ROLLING BACK THE LANGUAGE OF ECONOMICS - Part 1 : INTEREST

This post will be the first in a series of posts that looks at how the use and perception of economic and political language have been changed over time.

INTEREST is a concept that we are all familiar with. Usually because we have to pay interest to banks, credit card companies, shops etc. Sometimes we receive interest on savings or other investments. The word interest comes from the notion that if you borrow for, say a house, your lender will charge you interest in order that you get to buy a house and the lender makes a profit. The lender also has an interest in your property. That is to say that he is interested because if you fail to complete the transaction at any point, that property may be sold. It may be sold for less than the outstanding value of the loan in which case the lender would make a loss. So it is no surprise that he is interested.

Compound interest means that interest is applied on an ongoing basis with respect to time. This causes problems for entities like governments where situations can occur such that the amount repaid in a given year is less than the interest due. In this case the interest will not only apply to the original debt, but it will also be applied to the interest too. Interest on interest.

Compound interest looks like this. If left unchecked, it runs away very quickly. This is due to the effect that compound interest has a mathematical function known as positive feedback.

It works in the same way as acoustic feedback. For instance if a microphone is placed too close to a speaker, the sound from the speaker goes back into the microphone, gets amplified and then comes out of the speaker a little louder. This new louder sound, goes back into the microphone and is amplified again and comes out of the speaker even louder. Effectively the amplifier adds compound interest to the sound each time. After a period if these repetitions, the noise becomes so chaotic and unbearable at which point somebody usually cuts the power to the system.

Another natural phenomenon that follows the same mathematical principle is sickness (i.e. diseases like cancers and viral infections).

As all financial services rely on the concept of interest to make profits, it is advisable to remember the analogies above.

Who's interested now?

It is interesting to note that the texts of the Christian, Jewish and Islamic faiths all expressly forbid the use of interest as the concept is seen as a levy on God's time. However, over time these ideas have been relaxed through a series of reinterpretations.

Nobody can be free of paying interest even if you save up for things before you buy them. Currently, due to the way interest has permeated through all aspects of the world economy via credit markets and commodities markets, about 45% of the price of all goods is used to service the interest on debt held in the supply chain.

Because of the invisible interest that has attached itself to the sales price of everything, most people are nett interest payers. In fact 85% of people are nett interest payers, about 5% of people are interest neutral and about 10% of people are nett interest receivers. In other words 10% of the people receive 90% of the interest that everyone else pays. Doesn't that sound like another more well known statistic. Yes, it is interest that is entirely responsible for the massively uneven distribution of wealth. How can you become a nett interest receiver. Well you just need to have a spare £500,000 hanging around that you don't need but you could invest.

Notwithstanding all of the above, the whole notion of interest is totally flawed. As an example, say that Jesus had deposited 1 penny into a bank account in the year 32AD with an account that would yield a typical long term interest rate of 5% per year. If he had returned in the year 2011 and gone to the bank to withdraw all of his money with interest, that amount would be

£8,582,678,794,222,570,000,000,000,000,000,000,000,000

That amount is difficult to imagine. However if the bank paid out in gold balls at today's gold value, it would amount to 44 trillion gold balls. Each gold ball would be the same weight as planet earth.

A great investment? Yes, but this financial model (INTEREST) cannot work in the long term.

MASTERS & SERVANTS - Say goodbye to hope

Our cabinet ministers and their totally humble beginnings:

David Cameron - Private education at Eton , PPE at Oxford. He is a direct descendent of William IV and cousin of Queen Elizabeth II. He is married to the daughter of the 8th Baronet of Sheffield.

George Osborne - Real name Gideon George Osborne. Private education and studied modern history at Oxford. He is the sole heir to the title and estates of the 17th Baronet of the Irish Ascendancy. Married to the daughter of Lord Howell of Guildford.

Nick Clegg - Private education at Westminster School, Social anthropology at Cambridge. He is a direct descendent of the Imperial Russian Baronecy.

William Hague - Studied PPE at Oxford. President of the Oxford Union.

Ken Clarke - Studied law at Cambridge.

Theresa May - Studied Gegraphy at Oxford.

