Money May Not Make The World Go Round

Managing a currency is not easy, even if a state has considerable control over its affairs and has a high level of self sufficiency. Managing a currency that serves many other countries one way or another, has an international role in trade and banking but is critical to the health of your own economy is exceptionally difficult.

Looking down the centuries of history the lesson is that it is impossible to do without periods of severe stress, endless difficult “no right answer” decisions and the certainty of eventual collapse due to the internal contradictions, war or unforeseen disaster.

In other words, the game is up for the period when we have had three major currency systems operating on this basis. The Euro issues are well enough known in our media as we see what is happening at present.

The Dollar, once under the control of the US Government but which has come to have a life of its own has just been used to save the Euro. The price will have to be paid by additional strains on that currency which is already vulnerable and in trouble.

The UK pound, that once ruled the waves, is in a kind of Mexican Standoff with both the Euro and the Dollar. Were the UK to be remotely independent and in control of its own affairs then it might find its own solution.

But it has handed so many powers to the EU, for so long has been Airstrip One for the USA and has allowed The City to become so embroiled with Wall Street activities that it now in a deep deep hole.

The USA wants us to help to sort out and buttress the Euro. The Euro wants us to give financial support but otherwise stay out of the way because we will only mess up. The City wants us to use the opportunities offered by the Euro’s troubles to bash the Euro. Wall Street also wants to bash the Euro but nobody to know.

At one time London was central to the financial and money systems of the Empire. We know how that ended after we ran out of money in the 1940’s. Then we had thirty years of trying to run an economy that kept the Sterling Area afloat. That ended badly with a wreck of an economy saved by North Sea Oil and Gas.

On that basis we moved on to a “service” economy expansion with financial services being a major feature, tied in to a network of tax havens and global systems. That is now at an end but we cannot accept that it has gone for good.

Also gone is the Euro as it was intended to be and whose future is clouded at least. Then there is the dollar and how long it can continue in its present form. The one certainty is that its past role is finished as well.

So what are we left with?

A Digital Theory Of Money

Digital money comes from nowhere and goes nowhere. Anything can happen in between. We do not know how much of it there is or where it is or why.

This is intended to be a short post so explaining all the past theories of money and connected theories of economics in the meantime will have to be skipped. All that needs to be said is sometimes they connect better than others and too often they do not connect at all.

What the economists have said about how things work and how the money men have actually operated and the issue of who is using what kinds of money to what purpose is difficult at all times. It is more difficult during periods of rapid social, political and technological change.

Which is what we have just had in the last couple of decades only this time round it has been speeded up. Moore’s Law (Wikipedia) has come to apply not just to computing but a great many other things arising from their impact.

The notion of “creation of credit” has been around for a while. Simply it was the ability of banks and finance houses to enable credits to be given to borrowers to a greater extent than the assets held by the banks etc. At one time this applied to holdings of “hard money”, physical precious metals or stones, but later became “fiat” money and the figures in ledgers.

When it was largely “hard money” that was acceptable the only way to get it was to dig it up, engage in trade or conquer territories where it could be dug up. This put a number of limitations and constraints on governments in that in the last analysis there had to be physical or trading controls of varying types.

As governments developed and grew in power the shortages of “hard” money arising from their ambitions, growing populations and extending trade meant the use of “fiat” money.

As this began to supplant “hard” money and as “fiat” money came to be under the control of governments we had a phase when politicians could chirp happily on about economic planning and controlling the economy and everything in it and being able to throw money at those things which conferred political advantage.

Having achieved a high degree of control and looking for still more ways to find money to please their clients many came to “loosen up” the regulation and control to let the money men indulge in much more “credit creation”. Governments still thought that their control over the issue of the “fiat” money and some rates of interest would do the trick of keeping matters in hand.

One of the features of governments as a whole in the last three decades has been the astonishing lack of understanding of what computers are and can do; their remarkable incompetence in dealing with their own systems and inability to find out what is really happening out there in all those main frames.

