By Francis Lee for the Saker Blog
Inflation Tax: The Plan to Deal With the Debt – By Peter Comley – pp.209 – July 2013
Reviewed by Francis Lee
Inflation presupposes money. Money has evolved as an unplanned social institution during a period of perhaps 2500 (some would say 5000) years. Still, the worst excesses of inflation have occurred during the 20th century. The prime cause of inflation has been governments trying to overcome rising prices by amortizing (degrading) national debts through printing money in the hope that the subsequent debased currency will significantly reduce the value of debt, private and/or public. It works like this. If I borrow £100 pounds from you in year 2013 to be paid back in 5 years and assuming an annual inflation rate of 5% then effectively, I will pay you back less than I borrowed by a factor of 25% when the loan is set for redemption/repayment in 2018. This is essentially a default by the back door.
In a similar manner governments in the shape of central banks are responsible for setting interest rates and control of the money supply – they can and often do use these two policies to amortize (i.e., by reducing or paying off a debt in small regular amounts) both public and private debts, but the cost is borne by the population at large whose income and wealth – particularly when it is held in cash – undergoes a devaluation. Nota Bene
To illustrate this let us suppose that the stock of money in circulation is equal to goods and services and are at equilibrium level, that is to say when the stock of capital is equal to the stock of monies in circulation. What happens when the Central Bank increases the volume of money by 1? Simply printing more money than goods and services, so that the price of commodities will tend to rise, and 2. Lowering interest rates so that businesses and consumers are induced to spend an invest more. This is bound to result in (cost-push) inflation – see below. This deliberate Central Bank policy is supplemented by national Treasuries (US, UK etc) fiscal policy, for example by increasing general taxation levels, which it is hoped will reduce money supply and counter excess Central bank money printing. The author refers to this policy as a hidden (inflation) tax. It is hidden because most of the population, whilst aware of inflation, are not aware of how the Central Bank (through monetary policy) and the Treasury (through fiscal policy) both connive in a deliberate policy of wealth and income confiscation leading to this income redistribution.
Unquestionably, the Bank of England, (BoE) along with other central banks around the world are doing their best to stoke up inflation with low interest rates and the creation of new money through Quantitative Easing or QE. This involves the Central Bank buying up various securities including for example and most importantly in US Treasury bills (i.e., Bonds) issued by the US Treasury Department in the secondary market, as well as other financial assets from the Fire Insurance and Real Estate sector. (FIRE), such as e.g., municipal bonds, corporate bonds, stocks, and shares
Inflation is, therefore, not an accident; it is a deliberate policy option, though this fact must never be made public. Among those who pay most of the inflation taxes are, according to the author,
- Direct holders (bond holders) of government debt.
- Cash savers in banks.
- Wage-earners, benefit recipients, pensioners, and anyone else on a fixed income, since their incomes have lagged behind the rate of inflation;
- Companies whose costs rise; and this of course adds another twist to the inflationary spiral since they will pass their costs of production onto their customers.
The principal recipients in this inflation bonus are debtors of various kinds, including of course the government itself. It should also be added that the speculator community, i.e., hedge funds, private equity, investment banks who operate at highly leveraged positions (i.e., where the majority of their capital is debt at high leverage – i.e., borrowing – ratios for example 10-1) who have welcomed with open arms what is virtually free money (interest rate 0.1%) in the UK and ( 0.25% in the US) from the central banks. Such a policy of income confiscation – see above– will impact most severely upon those who are most vulnerable in society. Those higher income groups will see the price of their assets increase and, in any case, can switch into other more stable foreign currencies. In addition, they may wish to include precious metals – gold and silver and UK Indexed government Bonds/Gilts. The recent food riots in Brazil are a reminder of what inflation can do and those who are most exposed.
Of course, the BoE, or for that matter any other Central Bank, will never admit to an inflation problem and will provide statistics to ‘prove’ that inflation is not a problem. But careful scrutiny of their claims opens up a Pandora’s Box of mendacity and delusion.
In the first instance the BoE’s projections for inflation (for which the target has been 2% have been wide of the mark – i.e., underestimated – on every occasion since 2005. The object of course has been to downplay the true level of price rises. Secondly there is the outright fraud in the way inflation is measured. In the UK this has occurred principally since the switch from the Retail Price Index RPI to the Consumer Price index CPI.
Incidentally, the switch from RPI to CPI along with the abolition of the 10-pence tax rate and the selling of 60% of the UK’s gold stock at rock bottom prices were some of the then Bank of England’s Gordon Brown’s ‘achievements’.
The CPI does not include the following: Council Tax, Interest on mortgage repayments, other housing costs such as service charges and ground rent, as well as income tax and national insurance.
Then there are the other cute little wheezes such as ‘hedonic pricing’ ‘substitution effect’ and use of the ‘geometric mean’ amounting to little more than pseudo-accountancy and statistician bullshit, but which also add a downward push on real, as opposed to nominal inflation rates. Everyone, or almost everyone in the UK has lost some purchasing power since the start of the crash in 2007/08. And just wait to see what happens in 2022! – FL. UK savers for example have lost a cumulative 11% of their savings during a 4-year period, and it is a trend which will continue. This is far greater than the original proposed ‘haircut’ that depositors in Cypriot banks were expected to swallow. The initial scheme had proposed that deposits up to 100,000.00 euros would lose 6.7% (9.9% for higher deposits). Cypriots took to the streets; riots broke out until the government relented and agreed to protect depositors up to 100,000.00 euros. Note that none of this got any coverage from the EU media.
