Comments on statements made in New York recently by Mervyn King

Comments on statements made in New York recently by Mervyn King, Governor of the Bank of England


King: There is no simple answer to the to important to fail nature of banks.

Dick Eastman: King is interested in reconciling the values of loyalty to fellow financial elites that would extend to "lender of last resort" bailout expediencies with the desired consolidation to monopolization that is necessary for the attaining of the goal. Thus, "should Fed trillions go to all of us or just to the best of us?" Obviously the answer is going to be to cut off the lesser betters at the margin -- trimming the edges as it were, letting them fail slowly, with no indication of all that is intended to be trimmed. That way there will be consensus among the elite, those favoring allowing of a failure in the present crisis not realizing that they will be the failures of the second crisis. The same tactic is used against the lower classes. The depression swallows up your neighbor's wage and job and house and standard of living -- but of course he was the irresponsible one, he was not a hard worker, he was wreckless about borrowing etc. And so people watch their neighbours cut down by financial high crimes, not thinking that it can and will eventually spread to them. King will not be an easy conversion.

You will note too that the paper is not about reform to replace mechanisms causing
depressions which transfer of wealth (interest owed and real assets attached) to
the financier/speculator class. It is about how to carry on with stability for banking -- that is without bankers worrying about whether they will be on the margin where failure is allowed. I would say that the entire letter is a disingenuous reassurance that near marginal people in finance, thanks to this or that measure he is proposing, are not in danger of being sacrificed as "common enough to be allowed to fail."
Please notice that he says his goal is to make the banking system more stable,
not to make the domestic economy of Britain more stable or markets more stable
-- which would require addressing the universal propensity to household-production loop deflation and recession due to flow of loan injections being less than flow of principal and interest payment leakages. That whatever is built up in the household-production loop by debt-financed stimulus investment and development, will be swallowed up when leakage overtakes injection. This mechanism is the basis of the power of the organized economics-savvy minority over the unorganized majority who think banks lend people's savings and that depressions happens because bankers extended too much credit to bad risks and "print" too much money.

Note how King appeals to Bagehot in asserting that banking crises are endemic to the market economy -- when in fact they are only endemic to fractional reserve
banking or any system where the creation or destruction of new money balances
is in the hands of the financial sector. Crises result from usury. Usury and fractional reserve banking are a combination in which deflation is constant, and reflations are only moments when a new generation of machinery and technology can be developed in a boom of household-production credit financed dynamism, which, after all the machines and new innovations appear, they can be harvested by the Moneyed Elite by a contraction of credit, deflation, recession, bankruptcies, and the buying up of all that has been built with the money the elite has hoarded exogenous of the household-production loop -- which is their milk cow.

King: Maturity transformation brings economic benefits but it creates real economic
costs. The problem is that the costs do not fall on those who enjoy the benefits. The damaging externalities created by excessive maturity transformation and risk-taking must be internalised.

DE: King talks about leverage up, high liquidity down and the replacement of lending to businesses for investment with speculative 'financial engineering" securitization and derivatives gaming -- gaming in the sense of uncertainty as to who gains and who ends up with paying for the all the fun. With no mention of the impact of this on the functioning and well-being of the commoner household-production loop.

King: A market economy has proved to be the most reliable means for a society to expand its standard of living. But ever since the Industrial Revolution we have not cracked the problem of how to ensure a more stable banking system.

DE: No admission that the banking system, stable or unstable, makes the
household-production loop unstable and chronically failing the commoners who rely on it. What is the difference between a stable economy (without recessions and debt-financed short-lived stimuli that results in transfer of new assets to the creditor) and a stable banking system -- where the household-production sectors can be "milked" by economic holocaust without disturbing roughness for the financier "farmers."

King: We know that there will always be sharp and unpredictable movements in expectations, sentiment and hence valuations of financial assets.

DE: But the problem is why everything goes bad or good at the same time!!!
This is because of big macroeconomic moves initiated by changes of policy by the city. Essentially there is a tacit agreement among colluding bankers of the City, Wall Street, Shanghai Zurich, Paris, Frankfort and so forth to switch from planting mode (where easy credit leads to build-up with new technology and into newly developing lands) to harvest mode, where the natural-to-the- system excess of leakage of principal plus interest over injection of investment loans will lead to the deflation, recession, distress sales and foreclosures during which the elite, with their exogenous holdings of money, can enter the devastated household-production loop and buy up all of the assets worth having.

