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(Fifteen-minute read)

 

As you know the workings of the world of finance are screaming compilated.

All money is created as debt and destroyed when repaid.

Money originated as commodity money, but nearly all contemporary money systems are based on fiat money. ( Fiat money does not have intrinsic value and does not have use-value.) 

It has value only because a government maintains its value, or because parties engaging in exchange agree on its value.

There are three major theories regarding the origin of money:-

1 Money was created for trading purposes;

2 Money was created for social purposes;

3 Money was created for religious purposes.

Money is an unconditional means of payment, a token for wealth, worthless of itself, but symbolizing wealth because it is enshrined in law. It is then administered by Governments as a public resource, for and on behalf of the People.

Money today has no connection with earthly resources, and actually many earthly resources are diminishing while money (or at least the number on the pieces of paper) gets bigger and bigger.

I think we’d soon find out how money has stopped us from appreciating the true value of the earth we live on.

In the coming years, we need to get this reality of money out to everyone.

I imagine the scenario whereby ‘money’ in its present form disappeared in a flash, there would be no physical change in anything, just a lot of renegotiation.

With Facebook’s Libra looming on the horizon and the Covid-19 pandemic further depressing the use of physical cash perhaps it’s time for Central Bank digital currency (CBDC) to be introduced.

To give policymakers more effective tools to support the economy, particularly during times of crisis, while maintaining financial stability. Allowing central banks to distribute newly created public money directly to citizens rather than going through financial markets. 

What happens if the world does not return to normalcy within, say, a few years?

If so, governments will find themselves writing enormous cheques every month to sustain comatose economies. If that happens, all bets are off.

The bottom line is, we are not at the mercy of just a virus but a world economic depression with governments issuing epic amounts of debt. For now, confronted by an overwhelming emergency, governments have little choice but to engage in deficit spending on a giant scale, embarking on one of the greatest peacetime borrowing binges in history.

This is and should be raising many questions when it comes to borrowing, severely tests the question of how much the governments can borrow.

Apart from the tragic human consequences of the COVID-19 coronavirus epidemic, the economic uncertainty will likely cost the global economy trillions. 

In fact, the urgent question isn’t whether countries can afford to take on more debt. It’s whether they’re taking on enough debt to fund the stimulus programs necessary to avert an even deeper downturn.

There’s a degree of anxiety now that’s well beyond the health scares which are very serious and concerning. No matter how expensive an outpouring of government aid may seem right now, it is cheaper than dealing with a depression down the road.

After all, it consists of one arm of government creating money in order to buy debt issued by another arm of government,  which looks perilously close to a shell game in which central banks monetize government debt and distort markets. 

The amount a government can borrow depends on many factors, such as

  • Does it print its own currency?
  • Do markets trust the government to maintain low inflation and not default?
  • What is the interest rate on government bonds?
  • What is the state of the economy?
  • What is the purpose of government borrowing?
  • To what extent is the government borrowing from domestic or foreign investors?

Should we worry about the long-term effects of this new borrowing?

Without question, the new debt will leave taxpayers with a significantly larger burden to carry in years to come.

Some commentators believe debt-challenged governments may eventually be forced to go even further and turn to “helicopter money,” a maneuver in which central banks would simply create money, without issuing any corresponding debt, and the government would funnel the new cash to people and businesses.

The lender of last resort.

If there is no lender of last resort. 

The nightmare scenario where the virus continues to suffocate the global economy for a year or more would lead to the unpardonable sin of blurring the distinction between fiscal and monetary policy.

Disaster Capitalism.  

But until we win the battle against COVID-19, and revive our battered economies, we are in uncharted territory. Best to not rule anything out.

The economic impact of the COVID-19 coronavirus will be different than anything we have seen before. 

This is the calm before the storm.

How far can a currency fall before the government has to protect its citizens from the effects of a worthless currency? 

STIMULUS DOES NOT NECESSITATE EXTRA DEBT.

Money should become Man’s servant rather than his master.

In fact, central banks act as a broker between the governments and private bankers who lend the nation its own national currency at interest.

It does this by issuing gilt-edged bonds.

Markets are allowing all the major countries to borrow plenty at ultra-low rates of interest, underpinned by Central Banks buying up a lot of the debt.

This only has to change where inflation picks up, which so far it has not.

Inflation reduces the real value of the government debt, but, that means people will be less willing to hold government bonds.  

Inflation will require higher interest rates to attract people to keep bonds. In theory, the government can print money to reduce the real value of debt; but existing savers will lose out.

If the government creates inflation, it will be more difficult to attract savings in the future.

But in an economic depression, inflationary pressures vanish so it is much easier to finance a deficit by borrowing.

So do government debt and deficits don’t matter.

2021 will be the first year where the three main economies or trading blocs of the world – the US, the European Union (EU), and China – will refocus their efforts on fighting climate change.

Can the world afford this avalanche of new borrowing?

With the coming economic depression and the need to redefine our association with nature, while addressing climate change, and getting control of the pandemics there is no choice. 

It sticks out like a sore thumb if we are to win the war against this virus inequality has to be addressed by paying for the protection of our ecosystems.

In other words, to make it less profitable to destroy rather than to create. 

This can be achieved without the need to borrow with the technology we have at our disposal by placing a 0.05% World Aid Commission on all activities that generate profit for profit’s sake. ( See previous posts) 

All human comments appreciated. All like clicks and abuse chucked in the bin.)

 

 

 

 

 

 

 

 

 

 

 

 

Once society gains control of the issue of money, it cannot let the bankers issue money ever again. 

 

 

providing a safe public form of money and breaking the oligopoly that banks currently have on the digital money and payments system.

 

It does need standards and global agreements but the potential advantages clearly outwiegh the disadvantages.

endorsed digital currency is the way forward> this potentially is a great (and cheaper) way to distribute money to where its needed and this is more importnat than ever right know for obvious reasons.

Created money is already inflationary,

 


BORROWING COMES IN FORTY SHADES OF GRAY

a surge in misleading and unsubstantiated medical advice since the Covid-19 outbreak.

The first is that borrowing has been historically high in recent years following the financial crisis in the late noughties,

the deficit

GDP reflecting the need to spend and borrow to win the war.

Bank of England is buying in substantial quantities of the debt.

There is no need to count the interest paid on the debt owned by the Bank of England, as taxpayers and government get that receipt.

The debt taken on by the UK now has to be serviced by the following generations. And what are they getting in return for that debt? Just about nothing.

Quantative easing, which is bond buying by central banks

as it’s known in the jargon –

 

Covid is going to be around in the world for decadesa

possible total deficit of £7 trn by 2050.

By hoovering up domestic bonds, these central banks are creating artificial demand for bonds and thereby driving down interest rates (which move in the opposite direction to bond prices).

Central banks’ balance sheets are expanding furiously as they gobble up government bonds and other forms of debt.