A look into the velodrome of debt
In an uncertain and fluid economic landscape, we as a family are looking to buy a house from scratch. The lending requirements and restrictions that plague everyone (unless you have a parent with a tangible asset that you can leverage off of) are seemingly insurmountable. This is not uncommon and most people can relate to the trials and tribulations that we will be faced with on this journey and the familiar laments we will utter along the way.
Our complaints will be many and obvious but rather than drill down into the why’s and wherefores’ of what irks us, I thought I would focus on the debt fallacy itself and where that responsibility lies.
At the outset I would like to say that I am no longer a finance trader and have been out of that profession for over a decade but the fundamentals of the system do not change. Greed is of course everlasting until the beast is dead from some sort of overeating disorder.
So where should we go? Who is to blame? Is it possible to even pin any one person to the wheel?
If you look into the reservoirs of debt that plagues this planet, you will see that trillions and trillions of dollars are washing and sloshing around in a political bucket of malfeasance and intrigue. Because when you really drill down and get down to the slops, much like that oft quoted phrase ‘Fake News’, debts are an imaginary causation of financial trickery.
They are a balance sheet initiative championed by government rhetoric from all sides of the political divide. They are debts no longer backed by real world asset management but by the belief in one’s own virtual magnificence sold on a carefully articulated image of buzz words and sound bites.
Money is manufactured. Governments either borrow from their own people or from another government. Ultimately it is the people supporting the governments and the governments who then own each other’s debts in an endless cycle of mismanagement. For example, two thirds of UK Government debt is owed to the pension and insurance funds. Institutions which are funded by all of the people.
Basically and rather simplistically in terms that even I can understand, citizens lend money to themselves in the form of bonds and then financial institutions trade on the value of your bonds. Governments then pay interest on the value of those bonds from guess who (you the people) to financial institutions who in turn line their own coffers.
Commercial banks also weigh into the picture by having to (as part of their regulatory obligations) maintain only 1% or something equally minuscule in their cash vaults as a reserve requirement to fund their activities. This is also your money.
In Australia their lending to debt ratio of your money is 135%. At the height of the 2007 financial crisis many banks in the USA were leveraged at a ratio of 30:1. So it’s pretty obvious what went wrong there.
Do you get any of your banks’ profits even though every single cent you earn is lent out on the overnight liquidity markets or invested in other instruments which earn them money? Favourable Government endorsed accounting practices then allow them as an entity and a group, to engineer market manipulation in the pursuit of their own self-interest. This may or may not be be in contrast to the government’s strategy of the day and therefore at odds with your own country’s sovereign economic policy.
Conversely the punitive damages for breaking ridiculously loose governance rules means that rogue governments, institutions & traders will take every opportunity to play with your money. The paltry interest you earn on your account is nothing compared to the speculative profit they can make off of your deposit base.
They are like drunks at the casino playing with an imaginary balance sheet with no risk on the down side. If they were gambling their family holiday retreat in some idyllic and exclusive paradise, they wouldn’t be so free and easy with their ‘investments’. They don’t see the outcome of their business antics because they don’t have to go home and see the pain they cause. They are anesthetized to its effects.
As with the GFC, all institutions, be they corporate or government, will take every opportunity to manufacture financial instruments out of thin air and then speculate on them. They will create their own false economy and profit from it. Your money which sits behind their imposing vaulted doors also provides the basis for this.
Remember you have no choice but to place your money in a bank. Its part of the employer/employee relationship. They are using your money to make their shareholders profits. Not you. They give you very little in return and then charge you for using their other services which you subsidise. Sound fair?
In this endless dance between customer, investor, shareholder and governments, debt is wielded like a weapon that can topple the strongest of ideologies and undermine the foundations of many struggling families. The increase in debt to citizen ratio expands with seemingly absolute impunity.
Meanwhile the gold inlaid rosewood boardroom tables at the top end of town receive another coat of opulent lacquer sourced from the oil of a plant no longer growing in an Amazonian rain forest. Whilst the people make do with exorbitantly financed cheap imported furniture made in a factory where a bowl of rice is the receipt for a day’s labour.
So who owns the debt?
Don’t be fooled. You do. So what if we forgave the debt? What would actually happen? Who would foot the bill?
We all know the answer as there is no way that the rich and powerful would operate in such an environment without indemnifying themselves against the possibility of loss. And please don’t think I am some Leninist campaigner who hates the rich. I just don’t like it when I am contributing to that wealth and I don’t get the benefit and still manage to be burdened with a debt or vilified by contributing to it.
So let’s look into a very simplified view of how things could operate.
A government bank (Central Bank) is nothing more than a glorified printing press since Nixon took the world ie the USA, off the Gold Standard. The GFC has shown that rather than prudently amass definable assets and wealth, it can just print its way out of trouble. It doesn’t need assets or capital.
Through the bond process we fund governments through debt. Why don’t central banks fund governments through
printing money? Seems to be a much fairer option and the oligarchs wouldn’t be making money off of government subsidised transactions. Could we apply that to all debt?
Well there’s a couple of issues with that. Worldwide chaos would ensue and the sudden realisation that within every single house hold we have amassed a mountain of stuff that is completely useless to us because we cannot eat it.
Furthermore the pension funds that we cherish, future welfare, all that warm and fuzzy stuff that helps us sleep at night would suddenly keep us very, very awake. So if it’s a fait accompli that the world would end by forgiving all debt perhaps we should look at it the other way round and take a look at the credit model.
If we forgave some debt and just allowed the lending models and credit models to re-emerge under the same auspices as before, then the status quo would return. So perhaps those fundamentals need adjusting from a sociological viewpoint.
Socialist policies relating to money lending and wealth creation are an anathema to those who lurk behind the granite edifices of our financial institutions but something has to change be it from either an ideological or humanitarian perspective.
I do not proclaim to have the solution but whatever we are doing now is not working. The wealth disparity is getting wider and the people are feeling more and more disassociated from the financial forecasting that emanates from their televisions because it is not their world. Whatever you think of populist politicians, they exist for a reason. The pundits and pollsters don’t get this. Not yet.
Our elites are not negotiating with a supermarket shelf as to which low brand processed and nutrition-lacking snack to buy for their child. The politicians haven’t sat around the dinner table contemplating how to get to work because you can’t put fuel in the car. They are not standing around a graveside knowing they could have saved the deceased but couldn’t afford the health care.
The company boards don’t know how it feels to lose the only job you have had for forty years in favour of a debt consolidation program. They are not third world people getting bombed by weapons made in first world countries by companies who care little for the misery they cause.
Institutions and governments sanitize the language around unfortunate events to make it sound like a palatable exchange of information but ultimately they owe you, not the other way round. Without you they would not have an agenda to pursue. Without you being alive they would not exist.
The wealth of nations is being usurped by corporations who own or build nothing. They borrow from governments by way of tax breaks. They exploit your sovereign assets and then trade them off. They buy businesses, they gut them and sell them off to the next parasitic overlord. They add to our debt by funding our governments and our governments pay them back for the privilege.
We get angry for a week, speak up and then return to a state of ignorant bliss in the comfort that it is not happening to us. But it is. Your money foots the bill. Your government then tells you that it is you as a citizen that is costing them too much. Who is costing who? We are doing the heavy lifting. Institutions aren’t people. Balance sheets aren’t people. Financial instruments and indices aren’t people. We are. Remember that.