It has not been helped by a matching inability of the top levels of management in very many of the banks and financial companies to understand what goes on. The one thing they did understand was that the geeks together with Professors of Mathematics and hard nosed traders delivered what appeared to be huge increases in both total activity and related profits.

To do this they created beyond the control either of governments or their own top management unlimited amounts of digital money. This came as what appeared to be ordinary money and credits but added to that a huge array of highly complex forms of quasi-money and financial instruments representing an end value of money.

They were able to do this anywhere they wanted, move it about anywhere and at any time they liked and increase it at any rate they chose so long as the figures looked good and convinced the wondering ignoramuses in the Treasuries, the Central Banks, the Boards of Directors and most of all in the governing cabals of the world.

Governments have lost control over the world’s supplies of money and credit. Because of that they are losing control over their economies. As this happens they will begin to lose control over their populations and other people. Quite where this will end is not certain. What is certain is that there are a number of states that have failed and others that are about to fail.

All the old theories or certainties about money, economics and politics are gone.

Those who do create the digital money demand governments pay for their errors and continue to support them. The money men have no interest in either control or the effects of their decisions on ordinary people other than that they have the ability to extract money from them at the bidding of the money men.

It is 28 June 1914; the Archduke Franz Ferdinand of Austria is visiting Sarajevo with his loved wife Sophie. They are not using the old fashioned horse and carriage form of transport. They are in vehicles of the new automobile form of personal transport, said to be faster, more efficient and a more effective way of moving about.

There is confusion in the seating arrangements, one of the cars is damaged and then there is an error in the giving of directions. When the driver tries to reverse the car it stalls, and the political assassin Gavrilo Princip shoots.

The world began to change.

The Answer To Everything

Money and finance have become divorced from the real economy.

It is as simple as that. They have been able to develop a life of their own increasing removed from the realities of getting and spending. “Investment” now is no longer what we understood it was. It is now shuffling digital “money” around, largely figures plucked from the fevered imaginations of the financial sector.

Some of it may find its way into the real economy, much as alimony is paid to former spouses. But in this field it is not a judge that decides the figures it is the guilty party in the divorce.

The trouble is that the money created which leaks out of the system increasingly goes to bought governments and agencies and large commercial firms which pursue policies and actions that allow further extraction of figures which help to churn the money through the computer systems, i.e. the economics of extraction.

Many of the more damaging credit crashes of history, going a long way back, feature this kind divorce in differing ways. The ledger based money, the tallies of merchants or the paper money created goes out of any synchronisation with a real economy and the result is one disaster or another.

In the late 20th Century we got our hands on computers and both speeded up the process and by thoroughly globalising it created digital money that could be whirled through space and time zones in an ever increasing frenzy.

To keep the party going debt was turned from a danger to the lowest earners into a necessity to survive and huge credits urged on people who had little ability either to pay or to manage them. Amongst the wealthy we had casino capitalism with the high rollers going ever higher.

Inevitably, politicians, dictators, civil servants and the rest bought into the wonders of it all both for prestige and personal profit. So most, if not all, of the world’s governing systems are locked into it without any real exit.

In the past empires have collapsed, mass migrations occur, wars and hunger litter the history books and perhaps whole past civilisations began their decay or disasters.

So what are the markets telling us today?

How Much Did You Say It Cost?

As we survey our finances and look accusingly at each other there are the unspoken questions. Is healthy eating just costing too much? What does it do to the electric bill to have the silent football on screen and music on the radio while we look through the magazines?

Then there are the unpleasant reactions when we have to buy things and find the prices a lot more than we expect and the goods shoddier. It is not just us, it seems be a great many people out there who are in the same situation.

Also, we have begun to factor the petrol costs into any shopping or going about anywhere. That run to the seaside where the petrol cost did not bother us we now have to look at in relation to any other spending.

I could go on and on. Rather than ramble round the shire with my own theories a few links on the web today gives some explanation of at least part of it. The first is where the money is going for some people who have oil to sell.

