Concerning the crisis, we need to promote free money

27 10 2009

By Economicsfairy

Yes, there’ll be more on possible remedies concerning our rotten monetary system soon (sorry, quite busy, as usual, and I’m still working to figure out all this myself); anyway, as I pointed out in an entry earlier this year, the underlying trouble is charging interest.

A guy called Sivio Gesell has described these problems about a 100 years ago and apparently, found a solution which is called “free money”. You might want to do some research on that for yourself, here is a very quick overview:

(They’re all in English, so don’t worry)

It seems to me that this is the way we should go, apart from the free trade suggestions (and in some areas of Germany, local currencies are quite popular already), but it’ll still be a long way of informing, lobbying and so on.

This is what they’ve done in London quite recently to set up the “Brixton Pound” as a local currency:


Eltsin, Russia, Stiglitz

18 06 2009

A very sane (albeit old, 2003) view of Russian economy before and afte 1998 by Stiglitz. He critisises Eltsin, the favourite of Western mainstream media who created a cheesy and melodramatic image of him, whereas he was just a puppet of IMF and WB in what Stiglitz calls ‘The Ruin of Russia’.

And this, hahaha, is a critique of Stiglitz ‘Discontent’. The most deplorable and pathetic letter  that I’ve ever read.

Knowledge is power

24 04 2009

Since it’s so much fun quoting people who were famous and are dead now, here is another great one:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

(Henry Ford)

It’s charging interest, stupid – important comment

1 04 2009

By Katkins

Great analysis D but the new money created by an interest rate can be supported in the economy if it is constantly expanding and growing exponentially.  This is where the imperative for growth in our global economic system comes in.  When the economy stops growing at the necessary rate then things get really problematic (as you describe).  And we also have to recognise that our earth has limits to the resources that it can supply and the waste that it can assimilate, which means that constant and ever expanding growth is certainly not an option.
A new report by the sustainable development commission in the UK tackles the problem of growth…

In a sustainable, stable state economy, interest rates would be low.  and there would inevitably have to be regulatory instruments to ensure that lending was limited.  The problem with this is that the cost of borrowing can no longer act as a way of rationing the credit.

We need to find an alternative to our destructive ways and that has to happen now. We watch the deliberations of the G20 with interest today.

Economicsfairy: A very interesting comment, thanks – I was thinking about this myself, but at the moment I believe we need to design an economic system without interest, must be possible somehow.

Will update you on people who are thinking about this very shortly.

It’s charging interest, stupid

30 03 2009

By Economicsfairy

Folks, I think I finally got the basics now. The causes for the current world crisis (which some people already name “The Greater Depression”) are not the usual suspects: subprime mortgages, greedy banksters, neoliberalistic political ideas, corrupt politicians, lax regulation of the financial markets, offshore tax havens and the like. Well, they all come into the picture at some point, but the real trouble lies deeper.

It’s the idea of CHARGING INTEREST.

This is the real problem.

To give you an idea of how the EXPONENTIAL interest rate function works, here is an example to illustrate the problem (Note: I think Albert Einstein came up with it, not an economist): Suppose 2000 years ago, Jesus would have had one cent in his bank account and there would have been an interest rate of 5 %. Today (if he came back 😉 he would possess 187 billion planet earths in gold!!!

Do you get an idea of how this mathematics work and how the physical world can just never keep up with it?

In other words: Our economic system is built on formulas that the real world (the one we live in) CAN NOT AND NEVER satisfy.  Welcome to illusionomics – which is unfortunately taught in every university! You even get nobel prices for thinking and teaching within this utterly ridiculous framework.

And then people wonder why there are bubbles!

Interestingly, all the great religions have addressed the problem. Well, as many of you know, I’m not very fond of the traditional religions (too arrogant, too rigid, too narrow-minded), but this one they got right. I can imagine old whitebearded guys sitting in the desert, drawing mathematical formulas in the sand and finally figuring out the explosive and destructive character of the exponential interest rate function.