But best of all was this little nugget dug up by the author. Although the BoE was reputedly relaxed about the dangers of inflation its actions spoke louder than its words. In 2007 the BoE’s assets consisted of shares/investments, fixed interest bonds 74% and Index linked bonds 26%. Crucially important is the fact that Index linked securities are adjusted for the rise in inflation, in this way they do not lose any value as they pay a return above the rate of inflation. Like gold they are an inflation hedge. By 2009 Index linked bonds represented 88% of the BoE asset portfolio and by 2012 they represented 95%. Nice little earner eh!?
Now if the BoE didn’t think inflation was a problem, or was not going to be a problem in the foreseeable future, why did it make this switch into index linked bonds? Why indeed!? Did they know something that they think we didn’t know? A wry comment from the Daily Telegraph article on the subject was: Inspired Trading or Insider Trading. Get it!?
Insider trading is of course illegal.
One final comment in this respect.
‘’Inflation actually levies a tax on those who failed to anticipate it – or who were in no position to protect themselves against it – and redistributes to those who are smart enough – or lucky enough – to anticipate it and take appropriate action. There is no obvious correlation between those who gain (or loss) from inflation and any generally acceptable basis on which to levy a tax. It harms the poor at least as much (More so ! FL) as the rich, and often inflicts the most damage on those least able to look after themselves. It is an arbitrary and capricious form on taxation which goes against all the notions of fairness … ‘’
Of concern though, is what happens going forward and what impact inflation is going to have on family expenditures over the next few years. There is still no sign of wages rising as much in the recessionary environment. They are certainly not keeping up with inflation. Moreover, the benefit those with mortgages from decreased tax payments in 2008/2009 was a one-off. Interest rates can’t go on any lower. Mortgage costs can only rise from here further exacerbating the squeeze on spending.
This is a very readable book, informative and mercifully free of the usual gibberish emanating from official sources and management consultancy-speak.
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Update:
I wrote this book review in 2013. Things have moved on since. The situation now is probably more disturbing than the world faced in 2008 and now 2022. But it should be added that options now exist – including precious metals, interest bearing government index linked bonds, and Bitcoin, which will help investors and savers to weather the storm. But, hey, that is just my opinion. The Oracle of Delphi I’m not!
Frank Lee 2022
“To illustrate this let us suppose that the stock of money in circulation is equal to goods and services and are at equilibrium level, that is to say when the stock of capital is equal to the stock of monies in circulation. What happens when the Central Bank increases the volume of money by 1?”
That depends whether that ‘1’ goes in a drawer as savings or not. If it does, then what happens is that the central bank runs a ‘deficit’ and the saver runs a ‘surplus’, and all is well because there is no more spending than there was before.
And the only reason that the central bank will increase the volume of money by 1 is because somebody somewhere has saved and they need to offset the -1 that causes. Thereby avoiding deflation.
It’s not the stock that matters. It’s the flow. £/hour matters. £s less so. Confusing the two is like confusing miles per hour and miles.
All money is debt, because money is a promise. It is the institutionalisation of “here’s a pig, owe me one”. And there isn’t a one-to-one relationship between money and stuff. It is, at best, inductively linked as the existence of the finance industry shows.
“And the only reason that the central bank will increase the volume of money by 1 is because somebody somewhere has saved and they need to offset the -1 that causes. Thereby avoiding deflation.”
Hmm, I’m thinking it has more to do with balancing the books to settle all the contracts allowed to have usury (the original fiat money) written into them.
Money is mostly created by ordinary banks. 90% of economists have not learned that simple piece of reality. Wikipedia will do everything to hide it.
BoE tried to explain parliament members how banks operate … we have the1% and the 99% the bank told … and the parliament members could not get their head around it.
The worst inflation in Germany after WW1 was caused by the banks of England and France under the treaty of Versailles and the German government indexing wages for the government unions.
The Great Depression was caused by banks raising interest rates to stop inflation and later to stop socialism.
Since the majority of “services”, governmental, corporate and NGO are worthless (indeed usually destructive), it follows that the money generated to pay for them is a deliberate campaign of inflating the prices of actual worthwhile goods and services.
The US empire now uses its escalated war campaign against Russia as the pretext to launch its most aggressive campaign to force its lackeys in Europe and around the world to pay a premium for its (mostly worthless) services, with the goal of their total economic subjugation.
For the rapidly inflating dollar it’s now a Hitlerian total victory or death.
I forget who said this: If the US military is weakened to the point of being ineffective it will eventually lead to a run on the dollar as the only thing propping the dollar up at this point is the full might of the US military. Being “backed by aircraft carriers” was the last stage (after being backed by gold and then oil).
Things certainly have moved on since 2013. This book usefully uncoveres the mechanism by which coordinated central banks robbed citizens to fund debt in a pre-2019 world.
Covid measures – the extended shuttering of the primary engine of inflation (the high street, or public consumption) aka lockdowns was required because in mid 2019 to early 2020 the entire Western monetary system began to implode under its own weight and required vast injections of cash to support. The US increased total global dollars in circulation by 82% in one year for example. So to stop hyperinflation all of us people under the ‘protective blanket’ of Western banking had to sit at home waiting for the huge corporations and financial institutions to settle this cash onto their books and balance sheets before we plebs were released back to our jobs and shopping.
The west could have managed to reopen the economy and unchoke supply chains IF the pre-2019 globalised system remained perfectly intact. And they could even have moved us smoothly towards a new financial system in which leakage of tax and government revenue could be totally controlled by a blockchain currency coupled with an I’d system.
