Credit money is not money:
Credit money is debt money and debt is not money. This paradoxical lie has been accepted for over one hundred years, at least in today’s format since 1971 when Nixon abolished the tiny shiny glow of gold for what was left from its original reserve currency dollar. The US dollar now at its highest level since 2003, has appreciated 25% since last July – an insane move for a major currency.
But the truth is out. The Greece bailout is a sham. Everyone knows it. The game is to pretend and deceive. But Greek Finance Minister Yanis Varoufakis doesn’t play that game. He’s going for broke. That means the European Union (EU) will bail out Greece. – It will forgive lots of debt, then put together a long-term plan to repair the Greek economy, which will cost even more money.
Yanis Varoufakis explained: “Clever people in Brussels, in Frankfurt, and in Berlin knew back in May 2010 that Greece would never pay back its debts. But they acted as if Greece wasn’t bankrupt, as if it just didn’t have enough liquid funds. In this position, to give the most bankrupt of any state the biggest credit in history, like third-class corrupt bankers, was a crime against humanity.” – Now the EU is stuck between a rock and a hard place – and Varoufakis knows it.
If the EU let Greece go, and makes its exit, all of European banks that own euro-denominated Greek debt are in trouble. The old game of “lending” money to Greece to prop up the price of the country’s debt on the books of German and other European banks is no longer an option, because Varoufakis is calling the EU’s bluff. This game of propping up the banks required someone in Greece to keep agreeing to it. But Varoufakis won’t play that game.
If the EU wants to keep Greece, it will have to give Varoufakis and Greece what they are asking for: a cheaper euro, more flexibility to allow its economy to grow, debt forgiveness on the old bailouts and debts, and economic stimulus of some sort to jumpstart the economy. Once Greece gets its deal, Spain, Portugal, Italy, Ireland, and France all will require the same deal.
The EU too must know; debt problems cannot be solved with more debt. That’s what all Central Banks continue to offer. In a credit money based monetary system as the world has today, whereas money for interest payment is never created, debt must continue to grow, because every dollar used to pay interest is created with an interest obligation of its own. Where does it end? – It will end when the system collapses.
Central bankers self made problem:
The economy for years remained sluggish and will stay that course, central bankers have created a tremendous problem for themselves, they must issue more credit money to keep the system afloat, while there is no growth and no need for more credit, unless for speculation.
But they remain committed to this policy by providing more and more credit to a world that is already drowning in it. If you know how the economy really works, you understand the clumsy mechanics at all Central Banks of the world where they still think they can turn knobs and adjust levers. But an economy is a complex dynamic system with intricate feedback loops. But central bankers have but a single mission – to save the system, but to save it from what? From debts, and obligations incurred on their own behalf.
The world’s governments are deeply in debt. And the Central Banks still make it easier for them to go further into debt. And that’s the reason why negative yields directly are related with debt creation; it has nothing to do with attracting more borrowers for productive investments. If no credit money is added the system will collapse, so negative yields do the job that let bankrupt governments keep spending.
Europe’s bond yields are at their lowest level in 150 years. About one-third of the total new issuance carries a negative nominal yield – that is before accounted for inflation. What sense does it make for the ECB to drive yields lower still? None at all, except European governments and corporations get paid to borrow money!
In today’s economy, “money” is created of credit, and credit is no money, as explained. Because Banks create this credit out of nothing when they make a loan. That money exists, for the most part, as a digital record on a computer network somewhere. – And unlike even traditional paper money, this credit can vanish as quickly and easily as it was created in the first place. It is purely digital in nature, that credit can’t be hoarded. It can’t be put it in your safe.
Credit depends on trust:
Credit depends on trust. The word “credit” comes from the Latin “credere” – to believe or trust. So, when our financial system implodes – which is what always happens when there is too much debt – the machinery of borrowing and lending will seize up. No one will trust that he will get paid. Credit will simply disappear – trillions of dollars of it – overnight.
This is, of course, not the end of the world. Nor even the beginning of the end. But it will be the end of the beginning of the paper money created unwittingly in 1971 by President Nixon. – Then the end can begin.
“Expect, with this backdrop, lower Treasury bond yields, stronger precious metals prices and more downside risk in the stock market – especially among cyclical stocks that have rallied on the assumption of a self-sustaining economic recovery.” – And that’s the best-case scenario.
To offer more insight in this matter Paul Craig Roberts offers his opinion:
“The US economy is hollowed out. There has been no real median family income growth for decades. Alan Greenspan as Fed Chairman used an expansion of consumer credit to take the place of the missing growth in consumer income, but the population is now too indebted to take on more. So there is nothing to drive the economy. So many manufacturing and tradable professional service jobs such as software engineering have been moved offshore that the middle class has shrunk. University graduates cannot get jobs that support an independent existence. So they can’t form households, buy houses, appliances and home furnishings.
