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Monthly Archives: April 2010

During the week that followed September 16 2008 billions of monies disappeared from the stock markets of the world triggered by the collapse of Lehman Brothers, the wayward investment bankers. It was the beginning of the biggest recession since the 1930’s, almost a century before.

In the panic that ensued, politicians ran around like headless chickens unsure of what to do to avoid the onset of financial collapse and the onset of a full blown recession, even depression.

It was the banker’s friend, the incumbent British Prime Minister Gordon Brown, pompously proud of his classical economics background that came up with the misguided solution that pouring more borrowed money into the coffers of the perpetrators of the crimes would solve the problem. Unfortunately London’s misguided solution [and self interested solution since the banks own London] was taken up quickly by other governments as being their panacea.

But consider this, on that fateful week in 2008 when the stock markets lost their billions, what happened to the wealth of the world? Was a car still worth a car? Was a plane still worth a plane? Was a house still worth a house? The answer is simple, the wealth of the world was unchanged, all the roads, bridges, buildings in fact every physical thing that represents the worlds wealth was worth exactly the same. No loss, well at least not yet.

The tragedy of the ‘bail out the Banks’ policy is that it just bolstered up an already seriously faulty system. The money governments used to bail out the banks was borrowed from the banks [where else would they get it from?], using the future as collateral. Which is just another example of how most the money in the financial services sector is fictional; it can have any value you want to give it, it’s just a giant money-go-round. The fact that it can be worth this much one day and less the next is a measure of its volatility, its unreality. Who in the real world cares if the total amount of money swilling around in the financial services sector is worth a dollar to the dollar or a cent to the dollar? Who in the real world cares if one financial services company makes 5 billion profit in the first quarter? It just means that someone somewhere else made an equivalent loss.

But the biggest tragedy in all this is the knock on effect of all ‘bank misdemeanor’ induced recessions, unemployment. The unemployment of just one potential wealth creator is the single most devastating factor in social economics.

But before I go any further with this, let me just say that unemployment is too broad a description for the non-employment of a person. First we have to identify in which sector of the economy the individual is employed, for it is only the loss of a ‘wealth creator’ that will affect the health of the economy, anyone employed in the financial services sector that loses their job will have little or no effect on the economy, [other than possibly the negative effect if they claim unemployment benefit]. In this respect I prefer to think of the ‘employed’ as two distinct groups:

  • Wealth creationists and,
  • Those in parasitic employment.

So, it is my contention that if the billions poured into the banks had instead been poured into wealth creation industries the world’s economy would not only have recovered very quickly but it would have been built upon a solid foundation of boosted wealth creation. Salt of the earth wealth creation companies like Chrysler Motors would not have teetered on the edge of extinction through no fault of their own. Unemployment, instead of increasing would have been dramatically reduced, almost overnight and the creation of wealth would have continued unabated. The inevitable migration of those formerly in parasitic employment towards the wealth creation sector would have further boosted the economy.

At the time of the 2008 meltdown a senior executive at of one of the large investment banks admitted during a TV interview that a cull in the financial services sector was overdue. Cull is not exactly the word most people would use these days.

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Postscript to my last blog [Re: Goldman Sachs et al]. What is is with these financial services companies? Not only are they stripping the world of its wealth by creating dubious [as yet unlegislated for] financial instruments they are also boosting their profits by illegal means. Something has to be done – and soon.

I will say again, just moving money around creates ZERO wealth.

Hundreds of thousands of economists around the world are still arguing about ‘what caused the current financial crisis’. In the universities around the world there are whole libraries stuffed full of economic facts, fiction, theories, solutions catalogued to the finest detail. And yet still, the fundamental reason for the world’s financial woes appears to lie dormant.

Why?

Well, perhaps it’s because the real reason is too simple and the solution too radical for those people in society who profit from the financial status quo and who have a vested interest in leaving things just the way they are.

In order to come to the conclusions that I will present here I have coined a new branch of economics that I call Hyper-Macro-Economics. In fact, though I’ve applied the principles of this to economics, it’s equally valid when applied to other social and practical situations. It’s not new; it’s just the principle of stepping as far back as you can to get the biggest possible picture. That means shedding all pre-conceptions and looking for the fundamental cause-effect of any situation in its simplest terms. And even when you think you’re looking at the so-called ‘big-picture’ try to take another step back, just to see if you can.

Now, why is it that the financial community is so cock-a-hoop this week with the announcement that Goldman Sachs reported a 5 Billion dollars profit for the first quarter? Why are the media economic pundits cock-a-hoop singing that this is a sign of economic recovery?

Well before you go off and celebrate, just ask yourself this question, how much wealth did Goldman Sachs actually create for the benefit of society in the first quarter of 2010?

Quick answer, none. That’s right none, not one puny cent. The 5 billion dollar bills they acquired were simply [or otherwise] moved from one repository to another [metaphorically speaking], their gain was somebody else’s loss [moneywise]. Instead of someone else having the cash potential to purchase wealth, that potential was transferred to Goldman Sachs.

Which begs the question, where in there was the economy stimulated? In reality it wasn’t, it’s the same, no wealth creation, just the movement of money.  An economy where no wealth is being created is stagnant, just moving money around does nothing to stimulate any economy, absolutely nothing.

So who was the guy who created the wealth? Well it was ‘Miss Toilet Tissue Packer’ who works 50 hours a week in Wisconsin; she created more wealth on the first day of the first quarter than Goldman Sachs has created during its entire existence.

That’s the hyper-macro-economic viewpoint, money is not wealth, it’s just money. Money is supposed to represent wealth, but since the abolition of the gold standard nearly a hundred years ago governments, banks and other financial intuitions have manipulated the value money to suit their own wealth acquisition programs. Because, in order for those involved in the financial community to survive they have had to become parasitic upon the wealth creation class, it’s as simple as that.

That the financial services sector has over the years become ever more adept at extracting the maximum amount of wealth from those who create it and the recent proliferation of this parasitic class is one of the fundamental causes of the world’s financial woes.

It’s not financial services sector profits and stock market activity that will rejuvenate the world economy, its wealth creation, in other words getting all the people who create wealth, back to work.

I’ll throw a cat onto the pigeon loft here. China, is it a wealth creator or a money-go-round?

What to do about the parasitic classes? Well that’s another story.