ROLLING BACK THE LANGUAGE OF ECONOMICS - Part 3 : MONEY

Money or currency is one of the most misunderstood ideas.

It used to be that money had an intrinsic value. It contained a specific quantity of a rare earth metal like gold or silver. Even paper money carried a written promise such that the issuer could exchange that banknote for a prescribed amount of gold on demand. This was known as 'specie money'.

However, printed money now carries no such promise. Not since 1971 anyway. It is now known as a 'fiat currency'. That is to say, it has no intrinsic value and its worth can only be determined relativistically with a view to how much of it is in circulation and what demand there is for it.

All sovereign countries now use fiat money. It is printed and issued by 'central banks' like the US Federal reserve or the Bank Of England etc. Of course, these organisation sound very official and they also sound like they are owned by the governments of their host countries. However, nothing could be further from the truth.

They are private banks and they always have been.

The Bank of England was founded in 1694. Even though it was nationalised in 1946, it is still a privately owned company with Directors. This anomaly was formed in 1977 by creating a wholly owned subsidiary company called Bank of England Nominees Limited. This company was granted a special exemption by the Secretary of State for Trade such that it could trade without declaring who the Directors are and using the Official Secrets Act to protect their anonymity. This is wholly unique and a special case when considering the normal legal requirements of The Companies Act.

According to their website, the US Federal Reserve Bank is a government body. However, all of its shareholders (Directors) are private banks. None of its stock is owned by the US government.

These central banks have the ability to print money whenever they see fit. A private company creating money from thin air. They also provide money to their governments in order to make up their revenue shortfall or spending excesses. The government pays interest on these debts. This interests is guaranteed to compound and spiral with time.

The last time the USA balanced its books was in 1835.

A couple of quotes from the past that resonate profoundly today:

Paper money eventually returns to its true intrinsic value - ZERO ! (Voltaire 1694-1778).

If the American people ever allow private banks to control the issue of their currency, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered - (Thomas Jefferson 1743-1826)

FOOD FOR THOUGHT - The commodity conundrum

Data just released by the World Bank shows that 44 million more people in developing countries have been pushed into extreme poverty in the 8 months since June 2010. They say that food commodity prices have hit 'dangerous' levels.

Reasons why global food prices are heading out of control.

Droughts, storms and fires - These have impacted on rising food prices. However, these events happen every year and are not responsible for the current spikes in commodity prices.

Emerging markets - Rapidly developing central Asian countries are seeing phenomenal economic growth activity. Corporations are exploiting their rising disposable incomes and these countries are now sucking in a diversification of 'en vogue' agricultural products. These are being sourced on the world commodity exchanges and driving prices higher.

Bio fuels - Developed countries, particularly those who have signed up for multinational climate change mitigation agreements, are chasing every megawatt from every possible area. Vast tracts of land have been turned over to produce bio crops. This leaves a significant reduction in the available acreage required to produce sugar and cereals in these cash crop producing regions. Lack of supply pushes prices higher.

Commodity speculation - Investment bankers have switched their strategies in light of the financial crisis and the post crisis equity fear expeienced in dealing rooms around the world. Commodities and complex commodity derivatives are now being transacted with the fury once reserved for stocks, shares, options and futures. With all of these new middle men taking their cut, offloading prices have soared.

Globalisation - This has facilitated a tsunami of commodity exchange possibilities. These new 'panaceas' will realise themselves as speculative bubbles followed by spectacular and chaotic collapses.

Currency wars - Because of the financial crisis and the subsequent debt hangover and austerity programs, Governments around the world are doing their damnedest to reduce the value of their fiat currencies in order to inflate away their structural sovereign debts. This only facilitates a race to the bottom. The result of low currency values is higher import prices.

Crude oil price - For a whole raft of reasons previously discussed, crude oil prices will only be heading in one direction and that is not down. Many pesticides, animal feeds and crop fertilisers are derived from oil based products. Most commodities also attract vast fuel miles and transportation costs.


The Tunisian, Egyptian and future middle eastern, central Asian and African stories all have rising food prices as a catalysing process. In the short term a welcome regime change may come. However it is unlikely that regime changes will curtail the longer term future of escalating food prices.

GLOBALISATION - Chickens coming home to roost - ( FROM CLUCK TO FUCK! )

Globalisation has had many critics over the years.

Arguments against the concept include inequality, environmental impact, sweatshops, cultural normalisation, dumbing down through uniformity etc....

However for the majority first world perspective, it has facilitated a perceived rise in standard of living, choice, cheap food, goods and services. All this has become possible through communication advances in interconnectivity across the globe. The whole ponzi scheme is clearly based on convincing people to buy loads of tat that nobody really needs and only really want on the basis of its easy availability, brand marketing brainwashing techniques, availability of cheap credit etc.....