The other is the consequences of the tax gap and its implications. The third relates a tale of financial hanky panky which is but a tiny part of the whole.

The fourth is one of the long and expensive catalogue of gross errors by our super efficient highly managed financially knowing consultant driven machinery of government which seems to be cocking up almost everything it touches.

http://www.bloomberg.com/news/2011-09-19/opec-s-1t-cash-quiets-poor-on-longest-ever-100-oil.html

http://www.taxresearch.org.uk/Blog/2011/09/21/the-tax-gap-hmrc-puts-out-another-work-of-fiction-suggesting-its-falling/

http://treasureislands.org/is-new-zealand-cracking-down-on-dirty-company-business/

http://www.telegraph.co.uk/news/politics/8774287/The-469-million-Whitehall-fiasco-of-FiReControl-goes-unpunished.html

Is there honey still for tea?

The Illusions Of Money

You can’t take it with you and you do not have it before you arrive. So money and for that matter wealth is only to do with whatever is the present. At one time it consisted essentially of rare metals or earth substances such as precious stones.

Sometimes other things served; rare spices, tulip bulbs and goods in scarce supply which could be easily exchanged for other things. These preferably would have long life. In my time cigarettes fulfilled this function with sugar and other foods also serving as other forms of exchange.

Basically, money is what people accept as money and wealth is what they can point to and say this is mine and I control it. There is scope for confusion here. At present we regard our living space as wealth when in the past it has often been regarded as consumption.

There are many learned men who have explained this and discussed all the history and the ramifications of these things. The trouble is that we do not learn from them and regard money and wealth as having some kind of reality when in fact it is an illusion only of our own lifetimes, as we are discovering yet again.

How those in the past have dealt with it has varied greatly. Attila the Hun and his followers were essentially a high consumption, acquisitive and low investment global activity with both a predatory and extractive system of management.

They forced others into debt and slavery and their extraction resulted in major public expenditure cuts notably in the Roman Empire. The scale of the damage they did was huge, yet they left very little trace of their empire, it became dust very quickly.

There had been other empires before and there have been other empires since. All of them in turn have had their illusions of money and wealth. Some have left more monuments, heritage and history behind than others and it is those with a written history which dominate our ideas.

We know that in the Atlantic Isles there was once a Henge culture that was extensive and must have involved high degrees of organisation, control and means of exchange and storing wealth. We know precious little about any of the belief systems, the economics, the people or their social structures. We can only guess from what we find in the ground.

However, there is a theory that when Margaret, Queen to King Malcolm Canmore came to Scotland from Hungary she was accompanied by a guard of horsemen. These became the founders; it is alleged, of the Drummond Clan. If so, then the Drummonds may well be descendants of the ancient Huns who rode with Attila.

In 1717, Drummonds Bank was founded which became part of the Royal Bank of Scotland group recently. The RBS financial strategy does bear some conceptual similarities with the activities of Attila and his followers. Now we have a major financial crash in which this bank has certainly played its part.

History casts a long shadow.

Debt, Spending And Control

The blogosphere at present seems strangely disconnected perhaps reflecting all the uncertainties of our times, the limited amount of reliable information and the clatter of so much confusing spin. That is where they are allowed to talk about something.

Fleet Street Blues came up with a very interesting idea. As so many celebrities of one kind or another and senior people in effect are media dependent for their standing and worth then if one should take out a super injunction limiting what may or may not be said then for the media as a whole they become “unpersons”.

That is the media resolutely refuse to mention anything about them, or if it is difficult to avoid then the barest treatment, for example tacked on at the end of a match report on a football game “name also scored”. The biter bit so to say.

This idea might be taken further. Market Oracle today had an intricate item on the subject of the thesis of Debt Saturation and the Money Illusion. Detailed but the nub of it was that servicing world or a national debt could get to the point when it was impossible to pay down the debt with dire long term economic consequences.