Unfortunately, many people did not comply, funnily enough, and then Russia did their thing in Ukraine and China has artificially throttled supply because it is abundantly clear that a totally globalised system as envisioned by the rescuers of the 2019 financial crisis is not an equalising system but one that leverages the power of exclusion. In the emerging Western money bags post 2019 system, dissent and non compliance is impossible, and this applies to individuals and nations.
Russia is not truly threatened by nato. It is not threatened by Ukraine. It is threatened by the coming banking/id system the continued vehement anti sovereign character of which began to accelerate violently against people and nations under the guise of covid (for example, had the Western vax pass system been allowed to complete, the non recognition of sputnik vaccine effectively excluded russians from travel to the west). This is the coming crisis that Putin has acted against. A banking system that requires total control over all scales of sovereignty.
So not just a few days ahead of an attack on dombas but a few years ahead of the western institutions loudly broadcast plans for the eradication of personal and national sovereignty, Russia and China have attacked the very root of the problem – the western banking system itself – by breaking their ability to control inflation by transforming inflation from a deliberate controlled monetary phonomenon to a supply problem that is entirely out of western control. It was an extraordinary piece of strategic timing.
The Western debt based system, saved by massive liquidity injections over the last 2 years and leading us towards a watertight system of omniscient control, is now facing the need to a) raise interest rates and collapse the credit/ debt /bond system or b) do nothing and collapse the system.
This is the heart of this war in Ukraine. We are seeing a new iron wall being drawn and behind it we will have our totalitarian jabbed lgbtq pay to play economy, and then on the other side the only viable alternative to fiat system which is currency backed by raw material and productive value.
I would like to hear an economist explain how the Western globalised system continues to control material and supply derived inflation when they have no control of material supply.
I don’t think they can. At least, it until they have resecured supply. Which is why my prediction of all this has been from the outset not a war between Russia and the west but the re-emergence of regional imperial control – the EU and UK are going to recollonise Africa and the US is going to colonise S America. Middle East energy is more or less secondary from now on to other limiting factors.
Inflation consequences for 10 years, minimum.
Two thoughts from within the empire:
1. Inflation is specifically about currency units (a subset of the idea of money), not money (the umbrella idea of how we value human labor). Modern central banks and treasuries create and destroy currency units. That process transforms one type of money into another, and transfers money from some people to others, but it doesn’t create or destroy money itself.
2. Inflation is not arbitrary. Quite the opposite, in the post-Bretton Woods world of the past 5-7 decades (depending on exactly how one analyzes that process), inflation is quite intentional. One might say it is the central feature of the empire. It is how the empire pays for the ‘stuff’ it needs for its various tentacles. The whole point is to enrich connected insiders at the expense of the general population. As we like to say in US English, that’s a feature not a bug.
Without inflation, the empire would have to pay its billionaires and mercenaries with taxation (which would defeat the point since they’d have to tax themselves) or through more overt tribute/plunder of conquered lands (which is risky and engenders strong push back over time).
What is amazing about the post-Cold War era of the past 3 decades is how the empire has been even more successful at this with the active cooperation of much of Zone B and the relegating of the Eurolemmings from a potential major power bloc in the multipolar world to minor vassals of USUK.
Total debt in UK is 600-700% of GDP (highest in the world).
What is good for the UK debtors is inflation. Deflation is like WWIII
Francis Lee’s piece has touched on the Pandora’s Box of the global monetary system that has been blown wide open, and now the world’s population is experiencing the banquet of consequences of a combination of resource scarcity colliding with exponential debt.
If all wars are bankers wars then all governments want to finance conflict by borrowing money from the bankers, to extend their wealth and power and remain in office, even if it means mutually assured destruction.
Oil is the lifeblood of industrial civilization. Energy underpins the growth of fiat money, or the “money supply”. It allows “borrowing” future energy (that is in decline) by printing fake “money” today to keep the ponzi scheme in a perpetual state of growth.
Theory: inflate the money supply or die. The reality dawning on central banks today is, inflate and die. They are now powerless, and by their actions they know it. Rising interest rates are the harbinger of doom.
This delusional growth theory posits the accumulating exponential debt will someday be paid back from future taxes and earnings, that only come from a real productive economy that needs energy, not a financialised economy, that needs only digital entries added to bank’s computerised balance sheets, and the quadrillions in leveraged bets called “derivatives” spider-webbed to infinity.
If this is not the definition of mass induced psychosis I don’t know what is.
It’s not just how the system works that’s impossible to explain in simple terms, it’s incredible it’s lasted this long without the billions of victims realising they’ve been deceived. Even some of the most influential, wealthy, and powerful beneficiaries of the system wonder how they have been able to make the system work for themselves for so long without mass dissent — until now, that is.
Francis wrote:
“But it should be added that options now exist – including precious metals, interest bearing government index linked bonds, and Bitcoin, which will help investors and savers to weather the storm. But, hey, that is just my opinion. The Oracle of Delphi I’m not!”
Since 2008 when many lost everything they had saved in the “Too Big To Fail” credit crisis I learnt as much as possible of how money, credit, and currency formed and destroyed civilisations in the preceding centuries leading up to the 21st century.
Today we are in the midst of a hitherto unimaginable convergence of events in all spheres of human activity that signal a collapse unlike any other because of the size, scale, and complexity of our collective existence and our taken-for-granted standard of living.
I’ll put “my money where my mouth is” and share a smidgen of my efforts to have a bridge to the other side when the worst of the next few years has passed.
With a sense of foreboding I sold my only place of residence in 2018 and converted the proceeds of sale to gold bullion. Then later as the “price” of gold rose, I converted all gold to silver bullion. The ratio of gold to silver was about 100 to 1. In other words it took one ounce of gold to buy a hundred ounces of silver.