The government produces low inflation measures by not measuring inflation and low unemployment rates by not measuring unemployment. The financial markets are rigged, and gold is driven down despite rising demand by selling uncovered shorts in the futures market. It is a house of cards that has stood longer than I thought possible. Apparently, the house of cards can stand until the rest of the world ceases to hold the US dollar as reserves.
Possibly the empire has put too much stress on Europe by involving Europe in a conflict with Russia. If Germany, for example, were to pull out of NATO, the empire would collapse, or if Russia can find the wits to finance Greece, Italy, and Spain in exchange for them leaving the Euro and EU, the empire would suffer a fatal blow.
Alternatively, Russia might tell Europe that Russia has no alternative but to target European capitals with nuclear weapons now that Europe has joined the US in conducting war against Russia.
In my opinion, I think Putin should focus on Europe and make Europe aware that Russia expects an American attack and will have no choice except to wipe out Europe in response. Putin should encourage Europe to break off from NATO in order to prevent World War 3.
Putin should also make sure China understands that China represents the same perceived threat to the US as Russia and that the two countries need to stand together. Perhaps if Russia and China were to maintain their forces on a nuclear alert, not the top one, but an elevated one that conveyed recognition of the American threat and conveyed this threat to the world, the US could be isolated.
While the US was focused on its Mideast wars, Putin restored Russia and blocked Washington’s planned invasion of Syria and bombing of Iran. The first objective of the neocon doctrine was breached. Russia had to be brought into line. That is the origin of Washington’s attack on Russia. The dependent and captive European media and US simply repeats the Russian Threat to the public, which is insouciant and otherwise uninformed.
The offense of Russian culture is also there Christian morals, respect for law and humanity, diplomacy in place of coercion, traditional social mores but these are in the background. Russia is hated because Russia (and China) is a check on Washington’s unilateral uni-power. This check is what will lead to war.
If the Russians and Chinese do not expect a pre-emptive nuclear attack from Washington, they will be destroyed.
The world financial system and economic structure is facing a crisis that cannot be cured simply by restoring “primary balance” – by not adding more debt than there already is, and pushing up the stock market. The solution will have to involve a return to government money – such as China has, a write-off of debt and a redistribution of assets.
Cheap money has done what it always does: undermine the economy and the society that hosts it. It can even happen within a gold-backed monetary system.
The Roman Empire was an early victim in the 3rd century. When it made a conquest, the easy money – they captured booty and slave labor – that came back to Rome and raised prices. Slave labor reduced wages for free workers. And the stolen property competed with locally made goods. This weakened Rome’s domestic economy.
Spain repeated the trick in the 16th century. Lots of Gold was looted from the New World in such quantities that Spaniards found they could live off the easy money. They found a mountain of silver at Potosí in Bolivia and put slaves to work, night and day, mining it. Prices rose sharply throughout Europe. And when the easy money came to an end, the Spanish economy collapsed.
AIIB first competitor for World Bank and IMF:
And now the US dollar is coming to its end. Something very interesting is taking place – their closest economic allies are breaking ranks and siding with China. Despite explicit U.S. objections, the United Kingdom, France, Germany, Denmark, Canada, Australia, South Korea, and others have all agreed to join the Asia Infrastructure Investment Bank (AIIB) — China’s World Bank rival. – Only Japan is holding out.
Many in Washington view the emergence of the AIIB as not only a direct challenge to the US-led IMF and Asian Development Bank, which provide loans to struggling economies, but as proof that China is now a full-blown global economic powerhouse in its own right.
In an ironic twist, now it’s the United States that is being isolated economically. Of course, they only have themselves to blame. For the past 70 years, the United States has used the World Bank and IMF to extort policy changes from vulnerable countries. And they came away with that because there was no alternative. Not until now, anyway.
The emergence of the AIIB means that instead of crawling to the United States for giant loans, developing Asian countries can go to a mega-bank dominated by China. Make no mistake; this is a major blow for U.S. hegemony. For three reasons:
- China will be able to use large loans as political leverage, agreeing to fund projects in smaller, developing countries in return for China-friendly policy. – Exactly what the World Bank does.
- It will help China to diversify its portfolio, shifting its investment capital away from U.S. debt.
- It will expand the role of China’s currency, the Renminbi, at the expense of the dollar.
China has issued billions of dollars’ worth of currency swaps with nations around the world. From major players like the ECB, Great Britain, Australia, Russia, and Brazil, to little guys like Suriname and Armenia. Beijing is systematically eliminating the dollar from its cross-border trade. And when the AIIB starts making loans, they’re going to be in renimbis not dollars.
China is only doing what’s in its own best interest. And, on the whole, it’s a positive step for the global community as well. There should be alternatives to the World Bank and IMF. There should be alternatives to the dollar. Competition is, after all, the very essence of the free market.
Anonymous – Do You See What I See?
I see a cry for reckoning, and unification. Brothers and sisters time is short we must show how much we are on the same page. No matter colour or differences, all should respect the lands that created them and keep true to themselves and being the children of our world make a better future for the next generation. We are anonymous; we do not forgive, we do not forget, EXPECT US!!!