IRELAND PAYING FOUR TIMES TOO MUCH, GREECE & ITALY THREE TIMES TOO MUCH, EUROZONE 2.5 TIMES TOO MUCH.
Huge percentage of debt could be written off with no forgiveness at all
HOW THE PIGGY BANKS CONNED THE PIIGS
Veteran Sloggers will know that I’ve been banging on about debt forgiveness since mid 2010. That’s because the debts can’t be repaid without widespread State collapses. Nation States supporting citizens who work for money within those States are far more important (to my mind) than some Hedgie Vulture who bought sovereign debt for 15c on the Dollar….and now wants to make a 400% profit at the expense of the citizenry. But that’s just me and my pesky NVE mentality.
Whenever I’ve raised this idea, a mixture of Dumbos and Trolls descend on the comment thread and say two things: “All borrowed money must be repaid” (Dumbos) and “what you suggest simply punishes the innocent lender (Trolls).
The piece below will blow those two ideas – dumb and pernicious respectively – completely out of the water forever. Because what I’m suggesting this time isn’t going to cost anyone any real money at all.
Bank lending is a licence to invent money
One of the indisputable facts about global debt, fiscality and money-supply is that almost all of it has either no agreed value, or an invented value backed by nothing. There are three reasons for this:
1. Fractional Reserve Banking (FRB) is a technical term meaning ‘fraudulent invention of money’. It couldn’t be simpler to explain: whenever a bank gives out a loan in the FRB system, a new sum of money is created.
Try to hold onto this: whereas a mutualised operator would take the real money from real deposits, and pass it across to the risk/debt ledger, the FRB lender simply invents the money….which it then calls an asset. Before they did that, the money did not exist. Not only that, but when the debt is repaid, the FRB adds the money repaid to the money invented…and it goes back into the accounts as ‘money’.
So if you borrow £10,000 from Lloyds, they lend you money they ‘printed’, and then call it £20,000 when you pay back the 10,000 with interest. £20,000 just entered the world….but it doesn’t exist: it’s funny-money.
No wonder all those mutuals converted in the 1990s.
2. The abolition of the Gold Standard (money backed by real gold) and its replacement by so-called ‘fiat’ money: that is, money whereby an official somewhere has stuck a digit in the air and given it a value. The open markets then decide whether they like that number or not. But of course, the central bank issuing the currency plays in that market as well: so that bank will artificially increase or decrease the value/amount of money in circulation to suit its needs.
In recent years, whether through direct or indirect ‘printing’/supporting of currencies, the link between a currency’s value and the relative health of its economic/fiscal situation has become meaningless. I would argue, for example, that Sterling is currently overvalued by at least 20%, and the euro by closer to 50%.
The point is the same: with more money in circulation and at a higher value than it deserves and without the gold reserves to back it up, a sizeable proportion of it isn’t ‘real’: it’s funny-money.
3. The explosion in the derivatives sector is perhaps the most important ‘virtual’ money of the lot. The original derivatives idea was by and large a good one: Farmer A wants to buy that storage hangar before the Autumn rains come, and so he sells the ‘future’ value of, say, half his crop to the bank…the bank sees that the crop is looking good on the markets, so they do a deal. The sod-buster gets his hangar, and the banker makes a profit. Everyone’s happy.
But once Wall Street and the City of London got hold of derivatives and futures generally, it became an enormous fiat-gone-mad betting pit. The derivatives ‘paper currency’ was invented by slicing the real value of Farmer A’s crop (say, $20,000) into a 100 bits worth $200 each….except that they ‘revalued’ it at $1,000. Why? Because they could.
Further along Salami Street, the Muppets then started upping the bits further, and slicing those into more bits, sometimes at a leverage ratio of 100+ to 1. And when that looked dodgy because the bottom had fallen out of the beetroot market, they mixed overpriced beetroot contracts with overpriced bauxite, sovereign debt, Russian caviar and even pork belly CDs. This they called ‘packaging’. There is no end to the euphoria of euphemism when the Devil drives.