When, not if, the GSR ( gold silver ratio ) closes to the historic mean of 12:1 then the gain is over eight fold. In other words 12 ounces of silver will buy 1 ounce of gold, at a 12:1 ratio. I expect this to occur within one to two years maximum.
Just one tangible time-honoured way to preserve any wealth that for many is digits on a computer screen, or the “on paper” psychological wealth effect.
I wouldn’t touch bonds, stocks ( other than a few select junior gold and silver miners for their leverage being linked to the “price” of the underlying asset in the ground ) bitcoin or any other “crypto-currency” for reasons too numerous to mention here.
I checked it. Francis’s 1:100 ratio were 1:80, and the gold silver ratio is an artificial figure as silver has an irrational dump and pump curve compared to the gold graph.
Nevertheless we get the point. Its possible silver is much more underestimated than gold, we will see.
The problem and solution with debt is acceptance. As Mao said, power is only power if you recognize it. Debt is only debt if you recognize it.
All the financiers, IMF, Blackstone, Goldman Sachs, Bank of England who lend money out from thin air, and require you pay it all back, (the F-35 you bought, the Corona loans you received) with usury interest for generations to come, hoarding trillions and require you work hard to pay it all back, has only value if people accept it.
Russia show the way. Afghanistan could write off the $15 billion stolen by US and create Afghan money for the same amount if they abstain from trade within the Western financial system.
Judging from the relatively low number of comments to this article so far, it would appear this topic is of lesser interest than all others in an information rich online environment.
This is not surprising when one considers the 0.03 percent of the Western population who truly understand money, currency, credit, monetary theory enough to own gold or silver bullion.
A popular YouTube video shows this ignorance when passers-by in a busy city location in the US were offered a choice between a kilo silver bullion bar and a Hershey’s milk chocolate bar. Invariably all chose the chocolate.
Everyone is mesmerised by currencies in terms of a number in their bank balance, stocks held in fiat currencies, or other inflated monetisation of assets because in their short lifetimes they have known nothing else, and may even live a life of luxury because the system has served them well.
Why would those who benefit from a corrupted system want to change it, and more importantly, want to tell others how they’re being deceived?
A starting point to understanding the topic at hand would be to read,
The Theory of Money and Credit
By
Ludwig von Mises
This classic treatise on monetary theory remains the definitive book on the foundations of monetary theory, and is the most spirited, thorough, and scientifically rigorous treatise on money even written, yet how many have read it or fully understand it’s contents?
Paper currencies eventually return to their intrinsic value — zero.
A currency exchangeable with the tangible value of gold or other precious metals, is legal tender. Crypto-currencies are not legal tender.
Fiat is government currency that is not backed by anything. The value of a fiat currency is based on supply and demand and the stability of the issuing government. The value placed on a commodity is also by demand. Gold is not a commodity but a stable asset that derives its value from universal demand proven over millennia, chosen by humanity through trial and error time and again. Nearly all central banks are accumulating gold, while telling you it’s just another commodity, to be price manipulated and degraded.
Russia has not only challenged the status quo USD fiat reserve system but introduced a stable tangible resource asset base to underpin a reborn monetary system yet to be finalised, and in its early stages of integration with the Eurasian Economic Cooperation Union members, including major partner China, BRICS nations, and all willing Global South countries.
For millennia all attempts at using fiat currency have failed. When governments create currency that isn’t backed by anything of value, we arrive at the present calamity.
The long history of failed fiat currencies is being ignored by today’s central banks and governments because it works — temporarily — to maintain wealth and power.
Because fiat currency is not backed by anything, it will become worthless through hyperinflation. When people lose faith in a nation’s currency, it ceases to be of any value. Currencies backed by gold, have intrinsic value because of the demand for gold.
Gold is a valued throughout the world, across all cultures and borders and is the only money that has been manipulated by governments to deceive and dissuade its use as money. Preservation of wealth is essential to survive the collapse.
You will spend your gold in a collapse to buy essentials and may even snap up bargains as houses and land are sold for ounces of gold as has happened countless times throughout history.
‘Printing money” or interest rate adjustment would only cause inflation if it flooded into the general economy, everyone ending up with more money and therefor bidding up the price of things.
This absolutely not happening. Maybe 10% of the global if that has increased their wealth but the rest of the world economy has lost trillions, has much less, especially after years of shuttered global economy due to C-19.
The prices of things are going up because of scarcity both real/physical scarcity and manufactured.
This is not what everyone calls inflation yet they still deal with it by removing money from the economy making it even harder for the 99% to live.
Please show me how I am wrong.
@ jef
Factor in human nature
it was the central banker Paul Warburg who said it best:
“The worlds lives in a fools paradise based upon fictitious wealth, rash promises and mad illusions. We must beware of booms based upon false prosperity which has it roots in inflated credits and prices.”
I find here in the lower mainland of BC the real estate market is full of this. Though in some respects there is scarcity I know of a couple who sold there 10 year old house for 1.7 million. A house they built for what I’m guessing around 300,000? A home that has all no name fixtures and laminate flooring etc? No views of any beautiful waterways, mountains, rivers, lakes etc?
I know of another who sold his home that is 40 years old barely 1200 sq ft. for just under a million?
I then heard from a friend who couldn’t believe that a townhouse is 750,000? And i know of others.