These days there are few households without some form of ongoing debt or another. A good deal of this now is credit card debt driven by the need to consume. Could we all decide to avoid using cards as much as possible and audit our personal spending to avoid debt wherever possible? If we could it would be a marvellous way to punish greedy bankers and incidentally begin to control our own lives.

Further to that, being a nosy person, I am fascinated by the amount of stuff and what it is in other people’s trolleys. Often there is not much in that of many OAP’s for obvious reasons and some others who are clearly a bit short. But there is little doubt that many households are buying and using stuff that costs far too much and often has little real purpose.

Also, I have had a sweaty and unpleasant morning around town being obliged to do the shopping today for our minimal needs. It was difficult to avoid hordes of people evidently buying goods because now shopping is supposed to be recreation. I regard it as one of the inner circles of hell. But to see so many people buying clothes they do not need and which do not last on credit makes me wonder.

If enough people decided simply to get what was a real need and not an advertised or marketed need and to minimise both outlays from income and added debt then we would begin to bring the economy back to its senses.

Unluckily, I think that the media will not stop fawning on the famous, power wielding elites will not stop borrowing money for us to pay back and the ordinary person have the sense to stop propping up those who are managing to extract all we have and more.

Lowndes Square, Pile Ups And Privilege

This item below from the Daily Mail yesterday, also in other media, caught my eye because days earlier I had been taking a good look at Lowndes Square arising from background searches for other posts. This was not in 2010, but in 1851, another time and effectively another country

Quote

Two Middle Eastern businessmen were arrested after a £180,000 supercar spun out of control crashing into four vehicles, police said today.

Abdulla Saeed Khalfan Al-Dhaheri, 28, and Sultan Khalifa Al-Muhairbi, 35, both from the United Arab Emirates, were held after the smash in Lowndes Square in Knightsbridge, central London, where residents have complained about boy racers disturbing the peace at night.

Lowndes Square is home to some of London's wealthiest residents, among them Chelsea football club owner Roman Abramovich
According to London's Evening Standard, the car, a new £180,000 Lamborghini with only 250 miles on the clock, was on loan from the Italian carmaker to a client. No one was injured in the crash which happened in the early hours of July 25.

The two men appeared at Isleworth Crown Court on Tuesday last week. Al-Muhairbi was charged with dangerous driving and driving with no insurance and Al-Dhaheri was charged with perverting the course of justice.

The men, who are due to appear in court again on October 12, are said to have walked away from the pile-up, telling a passerby: 'It's all right, we'll pay for the damage.'

A parked BMW was reportedly flipped over by the force of the impact. Property company director Siraj Dadabohy, 45, who lives in Lowndes Square, said: 'It's disgusting the way guys come here with blaring music and revving their engines.'

His neighbour Louise Shaw, 37, said: 'They all seem to think they're Lewis Hamilton and don't give any consideration for how much noise they're making. Most of the so-called billionaire “blingmobiles” have Middle Eastern number plates and are flown in for the summer.

Unquote

For the post on Wednesday, 4 August “In Praise Of…..” on Sir Alec Douglas Home, checking him out, I saw that the Caroline Nesbitt Macan, ancestress, who married RN Captain Charles Conrad Grey was widowed young by 1851. He was cousin to the Earl Grey, the Prime Minister who had brought in the Reform Act of 1832.

In 1851 she and family had moved in with her Mum, Harriet, in Lowndes Square. Step Dad was William Henry Whitbread, head of the brewery firm and a major figure in politics and social reform. He had been an executor to the will of her first husband, Turner Macan, a cavalryman and aide to the Governor-General of Bengal and a leading expert on Asian languages and literature.

He had taken an Egyptian version of the “1001 Nights” to Calcutta for William Macnaghton to produce an Arabic edition. William was another executor and a leading figure in the Royal Asiatic Society. Turner Macan was also editor of the Calcutta version of the “Shah Nameh” of Firdausi. The Shah of Persia and Princes of India had honoured Harriet, his widow.

