Showing posts from 2011


This year, for the first time in my life, I was faced with the prospect of being alone on Christmas Day. I have no doubt it will not be the last time. My children will fly to new nests in far-away places, my friends and family will gradually leave this world or become too frail to travel.  Being alone, often for extended periods of time, is characteristic of elderly life. I look forward twenty years and realise that much of my future will be spent alone. I choose my words carefully. I said "alone". I did not say "lonely". Being alone does not necessarily mean being lonely. At Christmas we assume that anyone who is alone must of course be lonely. There are campaigns to persuade people to visit elderly neighbours and take them to jolly Christmas parties at special centres for the elderly. Personally I can't think of anything worse than spending three hours in a hall full of total strangers being patronised by well-meaning youngsters determined to ensure that I

The ICB's fig leaf

It was announced on Monday 19th December that the Independent Commission on Banking's (ICB) proposals for reform of the UK banking system would be accepted in full . Or not quite, actually - HSBC managed to wring a concession from the Government that it would not have to meet higher capital requirements for business it conducts overseas.  As HSBC's overseas business dwarfs its UK business this is important for them, but the quid pro quo must surely be that problems in the overseas businesses cannot be bailed out by its UK operations. The ringfencing proposal should help to achieve this, although it remains to be seen how well this would hold in practice. Inevitably, there have been criticisms of both the proposals themselves and the Government's handling of them.  Tony Greenham of the New Economics Foundation (NEF) wrote this post describing why he believes the proposals are ineffectual. I think the Vickers reforms are indeed ineffectual, but not for the reasons Greenham

Nightfall in Euroland

On Friday 9th December, the leaders of the 27 European Union members held a summit to try to resolve the Euro crisis. In the few days before that summit meeting, Chancellor Merkel of Germany and President Sarkozy of France produced a proposal for closer fiscal union among the 17 Eurozone members.  Key elements of the proposal are: member states to balance their budgets and keep debt and deficits in line with existing provisions in the Stability and Growth pact.   there would be supervision from Brussels of member states' budgets and debt issuance plans, and sanctions such as fines for those who did not abide by the rules the European Stability Mechanism - a larger and better bailout fund, but still mainly dependent for financing on existing member states, although the proposal does invite external contributions - would be introduced in July 2012, running alongside the existing EFSF instead of replacing it as previously planned.  there would be no further haircuts for private

The merits of a debt money system

In my previous post I explained how the Western world's debt money system works.  Currently, in our system, all money is created as debt. Debt precedes savings: it is lent out by financial intermediaries and becomes someone else's savings when it is spent. Therefore, contrary to popular opinion, for someone to have savings it is  necessary for someone else to have debt. And because debt (in its widest sense, so including corporate equity) and savings are equally balanced over the economy as a whole, when debt is paid off savings are reduced by an equal amount. In a debt money system the value judgements so frequently applied to debt and savings are unhelpful and can lead to completely inappropriate courses of action being taken by individuals, corporations and - particularly - by governments and supra-governmental organisations such as the IMF . Popular morality, particularly in the Anglo-Saxon world, has it that debt is a BAD thing and savings are a GOOD thing. These mor

Knowledge and belief

This post is a long overdue response to Richard Murphy's post " I believe in belief" , which directly criticises comments I made about another of his posts and makes false and unjustified assertions about my beliefs and my background. I thought long and hard before writing this post. I don't want to be seen as someone whose aim is to discredit another writer: frankly, life's too short to expend much time on such a fruitless task, and I have far more interesting things to do. But this post touches on some fundamental issues. And that is my real reason for writing this post. I reproduce here the comments I made on the Liberal Conspiracy blog regarding this post from Richard Murphy: Can I comment on two quotes:  Quote number 1: “A Courageous State is populated by politicians who believe in government. They believe in the power of the office they hold. They believe that office exists for the sake of the public good. They know what that public good is.”  Quote no

The other side of debt

This post is sparked by the debate that there has been in the last few days around Positive Money's proposals for reform of the monetary system in the UK. You can read their proposals here .  I'm not in this post aiming to debunk Positive Money's ideas so much as to clarify for people's benefit the nature of our debt money system and how fractional reserve banking works in practice. If more people understood how things REALLY work (rather than what the textbooks say) we would be better able to have a sensible debate about how we want it to work in future. The matter I want to address in this post is relationship between debt and savings. Positive Money correctly describe the way bank lending works, but they ignore the impact on savings, and therefore tell only half the story. And in the course of the debate it became apparent that there are many people who simply don't understand the relationship between debt and savings. Yet the relationship between debt and savi

Austerity and the Eurozone

There has been much discussion recently about the austerity measures being imposed on Greece, Italy and others in the Eurozone in the interests of returning their budgets to balance and implementing much needed structural reforms. The question is not whether these measures are necessary, but whether in the current economic situation they are achievable. Firstly, some basic economics. If a country runs a trade surplus it is a net exporter of goods & services and an equivalent net importer of capital. Conversely, if a country runs a trade deficit it is a net importer of goods & services and an equivalent net exporter of capital. If a country runs a fiscal surplus it means that the government's income is greater than its spending. Conversely, if a country runs a fiscal deficit it means that government spending is greater than its income. There is of course a relationship between trade surplus(deficit) and fiscal surplus(deficit). If the domestic private sector is balan

Magical thinking in Euro Wonderland

After a tense few days, EU leadership have finally come up with a draft proposal for easing Greece's debt problems, recapitalising banks and helping other debt distressed countries to finance their debt more easily. The full text of the EU leadership's statement is here (downloadable pdf). The devil will be in the detail, of course, which is pretty sketchy at the moment. But my initial impression of the report is that it contains far too much magical thinking. External agents will apparently willingly provide money to distressed Eurocountries when the ECB won't; growth will somehow appear in highly-indebted countries despite severe spending cuts and lack of inward investment; countries with uncompetitive business sectors and large trade deficits will somehow balance their budgets. And financial conjuring tricks will create the amount of money the report says will be available. How these will work in practice remains to be seen. Media interest in this report has focused