Wednesday, 15 February 2012

The Greecey Pole: The Slippery State of Funny Money

Being a radical bookseller allows one to keep interesting company. Such company has shed further light on previous developmental thoughts on the Greecey Pole having had a fascinating week: a Cafe Economique discussing Positive Money, a bit of reading around the subject finished off by a weekend at the Schumacher North Conference in Leeds.

The Greecey Pole should teach us about money - as distinct from economics. although I worry about the emphasis on growth that even the Positive Money crew espouse, they come to the incisive conclusion that, ironically, economists do not know much about how money works, or indeed, what it is. This accounts for why very clever people in charge of the economy have consistently failed in predicting future prosperity. Like us, they got suckered by the banks into thinking that money is 'real'.  We now know that it is not.  To those for whom this is news, I'll explain.

The banks operate a policy of fractional reserve lending.  Essentially this means that the they apply a fractional formula to how much they can lend out.  The more they have deposited, the more this allows them to lend.  So, suppose you get a loan. You will probably stick this in your account as a brief holding place from which to draw.  Banks are not able to distinguish between a deposit that has been borrowed and a deposit that derives from 'real' money.  It therefore uses the deposit of your loan to increase its lending capacity by whatever figure the banks' regulators allow.   The 'fraction' works like this: if your loaned deposit is, say, £1000 and the bank is allowed to lend 10 times this deposit, it means it can lend someone else £10000. This means that the banks have lent 'virtual' money; money that doesn't really exist - is keyed into a computer.

Essentially, then, banks have been given the license to create money.

It isn't rocket science to understand that this inflates what the banks see themselves as worth, and that the process is eroding away the value of money as a viable means of exchange.  It has nothing to back it up.  This is why banks are being given bail outs - instead of, for example, the government giving us money to spend (or save).  The idea is to 'monetise' the perceived reserve.  But of course this will never happen if fractional reserve lending is allowed to continue.

Okay then.  So what is this to do with Greecey Pole?  Well governments, ours included , borrow their money from the banks at interest.  Now, remember that banks do not possess the reserves that economists think they have - they're entirely dependent on the income raised through interest payments.  This sets them up to generate as many loans as they can in order to generate income.  It is this behaviour that places countries and their governments in human bondage for generations.

The Bank of England, through Quantative Easing has learned that it can still effectively print money.  It seems to have forgotten this and has abrogated most of this responsibility by giving it to the banks to do.  Consider for a moment the economic effect of ending fractional reserve lending.  The Bank of England prints the money - makes it physical and real - and gives it to the government.  The government stops all borrowing.  It then does not have to pay interest back to the banks.

The money saved would completely pay for the entire welfare state.

But this does not apply to Greece.  Greece can't print its own money - nor can any Eurozone country.  The 17 member countries depend on borrowing to regulate their economies and this comes at the cost of escalating interest charges again imposed externally by the vulturific ratings agencies.

Greece is emblematic of the whole situation in extremis.  It is at the mercy of a banking system wholly focused on its own internal psychopathy.  It has no interest in the human-scale devastation its demands for austerity causes and is possessed of complete indifference about whether a further funny-money loan will eventually lead to societal breakdown - notwithstanding the logic that when this happens, there is no chance of payback anyway.  For what is a bank for if not to lend?  So desperate is the ECB to get payback assurances, it is delaying any payout on the blackmail of ensnaring ALL members of Greece's opposition parties to sign up to the terms of the bailout agreement.  This ensures that Greece's democratic system is well and truly stitched up for generations to come. 

This is a situation not to be borne and it is hard to see how Greece can stay in the Euro - shouldn't stay in the Euro.  It is likely that Brussels will cut Greece loose when it finally realises that it will never be able to pay the funny money back.  for those whose savings are in Euros (which is why so many fear the exit), surely a duel monetary system can be operated - possibly backing their savings by sterling may be something constructive Britain can do in its attempts to market itself as the saviour of the world.

But for now is it possible that we can see the emblematic nature of The Greecey Pole as a lesson to us all to end our indentured servitude to the banks?  Possibly not.  To do this requires a truly courageous state, properly pro-active leadership that takes on vested interests to protect the human; one that isn't willing for the population to be farmed by Diamond bankers and which will never, ever refuse the vulnerable.

As someone said at Schumacher (paraphrasing someone else)... A leader can only lead if there is a flock behind them.  I am fully aware of how a banking collapse will affect us all - particularly the poor and the vulnerable the most and would most certainly not want to see this.  However, it will collapse anyway - its centre cannot hold - so transitional measures for reform should happen now.

If the politicians continue to behave with the same level of inertia (though interestingly not so with NHS reform) then we probably will have no choice but to flock off and take our funny money with us.


Where might our money 'flock off' to?

For further reading on this subject, available from the radishwebstore see:

The Grip of Death:  A Study in Modern Money, Debt Slavery and Destructive Economics by Michael Rowbotham

The Courageous State by Richard Murphy

The Future of Money by Mary Mellor

Prosperity Without Growth by Tim Jackson

Small is Beautiful by E. F. Schumacher