Very roughly, the story goes like this: people charge interest for lending money – so you have to make a profit that also covers this cost – but the trouble is that this interest money is always “extra money” that piles up very quickly because of the exponential funcion – so there is always more money to be repaid than is actually there – so banks have to give out more credit to firms, households and states – so these economic actors get even more into debt – a downward spiral starts – also, the profit rate falls because of the high capital costs due to the pressure to rationalize (unfortunately, you need to read Marx to fully understand this, I’m just at the beginning) – and money accumulates in the hands of a few who don’t consume that much – while the consuming masses don’t have enough left to consume as much as is needed to keep the economy going – so you have to look more and more desperately for more and more options to make profit in order to satisfy the lenders – this is where the exploitation of the environment, of labour, of the developing countries, even of children comes in – but it can’t work because you simply can’t have 25% profit rates in a limited world – then, banks just start to create money themselves (see “Money as Debt”) – they lend more than they got from savers to be able to continue this ponzi scheme as long as possible – they also try to come up with “financial products” like subprime mortgages or ideas like CDS because they can’t get their profit from the physical world anymore, so you get speculation instead of production

– and this is where neoliberalism comes in: you just need it in order to have very lax regulations on all your economic actions in order to make as much profit as possible (because the debts have become a real pressure now), but it’s not the root cause for the trouble we’re in. It’s rather a sign for approaching the end, a kind of last straw, and accordingly, in many Western societies you can feel a certain decline since neoliberalistic policies were implemented, since the Seventies or Eighties. (The “booms” in these times were due to the ponzi money, not the free market mechanisms, and they reached less and less people. And we’ll have to pay for them now.)

So the bubble has built up – and at some point (September 2008, for example) it bursts, because no one wants or is able to take on more debts to repay the old debts, and then governments and central banks hysterically pump money into the economy (they become “the debtors of last resort”), but the economy is lost anyway, so after a period of deflation you’ll get inflation, maybe hyperinflation – and if you’re really unlucky, even civil unrest or war. And then (if you are among the survivors) you start again.

This is the great cycle that has repeated itself time and again in history, whereever there were interest and fiat money at work. So it looks as if there is quite something facing us in the next years, only this time on a truely global scale. And I hope the solution will not be war as it very often used to be.

But there is hope, there are people who have tried to come up with alternative economic ideas for ages, but (not surprisingly) were largely ignored by the mainstream – until now.

In my next entry, I’ll tell you more about what these people are thinking and what their proposals are.

In the meantime, you may find it exciting to explore the ideas of Karl Marx (he got the big built-in system failure of capitalism quite right, the old genius!), Silvio Gesell (about the trouble with interest) and Ludwig van Mises (about the trouble with fiat money ponzi schemes). Also, we should have a closer look at the great “Kondratieff-cyles”.

Unfortunately, most of this is not taught in mainstream economics (since it doesn’t support the “system” and the very few who benefit from it, rather exposes its weaknesses), but it’s really important fundamental stuff and should be talked about even in schools. It’s not some theretical nonsense, it’s about the life and death of societies in the end.

I’m quite convinced that we can’t save our economies in the way we did in the Seventies or Eighties. This time, the old recipes won’t work, time has run out.

But we must make sure that we never build a system like this again because then our grandchildren will face exactly the same problems.

P.S. They won’t discuss all this at the G20 summit in London (because that would get their banker buddies into trouble), so all they will do is some cosmetic surgery while the tumour still grows. It will be just a big show and a total timewaste.

Although, whoever happens to be in London this week: Make sure that the white-collar criminals in expensive suits know we’re angry!

P.S.2: Kat made a very good comment – will put it in an extra entry, just the other day I was discussing this with other people.

Money as Debt

16 01 2009

By Economicsfairy

One of the big big problems today – actually, THE root cause for the current worldwide trouble is the fractional reserve banking system which basically and on a very simple level means that banks can create money out of nothing (by granting credit just as they wish and demanding interest for it), thus fuelling every possible bubble on the planet as long as there are still enough greedy idiots who most willingly join this ponzi scheme game.

But because of the fact that there is always more money to be repaid than actually exists and because of the exponential interest rate function, the whole system is just NOT sustainable. Never. Not even if you introduce a “social market economy”. All that happens is that the super-rich bankers become richer and richer, and literally start to enslave the rest of the world at some point. Think about it. Carefully.

It’s mathematics. You can’t fight it.

Our system is totally fucked. It can’t go on like that for much longer. We will see it crash. And after that, we REALLY have to make sure that we never EVER rebuild it like it was. We need something new.

Have a look at the film here, it’s all very well explained, really no time waste:

It’s in English, with German subtitles.

Makes me wonder why we haven’t been told this properly by our professors. Although I think I actually HAVE been told this, but I remember that the prof made it sound very sophisticated and brilliant and economist-like, a la “banks know what they are doing and it’s absolutely not in their interest to fuck up a country” … that kind of thing.


