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[slideaway77]

check this out..

http://cynicuseconomicus.blogspot.com/

Cynicus economicus tearing off the scales from collective eyes once again.

This insight deserves huge exposure.


QUOTE
In other words, the value of our labour that is being expropriated by the government and being gifted to the banks is largely being used to pay overseas depositors - the Asian countries, the oil states, not depositors within our own countries. Money is pouring out of the Western world. This is why, when so much money is being dropped into the banks it seems to disappear as fast as it is dropped in. When the banks are announcing losses, they are not actually 'losing' the money, they are transferring the money to a new place. That place is not within the Western world - or someone somewhere would be recovering from the crisis.

The problem is this. What we are actually witnessing is our own insolvency. We are having to service the debts that we owe to all of the creditor countries, and we just do not have the means to service these obligations. As fast as we are gifting the value of our labour to the banks, the banks are then using that gift to repay our external creditors, but it is just not enough. The government is having to expropriate ever greater value of our labour to keep the repayments going.

The next big question in this is to ask whether the value of our labour is actually enough to repay what we collectively owe. We have seen ever greater transfers of money out of our countries, as we now know that that is where the money has been transferred to. Each unit of money transferred out is a promise that we will make a repayment equivalent to x units of our labour value in the future. Money is a means of exchange for goods and services, and provision of goods and services are resultant from labour.

Much of the money that is now being repaid was used to fund consumption. This has come in many forms, consumption by individuals and consumption by government. I have many times repeated that borrowing for consumption now means a future contraction. It has been one of the themes in this blog. The simple fact is that we have been borrowing for consumption, and we are now actually at the point where that consumption is being paid for. With interest. However, as fast as we transfer the money that we owe back to the creditor countries, we are making promises to provide ever more labour, as that is what the money we give promises. The money is a future contract on our labour (even a commodity requires labour for extraction and movement etc.).

The reason why governments are expropriating our labour in such quantity is not to protect domestic depositors, but to protect overseas depositors. The financial system that they are trying to save is a system in which we can maintain our borrowing for consumption, which is not actually the purpose of the financial system at all. Only through the expropriation of ever greater value of our labour can they continue to service the debt, and it is only if they continue to service the debt that we can still continue the system of borrowing to consume. Overall, we are still in the position of borrowing ever more money, and we are now borrowing it in ever greater quantity.

The trouble is that this is just taking us ever deeper into insolvency. We are, with every day that goes by, simply consuming more than we can produce, and the longer this consumption continues, the worse the situation is becoming. I have long argued that we must finally accept that we tighten our belts, and deal with the fact that we are much poorer than we think.

The really terrible part of this is that large sections of the media have actually accepted that the government is bailing out the banks. This is simply not true. What the government is actually doing is very, very rapidly impoverishing us so that we can continue to consume -for a short while longer- more than we can produce. They are doing so by promising and expropriating ever greater amounts of the value of our present, past and future labour.

As I sit here writing this, I can not but help but wonder about whether any of those responsible for these ongoing bailouts have any idea whatsoever of what they are actually doing. They stride around bombastically proclaiming that they are 'saving us', saving the financial system, when the reality is that they are deluding themselves, and every single one of us.

In practical terms, this is what this means; you will be working to pay back the investment made by, for example, a Chinese individual who has deposited their savings in a Chinese bank. Deposits like this is what is currently funding much of the economy. This funding of current spending will, in the end, need to be returned to that depositor with interest. If we take away the cumulative deposits of all of these overseas savers, we are left with a much smaller and poorer economy. The stored value of their labour is quite literally being used by us so that we can consume more than we produce. This is the answer to the cigarette lighter problem I wrote about a long time ago.

How long can we and our governments sustain this process of, on the one hand, spending ever more borrowed money on consumption, and on the other committing ever more of your value of labour into supporting the borrowing and consumption? We are just digging our own hole ever deeper because, unless there is a miracle on the horizon, there is simply no way that we are ever going to produce more than we are consuming. If we keep on borrowing to consume the future contraction will just get ever larger, and ever more devastating.

Yes, if governments can keep on propping up the banks with ever more borrowing to pay off the previous borrowing, this process might, just might, go on a little longer. However, in doing so they just wreak more havoc with the future.

The reality is that our creditors are seeing that this can not be sustained. They are seeing us for what we are. We are like the individual using a credit card to pay off our bank loan and mortgage, and all the while selling our furniture to try to make ends meet. All the while we are doing this, we are still shopping and spending more than we earn. It is madness.......

I have read so much justification for the bailouts. I see it everywhere, in the newspapers, and even in the latest edition of the Economist. They all make it sound so plausible, that the banking system must be saved. What none of them are talking about is that you are gifting your future, present and past wealth so that we can continue to consume now....so that we can pretend that we are the kings of the world for that little bit longer...I very rarely put things so bluntly, but it is pathetic. They are 'saving' the banks in an effort to keep the credit lines open, to convince our creditors that we are not bust.

My answer to the question of what part of the financial system we are saving is quite clear. The financial system that is being saved is the financial system that allows us to consume more than we produce at an ever increasing cost to the future. It is a very different financial system to the one which I detailed at the start of the post. A financial system is not there for us to collectively impoverish ourselves, but that is the financial system we are trying to save.

My answer to the crisis is very simple - better now than later. Let the financial system collapse. It is in any case worthless.


Note 1: I use the Western world very loosely here, and it also includes surplus countries such as Germany. I am therefore being a little too simplistic, but hope I will be forgiven for a compromise to aid the overall clarity.

Note 2: I am a business which is losing money, with greater liabilities than assets. I come to you and say that I will give you a share in my business if you give me a large sum of money. You look at my books, and find that I have assets worth �1000, and liabilities of �2000. I lose �100 a week on operations and my losses are increasing fast. There is no significant forthcoming circumstance I can point to which might indicate a change of this situation. If I give the shares to you, are they actually worth anything? In such a case, the only reason someone might give the sum of money would be if they were mad, or as an act of charity - a gift.[url][/url]

[warren pease]

This seems a bit heavy for general discussion. Perhaps it should be moved over to current events for the big thinkers to mull over.

[visitorq]

The most obvious rebuttal being that these so-called 'creditor nations' that hold trillions of US dollars in reserves can never spend all that money, as it would quickly become worthless if it flooded the market. So we just keep sending them boatloads of greenbacks, and get oil and Asian nicknacks in return.

The bigger problem imo is the collapse of domestic industries like our automobile industry, resulting unemployment, and the loss of spending power for the middle class.

[RACETRAITOR]

[caniff]

[visitorq]