Sustainability

Apparently, in the UK, banks are tightening credit and after many years of easy credit and very low interest rates, marginal businesses are expected to crash. The number of business expected to crash is expected to be significant and the stronger businesses are being increasingly wary of not being paid.

Now, I would have thought that marginal business collapse would be caused by the tightening credit and gently increasing interest rates but no this is not the case. Apparently Brexit is to blame. Not the banks.

If a significant number of marginal businesses failing in a short time frame is a problem, then are the banks not to blame for the number of years of easy credit and low interest rates for sustaining marginal businesses. (A marginal business is one where they can only just afford to meet interest and other payments or that they need to borrow to be able to meet interest and other payments.) No, the banks are encouraging us to blame Brexit and not the banks themselves.

I have discussed banks and government in many of my blog posts. Today, I have a different approach. To be honest, the thoughts are forming in my mind as I type.

Let us imagine a strong and thriving economy and lots and lots of happy content people. Opportunities abound for entrepreneurs, businesses, students, children, old people, philosophers and most important of all, blog writers. Spend a few minutes imagining this perfect world because we could start it on Monday.

In this 'perfect' world I will discuss two groups. Those who own a means of production and those who work for them. The owners make profits and the workers have savings. Profits can be re-invested within the business in an attempt to reduce waste and in other ways to improve the efficiency of the business. Or the owners may buy a yacht or a Ferrari. The workers may spend their savings on luxury goods or holidays or buying higher quality versions of things that they already own. Some workers may seek to 'invest' their savings in an existing business or start their own. Any business owner with an investment opportunity that he cannot fund from profits will seek to borrow the savings of those workers who seek investment opportunities. He will offer an interest rate based upon experience and the potential profitability of the investment opportunity.

The world discussed above is sustainable. It is how things have worked for thousands of years. It is not how things have worked in our lifetimes. The key difference is where in the 'perfect' world we have profits and savings, in our world we have money / currency / green backs / moolah / dollars / euros / dosh / quatloos and spondoolas. Our world is not sustainable simply because of the way we create currency. The business man is not overly dependent upon profits but he is dependent upon banks for credit. Workers don't bother with savings and as such are also dependent upon banks for credit.

The key difference of the 'perfect' world to our world is profit and savings versus credit. One higher order effect of that difference is that the 'perfect' world is sustainable and our world is not sustainable.

The perfect world is sustainable as a business continues to exist provided it has workers. The business need not make a profit but then re-investment in the business ceases. Should competitors prove to be more efficient, they would grow and offer incentives for the workers of the non-profitable business to join them. The business owner may well sell their business to their more efficient competitors. The business owner then has choices as to where to deploy his savings or even become a worker himself.

Now, in our 'real world' things are similar but the crucial difference is credit. There is no credit in the perfect world but there is in ours. With credit, we are not borrowing others savings or profits. It is just credit. In our 'real' world access to credit is the key to business success. In our 'real' world access to credit drives the economy. For decades interest rates have fallen and ease of access to credit has increased. Interest rates almost fell to zero in the UK. In other countries interest rates fell to zero and in others it dipped into negative territory. For our 'real' world to continue this trend must continue. The trend being falling interest rates and ever easier access to credit. The banks are now reversing this trend, albeit slowly and carefully. In the UK, the expected recession is being pinned on Brexit and not on banks not continuing the trend of ever lower interest rates an easier access to credit. The trend being interest rates to zero and then increasingly negative.

The sustainability question of our 'real' world has been addressed in the above paragraph. The control of our economy is not in the hands of the owners of production and workers, based upon profit and savings. The control of our economy is in the hands of those who issue credit. The control of the economy is not in the hands of the workers balanced against the hands of the owners of production. The control of the economy is not in the hands of the sixty million people living in the UK but on a handful of bankers. These bankers only issue credit but they get to decide who is worthy of this advantage. As bankers tighten credit, marginal businesses without access to credit collapse. Those the bankers deem worthy get access to credit to buy up failed businesses for pennies on the pound. The people get to experience lower standards of living as credit dries up. Bad businesses take down good businesses and standards of living collapse further. I don't call that a sustainable option.

In our 'real' world, a great many workers have what they consider to be both savings and investments in their pension. Well, when marginal businesses start collapsing, the major businesses will experience a drop in profits and you may wish to avert your gaze as your pension pot evaporates too. That won't feel very 'sustainable' and neither will those who can no longer make interest payments on the credit they been granted to purchase cars and homes.

Is our world really 'real'? It won't feel real when property prices crash as banks tighten up lending to new home buyers. It won't feel real as your employer is no longer able to pay you. It won't feel real when your car is repossessed and you realise that living in a large house in the sticks is not an easy place to commute from. Actually, it will feel very real once the shock has worn off. This 'real' world lacks sustainability. This is not immediately obvious. It takes critical thought to see it. It is a near certainty that you will not have been educated in critical thought. As I have taken the principles of higher order analysis from Control Engineering and applied it to our society and only I have done that . No-one will have been educated in that branch of 'social engineering' because I haven't taught  it yet. (Other than through this blog.)

There is no need to panic or be particularly concerned, provided you are able to critically think and are able to perform high order analysis on your current situation.

Basically, the non-sustainable will not be sustained and the sustainable will. Until, we are enticed by govt and banks into accepting credit once more.

