Monday 23 March 2009

Banking Crisis


I can't help thinking the 'stimulus packages' and 'quantative easing' policies of the US and UK are the wrong way to deal with the financial crisis. How does it make sense to solve a multi-billion debt problem by borrowing trillions? Won't this give us a multi-trillion debt problem? It's like trying to put out a fire with gasoline.
I think we now know what caused the financial crisis - the failure of US and UK governments to regulate the banks. Gordon Brown and Alaister Darling are now talking about 'increasing regulation' but so far have done nothing. Indeed, we've just heard today that Northern Rock was selling 100% toxic-debt mortgages after their £25 billion taxpayer-funded government bailout. No regulation whatsoever!

It seems to me that although we have this thing called a 'government' there's no one doing any governing. The ship moves on - pushed this way and that by changes in the weather - with no aim or purpose, with no one at the wheel.

Northern Rock, RBS, HBOS, Lloyds and Barclays gamble away their depositors' money because they can - because the government has removed the regulations that used to enforce prudence. These banks would go broke - and all their depositors would lose their money unless the government bailed them out. So the government bails them out. The banks are saved. The depositors' current accounts and savings accounts are saved. The bankers give themselves bonuses and go back to the casino.
The govt does not restore the regulations that enforce prudence.
All it has done is foist trillions of pounds of debt on the British public in order to paper over the cracks. The problems will come back and next time be twice as big. Next year Northern Rock will be asking for a £50billion bailout.

Why do these banks want to gamble so much with our money? Is it really just psychotic greed? I don't think so. Yes, there's the carrot of the big bonuses for winning in the stock, futures, money-markets and hedge funds, for winning bets on whether a certain stock will go up or down - but there's also the stick of the continuous devaluation of money. Inflation.
Inflation reduces the value of money year on year. And bankers know better than most that the government's inflation figures are rigged. True inflation for the past decade has not been 2-3%, as officially claimed, but 8-10%. This puts great pressure on banks to - every year - increase the value of the deposits they hold by at least 10%. They have many strategies and tactics for doing this - most of which (just like Obama's and Brown's 'solutions' to the crisis) increase inflation - the cause of the problem in the first place.

We need a solution for inflation: to stabilise - and keep stable - the value of money. We need to go back on the gold standard. We need to prevent governments and banks from printing money. Gold today has more or less the same value as it had in 1916. It's stable. It enforces prudence. It takes the stress out of money. It means the money you earn is worth something - it won't evaporate. You don't have to spend it or invest it as quickly as possible to get the most out of it before it loses value. You can save it - you won't lose by saving.
Returning to the gold standard will slow down the economy - a good thing, in my view. It will create security and revive a more thrifty, less throw-away society more conducive to human happiness. It won't abolish fear and greed but it will restrain them, moderate them.
We need to get back on the gold standard - but it won't happen. At least, not in the immediate future because the establishment will fight tooth and nail against it.
If we returned to the gold standard, the USA's Federal Reserve Bank would be redundant; the US dollar would cease being the world's reserve currency... America would have to let go of its empire.
But the world would be better - and more stable - and more equal in opportunity - because of sharing one non-inflationary medium of exchange for goods and services - gold.
It's quite possible that the inflationary money-printing stimulus packages being thrown around today will push us into a depression far greater than would be the case if we let the banks go bust and pay for their folly and learn the lessons they and the governments (who serve them) need to learn.
But these rich pampered people are terrified of pain.
They will steal as much as they can from the public to stave off the inevitable. But the inevitable will come.
A point will be reached when the public will refuse to give the governments and the banks any more money. There will be tax strikes; there will riots and demonstrations; there will be demands for bankers and government officials to be punished. (Already the Representative for Iowa has called for bankers to commit harii-kiri - a straw in the wind).
Quantitaive easing will push the financial system into meltdown and paper money will become worthless.
That's when we will return to gold and silver and a new dawn of fiscal responsibility.

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