All of these valuations and you know what not one of the owners not one can can afford with their salaries any of it. Heck, even lawyers or doctors would have a hard time affording it? think about this! Few if any can actually afford with their incomes, that is why they all have basement suites or have families all living together? But wow are the renovations booming. We’ll just renovate and sell because we can get a high price by putting in a new kitchen counter. One salesmen saw me eyeing some chair rails and mumbled yeah that is a good choice and you’ll be to add 20,000 to your house with a wink in his eye. And everybody justifies it with its just inflation? One world think that with low interest rates things would be cheaper and with high interest rates things would be this expensive. I remember the early 80’s when interest rates were what 18%? If this ever occurred again banks would own all the real estate. And the homeless are increasing everywhere?
So false prosperity, yes?
And get this the house that sold for 1.7 million the real estate salesman made enough of a commission he purchased a small plane paying cash for it? His hours worked i believe not even an hour?
i knew life was unfair but this is simply insane? And everyone’s worried about their children they will never afford a home of their own?
Dr. Hudson however, said that it isn’t the house that is valuable its the land. So i guess if you have a dilapidated house 80 years old and in need of being torn down but it is sitting on an acre lot well you get your five million dollars?
Economics is known as ‘the silly science’ because it does not follow natural laws.
The rules of economics have been created by a select minority (bankers) for their own benefit. Money itself is now a commodity, and 25% or more of US GDP is “financial products”. Debt, like interest, is a financial product.
“Insider trading is of course illegal.” — Unless you are a member of Congress.
Read Modern Monetary Theory. Money is an artificial construct and therefore not restricted like tangible resources (minerals, labor, goods, services, etc.). A financial sovereign can never go bankrupt as it just creates whatever currency it requires. The national debt is simply one side of a balance sheet, the other side is money in circulation (surplus). Pay off the debt and the economy ceases to exist.
Interest on the debt is the result of the soverign economy being outsourced to private bankers for 6% annual return. Inflation (too much money in circulation) is not controlled by raising interest rates, it is controlled by raising taxes (which removes money from circulation).
All this is known, what no one ever says is who steals that money because the play is not for the common good.
Both governments and corporations steal from the people, but who really owns central banks? I once read many so-called public institutions are in fact private. They say the FED was created in this express purpose. What would the impacts on the global economy be of a FED nationalization/statization?
“I believe that banking institutions are more dangerous to our liberties than standing armies.” –Thomas Jefferson
“The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.” -Thomas Jefferson
“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.” -James Madison
“If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations.” – Andrew Jackson
Hy Ivy… I will attempt to answer your question from a NZ perspective. My 20-year study of banking models tells me that actual ownership of central banks, whether it be public or private, doesn’t, always affect policy or independence from the global kleptocrats as much as we would expect.
NZ’s central bank model is pretty much like most countries of the world… IOW it is entirely state-owned. That said… as stupid as it is for any country to allow 100% private ownership of their CBs the next dumbest thing they could possibly do is to become paid-up members of the BIS gentlemans’ club. Newsflash… NZ is part of this club too… just as all of the major central banks of the world are.
There are only 3 central banks globally in which all of the shares are owned by the private owners.
The vast majority of the remainder have 100% ownership of the shares by the Govt.
Those of note that are not 100% state-owned are listed here…
Country Government Ownership %
United States 0%
Italy 0%
South Africa 0%
Greece 35%
Belgium 50%
Switzerland 51%
Turkey 51%
Japan 55%
San Marino 67%
I won’t delve too deeply into the dark history of the BIS as it is an utterly macabre horror story. Basically, during WW2 the German National Bank Reichsbank used the BIS to launder looted gold from other European nations into Swiss Francs.
To cut a very long ugly story short, the BIS’s sole purpose in WW2 was pilfering and profiteering whilst millions of innocent people died. The fact is that people in the dark shadows of ownership of this shocking construct were the very same families and entities who orchestrated the beginning of ‘both’ the world wars.
These in essence were not two separate wars at all… they were the same war, just with a one-generation gap in the middle. In fact, this is all part of perpetual bankers’ war and it continues to this day… the two most recent examples are the Covid war and now, of course, the tragedy that is unfolding in Ukraine.
Putting aside the shocking history of the BIS, clearly, any notion of a CB being either independent, or even sovereign for that matter, completely flies out the window with BIS club membership. Clearly, they follow a playbook of cabal directives. Traceback the ownership of the BIS… hullo… it’s pretty much owned by the very same global private banking cabal.
Of course, all of the Western AAZ alliance belong to this group including little old NZ [also curiously a very junior member of the Five Eyes]. 61 countries belong to the BIS club and as such none of these CBs could even in your wildest dreams be described as independent, nor sovereign either for that matter.
The one exception that I know of to this scenario would be China… it is a BIS member, however nothing they do in banking and finance could ever be construed as even remotely following the BIS playbook. Their policy is the polar opposite, especially when you look at their banking models being run on state-owned and coop principles. It’s as if they belong to the club, but only in as much as it allows them to know their enemy.
Getting back to the NZ example, if we were dumb enough to be both a BIS club member and have a 100% Private Bank Cabal owned CB, then it would be about as much consequence to the global economy as a single lice on the backside of an elephant.
NZ ranks #50th in the world in GDP… similar to Portugal and Peru.
If we make the comparison to US states then we sit at #25… right between Oregon and South Carolina.
Interestingly, not to mention alarming of course, although NZ only accounts for 2.1% of the volume of world trade, our NZ dollar is the 10th most traded currency on earth. we can draw our own conclusions as to how this glaring anomaly can be explained. My guess… this might be just another way that our BIS membership may well be setting us up for a little extra extortion, rape and pillaging.
#2 The fact that Keynesian style MMP thinking will often misconstrue the real reason for inflation.