So who else was in Lowndes Square? Move along a few doors, and there is the Barnsley lad made good. Joseph Locke, one of the major railway engineers, see Wikipedia, who was arguably more influential than George Stephenson. Locke lists himself as first an Engineer and only secondly an M.P. Going round the whole square we have an array of aristocrats, some connected to Court, Pelham’s and such, major City figures, senior legal people and the rest.

Then it dawns on me. The Railways of India were first begun in the 1850’s and critically dependent on finance and expertise from London. And there they all were in Lowndes Square, a ready made network and all the wives and families taking tea together. In the post on Friday 6 August on “The Raj…” I mentioned Auckland Colvin, a major figure in the Indian Civil Service later on, but the son of John Colvin, earlier the Governor of the North West Provinces. He was cousin to Harriet.

So in 1851 Lowndes Square was one of the main locations for the movers and shakers of the period and probably remained as such for some time. Now in 2010 it is home to Russian Oligarchs and the leading suppliers of oil and high rolling financiers.

But these are not British and their interests are not the future of Britain. They are here to move their money about and our politicians have taken their coin and follow their instructions.

Referring back to the post of Sunday, 2 May on “Social Mobility…..” this is based on the Earl and Countess of Antrim and their connections. Jane Emma Hannah, born Macan, is sister to the Caroline Nesbitt Macan above. The post says mobility can be down more often than up.

Here is the twist in the tale.

Harriet’s father, the Rev. Wetenhall Sneyd, when widowed, married again and had family by his second marriage. Unlike the children of his first marriage their futures were not quite so bright and downward social mobility was evident.

The son, Clement Sneyd, had a natural son by one of the servants. His life was in sharp contrast to those living in Lowndes Square. She was found a husband quickly, one of the labouring classes, possibly with the help of a decent dowry.

It is suggested that amongst the lower orders in Hampshire of the period, virginity was hard to find so he would not be alone. As was discipline, this was not long after Captain Swing had been busy and many transported.

When one looks at the present resident families of Lowndes Square and their footballer associates and the rest one wonders how many single mothers there are who have borne their progeny out of hours. They are more fortunate and will not need any dowry or help from the families concerned.

They will be all provided for by our Government and the local councils with decent accommodation in Central London and enough benefits to allow them to have an independent life. You and I will be paying.

How times change.

Mervyn King - An Open Letter To The Governor

Dear Merv,

Picking up my morning newspaper, a “Metro” free sheet, from the waste bin outside the local station, (who pays for print these days?), I learned that the Bank of England, which is yours and mine, intends to scatter munificence to the order of £50 billion more smackers to your nearest and dearest in The City, Westminster, and Mayfair. Perhaps it is time for me to make a bid for small non-business, in fact small non much at all, these days. We may be able to help the recovery you want far better than the dodgy geezers in those parts.

On a works outing to the Royal Opera, perhaps it was “Gotterdammerung” that gave you the idea for Quantitative Easing (QE). At her immolation, when the heavens collapsed with the doom of the ancient Gods, Brunnhilde hurled The Ring back into the Rhine to restore the Rhine Maidens guardianship of the Rhine Gold. The ordinary people then emerge blinking into the dawn of a new era where they now have the power to decide. Obviously you can’t have any of that, but as chucking good money about is the dish of the day for mainline economists, I see your reasoning.

But what neither Wagner nor Marx ever understood about capitalism, the basic issue is compound interest. It is not much in fashion these days, in fact one of the things that people want to ignore, as one of those “difficult” subjects. Indeed you may not be aware of it yourself. Once upon a time no home was without its little handbook of tables that set out costs and figures of different rates of interest, but perhaps these were too tricky for the typical software engineer to programme. Certainly, they do not fit all those marvellous mathematical formulae and structures on which all our lives, and your systems are now based. I know politicians never could understand them. They can only work in days, although those of higher intellect might manage weeks, but when it comes to months or years, oh dear, and they could never accept that interest is the price of money and has to be paid.