During the 'good times', this interconnectivity offers a dumbed down feeling of well being; an increased happiness quotient and an illusion of being able to buy freedom.

This model is so new that it has never been tested during the bad times.

What could happen if things went bad in the Global Village ? :

Firstly the connectedness of world financial markets means that if an economic boom or bubble emerged, the whole connected world would feed this bubble. This bubble would become bigger than any bubble experienced in the post industrial revolution period.

This bubble could for instance be cheap credit.

The banks may push the envelope by lending to riskier borrowers. They might even lend large sums to people who would have no means to repay.

The bubble might only stretch so far due to finite limits.

A nervousness might set in.

Banks might feel twitchy about the amounts on the wrong side of their balance sheets.

As if by magic the debt has moved from personal loans to private company debt.

They might stop lending to each other.

Credit availability may stall.

Some banks might fail.

Governments might have to rescue banks using hundreds of billions of taxpayers monies. Government might be forced to nationalise banks. In other words Governments would be nationalising debt and privatising profit.

As if by magic the debt has been moved again. From private companies to the public purse.

This might be called sovereign debt.

Interest rates may have to be slashed.

This could cause cash flow problems further down the food chain.

Businesses, large and small, could fail because their creditors refuse to supply goods and services on existing credit length terms.

Unemployment could rise.

Government spending could rise due to increases in benefits, lower taxation revenues, bank bail-outs.

Banks could restrict mortgage lending.

House prices could fall.

Economic growth might fall.

There could be a recession.

Entire countries could get nervous. They might feel that other countries may default on their debts.

They might buy the debt in form of government bonds at higher interest rates.

Their debt to earnings ratios might rise.

Their bond yield spreads might rise.

They might have to print more money.

Their currency may have to be devalued if it has its own fiat currency.

Other countries may drive down the value of their own currencies in order to maintain an export trade advantage.

A currency war could cause uncertainty in equity markets.

Financiers might switch to gold, looking for a perceived safe haven.

A secondary gold market may emerge. There could be high street gold buying shops. There may even be TV ad campaigns asking people to send their jewellery in the post in exchange for cash.

Gold prices could rise five fold or ten fold or ......

A secondary commodities bubble could emerge.

Agricultural commodities could get caught up in this speculative market. As could fossil fuel commodities.

Food and energy prices could be driven higher.

Governments may feel pressurised to accept rescue monies from other countries. There may be strings attached.

Those strings might be an austerity program.

That program may be painful to everyone living in that country.

They may have to take pay cuts.

They may have to cut millions of jobs in the economy.

There could be civil unrest, demonstrations, protests and even riots.

The government's revenues might fall again due to even lower tax revenues.

Economic growth may fall again.

Other countries may begin to falter.

The contagion could spread like a fire.

Firstly it could just be a few kindling republics and small countries.

Then maybe some larger countries may be affected due to their trading reliance with that failed country.

Recessions could turn into depressions.

And then..................................Protectionism.... Hyperinflation.........Nationalism.........War

Sound familiar ?

GLOBALISATION ! Forget the old arguments. THINGS HAVE MOVED ON !

BLINDNESS !

Considering the dire economic indicators that have developed in recent months, there seems to be an astonishing sense of optimism and confidence in both commercial and consumer markets.

There is aparent growth, an improving consumer sentiment index, range-trading stockmarkets accross the globe, robust retail figures and a general acceptance that the economic maelstrom of the last 2 years has largely concluded. Other than a few general worries about public sector job security, populations accross the globe are slowly drowning in their own complacency without any knowledge of what is to come.

The coordinated financial acts perpetrated by governments around the world are screening us from the tsunami that is sure to follow.

Worldwide zero (or near zero) interest rate policies are making it all but impossible for the capitalist elite to make any serious money.

Countries around the world are continually devaluing their own currencies in order to gain marginal competitive advantages over their trading partners. The currency war is already in full swing.

Merchant bankers, investment banks and stockbrokers across the globe are migrating away from traditional stocks, shares and financial derivatives and putting all of their focus on COMMODITIES.

Gold is trading far higher than ever before and that is a worrying sign in itself. But that safe haven is pure vanity in this new world order.

City traders are switching in their droves to cash crop commodities and much more worrying, cash crop futures and derivatives.

In just 3 months these commodities have risen as follows:

Cotton +66%
Sugar +68%
Soyabeans +23%
Rice +29%
Oats +31%

These price rises are only turning in gains for brokers and other city traders. The producers, farmers and distributors see nothing of these gains.

These price rises will be feeding into the general economy over the next few weeks and months and will affect all of us but in particalar, the third world who will be completely priced OUT.

The prices for these commodities traditionally followed a supply and demand financial model and were influenced only by crop failures, physical wars and natural disasters.

The new world order sees these products merely as trading options.

How long will we allow this to develop and will we allow it to develop into the next global crisis.

WAKE UP !