Global credit expansion of the magnitude which commenced under Ronald Reagan and Margaret Thatcher and which continues to this day is premised on indefinite economic growth, which is defined as an increase in Gross Domestic Product, or the amount of money changing hands.
This a convenient measure for the government because it directly correlates with taxation, but it also in practice corresponds to the rate of resource extraction and CO2 emissions. If and when economic growth does not keep pace with interest repayment demands, the issuance of new debt lags behind debt repayments and the volume of money decreases, stalling the economy.
Since 2008 bank lending to productive enterprise has slowed as banks use increasingly cheap money not to re-lend as the government begs them, but to shore up the titanic holes in their balance sheets, which, if officially acknowledged would mean the whole banking sector was insolvent. The real economy is being sacrificed to cover previous reckless profiteering of the financial sector.
Governments have only two possible and opposing responses. By turns they are doing both: cutting social spending in order to pay off debts, and increasing debt by injecting new money into bank balance sheets in the hope that banks will lend money into circulation. Interest rates have been lowered to near zero to enable or encourage ever greater borrowing.
Overall public debts are still increasing which makes nonsense out of the austerity narrative. Only when we understand that money can be something other than commercial credit can we see ways out of the dilemma, the most obvious of which is to contain bank lending and have government issue ‘sovereign’ money instead which is how most people still think money is issued.
Perhaps because of the large number of big bank shareholders in and around government, or perhaps because the economics profession has mostly abandoned all approaches except ‘neo-classical’ economics, issuing sovereign money is unthinkable. Many other sensible and obvious economic policies also receive no serious consideration, such as clamping down on use of tax havens, reducing military spending or taxing imports, issuing sovereign money, bailing out the people, inflating away the debt, nationalising too-big-to-fail institutions to name but a few.
QE may have raised prices of stocks & commodities, and food, but this was offset by very low interest rates and it looks like massive global deleveraging is taking place. Oil, steel and other commodity prices have fallen dramatically in 2015, and with the revaluation of the Yuan in the summer, it became evident that not even Chinese growth could not offset the global slowdown. All developed economies have followed Japan into the deflationary trap; the only way out that we know is from out 1930s experience, when the threat and reality of WWII lead to massive borrowing and full employment, otherwise permanent recession. Deflation means that more money is being paid back to banks than is being borrowed from banks. When this ‘debt’ money is repaid, it cancels out on the bank’s balance sheet and no longer exists. The amount of money (circulating) in the world is going down, which means less employment, less money in people’s pockets, less demand for goods and services, and lower prices.
As interest rates start to dip below zero, there will be a need to prevent people hoarding cash, so banks are waging a propaganda #waroncash in favour of high tech all-digital total-surveillance payments. This would at least have the effect of damping the social unrest which ensues from injustice at such scale. Modern economies are very much controlled from above, traditionally by government policy but increasingly by 'markets', a euphemism for the combined interests of the largest corporations, many of them financial. There are many ways to intervene in markets, with purchasing policies, regulation & policing, price manipulation, capital controls, and of course the full gamut of mafia tactics and dirty tricks. But perhaps the single most influential way of controlling a whole economy is by throttling its access to credit, a power which now lies exclusively with the banking sector, since quantitative easing has less and less effect.
It is no wonder that ordinary people surveying the global economy in hope of a better life for their children can see all the abundance and all the poverty, all the marginalised ideas and all the intransigence and ideology, turn on the TV just for distraction. But before moving on, I want to offer a follow-the-money analysis, an approach which rarely fails to yield insights.
This notion of credit control being a single choke-point on the economy, and the fact of this power lying in the hands of entities which debt makes psychopathic and insatiable, seems to be lost on most theorists and commentators; but consider the power of the financial sector: * It has enormous holdings and influence all sectors of the economy such as media (propaganda), technology, security, food, health, international relations. * It can lend unlimited money, channel it towards certain sectors or companies, set interest rates. * It is guaranteed solvency by the taxpayer and immunity to criminal law justified by the too-big-to-fail dogma which says that the success of these banks is less damaging than their failure. * It has unlimited budget for lobbying, access to revolving doors and a great many of its shareholders in government posts. * By financing the economics profession it has made alternatives to neoclassical economics unthinkable despite repeated crises. * With all its data and data-mining capacity, it know us intimately. * While the White House, the deep state, Israel, the Military Industrial Complex and other institutions surely bear responsibility for many of our problems, the greatest single concentration of power must surely be placed in the global banking cartel and its abuse of the money power.