of 24 to 36 percent. Lincoln saw that this would bankrupt the North and asked a trusted colleague to research the matter and find a solution… Colonel Dick Taylor of Illinois reported back that the Union had the power under the Constitution to solve its financing problem by printing its money as a sovereign government. Taylor said:

“Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes . . . and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender . . . they will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution.”

…  Lincoln took Col. Taylor’s advice and funded the war by printing paper notes backed by the credit of the government. These legal-tender U.S. Notes or “Greenbacks” represented receipts for labor and goods delivered to the United States. They were paid to soldiers and suppliers and were tradeable for goods and services of a value equivalent to their service to the community.

The Greenbacks aided the Union not only in winning the war but in funding a period of unprecedented economic expansion. Lincoln’s government created the greatest industrial giant the world had yet seen. The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent. The Greenback was not the only currency used to fund these achievements; but they could not have been accomplished without it, and they could not have been accomplished on money borrowed at the usurious rates the bankers were attempting to extort from the North.

Lincoln, succeeded in restoring the government’s power to issue the national currency, but his revolutionary monetary policy was opposed by powerful forces. The threat to established interests was captured in an editorial of unknown authorship, said to have been published in The London Times in 1865:

“If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.”

Lincoln was assassinated in 1865. According to historian W. Cleon Skousen:

“Right after the Civil War there was considerable talk about reviving Lincoln’s brief experiment with the Constitutional monetary system. Had not the European money-trust intervened, it would have no doubt become an established institution.”

The institution that became established instead was the Federal Reserve, a privately-owned central bank (just like the Bank of England) given the power in 1913 to print Federal Reserve Notes (or dollar bills) and lend them to the government. The government was submerged in a debt that has grown exponentially since…

 

Lincoln did not invent government-issued paper money. Rather, he restored a brilliant innovation of the American colonists. According to Benjamin Franklin, it was the colonists’ home-grown paper “scrip” that was responsible for the remarkable abundance in the colonies at a time when England was suffering from the ravages of the Industrial Revolution. Like with Lincoln’s Greenbacks, this prosperity posed a threat to the control of the British Crown and the emerging network of private British banks, prompting the King to ban the colonists’ paper money and require the payment of taxes in gold. According to Franklin and several other historians of the period, it was these onerous demands by the Crown, and the corresponding collapse of the colonists’ paper money supply, that actually sparked the Revolutionary War.

The colonists won the war but ultimately lost the money power to a private banking cartel, one that issued another form of paper money called “banknotes.” Today the bankers’ debt-based money has come to dominate most of the economies of the world; but there are a number of historical examples of the successful funding of economic development in other countries simply with government-issued credit….

 

The objection invariably raised to government-issued currency or credit is that it would create dangerous hyperinflation. However, in none of these models has that proven to be true. Price inflation results either when the supply of money goes up but the supply of goods doesn’t, or when speculators devalue currencies by massive short selling, as in those cases of Latin American hyperinflation when printing-press money was used to pay off foreign debt. When new money is used to produce new goods and services, price inflation does not result because supply and demand rise together…

… Thomas Edison astutely observed:

“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is that the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way.

It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.”

Henry Ford observed at about the same time:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Today we the people are starting to understand our banking and monetary system, and we are shocked, dismayed, and furious at what we are discovering. The wizard behind the curtain turns out to be a small group of men pulling levers and dials, creating an illusory money scheme that, behind all the talk and bravado, is mere smoke and mirrors. These levers are controlled by a privately-owned, unaccountable central bank … which has recently dispensed billions … in funds to its banker cronies…

“Any government that can disburse £375bn, without any accountability, is not a democratic government. It is government of, by, and, for the bankers.”

.. The bankers are scrambling, trying to patch up their crumbling creations with schemes, bailouts and sleight of hand. That effort, however, must ultimately prove futile. As investment adviser Rolfe Winkler said in a recent article:

“The great Ponzi scheme that is the Western World’s economy has grown so big there’s simply no ‘fixing’ it. Flushing more debt through the system would be like giving Madoff a few billion to tide him over. Or like adding another floor to the Tower of Babel. To what end? The collapse is already here. The question is: How much do we want it to hurt? Using the public’s purse to finance ‘confidence’ in a system that is already kaput may delay the Day of Reckoning, sure, but at the cost of multiplying our losses. Perhaps fantastically.”

The bankers are on the run, feverishly trying to use the collapse of the current system to steer us towards…  a one-world private banking system and privately-issued global currency that they and only they control. We the people will not accept those solutions, however, no matter how bad things get. We demand real solutions that empower us, not further enslave us.

You are looking for an alternative to Margaret Thatcher’s TINA.  Abraham Lincoln had such a solution.  Ed Miliband , you and Ed Balls, can finally bring his monetary solution to fruition.  Manifest the vision of Lincoln, Jefferson, Madison and Franklin…  but for this to happen, we need to expose and root out the deceptive banking scheme that would enslave us to a future of debt … The time has come for democracy to rise superior to a private banking cartel and take back the power to create money once again.  Incorporate the Bank of England into the Treasury and bring it back under democratic control.

Such a transformation would confront neoliberalism and even go far in creating your idea of a ‘One Nation’.  Reject the neoliberal myths of supply-side economics, ‘trickle down’, Laffer curves, ‘Crowding out’, NAIRU and pandering to the transnational corporates/financial sector.  The only valuable aspect of George Osborne’s disastrous economic ‘experiment’ is that it has conclusively demonstrated these mythologies as unworkable and erroneous.

