Crisis after the anticlimax
IOW who put us in this trouble?
You've probably also heard some doubts whether this crisis exists at all. That it is deliberately created, or at least nurtured by the media and politicians, because the pubs are still full, the cars ride, and children are born... Conspiracy theories are therefore on the doorstep. If we accept that the whole issue is an inflated bubble, it is necessary to ask who inflated it, and also who benefits from this. Because people do very little for no good reason.
Money manufacture
If you still do not know how money are made, it is time to try some of the instructive material. Like the Zeitgeist and Zeitgeist Addendum films I wrote about recently. It's also nicely explained in Paul Grignon's Money as Debt
[Update 23rd Jul 2009 - There's an interesting entry on Jakub's blog about Goldman Sachs bank and their amazing profits through the crisis ]
I'll try to cover the basics:
Let's say that I have a dollar, and you have no money. As I'm sharp, I set up a bank. Because as a bank you I can lend you 10 dollars. Where do we get the remaining nine, which I do not have? It's not simple. We've got a cute law that the bank doesn't need to have all the assets locked in the safe. Just 10% does as a stock. If I have a dollar, therefore, in theory, I hold 10. I don't have those 9 dollars, but fortunately I do not have to hand them to you because out of pure coincidence there is currently no other bank. This is another trick.
So you borrow ten dollars to purchase a lollipop, which is 10 dollars. The owner of the shop has an account with me too, so we just make the whole transaction on paper, in order not to delay the exchange of money. Salesperson's account get's credited by 10 dollars and your account get's reduced by 10. Salesman will hand the lollipop to you. Everyone is happy, how quick it was. Lollipop is tasty, and soon it is gone. Now rush to work earn 10 dollars. You've got a debt to pay! Say a dollar a month. This way I earn 10 dollars in ten months with no hassle. You have nothing again and I have your bond of regular repayments.
But that is for sure not the whole story! Since you raised to the bait, and have no clue about the shameful comedy, you believe that for this service I deserve some more returns! We invent the interest of only 10% of the amount due each month. As a homework calculate how much do I earn for your stupidity and fad.
One major danger that threatens my crafty bank are withdrawals. Say that the lollipop shop keeper decides to withdraw his ten dollars. I of course still only have one dollar. If the salesman insists, I am forced to declare bankruptcy. Luckily, We have the cool protection against creditors. Salesperson therefore will be left with the only choice to agree on the schedule of installments. A dollar a month, then. I'll just pass the dollar I receive from you each month as repayment to the salesman. If I go smart, I still manage to keep some interest from your debt. I might keep one dollar for some new business :D
You certainly have noticed already that banking business is a convenient way to secure your living. Even in a worst case scenario, I have actually nothing to lose and the potential returns are astronomical. There is still a risk you won't repay the debt on time. I turn this risk in my favor. Sanctions and executor are right at hand. I can actually just sell your debt as a soul.
In a global perspective of the real world it works just as in this simplified case. There are many banking institutions, but as there are constant financial flows amongst them, ultimately from the complex system one very same beast is born in coordination of central banks. And it's all just because of the laws that allow it and protect the banks against bankruptcy.
Another topic, which is good to understand is that thanks to this machinery, each dollar is a representation of debt. Using the money made in this merry-go-round we unknowingly accede to this game and thus the whole society runs into debt against those who make the money.
Take some crisis to sweet your days!
Back to the case of 'lollipop'. Assume that the loans sell like hot cakes and my income fund performs. I would not be the perfect hoarder, if didn't want more! Sharp hoarder like I am surely finds yet another trick :o) Well, not to delay, I have invented a crisis! Read carefully...
First, I'll start to complain all over the place that my faddy, stupid and lazy debtors are not willing to pay their debts. Never mind that this is not true, nothing of anybody else's business. As I am a reputable banker and personally known to Pope, President and whom not, my words are weighted. Radio and TV stations and newspapers, which I wisely bought with my friends, will deliver my message faithfully. And the others will join just not to fall behind.
Should I harden the conditions and requirements to get a loan? Just one more moment... More debtors means yet more new money! Rumors about my problems will bring new candidates who will believe they wouldn't get the loan later. The first comments on my doubtful liquidity (the ability to pay deposits) will arrive right on time. Humbly I'll confirm: "Yes, that's the way it is." Secretly then I will be proud of my acting performance.
What happens then? Such a crisis is like spinning a disc on a rod. When overdone, all deposits will be withdrawn, and I will have to declare bankruptcy (understand: almost no earnings). The rod pops out of the bottom the plate. When spinning too slow, no one would care and I'll make nothing. The plate falls off the rod. What I ultimately need is actually a recession rather than a crisis.
So how do I make some more profit? You know that what is rare is usually expensive. The fact that I turned money into scarce goods, I increased its price. Companies will cut their budgets to establish some reserves, and release a lot of redundant workers. These will not buy services and products which will eat the companies' reserves and the noose tightens. You are forced to work a little harder for your dollar and there's a little less you can buy for it. The price of dollar has grown. And who has the most of money? Surely who else than your greedy crafty banker! There you go, huh?
As I've said before, nothing should be exaggerated. You must not die of hunger, because you owe me! Therefore I take the role of a Samaritan, and make some new money in the form of public low-interest loan. More profit again. I am actually infinitely rich, and everyone loves me. Haw-haw...
You think to yourself if you only were not so stupid and me so shrewd. This lollipop charade is taking place NOW and in bulk. Credit crunch is just one verse of a song. Recession might probably be a refrain... And you'd be amazed, how much I earn on exchange rates fluctuations, which are again controlled by me! Well well, do I not deserve a medal for courage for how I rob you with a smile?
How to take the wind out of sharp hoarders' sails?
The fun is that the beautiful solutions that come to mind immediately lead nowhere. Judge for yourself:
- Ignore the pressures and keep the business as usual - the choice of rich and right-wing rebels?
- Refuse to pay the debt or even run for more debt - the poorer and left-wing lever?
You see, these are contradicting to each other and the bankers will certainly ensure that the forces are balanced. Just look at our politicians... What we need is a systemic change of laws and the society itself (yes, I guess it won't be today):
- According to Zeitgeist, build a perfect new society - any more fairy tales?
- Abolish money all together and move to a barter trade - too radical and hasty in my opinion.
- Go purely on credit system under the supervision of the public - interesting.
- Prohibit loansharking, forbid making money out of air - I incline to it.
- Liberalize and open up the money making system - why not?
- Properly dust their jackets - who'd hesitate?
And what can we as each for himself do?
- Don't run in debts, only spend what you actually earn, invest reasonably (don't accumulate money on the bank accounts)
- Fight against the system of power - combat evil deeds, such as fraud, theft, corruption
- Be seen and heard; stand behind your opinion as a counterpart to the mass media
- Vote, educate your self, be active, travel, learn, do not let them fool you
- Avoid global trade, such as shoes from China, or Coca-Cola from McDonald's
- Prefer the local trade, support people around you, small traders, farmers and craftsmen
- Work hard? work for the good of all?
To tell the truth, I had not seen through these trick until it clicked quite recently. Although I've been thinking about the debt as of a form of slavery for some time already. Media are also difficult to understand, they are rain agents. Everyone comes from somewhere and is on his way to somewhere. We are not perfect, but remember the important cliche: the change of the society begins with 'I ...'?
Well, I hope I didn't bore you.
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