The situation was so totally out of hand even eight years ago – two years before Crash1 – that in March 2006, the US Federal reserve stopped tracking this M3 money stock as an economic indicator “because it did not add any information” – a wonderful lie by which they really meant “because almost none of it is real”.
Just to add force to the unreality assertion, the ‘value’ of the derivatives sector is now estimated at $600 trillion – that’s almost ten times the global gdp.
Or alternatively – looked at from the perspective that I propose we adopt – nearly 90% of it is funny-money. But the imagined debt racked up by idiot bankers selling each other this bumwipe isn’t funny at all: far from netted up and thinly spread, an amazing 96% of American derivatives are held by four US banking firms: JPMorgan Chase, Citigroup, Bank of America, and the usual runner….Goldman Sachs.
Why most debt can be written off with no forgiveness at all
Broadly speaking, there are two main types of debt that really matter in the world: public sector/central bank sovereign debt, and private sector/commercial bank debt. But this is where the numbers get really interesting.
The total global ‘money supply’ (excluding derivative bumwipes) is $89.2 trillion. Yet spookily, total world debt is $137.9 trillion
No, it’s not you: it seems the world owes far more ‘money’ than there is money. In fact, 35.4% of global debt does not exist. It is yet more of that funny-money….most of it fraudulently transmuted from thin air by the banks.
And here’s another spooky stat: contrary to popular belief, private sector debt is, at $89.3 trillion, almost twice the size of public sector debt, which stands at $47.62 trillion. This 2:1 ratio is damn near 100% consistent across the developed world….the two biggest exceptions being Italy and Greece….where the looney (aka crooked) self-styled élites containing the likes of Berlusconi and Venizelos managed to run up public debts bigger than the private sector.
Bear with the coincidences here, but take note: average sovereign debt is twice the money-supply: now here’s one for the struggling Greek, Italian and Irish electorates to really focus on: the debt to money-supply ratio there is around three times the money supply in the first two, and over four times in the third. The Irish people are “paying back” €4, but three of those euros are thin air.
In a nutshell, the biggest victims of crooked lending are paying the highest proportion of funny-money back: at least two thirds of the money they “owe” is not real money at all. And in most cases, the money was borrowed by a corrupt State élite.
My suggestion – and while it may seem untutored to some, it is 100% common sense – would be for world leaders to act upon this information (which of course most of them already know – but I’d wager neither Cameron nor Miliband do) as follows:
1. Have an immediate debt jubilee that wipes out an average 35% of all existing sovereign debt – on the simple grounds that it is not physically real at all, and is the result of a deadly combination of the legalised debt fraud that comes with the FRB system plus the corruption of public officials.
Advantages: the EU’s greatest strugglers would see up to 80% of their sovereign debt washed away overnight…with no ‘forgiveness’ involved at all. Not only would this stabilise the euro and produce genuine (not manipulated) debt bond yields it would act as an immediate kick-start to eurozone recovery.
2. Write off 90% of the value of all derivative contracts – on the basis that their real worth cannot be greater than gdp in a three dimensional Universe.
Advantages: It would almost certainly produce an immediate increase in faith in the banks, and virtually remove any need for bails either out or in.
Unlike most standard Exchequer and banking practices, what I suggest has a zero scam content: it is merely punishing those hypocrites who drone on about the “ethics” of repaying debt….when they know perfectly well that the real debt has been inflated way above reality.
The question I would in turn pose to the ‘experts’ who landed us in the doo-doo in the first place is this: why would you NOT do what I suggest?
Footnote: the stats quoted here are open to some question, although I think they’re broadly correct. They come from real banking/State/economics datasets and are only estimates to the extent than anyone can estimate the depth of doo-doo involved:that is, after all, a huge part of the problem.
I would however single out Simon Thorpe’s site as an exemplary source of hard data and sensible extrapolation, and urge all readers to visit it.
Last night at The Slog: Strong winds, the Courteeners, and Mercedes profiteering