The people to whom you hand all this loot, don’t keep it at home, or even spend it. It is sent by High Priority Mail to off shore banks, trusts, investment funds and the rest to help them make their figures more convincing, especially when they are sent on a merry-go-round of computer servers around the world. This way it is secret, so when they tell you and us that all is now well, you have to believe it, or they will just come back and ask for more, again, and maybe again.

I know some may find its way into the odd pension fund, or lending to big business, who are all then persuaded to buy Treasury Stocks to support government spending, which then enables you to do some more QE, and this will, OK, I give up. What worries me is the interest payable. You see the rate of interest you publicise, and the rates of interest I have to pay, and all the local people I have to deal with pay, are wildly different. As a three card trick, it is wonderful, what I don’t like is what is happening to my budget.

Those who benefit, and earn mega money, do not pay much, if any, UK tax, and have no intention of doing. But when the Treasury borrows, it will then pay interest and this will be compound. As there isn’t a cat in hell’s chance of any of these debts being repaid soon, the interest liabilities will increase and will rocket after a few years, and I, and others like me will have to pay the lot. Unlike all those with offshore outlets, who will be liable for nothing at all, in fact, if they owe the Bank or the government any significant amount they will be allowed to write it off or paid off with a profitable nationalisation deal.

I know Keynes said that to spend might be wise, and I know exactly what he meant. Whenever someone goes on about QE and all that the first thing I do is to reach for the “General Theory of Money And Employment” and the wall sized diagram I have that sets it out in visual terms. Keynes did not mean throwing huge sums at casino bankers and Heath Robinson financial engineers to salt away abroad for free and without safeguards. He meant real investment yielding real long term benefit for the national community. He assumed that the whole of the community would pay their taxes, indeed the poor would pay as few as possible. He did not mean that the rich would be able to evade or avoid the lot, leaving the whole liability on the ordinary working people or the poor. He did not mean slushing money into the hands of foreign oligarchs and high rolling speculators or bingeing on prestige sports events, nor did he mean indulging in fantasy colonial wars.

If I may give you an example. Closely involved with many of the more hopelessly bust banks are some property men. They now control many of the freeholds and much of the property management services in the private rented sector, including the bulk of the retirement housing sector. Very few of those who live in these flats have much in the way of income or wealth, many of them are at the margins and on tight budgets. The service charges of the great majority of the old and vulnerable in these flats has been racked up nearly 10% compound for a few years now by the private property conglomerates controlled by private offshore Trusts concerned. The consequence is that their real disposable incomes have been cut by up to a third. The Office of National Statistics does not factor this into any indexes, and service charges do not count in calculations of many benefits or the claims for disablement or care, so the leaseholders are triple losers.

Do I need to spell out what this means? The income streams extorted from these people, entirely legally, have been used to leverage property speculation and take on debt from casino banks. So when you bail out these banks you are bailing out the property magnates, and supporting their lavish and wonderful lifestyles directly at the expense of the old and disabled. The Treasury knows this, you know this, others know this and certainly many politicians, but the magnates are their best friends. There is one downside, however, and that is you may have just about wrecked the market in flats, now an overbuilt and over priced sector, where the service charges now cost more than any mortgages, putting them beyond the bounds of affordability.

So if you must spend on consumption, then why not direct it to the old and poor one way or another who are being and have been screwed blind and whose incomes are deteriorating by the day? In parallel, why not do something to protect the unlucky victims of the mad scramble for loot that has caused all the trouble? In that way QE might actually mean what it says.

More important Keynes believed in certain moral imperatives. Alas, Merv, neither your Bank nor anyone it deals with these days believes in that kind of thing. But Keynes was a fan of the ballet. Perhaps Merv, you might try ballet for a works outing instead of all the Wagner and opera stuff. Like President Bill Clinton when he saw the Royal Ballet at the Kennedy Arts Centre in Washington DC in a performance of “The Sleeping Beauty”, you might realise the need for your very own Lilac Fairy.

If you have a look at the plot it is the Lilac Fairy who overcomes evil and deceit in the name of good and the truth.