Liam Fox - Studied medicine at Glasgow.

Vince Cable - Studied natural scieces and economics at Cambridge.

Chris Huhne - Privately educated at Westminster school. Studied French at La Sorbonne and PPE at Oxford.

Andrew Lansley - Privately educated at Brentwood. Studied politics at Exeter.

Michael Gove - Studied English at Oxford.

Philip Hammond - Privately educated at Brentwood. Studied PPE at Oxford.

Andrew Mitchell - Privately educated at Rugby. Studied history at Cambridge.

Owen Paterson - Privately educated at Radley. Married to the daughter of the $th Viscount Ridley.

Michael Moore - Privately educated at Strathallan. Studied politiocs and history at Edinburgh.

Cheryl Gillan - Privately educated at Cheltenham ladies college.

Jeremy Hunt - Privately educated at Charterhouse. Studied PPE at Oxford.

Danny Alexander - Studied PPE at Oxford.

Francis Maude - Privately educated at Abingdon School. Studied law at Cambridge.

Oliver Letwin - Privately educated at Eton. Studied at Cambridge and London Business school.

David Willetts - Privately educated at King Edwards. Studied PPE at Oxford.

George Young - Privately educated at Eton. Studied PPE at Oxford. He is the 6th Baronet.

Dominic Grieve - Privately educated at Westminster School. Studied modern history at Oxford.

These people are clearly able to empathise with thier electorate.

FOOD DEMAND = FOOD PRICES = FOOD RIOTS = CHAOS

Food prices and other commodity values have been rising considerably during the last few years and particularly since the 2008 global financial crisis.


There are several structural reasons for this which have been discussed in earlier blogs.

While in the West, we find these inflationary food prices annoying or worrying or stressful (depending on which social level you exist), it is becoming a far more desperate story for others around the world.

Here in the UK, an individuals food budget is not too significant, and we can always cut down on other things, shop around, find offers and bargains etc.

When food begins to take significant proportions of a family's budget, people begin to attach a political dimension to their concerns and this may result in protests, riots and even regime change.

Here is a list of 25 countries that like Egypt and Tunisia are finding that their food budget is getting out of control. The list shows the percentage of household income that is spent on food:

Venezuela 32.6 %
Lebanon 34.1 %
Latvia 34.3 %
Tunisia 36.0 %
Libya 37.2 %
Dominican Republic 38.3 %
Sri Lanka 39.6 %
China 39.8 %

Romania 45.4 %
Philippines 45.6 %
Kenya 45.8 %
Angola 46.1 %
Pakistan 47.6 %
Egypt 48.1 %
India 49.5 %
Bulgaria 49.5 %
Vietnam 50.7 %
Sudan 52.9 %
Algeria 53.0 %
Bangladesh 53.8%
Azerbaijan 60.2 %
Ukraine 61.0 %
Morocco 63.0 %
Nigeria 73.0 %

It's not just armies that march on their stomachs.

CHANGING THE DEMON'S IDENTITY

During the last few months of Tory/Lib Dem rule, there has been a steady move to redirect the wider argument of local, national and global bankruptcy.

It started out, quite rightly, with the blame laying firmly and squarely on the Bankers and other hangers on in the financial services community.

Once the Tories seized power the public were gently swayed into beleiving that it was Gordan Brown/The Labour Party that was responsible.

Almost six months on, and a budget and spending review later, the government has introduced controversial and mind bending rule changes regarding areas such as, housing benefit, taxation, child benefit etc

These marginal changes have little fiscal value but have a nasty subtext that is seized upon by the right wing media and promulgated to the general mass of the chattering classes.

All I hear from people these days are arguments that are now based on class, employment, unionisation, location, ethnicity, morality etc.

These deliberately spiteful budgetry tax and spending anomolies have conspired to succesfully erase 'The Bankers' from the mind of the people.

People are now beginning to turn against each other on the basis of race, employability etc.

If you don't believe me, just listen to any radio phone-in or TV audience debate.

It's getting like the 80's again. And it's gonna get worse. A lot worse.

Don't let them mess with YOUR MIND.