Thank goodness, reality has finally stepped in and taught us the real thing.

Hopefully not too late.

Think about it.

Economics of Illusions

19 09 2008

By Economicsfairy

So, they had a traumatic week at Wall Street? Financial disaster, catastrophe, apocalypse …?

I really love all this typical vocabulary when it comes to an extraordinary event, whether good or bad: “Nothing will be like before …”, “Our world will never be the same again …”, “The world as we know it has collapsed …” People desperately try to find adequate words to express their shock and surprise (!). Because, yes, aren’t we all very surprised about the horrible news from Wall Street?

I can’t help finding this a bit hypocritical. I’m not an expert on stock markets, but, honestly, wasn’t it quite clear that at some point something like this was going to happen? Shouldn’t at least people in the money scene have realized that for months before this new black day in the history of Wall Street there was a lot of moving and shaking going on in the banking world? What about the real estate market crash in the UK last year?

Selling illusions

Everybody knows that you can’t make money out of nothing more than taking high risks and selling illusions forever. Somehow, maybe subconsciously, all of us must have known that there will be a bill to pay at some point. But now: Nothing than shock and utter helplessness when it comes to the need for an explanation. I read the German newspapers quite intensively this week, and while some point to greed beyond any responsibility combined with sheer stupidity or demand the usual “more professional regulation by the state”, others describe how “the responsible people” just hang about in talk shows and declare that they wouldn’t understand today’s complicated financial system either …! One commentator suggested that it looked a bit like scientists who tried to publicly defend an experiment that went wrong. One joked about the much feared “black holes” that the CERN experiment might produce somewhere in the universe … well, obviously, some banks vanished in black holes these days.

This “Oh my God, how could this happen?” and “Oh shit, I’ve lost ten million dollars – how will I survive without my Ferrari?”-attitude including a complete lack of feeling responsible is a bit shocking. These guys seem to live (no, they don’t SEEM to live, they LIVE) in another universe than we “ordinary” people do. They have made up a complete dream (but nevertheless very comfortable) world, and this week it collapsed.

Adrenaline and Megalomania

Well, we could say, who cares? A few ridiculously arrogant and megalomaniac guys who had lost their senses (and any reasonable contact with themselves) anyway and who probably needed this kind of high adrenaline-providing job (for whichever reasons …), turned Wall Street into a casino, and now they have to wake up. Good for them, we could say. Better late than never.

The trouble is that we are so connected these days, that it matters quite a lot for the rest of the world what a few insane brokers at Wall Street do. Look at the trouble other institutes are in, look at the panic at other stock markets, the problems for the world economy (Germany already fears the next recession after a short boom – but okay, we always fear something!) and last, but not least: The vast amounts of money that governments and central banks are currently pumping into the markets worldwide. While I hope that they will be successful in order to prevent a really big world economy crisis, I nevertheless ask myself: Where does all this money come from? What will be the impact on inflation and the value of the dollar? And who will have to pay for these rescue actions one day?

“Crisis of Rationality”

I can’t help it, but I feel that somehow many people are living under illusions and “postpone the real catastrophe”. One German commentator wrote something about an “era of misfortune” that we had constructed ourselves, and that it had already begun with the Iraq war and also (at least in Germany) with a lot of economic and social reforms that would have been too much motivated by shareholder values and demands and not enough by a common vision for the future. I’m not overly happy with the German tendency to be too pessimistic, but I think he has got a point, especially when he describes the current financial crisis as “a crisis of rationality”.

This is exactly the problem: A society (or a world) in which the economy and the stock markets are regarded as the “Mother of Rationality” AND in which nearly everything that happens has to be justified economically AND in which the very economies and stock markets are (ironically!) driven by too much insanity, greed, illusions, … (which “are then sold as rationality”) can not be regarded as sane anymore, can it? How could we ever believe all this neoliberal rubbish??

The trouble is: 1) too much greed and 2) the dominance of “rationality”.

But the REAL trouble is: Greed that comes along as rationality and leads to economics of illusions.

This crash is not sooo extraordinary. Every intelligent person could have foreseen it. Not exactly for this month and this year, but in general, yes. The more interesting question is: What lies behind it? What kind of symptom is it? What does it tell us about the world and ourselves?

Is this the one and only vision people have for themselves and the world: Making money (even out of nothing) and crying if it vanishes into a black hole?

And why?

If you want to investigate the level of development a society has achieved, just look at the Gods it worships.