The Chinese example is one of the most graphic ones that I know of… they increased their GDP 27x and pulled the equivalent of the entire US population out of poverty and into the middle-class status without any destructive inflation whatsoever.
DISCLAIMER I don’t want to live in China under their social credit system of control… but I will use an example of a banking model that works in practice no matter where it happens to be. Of course, there are many others too… the Bank of North Dakota works on the same principle and has been incredibly successful for over 100 years.
How did they accomplish this apparent economic miracle…
A/ By using state-owned and coop banking models they create money and currency without any private third party getting a cut. Loans are created, not as debt backed funny money, but as capital funding backed by real assets. Also, there is always lots of robust localised oversight in making and administering these loans so that moral hazard becomes a very real discipline… unlike in the U$A where half the time loans made are known to be toxic from the get-go, but are bundled up into dodgy security instruments and sold off as assets to unsuspecting third parties.
B/ When money is created in this way infrastructure costs are automatically roughly halved. Look at China’s massive infrastructural projects that have given them a huge wealth of assets for the future… eg their 1000s of kms of high-speed rail. By comparison, it is estimated that in the U$, not only have they not built a damn thing, [pun LOL] of comparative size and long-term significance since the days of the Hoover Dam, the Tennessee river program and the St Lawrence Seaway, but they have a $4 trillion liability looming over them. This is usually referred to as deferred maintenance [AKA as I haven’t f%^$#*g done it yet ave I]…this is the figure needed just to bring existing infrastructure up to basic operational safety standards.
C/ When you are building stuff [as opposed to killing brown people in the four corners of the planet] and producing exportable goods like the Chinese, all this currency is being used to add to long term wealth. This is not inflationary because this currency is soaked up and used productively in the M1/M2 money supply. As people reach middle-class living standards and inflation is not running amuck, they don’t add anything like as much to the asset bubbles we see in the west.
Instead, they SAVE!… simply because the real interest rates, as opposed to the bullshit nominal rates we are trained like half-wits to focus on, are not massively negative as they are in the Western economies. These savings then end up in the local coop banking models and are subsequently multiplied out into more liquidity and capital. This is made available to the community for yet more productive enterprises.
The asset bubbles are no longer in the housing sector. As a result, houses are much more for people just to live in and the market is nowhere near as speculative. Housing is also dramatically cheaper because the cost of money is so much more affordable.
Also, a lot of this inevitable so-called ‘inflation’ has zero to do with classic monetary conditions anyway. A lot of this is directly supply chain related. IOW when there are this many shortages, opportunists have a field day charging whatever they think they can get away with. Even getting supply at all is sometimes only achieved with bribery. A drench importer friend of mine told me just yesterday that when shipping from overseas now, don’t even bother to ask for a shipment unless you offer a substantial upfront sweetener.
This is the downfall of the rentier type economy. It is the absolute antithesis of a functioning thriving capitalist system. In essence, a rentier system is nothing more than neofeudalism. The only difference is, instead of Royalty and the Barons owning everything and profiting from our society’s labour, instead, in this modern-day equivalent, it is the tiny percentage of financial fatcat kleptocrats that pocket all the windfall. Kansas economic Prof Michael Hudson is the leading authority that I know of in explaining this phenomenon.
Sadly I know of only a handful of academics on the entire globe that have both the conscience and the courage to publically challenge these thieving banking models. In NZ there is not a single academic that I can think of that I could go to for sound objective advice on this subject.
We often of late talk about regulatory capture by TPTB in our Big-pharma crisis. This is equally as bad… this is actually blatant corporate capture of our academic narratives. They go to enormous lengths to maintain the economic status quo. Their very existence depends on keeping us deplorable mushroom-like creatures completely in the dark when it comes to banking models that assist Mainstreet as opposed to extortion and theft based private cabal type models.
#3 Classic MMP misconceptions…
INCREASE IN MONEY SUPPLY = INFLATION = BULLSHITE… AT LEAST NOT IF THE MONEY IS INTRODUCED IN THE CORRECT WAY = IN OTHER WORDSIT MUST BE BOTTOM-UP… not the normal trickle down to society from the financial elite where the corporate cronies get all the initial handouts… that’s because it never ever trickles down does it,… it just ends up blowing huge bubbles.
QE, money creation, call it what you will, would do far more good being deployed even as helicopter money dropped indiscriminately in the street compared to handing it out to these so-called lending institutions. Most QE is not even lent out anyway… especially not to the real economy. Helicopter money or handouts to society have always proven to cycle through the real economy at least 7x on average.
SUMMARY >>> Classic QE normally only feeds bubbles, not the real economy.
Lower interest rates stimulate the economy…NO! this doesn’t work any longer in the West because the biggest borrowers are always the Govts… raising interest rates in order to stop inflation is a pipe dream… the Govt sector doesn’t spend less they spend more. They then tax more taking money out of the real economy… its what they do! In this classic western MMP scenario where debt mountains have formed, Central Banks no longer have effective control over the economy.
Also, this type of inflation is fundamentally different to what comes from a normal speculative boom and as such, it can’t be remedied by using the same tools. There are no tools once the debt mountain gets to a critical mass because the fiat fairy tale debt-based money model is so fundamentally flawed.
This is not speculative inflation now because disposable incomes are so low the money is not there to speculate with anyway. People hoard more too, because they know that the next time they go to buy a particular item it will be a darn sight more expensive, or perhaps not even there on the shelf at all. With this sort of inflation running rampant, it basically wipes out all pension funds too. Right at the moment, there is not a pension fund in the whole of Europe that is not technically insolvent. I would hate to even contemplate the global percentage that is already underwater.