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There are benefits to credit. Banks can lend to certain sectors and through this very real but artificial stimulus they can promote growth and technological breakthroughs. This will be far quicker than waiting for profits and savings to fund such investment. Thus the comment by one investment banker that he is doing Gods work and he truly is. The only problem of this is that the banker is not a god or God and will make errors of judgments and the occasional mistake. This is unfortunate as the banker is effectively controlling the productive output of virtually everybody else and we will all suffer for his mistakes as we have benefited from his successes. As discussed above, this is not a sustainable state of affairs and eventually the bankers mistakes will offset banker successes and the people will suffer a massive collapse in their standard of living.

Basically, as the average standard of living stagnates and then collapses do not expect bankers / govt to explain why this has happened. They will believe it was because of Brexit or Russia or China or Trump or you the voter for being unproductive. Only a few will know why and even I will go dark.

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To those of you who believe that I am a purveyor of doom. Perhaps. To the question of sustainability of your 'real' world I offer two clues as to why it is not sustainable.

1) Your productivity must increase every year

2)  Your house price must go up, perhaps not yearly but over time

3) Retirement age is increasing rather than decreasing

4) (world) debt must double every 6 - 12 years

There you go, I have given you a choice.

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The original idea for this piece came from here:- https://www.zerohedge.com/news/2018-10-20/it-will-not-end-well-how-gibsons-paradox-has-been-buried

I haven't finished reading it yet either. So, rather than edit this I will continue with my research.

If anyone would like me to actually teach this stuff then you are going to have to find a way to pay me to do so. I choose to due pure research for my own amusement and sharing it for others to persue seems reasonable in my opinion. (It sates my desire to be productive.)

I am happy to share my thoughts and ideas for free, as this is my preferred method of research, analysis and evaluation tending toward understanding. (Mine, not necessarily yours.)

You take care

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extra bit

It bears repeating that what we use as 'money' is in actual fact - bank credit. Thus when banks are tightening, they are removing 'money' from the economy. Even if banks were to be credit neutral, then they would still be tightening as bank credit comes with fees and interest payments.

Bank credit is what banks give you when you ask for and they grant you a 'loan' or 'mortgage'. Bank credit is what banks give to businesses when they ask for 'loans' or lines of (bank) credit. Should you have any savings or a pension pot, then that is just bank credit too.

All this bank credit has been loaned into existence and so when the banks tighten, less bank credit is created and so bank credit drains from the economy. In other words, as we are all conditioned to think of bank credit as 'money', tightening drains 'money' from the economy. With less 'money' in the economy GDP drops and companies go bankrupt. The average person must use savings too maintain his standard of living or lower his standards of living. All because of how much 'money' a banker decides we can, as a society, have.

However, if we did use 'money' as money, then banks would not be able to take it from us by tightening. If banks wanted the savings of workers or the profits of business, then the banks would have to actually earn it or at least offer a decent return when they borrow money from us.

I am not sure if you either believe me or cannot believe me. Let us imagine that we decided to pay back all our loans of bank credit. We would run out of what we call 'money' long before we paid back all the loans of bank credit. Our savings accounts would be drained. Our pension pots would be drained. Our wallets would be empty. Not a single coin or note would be found anywhere and we still would not be close to repaying all the banks loans of bank credit. This is the world as it is now.

In a perfect world, should the UK economy need one trillion pounds to function perfectly. Then one trillion pounds of money needs to be available. This money would be free to flow around the economy. Banks would be happy to step in and create one trillion units of bank credit, all of which needs to be repaid (with interest and fees). The perfect world is then corrupted into what we have now.

So, how do we create this perfect world? Well, everyone understanding that bank credit is not money would be a great start.

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Even more

We all 'sort of' know that bank credit also known as currency is not real money. Yet we use it anyway as there does not appear to be a realistic alternative. Banks and government like this staus quo, as do many others and most of us. Let us see how much we like it when our standards of living start to fall a little faster than we are prepared to accept. Or perhaps you feel that your standard of living will continue to rise until you are dead. Well, what about the children? Yours may be OK but what about the average child? How about your grand children? Well, obviously, we aren't all that bothered as we don't even believe that a system better than what we have actually exists or could exist. We 'believe' we have what we have or anarchy. We are not conditioned to believe in anything else. My perfect world is just unimaginable. We believe that it could not exist and we are right. We are also right if we believe that it could exist. It could exist Monday morning. It starts to exist the moment you truly stop believing that bank credit is money. The moment you stop accepting that bank credit is money, your world changes.

I find it amusing to look at my bank statement and see the numbers, especially the bank balance number clearly labelled as bank credit. I like the fact that when I did take out a loan, the loan clearly stated that I had been extended bank credit.

The perfect world, as I described it, is but moments away.

If bank credit is not money, it isn't, then what are you personally going to accumulate as savings? More simply, what items of lasting value will you exchange your excess bank credit for?

Slightly bolder, what items of  value are you going to exchange your bank credit denominated pension for?

A few examples, fine wine, art, whisky, luxury watches, land, buildings, houses, silver, gold or invest it in productive land and / or equipment that you own?

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Hopefully, there is plenty in this one blog post for you to critically think about. Especially comparing and contrasting the real world with the perfect world I briefly described.

Be seeing you