See The Crank Report, Issue #2 (6 April 2015) for an explanation of The Money Relation. More on this in the next issue (issue #9 to be published next week).
Friday, 28 August 2015
Thursday, 27 August 2015
Originally published in The Crank Report, Issue #5.
Debt, debt, yet more debt. Politics, mainstream economics and other popular arenas dominated by feelings and collective notions of what should be right or wrong for all suffer from one major flaw: the inability and inherent reluctance to think critically and learn from fundamentally sound theory and history. For decades, western economies, the economic powerhouses of the world, have wrecked their economies with faulty economic doctrines making but one thing possible: an ever growing mountain of money. “Austerity” is allegedly destroying Europe and especially Greece, some utter. Remember, austerity today doesn’t mean cutting deficits. Instead it merely refers to reducing the speed at which these deficits grow. In the eurozone today, government debt is hovering above 90%. In the U.S., the country that has dominated not only the business world for a century or more, the 100% mark was quickly reached in the aftermath of the 2008 banking crisis. As money is created as debt in this world run by monetary cranks and demagogues and where democracy long gone is nothing short of a system to enter a vote to grab other peoples’ money against their will and ensure politicians and bureaucrats can remain in their ivory towers to continue the gradual confiscation of wealth and productivity, I thought it was appropriate to attempt to take a deeper look at the economic meaning and consequences of debt and shed some light on why economic growth in the two regions is likely to be dismal at best for a very long time indeed.
I explain why here: The Economic Significance of Saving
By Alasdair Macleod
This month has seen something that happens not very often: it appears to be the early stages of a global stock market crash.
For the moment investors are in shock, seeking reassurance and keenly intent on preserving their diminishing assets, instead of reflecting on the broader economic reasons behind it. To mainstream financial commentators, blame for a crash is always placed on remote factors, such as China’s financial crisis, and has little to do with events closer to home. Analysis of this sort is selective and badly misplaced. The purpose of this article is to provide an overview of the economic background to today’s markets as well as the likely consequences.
The origins of a developing crisis are deeply embedded in the financial system and date back to the invention of central banks, and more particularly to the Bretton Woods Agreement, which was the basis of the post-war monetary system. In the 1940s government economists were embracing the new Keynesian view that Say’s law, the law of the markets, was irrelevant and supply and demand for goods and services could be regarded as independent from each other, and crucially, savings should be redirected into immediate consumption and replaced as a source of investment finance by a more flexible approach to money and credit.
Keynes wanted a new super-currency, which he called the bancor. Instead the world got the dollar and the “full faith and credit” of the US government expressed through her considerable gold reserves. While central banks could swap dollars for gold at $35 per ounce, there was no effective restraint on the issuance of dollar-money and credit. It allowed America to finance the Korean and Vietnam wars without resorting to domestic taxation. When those dollars-for-export returned home in the late sixties, the run against dollars and in favour of gold began, leading to the Nixon Shock, when the US finally consigned the Bretton Woods Agreement to the dustbin of history.
Wednesday, 26 August 2015
- A stock market correction is well on its way.
- The money supply is a key driver of stock prices, but sometimes stocks decouple greatly from the money supply - both on the upside and downside.
- Based on the 2000 and 2007 stock market peaks and their ratio to the money supply, stocks could fall more than 49.5% this time around.
I've published the full article on Seeking Alpha which you can access for free here.