Worse still, many of these schemes are invested in high-risk avenues simply in order to try to scrape up enough yield just to cover their day to day running costs. If we had a global systemic meltdown, which is now an imminent mathematical certainty, it will be absolute carnage for the pensioners. Even widespread debt jubilees won’t solve this problem, because every single debt is a corresponding counterparty asset.
With a history of NZ’s Govts never understanding any of these factors… either because they can’t or simply won’t, it’s little wonder that NZ has mostly remained in the financial doldrums… and yikes, now suddenly it’s a massive cyclone. It doesn’t seem to matter either whether these holders of office, in the financial halls of Govt and central-banking, crawl in from the left or the right. They never ask the real questions that so desperately need to be asked.
How about for starters the one like… why the hell is every last one of our Western CB models nothing more than blatant money-grabbing parasites? I would love to ask our NZ resident smiling assassin that very question and then sit there and watch him squirm like hell… you probably know the one I mean… ex NZ PM and former Federal Reserve FEC committee member who represented ‘Merrily Lynched’.
Cheers
Col
The Times of London Quote
“If that mischievous financial policy which had its origin in the North American Republic i.e., honest Constitutionally authorized debt-free money should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off its debts and be without a debt (to the International Bankers). It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe”
And this is precisely what China has done, by having its government owned central banks create its domestic currency, the yuan, without incurring debt to private banks
And the US model was killed between 1860-1865. There was no federal debt prior to the Civil war. The origin of the national debt is the money loaned by the banks (what became the Federal Reserve) to finance that war. The interest on that debt had to be paid in gold. In 1870, the 14th amendment created a new class of person, the federal citizen who is a subject to congress. In 1929, the federal gov’t went into bankruptcy; the labor of all federal citizens is given as collateral to the Federal reserve in the return for the continuance federal reserve notes to be payed with interest. Obviously that debt is still being paid today. The social security act created a trust for whom the World bank is the beneficiary. The SS number holder provides the thing of value to the trust (in that social security taxes go to the trust). The federal gov’t serves as the trustee.
In about 1870 or 1871 the American Historical society was created by a joint effort of the Rockefeller and Ford foundation to finance new students of History to write the history of the civil war the way we know it today, because all historians at that time refused to write it except for as they observed and documented events. The US lives under color of law as it was taken by war and it’s spoils are paid to the world banks to rob the rest of the world since by use of it’s military. That might is finally come inwardly directed to destroy itself, as it did Rome, Athens, Egypt and Babylon before it. The US (and all other nations too) must fail for it is written there will be a one world gov’t ruled by the antichrist.
The devil distorts everything so that we don’t focus on what is truly important, building communion with God and serving God’s will. That is the only treasure worthy of our focus and which can never be taken away. Worldly riches have always been an illusion and thus never give contentment. It is easier for a camel to pass though an eye of a needle than it is for the rich man to enter the kingdom of heaven. In the meantime, God will protect and provide for His flock. And yet though they shall still suffer; it will be used to strengthen their communion.
@ Ted
wow, I’m surprised!!! Thank you, O so very much. I will your save comment to my files. And what you have said did you perchance take it from
Colonel Edward House:
“[Very] soon, every American will be required to register their biological property in a National system designed to keep track of the people and that will operate under the ancient system of pledging. By such methodology, we can compel people to submit to our agenda, which will affect our security as a chargeback for our fiat paper currency. Every American will be forced to register or suffer not being able to work and earn a living. They will be our chattel, and we will hold the security interest over them forever, by operation of the law merchant under the scheme of secured transactions. Americans, by unknowingly or unwittingly delivering the bills of lading to us will be rendered bankrupt and insolvent, forever to remain economic slaves through taxation, secured by their pledges. They will be stripped of their rights and given a commercial value designed to make us a profit and they will be none the wiser, for not one man in a million could ever figure our plans and, if by accident one or two would figure it out, we have in our arsenal plausible deniability. After all, this is the only logical way to fund government, by floating liens and debt to the registrants in the form of benefits and privileges. This will inevitably reap to us huge profits beyond our wildest expectations and leave every American a contributor to this fraud which we will call “Social Insurance.” Without realizing it, every American will insure us for any loss we may incur and in this manner; every American will unknowingly be our servant, however begrudgingly. The people will become helpless and without any hope for their redemption and, we will employ the high office of the President of our dummy corporation to foment this plot against America.”
and note this sentence which resembles / resonates in so many ways what is written in Rev. 13
“He also forced everyone, small and great, rich and poor, free and slave, to receive a mark on his right hand or on his forehead, so that no one could buy or sell…
{‘FORCED TO REGISTER OR SUFFER NOT BEING ABLE TO WORK AND EARN A LIVING.’ Col. House}
unless he had the mark, which is the number of his name.” {Rev. 13:16}
The day I found this quote and this col. house the puzzle pieces all came together in an almost miraculous fashion. Further to Kapricon4 comment 10 monarchies are to attach themselves to this coming king with the small horn boasting great things?
Have we arrived or are about to sir Ted?
Eh, Ken Leslie, another Stamp Act except this time quite literally Stamped on ones person by way of a QR Code hand or forehead your choice?
Love your work!
Thanks
Part and parcel of the whole neoliberal trend in macroeconomic policy. The essential thing underlying this, is to try to reduce the power of government and social forces that might exercise some power within the political economy—workers and others—and put the power primarily in the hands of those dominating in the markets.
That’s often the financial system, the banks, but also other elites.
The idea of neoliberal economists and policymakers being that you don’t want the government getting too involved in macroeconomic policy. You don’t want them promoting too much employment because that might lead to a raise in wages and, in turn, to a reduction in the profit share of the national income. So, sure, this might increase inflation, but inflation is not really the key issue here. The problem, in their view, is letting the central bank support other kinds of policies that are going to enhance the power of workers, people who work in agricultural areas, and even sometimes manufacturing interests. Instead, they want to put power in the hands of those who dominate the markets, often the financial elites.
These neoliberal buffoons say let’s assign the central bank to target inflation and not to do anything else, and the capitalist economy will take care of itself.
This approach, I think, really has contributed to enormous financial instability. Notice that this inflation targeting targets commodity inflation. But what about asset bubbles, that is, asset inflation? There’s no attempt to reduce asset bubbles like we had in subprime or in real estate bubbles in various countries. That is another kind of inflation that could have been targeted.
Inflation is a stealth tax and a tax without representation.
Worse inflation is split between the government and corporations and of course the ruling tribe.
Ever wondered how Governments are nationalizing industries through buying shares?
Ever wondered how tribe members got so rich?
Ever wondered how the tribe could run defunct, profit less companies for decades?
Wonder no more. They have tapped into a never ending wealth stream.
The money you need and use to trade Labour for wants and needs.
They own you. Ultimately inflation is slavery.
And it all goes back to even before 1913s reserve bank creation.
Wow, great article and great comments. Put it together with Michael Hudson’s wonderful writings and you have a stimulating few hours’ relief from the incessant Ukronaziukusa propaganda. Thank you.
Thank you for explaining what “leveraged” means in the context of borrowing . I learned the physics of leverage at school (and to pronounce it properly – leeeeverage, not levverage ) but the various modern uses of the word have baffled me. Now I might be able to,work out what a leveraged buy-out is.
The other modern usages ares still obscure, but I am grateful that you have enabled some progress.
The American (U.S.) Constitution is deficient in its handling of money, and therefore the wealth which its money should primarily represent.
It is basically relegated to a legislative branch that is subject to the vagaries of elective politics, rather than to experts beholden to the people – and seen to be so.
The missing fourth branch is a structural deficiency, the lack of which more easily enables “the love of money” to supersede all else.
Finally someone who can talk about how inflation is calculated! For years I’ve been trying to find out what it means if inflation is calculated without taking housing costs into account – obviously it couldn’t be good if house prices are rising at 20% a year but this is better than me just guessing
Have a look at Shadowstats :
http://www.shadowstats.com/alternate_data/inflation-charts
It shows the difference between official CPI, and the one according to 90s method. Can’t see the 80s method shown here anymore, but it is probably in the 25% pr annum range.
I’m glad this was a book review Francis and not your expert opinion.
The reserve banks of the world do not create money, they create “bank reserves” which can not be classed as money as they do not exist beyond bank balance sheets. They are no more than an asset swap and no less than a deceit, having zero effect on the actual money supply.
We are witnessing proof of this in the present.
There is no wage growth because there is no new money (not enough, anyway). There is nominal new money which has been created by inflating asset bubbles and deceiving investors as to economic realities like inflation.
The present “inflation” has been manufactured with timely interuptions to the supply chain, from blocking the suez canal to fire in an ic chip manufacturer to lockdowns, port closures and truckie strikes and now supply sanctions on Russia.
And then you have fake employment statistics for the “promise” of wage inflation.
Only commercial banks create money. It is created as debt and destroyed when the debt is repaid. It is not magic but it is a secret…..or at least, a deception.
Interest rates reflect the demand for new money and they have threatened zero for a long time. They will likely get there on the next leg down. This means no growth in the demand for debt. This leads to liquidity crisis’ in a debt based system, which is what the GFC was all about. There have been 5 liquidity crisis’ since then as imho we live in an age of deflation. From demographics to technology to globalisation all acting against the impulse to borrow to compete. Almost all net gains in debt now arise from government debt and the FIRE sector you mentioned which is just passive investment pumping up the bubbles.
The banks’ capital is at risk when it creates new money as it may not be repaid. Sometimes, like now, safe and liquid is all they care about. Risky loans are just that, risky.
As controllers of the money, banks make the rules, it only goes to reason.
All wars are bankers wars is a famous quote which may help to explain the SMO in Ukraine.
It may explain the recent war against a certain virus.
It may explain the action in Syria and elsewhere.
Governments need plausible reasons to run deficits and when they have them, voila…. new money and the system saves itself…..yet again.
When it comes to the stability of the financial system one can imagine that govts are putty in the hands of the big banksters.
Home owners and workers with passive investments have been co opted too, by manipulating a nominal increase in their asset values despite them earning a paltry return.
Banks, before anyone else, are sensitive to the collective impulse to borrow and their power (those who make the money) depends on the system not failing.
So, the reserve banks are pretending to be independent entities. This is to make it appear that governments or independent economic genius’s are in control of our economic destiny, when in fact they are conscripted (either immediately or eventually) to do the bidding of the money makers.
– Only commercial banks create money. It is created as debt and destroyed when the debt is repaid.
– We create new money with every mortgage. It is not the central bank who creates money.
a major bank told in a lesson about money creation.
– We put mortgage as assets on balance sheet once the papers have been signed. Then we put that sum as money on another account
Sberbank
Total assets $571 billion[5] (2021)
This number $571 billion is sum of money lent out.
Russia GDP $4,365 billion
Ratio $571 / $4,365 is ridiculous low in Russia.
Russia GDP norminal values $1,829 billion
That should be used above