An army sergeant used to preface map instruction with these words, “You better pay attention because the most dangerous thing in this man’s army is a second lieutenant with a map.” In this modern world accepting anything you hear as gospel truth from an economist can literally kill you. The Russian demographer Borisov has proven that at least 3 million Americans died of starvation in the Great Depression. I would expect 9 million Americans to die of starvation in this next Depression if we do not get control of this government.. We live further away from food and farms. We have many more people. We import food. Our political leaders betrayed us by passing NAFTA and sending 50,000 manufacturing plants overseas so we have no real economy which can make a recovery..
I promise to explain why Professor Keen said London is in line for a severe credit crisis but I think it is far more important that you understand why he came to that conclusion. Understanding economics could prevent a lot of unnecessary starvation, riots, wars and misery. Steve Keen in a recent interview compared Hyman Minsky to neo-classical and Keynesian economics which assumed equilibrium. Minsky said No. Minsky developed the financial instability hypothesis. His theory was not a critique of capitalism. It was about the fractional reserve banking system.
Minsky and the Austrian School of economics both saw the instability of the business cycle as being created by fractional reserve banking. Though the latter saw the central bank and low interest rates inducing us to make bad investments as compounding the problem. Under the fractional reserve banking system, a ten thousand dollar deposit can be loaned out repeatedly as long as you do not loan out a greater percentage than your market share. Example. In a small town three banks all have one third of all deposits. If one banker goes crazy and makes 50% of all loans, then, as soon as workers and suppliers are paid, our hapless banker will only get one third of deposits. The other two banks will demand payment closing his bank for lack of deposits.
Steve Keen said, demand is not equal to income. It is equal to income plus the net increase in loans on the way up. This distorts the business market. I have personally met a married couple who were college students and made $100,000 in a year in the very hot California real estate market just before the subprime bubble crash. Conversely, on the way down, as loans are paid off you subtract the net decrease in loans from income and get a rapidly contracting economy.
Before proceeding further, I need to emphasize that our economies are contracting rapidly so the day of reckoning is nigh. The inflation rate is 11.6% in America and likely slightly higher in England. If you subtract GDP growth from those higher and more truthful numbers, then you get negative numbers which will force closure on loans. Japan, China and the US are all experiencing rather large and growing trade deficits because there is no trade. As much money as Bernanke is creating, there is no hyperinflation yet. That is because money circulation or velocity is the lowest since 1959. But Hyperinflation is in our future. Steve Keen said that in a downturn the government borrows money and adds to income so the contraction of the economy stops and we have recovery. I will explain soon why no economic theory seems to work today.
Steve Keen took Minsky’s theories in a different direction. He added a lot of advanced mathematics. One aspect of his theories is interesting. He said the production of the economy is equal to the integral or sum if the productivity of labor. Government workers who do not produce are a drain on the economy. In that respect his math would agree with the Austrians who see government deficit spending (fiscal policy). Some government workers produce. Others get in the way. The EPA has ruled that carbon dioxide is a pollutant and has taxed GE competitor plants out of the coal electrical generation business. This has raised utility rates.
Steve Keen has an interesting theory of debt cancellation. He said we should create and simultaneously destroy credit. Give everyone a credit of $20,000 to be credited against all existing debts. Cancel credit card debts, student loans, mortgage loans, back taxes and utility bills. The Babylonians had developed a formula which told them when it was time to cancel debt. Compound interest makes debts grow exponentially and eventually makes our debts unpayable thus shutting down the economy. As Micheal Hudson said, Unpayable Debts cannot be paid so they will not be paid.
There is a difference between the American experience of the Great Depression and what is happening today. In the 1930s America had a lot of idle manufacturing capacity that just needed to be put to work. In 1994 The Democrats and the Republicans passed NAFTA which sent 50,000 manufacturing plants overseas so we also need an industrial policy to create jobs.
