The Debt Tragedy

This blog post was first published here on 22 January 2009.

As in most countries, here in Britain the credit crunch is continuing to cause havoc, and it’s now got to the point where the bigwigs are starting to blame each other for the debacle.

In the UK repossessions of domestic homes has risen by 92 per cent on a year ago, and on average one family is evicted every 10 minutes. Two and a half thousand jobs are lost every day. Those figures reveal a national disaster as well as a human tragedy every time a repossession or lay-off happens.

Financial Services Authority chairman Lord Turner announced that finance ministers around the world had failed to heed all the warning signals. We’ll gloss over the fact that Lord Turner himself also failed to issue any warnings, in spite of all the signals he claims to have seen, until it was too late.

Even the Queen is reported to have asked one of her ministers, “Why did nobody see it coming?”

Well, ma’am, with respect, some of us DID see it coming and did what we could to warn everyone. But nobody was interested.

How far will the downturn go? Everyone’s trying to estimate when the “recovery” will start and we can all get back to work and normal life. But if one thing is certain at the present time it is this - if a recovery does come it will be weighed down with even larger debts than we have already. It is the level of debt, more than anything, that prevents trade and industry - all the activities on which we all depend for prosperity - from providing the wealth that needs to filter down so all levels of society benefit.

How can anyone talk of a recovery without also mentioning the debt system that caused the crisis? The national debt of all leading countries, the debt level of all municipal authorities, the borrowing of companies and corporations, big and small, and individual levels of debt, even allowing for bankruptcies and debt write-offs, will all be at record levels. This will require payment of a larger and larger proportion of earnings as interest and repayment instalments to the banks. How can real wealth be created and shared equitably in this kind of economic environment?

This is a burden that will drag down and destroy our whole civilization. So the question is, will this happen now, or after the next cycle of boom and bust? And can we who know what is going on organise a sufficient level of opposition to this gigantic racket to bring it down before it destroys us all?

Start the opposition to this whole evil system by reading “Promise To Pay”, the classic work from Dr R. McNair Wilson, available without charge from our home page.

Spread the word.

Philip Gegan

 

The Banking Crisis – The Question That’s Never Asked

This article was first posted here on 24th September 2008.

It might be the end of round 1 in the current Credit Crunch, but it’s by no means the end of the crash itself. This week there’s been a pause (so far) from last week’s tumultuous events, but I feel there’s more to come soon.

The question I’m asking relates to all the billions of pounds and dollars, borrowed by the British and US Governments to shore up the crumbling edifice of the banking system. When this money has been taken up in rescuing the current lot of collapsing banks and financial institutions, what’s going to happen when the next row of dominoes starts to go the same way?

The US rescue plan involves pumping an estimated one trillion dollars - that’s one thousand billion dollars, a figure beyond most people’s comprehension - into the economy. The British government is spending at least £200 billion (about $360 billion - over a third of the American sum) in the same way. But where is this money really coming from? We know the taxpayer will ultimately have to pay it, but where is it actually coming from now?

None of the establishment media asks this question. That’s because they don’t want people to know the true nature of the sick financial system - that the whole process is a racket, with money being created out of nothing all the time by banks under a kind of licence from the central bank (Bank of England, Federal Reserve Board, etc).

We’ve just seen a classic example of how banks lend many times the actual amount of money on their books - Merrill Lynch was “exposed” to risk that was more than thirty times its capital. That means it was lending around thirty times the actual money in its possession - the money it could lawfully lend. And that only related to the so-called “toxic debt” of dodgy home loans. It didn’t count the less risky loans on its books. So the actual ratio was probably about forty or fifty times its actual money. Where I come from this is called deception and
fraud.

When this devastating fact became known it was almost inevitable that the FBI would investigate fraudulent dealings that helped lead to the current crisis. That is one good thing that has resulted from all this. But remember that the FBI is answerable to the Secretary of the Treasury, Hank Paulson, who has played an instrumental part in the crisis, in effect deciding which financial institutions are to be saved and which are to be allowed to perish. And, of course, he is a former CEO of Goldman Sachs, themselves tottering on the brink.

But for now, the billions of dollars come flooding into the markets, literally from nowhere, to save the day. Or at least to save the present day or two for the bankers and politicians embroiled in the mess. The price is to saddle this and future generations with a further mountain of debt.

What is happening is that the British and US Governments are borrowing the money from the money masters - their respective central banks, which are themselves simply creating the money out of nothing. Why don’t these respective governments themselves create the money? After all, then they wouldn’t have to pay it back, thereby relieving future generations of a colossal tax burden, if not of the burden of inflation.

Because that would mean defying the most powerful, organised and ruthless group of people in the entire history of the world. And when you’re a shifty politician with no ideology or principles and a skeleton or two in the cupboard, there’s no way you’re going to do that.

That’s all for now.

Spread the word!

Philip Gegan