News Flash 9.10.11 sent via email@example.com
You repeat the same thing over and over again and get the same result each time.
You keep on repeating expecting a different outcome.
In medical terms your condition is diagnosed as insanity.
So why does the Bank of England add another GBP 75bn of Quantitative Easing to the GBP 200bn that have accrued over the past three years, as announced on Friday?
Or why does J C Trichet as his last action as governor of the European Central Bank match this by announcing an unlimited QE facility to the accrued Euros 442bn and an additional Euros 40bn for covered bonds? (covered bonds are those for which an actual tangible collateral can be found)
Both expect this will help to make the national debts disappear into thin air this time.
I have given the answer above already, their medical condition seems to be responsible.
Today it is estimated that for every dollar of good money exist $300 of bad money.
So what is bad money and what is good money?
Let’s explain bad money by an example of derivatives, something that did not exist yet when I studied economics in the late sixties. Most bankers don’t understand derivatives either but trade in them only.
Imagine you are a therapist. Your accounts show $10.000 revenue from treatments.
The bank is not happy and doesn’t want to know you.
You develop Easter Egg Therapy, EET, you trademark and capitalize with $1m.
Now your profits are $1.010.000. The bank is happy and loans you $500.000 against the trademark. You happily pay $300.000 taxes and stash $200.000 away.
The bank is happy, the government is happy, you are happy having contributed to the economic growth of your country.
At the same time your colleague develops Cat-Stroking-Therapy, CST, and finds a different bank that wants to be kept happy.
Now you sell EET to a third party connected to your colleague for $5m. The bank is impressed and will happily lend you $20m for the aquisition of CST. Your colleague is able to fund the third party and banks are queing up to lend more. You and your colleague remain good friends just as all the captains of industry remain good friends and play musical chairs with chairman positions, naturally the rules are changed so that there is no empty seat.
Banks hold the trademarks as collateral, bundle these and offer them to investors for refinancing. So EET and CST are a bundle now. This bundle will be bundled with other bundles and sold as derivatives (derived from somewhere – thin air primarily). There is no limit to bundling and creating new derivatives. You may recall bundled mortgages in US.
The bank persuing the foreclosure could not establish who was actually holding the mortgage which was an “asset” in many derivatives at the same time.
Your $20m loan may result in derivaties valued at $200m or billions. All these are bank assets that enable the bank to borrow more from the central bank and loan to the rich investor in order to buy derivatives. This vicious circle, or rather funny circle, generates an unstoppable spiral. This system works for the sake of earning interest, any lowering of interest rate results in the creation of more “asset volume” that compensates for “interest volume”, 10% of 100 is the same as 1% of 1000.
You may repay your $20m loan or not, it makes no difference, it is a drop in the ocean of money that was created. Naturally the bank does not want to lend to small companies whose production facilities and business performance are exposed and can be easily scrutinized. Banks want to lend to companies like Coca Cola who claim that their brand name is worth billions and its ever increasing value shows on the balance sheet. This is the basis for creating derivatives and “wealth”. As a result Great Britain changed from an economy manufacturing goods to a financial services economy.
Luckily these derivatives are held by the rich and constitute paper wealth, no actual banknotes are printed. This “wealth” only causes problems should it be withdrawn from the realm of bad money and enter the realm of good money.
For good money I use Permaculture Paraguay, Pecu, as an example:
The guys in charge of producing cherry jam have a contract to produce 100 jars at $2 each.
This is the quantity need to serve all members, these have the collective capital to buy these 100 jars for $200. The amount of money in existance matches the amount of goods produced at a predetermined price.
Now the guys produce 5 more jars and the members buy these. This action generates 5x$2=$10 automatically. The $10 are credited to the guys and the members are debited accordingly. The members are $10 in the red now and will increase $10 worth of whatever they are doing to balance their accounts.
The principle: Money (own currency) is created automatically according to what is produced. There is no inflation as prices are predetermined. There is no interest charged as interest is bad money backed by no goods, the guys can only spend their extra $10 once goods have been created for this money.
So when somebody turns up with bad money (non-pecu-currency) wanting to buy the 105 jars we say no, these are for the needs of our members, we cannot eat your dollar notes.
Should the guys have produced an extra 50 jars that cannot be consumed within Pecu, then these can be exported. This creates surpluses that create wealth. This wealth in turn is used for the benefit of the community. It pays for imported goods and internal services like pensions. Pensions have no productivity factor and hence do not automatically generate money. The same applies to Kindergartens, Schools and Healthcare.
The theory of “survival of the fittest” should never be applied to individuals but societies only. Societies creating “wealth” based on bad money cannot survive, and individuals cannot survive without society.
We conclude: commercial banks need to be abolished, there is no justification for their existence. One central bank controls the volume of money of each individual currency and loans directly. Money volume has to be an automated process based on goods and services that are generated by society. Hence neither inflation nor deflation can exist. There is no interest rate as any money generated through interest is bad money. Loans are granted to individuals/companies for the purpose of generating benefits for society. Loans must be balanced against savings and surpluses of society and future benefits for society derived from the loan.
Link to Permaculture Paraguay is here