In the 1930s monetary policy alone did not seem to work. The money had to be spent into circulation which is called fiscal policy. But the unemployment rate in the US was still 18% in 1938. Recovery was non-existent in vast regions of the country because Roosevelt concentrated his spending in swing states like Pennsylvania and California where Democrats could actually lose an election.
Modern Monetary Theory (Michael Hudson) and Modern Circuit Theory (Steve Keen) differ on the creation of money. Keen describes how money is created by our fractional reserve banking system. Keen is funded by a well known and controversial billionaire who has given nothing to Hudson. Hudson describes what ought to be. He would have the government create credit without interest so there would be no national debt and no interest on that debt which is currently 500 billion dollars a year. I would favor a law making all state, local and federal debt illegal as soon as it has been cancelled. One source of money to pay for dent cancellation would be found in restitution made by bankers and their co-conspirators in civil and criminal trials to be held in military courts. Another source would be the money held by government agencies in accounts not normally disclosed to the general public. (See http://www.cafr1.com).
If the total money supply were 10 trillion dollars and we needed to grow 5% a year, we could create 500 billion dollars a year and spend it into circulation without inflation. This is a permanent 500 billion dollar a year tax cut. Prices are a ratio of the total of goods and services to the total money supply. If both grow at the same rate, then the ratio or price level will be constant. By cutting 500 billion dollars a year in interest payments and by spending 500 billion dollars a year into circulation, we will be changing the budget in out favor by a trillion dollars. This is far better than cutting a trillion dollars from schools, hospitals, the polcce and pensions as the IMF and the bankers would have us do.
I would like to address the gold standard. A prominent advocate for the return to the gold standard once said, “There might not be any real gold in Fort Knox. It might all be gold plated tungsten bars. But you will have to borrow enough money to buy gold for a gold standard. ” This is insane. A debt that huge at even $5,000 or $10,000 an ounce would crush us permanently. The interest on that debt would be payable in gold. And it would be paid to bankers who stole our gold by leasing it from the government and selling every bar at least 5 times.
As an industrial policy, I would recommend that we release all of the advanced scientific research that the Secret Government is holding back. This would include planes that fly 40,000 mph, room temperature super conductors, anti-gravity, free energy and a universal vaccine. Hudson is working on a book that cites American history to justify the return of tariffs, I agree.
Hudson and Keen agree that the Finance sector is a charge against the real economy. 30% of the UK and American GDPs is the Finance sector. This puts the UK and the US at a competitive disadvantage to nations whose Finance sector costs 10%. Bankers do not make things we eat or wear or drive to work. They ought not to be in charge of the real world.
Deleveraging has begun in England even though David Cameron is trying to inflate the Ponzt scheme still further by subsidizing first time buyers who will be asked to pay for mortgages they cannot afford. Morgan Stanley found the debt to GDP ratio in the UK is 1,000%. Keen says England is going down soon after the Austerity cuts takes their toll on the southern Europeans.The UK has the greatest leverage and the greatest fall coming. When the crunch comes, the financial fraudsters will flee London leaving behind a severe credit crisis. England has no financial regulation so men come from all over the world to commit fraud in London. These people will leave the sinking ship. Recovery for England, Europe, America and the rest of the world will begin with the arrest of the criminals in banking and government. And that will make monetary reform possible.
Notes: I explained why Austerity is like Hyperinflation in that both are designed to transfer wealth from you to the bankers. Please consider this:
The Mathematics Of Austerity: Proving Austerity Never Was Even Intended To Work
This next article explains what people need to know if they do not want bankers to starve them to death,
Nine Myths And Misconceptions About Money That Can Literally Kill You
The next article is one of my most popular,
25 Reasons To Absolutely Despise Bankers And Their Minions
This last one concerns one of the best women in the resistance movement.
Catherine Austin Fitts: The Black Budget And The Leveraged Buyout Of The World Using Stolen Money
This is the interview in which Keen says London has a credit crisis coming.