PS. Mitigation of Climate change/peak oil is crying out for direct government investment.  Not only would it provide new jobs, apprenticeships and new manufacturing, the UK could also be a net exporter of energy with our abundance of potential renewable resources.

PPS. Restoring (and increasing) benefits, together with ‘living wages’, is both morally desirable, and would also quickly help increase demand in George Osborne’s flat-lining economy.  We also need a job’s guarantee and commitment to full employment.

PPPS.  Then perhaps we could challenge the contradictions of perpetual growth?

 

REVIVE LINCOLN’S MONETARY POLICY:
AN OPEN LETTER TO PRESIDENT OBAMA

Ellen Brown, April 8th, 2009 

Originally posted on Yes! Magazine Online April 7, 2009.

It’s not the Left that believes in Magic Money Trees. It’s the Right.

Quote

(it’s not satire – it’s the surreal world of banking)

Very often some people on the Right who are less intelligent – or to be more charitable less well-informed – say the reason many on the Left are against the government’s austerity measures is because they believe money grows on ‘Magic Money Trees’.

This accusation stems from the completely mistaken belief that there is only so much real money in the system – in the form of real banknotes and coins – and only hard-headed right-wingers like George Osborne understand there are no Magic Money Trees ready to produce more money to pay off the country’s debts and reduce the deficit.

But actually, it’s the Right who believe in Magic Money Trees.

Government supporters believe our NHS and public services should be cut just so we can pay non-existent money back into a banking system which really does grow fictional money from its numerous branches. Just like Magic Money Trees in fact.

The particular Magic Money Trees we’re talking about here are the ones that make up the enchanted fairy tale forest known as Fractional Reserve Banking – a system in which banks can lend money they don’t possess by creating it out of thin air – and the whole of the World’s financial system relies on it.

The eyes of those “less well-informed” people on the Right are probably already glazing over. Reality is much too complicated for them to understand. They presumably believe that when you sign a mortgage agreement with a bank, the banker goes and opens a vault full of cash and puts real pounds and coins into your bank account.

What actually happens is that the banker clicks a button on a computer screen which activates a direct line to the Magic Money Tree whose roots pass under every single branch of every bank and financial institution in the country – and the Magic Money Tree dutifully produces non-existent money which goes into your bank account.

For a really entertaining and easy explanation of how banks create money from nothing – have a look at this animation:

The Goldsmiths Tale

Most intelligent people on the Left understand all this and the reason most of them are against government austerity is because they also understand that a lot of the government’s cuts are being made in order to pay non-existent money to Magic Money Trees worshipped by governments the world over – in other words financial institutions like banks.

You see, when Barclays or Goldman Sachs executives pay themselves billions in bonuses every year, they don’t carry wheelbarrows full of cash around to their own houses and dump it in their garages alongside the Porsche and the Lamborghini.

They press another little button on their computers with a direct line to the Magic Money Tree and more non-existent money appears in their bank accounts – fictional money which nevertheless they can still use to buy their real yachts and islands and bottles of Bollinger.

So why are so many governments cutting public services to pay money – which doesn’t even exist – to Magic Money Trees?

Because it fulfils a political agenda – not a financial one. The political agenda of austerity is to reduce the welfare state, not to reduce the deficit or pay off national debt.

The UK should do what Iceland did when told to introduce austerity to keep the Magic Money Trees happy.

They told them to f*** off:

Iceland president: Let banks go bankrupt

.

For more information about the Great Banking Con, see these links here:

The Goldsmith’s Tale – (full version)

Where does money comes from? … the Bears explain

The market has a name: It is Goldman Sachs

Stephen Hester, Fred Goodwin, Bernie Madoff and the fraud at the heart of our banking system

COMPREHENSIVE REFORM OF THE CITY – Pay, Practice & Structure

.

UK suffers worst double-dipstick chancellor in 50 years

Quote

Britain’s chancellor George Osborne’s economic competence collapsed by 0.7% in the second quarter of 2012 as the country’s double-dipstick chancellor of the exchequer’s ineptitude extended into a third quarter.

A unique combination of across-the-board weakness in ability and proficiency coupled with a weakening of rational output right across Mr Osborne’s activities were responsible for the setback, according to data from the Office for National Statistics.

Analysts in the City had expected a 0.2% drop in gross economic negligence from the government in the three months to June but were stunned by the scale of the fall in ministerial competence. The decline followed the 0.3% fall in common sense in the first three months of 2012 and a 0.4% decline in savvy in the final quarter of 2011.

Constructive output in the all-important governmental sector dropped by 5.2% between the first and second quarters of 2012, with cabinet level quality falling by a massive 1.3% and ministerial output dropping by as much as 0.1%

This is the first double-dipstick chancellor the country has seen since the mid-1980s – when the UK was beset by high levels of arrogance under the chancellor Nigel Lawson.

Officials at the ONS said it was hard to assess the full impact of the chancellor’s fecklessness in the second quarter, but officials expect a bounce back in the third quarter, when the London Olympics should make people forget for a few weeks just how shoddy his handling of the economy is.

A spokesperson for the ONS explained:

The data indicates that the government’s proficiency is contracting at a quarterly rate of around 1%, suggesting that the Chancellor in particular will act as a major drag on economic growth in the second quarter.

.

This article was originally posted on Pride’s Purge.