Friday, January 8, 2010

Scottish Bloggery and Money Printers

Iain Macwhirter always had a good writing style but nowadays he's adding substance to it. Well, to the subject of economics anyway:

But we surely learned from the Soviet experience just how dangerous it is to allow a small clique to seize control of the economy, whether bankers or communist party bureaucrats.

Indeed Iain. And a very apt conlusion:

We have created a bastard synthesis of finance capitalism and communism – a system of socialism for the banks. Time for a little bit of Thatcherite medicine to be applied to people who were so keen to apply it to the rest of society. Let's have some capitalism for capitalists.

Iain's blog is getting better and better. There really isn't much in the way of useful comment on the subject of what's just happened in the economy i.e. widespread financial fraud by all the top bankers. So, it's nice to see some astute observation sneaking in.

The problem with Iain's excellent piece is that it doesn't really get to the heart of the problem. He praises Mervin King in his entry but Mervin and Gordon Brown are the true authors of the banking malaise. Brown changed the regulations in line with what was going on in the US to allow main street banks to speculate on fraudulant derivatives. Low interest rates fueled these speculations to the point were British banks now owe perhaps 100 times Britain's GDP. All of them are insolvent as the 'profits' that are posted are simply printed money and nothing to do with production. The same with the stock market..

When the bubble burst Brown and Mervin went about giving the banks lots more of taxpayers money so they could leverage it up and get back to where we were which is a position where the bubble burst - insane but that's economic theologies for you.

So, why can't Iain Macwhirter point the finger at Mervin and Brown?

The brings me to the subject of Das Herald Sturmer. Proclamations of green-shoots abound with headlines like:

Service sector figures boost hopes of end to recession
Good Christmas for Marks and Spencer - but challenging year ahead

Unfortunately for Das Herald Sturmer it can't avoid publishing real stories like:

Scottish property sector hit by second big failure

There's no commentary in the article on this. This is just business and nothing to do with Britain's economy so doesn't need a comment right? Not this side of an election anyway..

Now, everyone and their granny knows that Brown and Mervin have been pumping new money into the economy so why does anyone believe that these stories represent economic recovery as opposed to money printing? When the printing stops won't consumption stop with it? How long can Brown and King create new money before inflation hits?

How near is said inflation? Close. How do we know. Well, it's there we just haven't seen it yet. Why? Cause the banks have been using public money to trade with each other and pay themselves commission on each trade and then call that profit. None of the money was getting out to the real economy and so in the real economy we've seen a reduction in the money supply. When money is in the hands of poorer people it passes through lots of hands very quickly - this is called money velocity. When the rich get it they hang on to it so the money velocity is low. As the money that was given to the banks hits main street the velocity picks up.

We know its coming because the way to deal with inflation is through increasing interest rates. Bloomberg yesterday:

U.S. regulators including the FederalReserve warned banks to guard against possible losses from an end to low interest rates and reduce exposure or raise capital if needed.

When the interest rates come you'll then find out just how much you've been tapped to bail-out Brown's pals in The City. The real economy has been sacrificed, people have lost jobs etc. Mortgage payments went down a bit recently - I hope you save up.

What they did was print money and give it to banks. Now there's too much money and they'll have to suck money out but guess whose money they're going to suck out? YOURS. Yes, when those interest rates go up that means mortgage payments will sky-rocket. That means small-business getting slaughtered again. That means raising taxes and cutting services to pay government debt interest payments.

Yes, when the interest rates go up that's when you start to see the real damage done by Brown, King and their Bankster paymasters. When the interest rates kick in (ahem, after the election you understand) Britain is going to nose-dive. Mortgage payment massive, defaults on mortgages and credit cards will go exponential and prices will be going through the roof. The standard of living is going to be nothing like what you recognise today. Get ready cause it ain't gonnie be nice.

No comments: