‘Banking on phoney economics


This is a guest article from Scott Egner who is regular commentator on this site.


‘Banking on phoney economics’

You can tell it’s squeaky bum time when another ‘expert’ on the economy weighs with another ‘devastating’ blow to Scottish independence. I often hear the claim that we didn’t do enough back in 2014 to persuade people about the economic arguments for independence. To an extent I’d agree with that, but probably not in the same way as most others.

My journey to voting YES in 2014 was very much an economic one. I hadn’t really considered the prospect of Scottish independence until the Edinburgh Agreement was signed in 2012. Up until then I had taken more of an interest in the economy in the aftermath of the 2008 financial crisis. Following the crisis, I recall the queen famously asked economic experts what had happened and why no one saw what was coming. Sadly no answer was forthcoming at the time which should be pretty embarrassing if you’re an economist.

It didn’t take much research to discover that a number of economists actually HAD predicted that a financial crisis was imminent. Not being part of the neoliberal mainstream however meant that their commentary never saw the light of day.

So why didn’t the ‘experts’ see it coming? 

To put it simply,  they didn’t understand one of the most fundamental functions of a financial system – how banks work.

If you were to look in a typical economic text you will likely find banks described as “licenced institutions which bring lenders and borrowers together” (Begg, Fischer and Dornbusch). The basic version of this narrative is that banks use the money from depositors and lend it on to borrowers, knowing that the depositors won’t all want to withdraw their money at the same time.

To the lay person like myself this would seem an entirely sensible description, yet it’s entirely false. 

An accurate description, well understood by those warning of the crisis, is as follows – “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.” (Bank of England Q1 bulletin 2014 “Money creation in the modern economy”).

Obviously, the Bank of England paper came well after the crisis. Experts in the economic orthodoxy were advising policy makers based on textbooks which gave a completely erroneous description of the fundamentals of finance. 

The emergence of Thatcherism in 1980 heralded the Milton Friedman ‘monetarist’ ideology and the idea of ‘sound finance’ where public deficits became rather frowned upon. But given Thatcher’s determination to dismantle the industrial heartlands of the north, how could the U.K. economy grow and in what form? Enter the financial services ‘industry’. Central to this new period of ‘growth’ was the deregulation of the city and the financialisation of the economy. Physics and maths graduates found better earnings writing algorithms for financial derivatives than they would designing ships and aircraft.

What were the bankers doing with their new found unfettered power? Making profits and awarding themselves bonuses of course. Only around 10% of lending was for productive purposes, such as lending for business starts for example.  The vast majority of loans went into the more profitable real estate and financial markets. As a result, average house prices almost tripled between 1980 and 1990.

By the mid-nineties, the lure of power was too much for labour and they capitulated to the city of London and adopted the ‘sound finance’ dogma. After their election victory in 1997, Gordon Brown dutifully ushered in ‘light touch’ financial regulation. Labour became the darlings of the neoliberal establishment. If anything, credit-based growth accelerated under Brown and record levels of new debt based money was pumped into real estate and financial markets whilst the party boasted about it’s ‘fiscal responsibility’. The city of London was the global capital of deregulation and a hotbed of money laundering. Getting a Mortgage had never been easier. Any risk was packaged up and sold off to other institutions as ‘mortgage-backed securities’. The loans themselves were seen as assets of the banks and used as collateral to make other loans – there seemed to be only one side to the balance sheet!

The madness came to a grinding halt following the U.S sub-prime mortgage crisis in 2007.

 So how did the house of cards finally collapse? Let’s refer back to that 2014 Bank of England paper – “Just as taking out a new loan creates money, the repayment of a bank loan destroys money”. As long as loans outweigh repayments the system will grind on building up more and more debt. Just prior to the crisis the average house price stood at almost 7 times the average U.K. salary and the total of all private sector debt stood at around £2.7 trillion. Given events in America, Banks we’re becoming risk averse and lending began to dry up. At the same time the ‘housing ladder’, which once seemed a safe bet, no longer had the same appeal to people. Then of course there was the collapse of the Northern Rock building society. Thatcher, Major, Blair and Brown had fostered a ponzi economy grown on ever increasing bank deposits but now the money was leaving the economy faster than it was being created. According to commentators at the time, we were just days away from having to pay for things in hard cash, such was the lack of confidence in the card payments system. The bank defaults came, unemployment soared and the government had to step in, pumping in state cash to shore up the economy and rescue the banks.

This is the point in the story  where the right wing blairite faction of the Labour Party (now the Kier Starmer fan club) try to absolve Gordon Brown from any blame, in fact claiming that he ‘saved the day’. In Nick Shaxson’s excellent book “Treasure Islands”, Labour’s John McDonnell disagrees – “Blair and Brown made a Faustian pact to give the city it’s head.. .it was not a relationship on our terms; it was simply ‘Give them what they want’”. Brown had massively over-leveraged the U.K with record levels of non-government debt. The chickens were coming home to roost.

Rather than assisting the hapless homeowners, the government’s preferred option was to cushion the banks and re-inflate this debt bubble at the earliest opportunity. Once again, rising house prices were spun as the ‘positive shoots’ of economic recovery.  The state had basically created a moral hazard by confirming to the bankers that they, along with their bonuses, were untouchable.

The publishing of the quoted Bank of England paper in 2014 was something of a watershed moment. They were the first central bank to officially acknowledge that commercial banks directly controlled considerable quantities of the money supply. Notably there was also a money creation debate in the same year in the House of Commons which was attended by only a handful of MPs. The hopeful, like myself, naively believed at the time that this might go some way to changing the economic landscape. The dominant right wing media saw to it that this was a ‘non-event’

Now, a decade and a half on from the financial crisis and following the Bank Of England’s intervention, surely the current economic establishment must have revised their erroneous understanding? It would seem not.

This year, a nobel prize in economics was awarded to a paper published by Ben Bernanke who was chairman of the U.S. federal reserve at the time of the crisis. In the paper Bernanke describes the financial bubble bursting as simply a “redistribution of money from debtors to creditors”. So in effect, according to Bernanke, banks are just like big credit unions. The mainstream economic narrative on this side of the Atlantic is no better. BBC’s “Understand The Economy” podcast churns out exactly the same myth in it’s recent episode on banking.

We are conditioned by the media to hang on every word of the so-called experts. They are the ‘go to’ guys of the BBC, mainstream press and the educational establishments. When people claim that our economic case was inadequate in 2014, I would counter that by saying not nearly enough was being done to expose the sham of the U.K. economy. The economic car crash we are witnessing today isn’t just down to any mini-budget. It is a culmination of the last 4 decades of economic ideology adopted by the entire U.K. political establishment. This is worth bearing in mind when you hear of another economic ‘expert’ being wheeled out to disparage an independent Scotland.

Finally, if we really do want to create a positive alternative in Scotland then the Scottish Government need to think long and hard about who they are taking economic advice from. By adopting the UK’s  financial regulations, as per the SNP’ growth commission proposals, there can only be one outcome, and history has shown that it isn’t a good one.

MY COMMENTS

Scott is right, the SNP need to revisit the Growth Commission Report as the majority of recommendations and in particular the currency recommendations have already been rejected by the SNP Conference. That the SNP leadership display no willingness to respect that vote speaks volumes about members views are now handled in the Party. A Scotland build on the same policies advocated by the spivs in London and acceptable to them could cost us our Independence as they will create division and disagreement amongst the entire YES Movement.

I am, as always

Yours for Scotland


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26 thoughts on “‘Banking on phoney economics

  1. A great piece from Scott Egner.

    I particularly like this:

    “When people claim that our economic case was inadequate in 2014, I would counter that by saying not nearly enough was being done to expose the sham of the U.K. economy. The economic car crash we are witnessing today isn’t just down to any mini-budget. It is a culmination of the last 4 decades of economic ideology adopted by the entire U.K. political establishment. This is worth bearing in mind when you hear of another economic ‘expert’ being wheeled out to disparage an independent Scotland.”

    Having run the ‘positive case for Independence’ campaign in 2014 and raised support from 25% to 45% of the population we now need to emphasise:

    1. The sovereignty of the Scottish people and their right to self-determine.
    2. The risks, uncertainties and damage caused by remaining in the British Union.
    3. The broken Unionist promises of 2014 compared with their respective lying outcomes.

    #1 is just making it clear that it is nation-state status that is normal while the Union is the anomaly.

    #2 and #3 combined may represent the ‘positive case against the Union’. In other words our very own Project FEAR.

    Liked by 9 people

  2. Plus ca change … an article I wrote and was published back in 2017, to illustrate that much of what Scott has only too accurately written is because we do not learn lessons.

    “My name’s Rabbie Burns … and I want to tell you a story. It is a true story.

    This is a true story. It all took place while I was alive and living in Scotland. It is about how Banks went bust and caused poverty and hardship. (Maybe it has lessons for you in your time.)

    My story begins in November 1769, when a Bank was started under the name Douglas, Heron & Co. Among its shareholders were some of the wealthiest men and the largest landowners in Scotland.

    One of its main branches was in Ayr, near where I lived, and we called it the Ayr Bank. In only 3 years, by June of 1772, the Bank had issued £1.2 million in loans. That was huge in my day.

    You should know this, it is important, it issued its own banknotes. It made promises to honour the banknotes it issued. People trusted those promises. Very quickly those banknotes amounted to around two thirds of the currency in Scotland. It meant nearly all of the money in Scotland was based on the promises on those banknotes. (Do you still have Banks that issue their own banknotes, and make promises, that they may or may not keep?)

    In three short years the Ayr Bank became a major success, but how could it become even more successful? It didn’t have enough resources of its own, so it started to borrow from other Banks, one in London was its favourite. It could now expand rapidly, who knew the limits of its success, and the vast riches in store for its owners? (Do you have Banks that expand rapidly, and pay very handsome rewards to those in the Bank?)

    Now for something you maybe don’t know. You probably haven’t heard of the crash of 1772, it’s a long time ago for you, but put simply a lot of Banks went bust, the favourite Bank in London was one of those that went bust. (Have you ever experienced a Bank crash – in your time?)

    The Bank crash of 1772 meant the Ayr Bank found it had a very very serious problem – it didn’t have enough resources to honour all the promises it had made on its banknotes. It’s not good when you make promises you can’t keep!

    What to do? It asked the Bank of England for help, but the terms were too severe. So it turned to other Banks, and every bank it turned to refused to help. So, in August 1773, 3 years after it started the Ayr Bank closed. It went Bust!

    History records that the main reasons for the Bank going bust were: trading beyond their means; forcing the circulation of their notes; giving credit too easily; ignorance of the principles of business; and the carelessness or iniquity of its officers. (Have you ever witnessed anything similar in your time?)

    Many families in Ayrshire were made penniless by the collapse of Douglas, Heron & Co, the Ayr Bank, my own family included.

    But that’s hundreds of years ago, it is ancient history, you will have all learned the lessons from my story, surely? You wouldn’t let it happen again – would you? You haven’t, have you?

    You wouldn’t just sit and watch while Banks borrow and lend money as if there were no tomorrow – would you?

    You wouldn’t let Banks issue all your currency in Scotland – would you?

    You wouldn’t let your Banks make promises on what are nothing more than bits of coloured paper they call “banknotes” – based on promises you don’t know whether they can keep or not – would you?

    You won’t have inequality, with some of the very rich increasingly in charge, and getting richer, and the rest struggling to get by.

    You won’t have anyone in desperate need of a place to live, or in need of clothes.

    You won’t have children going without food. Children living in poverty – you won’t let that happen – will you?

    You won’t have anyone forced to look for work on the lowest of wages – at the whim of an employer – will you?.

    This was my story, it is a true story, from my time in Scotland – you will have learned all of the lessons from my time – you will have changed how the system works – you will never let it happen again – you won’t let Banks issue all your currency, and make promises they may not keep, will you?

    Your time, your history, your story, will be so so completely different. It is, isn’t it?”

    Liked by 23 people

  3. And it was a Labour Government, in hoc to these financial instutions which embraced the Public/ Private Finance Inititiative which locked local authorities (for building schools) and health boards (for building hospitals) into debt for decades by insisting this was the only way to get the work done. Under the contract, the LA or Health Board did not even own the building at the end of the payment period but it reverted to the finacne company!
    To make it even worse, no one supervised the actual building process so that In Edinburgh we had schools closed as pieces were falling off walls and an internal wall collapse in one school caused the death of a Teenage girl, yet there seeem to have been no penalties incurred for this irresponsibility. Further, any small maintenance items became vastly more expensive and time consuming as the Janitor was no longer allowed to change a light bulb but forms had to be filled in and eventually an operative from the company owning the building came along to do the job weeks later. Also any design problems such as (a real) case of a lack of provision for pupils to hang up coats etc took months to rectify plus significant additional costs as it was not in the original specification!
    I think there were reports of problems with ERI getting too hot in the central area in Summer because the glass-roofed ‘Atrium’ allowed that part of the hospital to get too warm for patients, staff and visitors. I’m not sure what was done about this but it would certainly have cost money to rectify!

    Liked by 13 people

  4. In 2014 we also failed to effectively counter the failure of the “Scottish” banks. I remember watching Angus Robertson on Question Time just ignoring this when it was put to him. You’d think one of our representatives would’ve asked if every penny in taxation on the profits down the centuries had gone to a Scottish Exchequer instead of straight to London. They didn’t though. And so the myth that an independent Scotland would’ve been decimated by the banking crisis was allowed to take hold. A great British success story in the boom times; back to being Scottish when they failed. A sort of financial Andy Murray.

    Liked by 14 people

  5. What an excellent article by Scott Egner; an elegant demolition job on the pseudoscience of economics, and a fine introduction to concepts in Modern Monetary Theory.

    If folks want to understand this in more detail (and the success of an independent Scotland will depend on this) they could do worse than read the excellent book by Stephanie Kelton:

    The Deficit Myth: Modern Monetary Theory and How to Build a Better Economy.

    And if readers are up for it they can read in detail why Neoclassical Economics is patent nonsense in Professor Steve Keen’s excellent book “Debunking Economics: The Naked Emperor Dethroned” in which the unorthodox professor of economics explains in detail why his subject is moonshine.

    Keen, along with the likes of Michale Hudson and Ann Pettifor was one of those who consistently and successfully predicted the crash of 2007/8.

    And if people want to understand why this moonshine is perpetuated and maintained bu politicians, the media, academia and the establishment, you could read all about how the patent baloney of mainstream economics is maintained against all available evidence in the wonderful book by Norbert Haring and Niall Douglas: Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards.

    As ever, its all about vested interests and maintaining the status quo for those who benefit from it – and the rest of us go damned.

    I wasn’t surprised to read above that:

    “This year, a nobel prize in economics was awarded to a paper published by Ben Bernanke who was chairman of the U.S. federal reserve at the time of the crisis”.

    As Scott will know there is no thing as a “Nobel Prize” in Economics. Alfred Nobel founded annual prizes for real sciences and genuine intellectual endeavour that benefits humanity (Chemistry, Literature, Physics, Physiology or Medicine and Peace). (I write as an academic biochemist with substantial insight and direct experience into how real science works – I also have an MBA in which I was spoon-fed the gobshite nonsense that is current academic economics)

    In contrast, the Nobel Memorial prize, founded by bankers to reward those who provide bogus intellectual ballast for their usury, rent-seeking and pillage, is a prime example of ‘physics envy’ and public relations.

    The problem is not just its bogus ontology, but also its designation of economics as a scientific field worthy of receiving a Nobel prize at all.

    It is not “scientific” to promulgate theories that fail to describe economic reality; rather it is a body of doctrine, derived from absurd axioms, whose sole use and purposes are ideological, rather than a means of understanding lived reality.

    Real sciences work by empirical observation, hypothesis-formulation, experimentation and real-world predictions. Their legacies are, inter alia, antibiotics, vaccines, the electric grid, computers and vital infrastructure.

    In contrast, main-stream economics, since its “utilitarian” revolution, has abandoned the analysis of the objective world and its political, social and economic productive relations, in favour of introverted, axiomatic speculations, mathematical acrobatics, and psychological gobbledygook in the service of money power.

    The social science of political economy, that of Adam Smith and Ricardo and Marx, was discarded and replaced by the ‘Cargo Cult’ of neoclassical economics that has engulphed present academia and governments.

    The established practitioners of economics are generally negligent of the social preconditions and consequences of man’s economic activity, especially when it comes to actually challenging power and private wealth.

    As Scott Egner so eloquently describes above, neoclassical economics failed its biggest test with the unforeseen (by the mainstream) banking crash and subsequent imposition of unnecessary austerity. Its legacies are inequality, poverty, industrial devastation, bullshit jobs, economic instability ecological degradation, and war. It continues to fail during the present crisis – itself a product of the globalisation it promulgates.

    When Scotland becomes independent we will have to ensure that these snake-oil salesmen are kept well away from control of our economy – otherwise we will fall at the first hurdle

    Liked by 14 people

    1. Thank You, Thank You, Thank You, to Scott , Mike and John for exposing in layman’s terms what this crock of shit has cost NORMAL hard working people , BUT now we have to find a way to EDUCATE the public to what has been going on and what will continue to be unless we can find a way to EXPOSE as Scott says the REAL PONZI SCHEME , IMO the ONLY way to move forward is to put politicians in their place , they are employees , they are paid to do a job of work just like a plumber or joiner , and if you have a bad plumber or joiner you SACK them you don’t give them 5 years and a massive pension to keep on doing a bad job and wrecking your house

      And THIS IMO is where SALVO , SSRG and the convention of the estates comes in , as we are experiencing sturgeon has PROMISED yes PROMISED to bring together a grouping of all political representatives as a convention of the estates yet as BB Roddy and many others have repeated endlessly she has done NOTHING

      TBQH I am not surprised , because all politicians will NOT relinquish power , any power , as far as they are concerned they know better , they are of superior intellect , they will TELL you rather than YOU tell them , it is in their DNA , that is why they took the job , and that is where the problem exists , as long as people accept or believe they have elected these politicians for 4 or 5 years and these politicians believe they can act with virtual impunity NOTHING will change , and even if we assemble a convention of the estates consisting of politicians NOTHING will change

      I wholeheartedly agree with Sara Salyers a convention of the estates MUST consist of commoners , normal people with normal jobs and normal families who have real life lived experience , and who WILL hold politicians , bankers and corporations to account , we MUST assert our sovereignty by ridding ourselves of PARASITES

      Liked by 7 people

    2. Yes Keen’s work has been instrumental in calling out the ‘prize winners’. His latest demolition job on another economic prize winner – William Nordhaus is essential reading, and worthy of an article on it’s own.

      Liked by 1 person

      1. Thanks Scott,

        I’ll check out the details – as I recall Nordhaus uses bogus economics to ‘minimise’ the deleterious economic effects of climate change – using utterly nonsensical mathematical models. (amazing how their work always supports powerful economic interests.

        And I recall Keen’s utter demolition of another winner of the counterfeit Nobel, Paul Krugman.

        A thing of beauty:

        https://rwer.wordpress.com/2018/10/05/krugman-vs-keen/

        Keen: “You can’t model the economy without banks, debts and money”

        Seems obvious – but standard economics tries to do just that.

        Liked by 2 people

  6. this is a very timely piece as the SG and so-called experts hold out the begging bowl to Westminster and pursue the myth that the SG’s budget is fixed.

    No one least of all the economic experts is talking about expanding the SG’s budget.

    We now have their excuse of the No Detriment Rule which ties Scotland into the U.K. government’s tax policy with only minor adjustments. this is so that the Block Grant and Barnett consequentials are not undermined.

    The SG should throw the Barnett Consequentials and Block Grant in the bin. Abolish all Scottish taxes, set a zero rate for income tax on earned income and replace all with AGFRR.

    it’s time for the SG to act as if we are independent and control all public funding!
    There is no need for it to borrow.

    Liked by 10 people

  7. “It is not “scientific” to promulgate theories that fail to describe economic reality”

    It is not “scientific” to promulgate theories that fail to describe material reality either but today Shona Robson continues to make an erse of herself at the stage 2 GRR bill at Holyrood. The excellent Elaine Miller (@gussiegrips) has been ejected after losing patience with Robson doodling instead of listening to other MSPs!

    Liked by 7 people

  8. Scott of course is right. The UK has made casino gambling its monetary policy (all based on asset inflation) and the majority of the people are suffering from the inevitable consequences. The really rich are laughing all the way to the tax haven!

    I’m not an economist but even I know that a country’s finances are NOT the same as a household’s. Households can’t print their own money to pay the bills for a start! this is one of the many reasons why the SNP/Growth Commission’s policy of a Scottish currency eventually when some unachievable criteria is met is at best stupidity at worst venal and treacherous leaving Scotland at the mercy of vulture capitalists and the vagaries of the Westminster government de jour. A budget like Kwasi’s would have sunk a Scotland using sterling with no levers to protect the country due to sterlingisation.

    Liked by 9 people

  9. Westminster and the banks can afford to play Russian roulette economics with our cash and future, they’ll always have Scottish assets to fall back on, if it all goes belly up for a second time, and a third time and so on.

    Liked by 6 people

  10. I still live with the legacy of the Credit Crunch every day. If it had happened 18 months earlier, I’d never have started certain ventures, if it had happened 18 months later, I’d have been finished those ventures and sailed through the Credit Crunch debt free, business intact and with property.

    Unfortunately, my business was torpedoed amidships. We weren’t in trouble, but all our customers were, and our workload fell off a cliff. I went from employing 8 people, 3 of them apprentices, and having three years of steady work even without pricing new stuff, and it all disappeared overnight, and it never came back. The world had changed.

    As long as I live, I will never, ever, trust a bank. These days I don’t even have an overdraft or a credit card. Fk ’em.

    I won’t bore you with my story, but suffice to say, of them all, the banks, the brokers, accountants, the Courts, Enterprise Companies, the Local Authorities, some complete wankers in an Employment Tribunal, the whole slew of people who could easily have helped me, but just stuck the knife in. They set about my business like a pack of hyenas. Believe it or not, the only person I look back on with any regard whatsoever, was the private money lender I was forced to fall back on.

    I’ll include Swinney and Fergus Ewing on the dirty list. It’s largely due to those jokers that I was so cynical about the SNP from early on. Nice guys my arse.

    Yes, the private money lender cost me a small fortune, but at least he was straight and honest about it, (the only one who was), and I knew where I stood at all times. (Something the bank(s) couldn’t give you). He was far more honest and professional than the whole circus I mentioned above. He didn’t cost me all those thousands he was paid. I don’t grudge him a penny of it. He helped. It was the lying bastards at the Bank who made that happen. He was the only person who actually helped.

    But yeah, a good decade plus later and nothing has recovered. I haven’t employed a living soul since, nor have I trained an apprentice. Nor will I ever again.

    Suffice to say, the Credit Crunch was life altering for me. It was like getting a life sentence for murder but having committed no crime.

    Liked by 5 people

  11. Thanks Mike,
    No I hadn’t heard of that crash although I am aware there were many crises which ultimately led to the bank charter act of 1844 which gave the Bank of England the monopoly over the issuance of bank notes. Obviously that didn’t include electronic money!

    Liked by 3 people

  12. There is a piece by Robin Macalpine which explains many of Scotland’s ills. Our Establishment is playing us like fiddles and the SNP is letting them.

    This sentence really stood out

    “It is a deal – the elite governing class protect politicians and cover up failure, so the politicians protect governors and cover up failure. It’s a deal, and it stinks.”

    https://commonweal.scot/what-the-powerful-really-think/

    Liked by 3 people

  13. The Airdrie Savings Bank was forced to close despite being in good financial health and standing. It served the community in which it was based in a responsible manner. It could not, however, afford to invest in the technology of the big banks and it was forced to wind up its affairs.
    It was a model of how banking should be conducted: accepting deposits from the community and lending to the community insofar as it was financially prudent to do so. It provided services to the customers which other banks had long ceased to do. Being based in the local community it knew its customers and you got a decision from a human being.
    All we have left are International bodies with Scottish names. They are faceless and anonymous and the Scottish people are the poorer for the change.
    O/T There is an article in The National titled “Campaigner in Suffragette colours interrupts gender committee. The original Suffragettes broke the law and suffered personal hardships in trying to get the attention of the Parliament, so I can see the historical reason for breaking the rules here.
    What I cannot accept is the following comment under the article:

    Joe-Anna McKay 💕🏳️‍⚧️ 3 hrs ago
    User ID: 2122230
    These TERFs do not represent the average feminist.

    Last Updated: 2 hrs ago

    I reported this comment as using offensive language, but it is still in the comments section. I think the National is just the next group that I won’t read again.

    Liked by 5 people

  14. Want to witness a world far far removed from foodbanks, cold houses/flats, rent and mortgage arrears, evictions et al? Want to escape?

    Well just today, the Governor of the Bank of England and the Chancellor of the Exchequer have been writing letters to each other.

    It’s their version of “Pass the Parcel”! A game involving parcels of debt, first one way – then back again, an illustration from one of the letters, want a peek at £123bn heading one way, and a request that some of it will be needed back?:

    ******

    “Cash flow arrangements

    As you are aware, the Bank and HMT agreed in 2012 to transfer coupon payments received by the APF, net of interest costs and other expenses, to the Exchequer in order to facilitate more efficient cash management across the public sector as a whole.

    It was recognised that this arrangement would result initially in payments from the APF to the Government, and indeed between 2013 and end-September of this year a cumulative total of around £123bn of cash transfers have been made from the APF to HMT.

    It was also agreed that, consistent with the APF indemnity, reverse payments from the Government to the APF were likely to be needed in the future as Bank Rate increases and as the APF’s holdings are unwound by the MPC, and that these reverse payments would be met by the Government on a timely basis.

    In line with this, the first quarterly transfer from HMT to the APF has already occurred, involving the transfer of £828m in October 2022.”

    ******

    However – don’t feel left out of the game – we may have our very own “Parcel”.

    It may come courtesy of the Growth Commission and the latest publication from the Scottish Government, both of whom suggest that after independence Scotland should make a continuing goodwill gesture payment to help towards rUK’s national debt.

    Then we will get our chance to play, and probably write Scotland’s letters.

    Place the chairs, play the music, after all it’s only money!

    In the alternative – other central banks and governments are available.

    Liked by 4 people

    1. Thanks for the link Mike.
      Yes, in a nutshell, banks are quasi-public institutions. They are under public guarantee, in part because they own the payments system. Tories like to talk about their love of the free markets and I know quite a few who work in the financial sector. They erroneously believe that banks are part of the free market, yet nothing could be further from the truth. Adam Smith’s notion of a free market was one which was free from financial rentierism – in other words the financial climate we now witness.

      It’s corporate welfare at every stage, especially if happen to be a bank which is one of the primary bond dealers. of course as you mention, with all the excess reserves held by banks following QE, the banks are given interest payments on these reserves. At a time when kids are starving, they are raking it in.

      Interestingly at the beginning of the APF, commentators, including the bbc at the time, would tell us that banks needed the extra reserves so that they could make more loans. They couldn’t understand of course that the reserves just sat there doing nothing. Well of course they didn’t understand that banks don’t lend on the basis of the quantity of reserves, but on confidence in loans being paid back. The reserves serve only to facilitate inter-bank transfers.

      A thing I heard alot in the lead up to indyref from the NO camp, was “what will we do in a financial crisis”. I was actually asked this whilst manning one of the polling stations talking to my ‘NO’ counterpart. She was a Tory lady and both of her sons worked in the city.
      My response was that we would create a real ‘free market’ banking system, not a phoney one.
      I told her we could have a free public payments system, insulated from ponzi banking – which of course would if anything increase commerce by making it much more accessible to small business(by rights a free market Tory should support that).
      I would also make available the use of a current account at the central bank such that rather than your current account being a digital statement of commercial bank ‘promises to pay’, the money in your account was real – aka state money – digital seniorage if you like. Savings and investments would of course still have risk attached.
      It was very obvious she understood none of the above. I told her that the ‘beauty’ of this was that banks could operate in a true free market, meaning that should they behave irresponsibly and become insolvent, like any other free market business they would be wound up without bringing the payments system down and without our current accounts being frozen. I assured her that at least she would see more of her sons. I think she preferred the champagne socialist version of the banking systems. She never spoke to me after I reminded her politely that her sons were very much beneficiaries of the state.

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      1. @Scott … we should perhaps meet. Long long story, and based on my backround/exxperience in this area (financial regulation/competition law) – in short however – I already have agreement from the FCA/PSR (in writing) to introduce a Scottish Payments system, and the software to do so – on the basis you outline (Yes – I know the obstacles in full – but they can be circumvented if carried out in a very tight specific manner – which is how I gained their agreement)

        It is on my agenda – but for now I am concentrating on the Declaration initiative I started, and I don’t want to have too many plates spinning – we have time (I think) and timing is important.

        Liked by 1 person

  15. The BRICS multipolar economic system based on production, as championed by Lyndon LaRouche, offers a real alternative to the failed unipolar debt based system, operated by the City of London and Wall Street. The rest of the world, including China, India and Russia, is tilting towards BRICS. The reason why the US are hell bent on weakening Russia and China. And the principal reason behind the Russian/ Ukraine war and the sabre rattling over the China/ Taiwan dispute. The Rules Based Order as defined by the World’s Police….

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  16. I used to belong to a local ‘gentlemen’s dining club.’ We met monthly for a meal and to enjoy a (hopefully) entertaining speaker.

    Pne month, the booked speaker had to call-off at the 11th hour so one of our members stepped in at very short notice. He was a retired banker, having, from joining the bank at 16 risen to director level. His speech was very enlightning.

    He made it clear, the trouble with banks, the RBS and ‘Fred the Shred Goodwin’ were big news at the time, was that, they had forgotten they were banks. The big decisions were no longer being made by guys who knew banking, who had passed their banking exams and knew how the system was supposed to work.

    He forecast things would get worse before they got better, and, he was right.

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