What are the chances that King would admit to that? What would be the personal consequences for him within his class if he were confess this truth that is so unpopular to those who gain so much by remaining blind to it.

King: They represent our best guess as to what the future holds, and views learn to live with. But changes in expectations can create havoc with the banking system because it relies so heavily on transforming short-term debt into long-term risky assets.

DE: Here is the rationalization of the sinner in full display. Instead of looking at the mechanism comparing the flows loans injected into the household-production loop with flow taken out - he diverts attention to the autonomous expectations of the human brain -- as if expectations are the place to start, as if they are variable that really explains anything. An expectation is like a want. Interests and lending are such and such because of expectations, is like saying I ate the whole chocolate cream pie because I wanted to.

Sometimes you "expect" a man to fall down the stairs because you know you are going to give him a shove. I spoke of the policy -- the few individuals in banking who determine when there will be the season of sowing and when will be the season of harvest -- that is, when a household-and- production boom and when harvest in the form of a bust ending in transfer of assets to the creditors.

King: For a society to base its financial system on alchemy is a poor advertisement for its rationality.

DE: One of the great advances in economics was the development of "rational
expectations theory" -- the idea that eventually economic man catches on to inflation -- and comes to anticipate the inflation trick -- and adds an inflation premium to all of his thoughts of the future. This is of course adaptation. And that puts things in perspective. Expectation is adaptation. Adaptation does not cause events, it is a response to events. Our finally learning how the deflation machine works is the beginning of our adaptation, the arrival of our "rational expectations" of what this system meets out to us -- its changing cycles of scam finally seen for what they are.

King: Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis.

DE: Remember -- he is talking about the instability of the banking world -- the fact that some of their class get cut down at the margin. He is not talking about averting depressions or the debt-financed stimuli that will create a boom of construction and the inevitable erosion of purchasing power from net leakage to usury that will end with more debt slaves (bond wealth) and transfer of boom assets to the moneyed class.

King: This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too.

DE: He is pretty accepting and forgiving of that mountain of debt burden which is the mountain wealth owed to his class. He is resigned to that as grim necessity -- the way of things, you know -- but about this failing of banks within the brotherhood of the craft, this instability and uncertainty that banks might fail -- especially after all of their commoner competitor banks have been wiped away by the present depression -- that of course must stop. The man is hopeless.

My question for you is, why do you try to convince such people of the truth of what they know too well but are afraid to admit from shame and from the fear of having the game found out and an end put to it. You need to raise the commoner's rational expectations -- so they can break out of their loop, grab the golden goose of the upper loop and bring it down the beanstalk so the people below can live happily ever after.

I have explained the principles on which a successful reform of the system should
rest.

DE: Successful in continuing the burdening the population with debt through debt-finance stimulation that in the end – when principal and interest flowing out to you from available purchasing power within the domestic economy to you exceeds by far the amount of the loans you have allowed for stimulus. Your class has mountains of fixed payment debt owed to you and the best way for you to increase you wealth is not by investing at all, but rather by deflating the domestic economy so that the value of the mountains owed to you becomes bigger, the burden of
debt on the public more crushing – while all you have done is engineer deflation
by calling in loans, by collecting compound interest and by failing to honestly acknowledge the net anti-stimulus that in the end is always far greater (due to interest payment on top of principal payment) that the so-called (but only short-term) “stimulus” that you so graciously financed at interest.

You are the plague of the world and no economist at any university or bank or
government bureau either knows it or will honestly admit it. You are simply another of these prostitutes who has reached the top of the whore house.

It is a program that will take many years, if not decades.

DE: Since you have no regard for your inferiors, for the commoners, for the gentiles, for “ordinary” people and are happy receiving trillions of their wealth by deflating their currency as their indebtedness to you grows under the present system -- why would you possibly want to change things now? Social crediters could end the depression in very short order, but it would mean repudiation of all claims you have on debtors – since fraud vitiates all contracts and you have been operating a crooked table; repudiation of debt and the ending of fractional reserve banking and of money creation by the financial sector. Social Credit instead would initiate new money in households – so that household demand would, as it should, direct
entrepreneurs in organizing production; and so that that same strong household
demand fed by social credit would reward better products and less cost with
profit, actually rewarding the producer where your usury system has robbed even
the most brilliant at serving the consumer. A free society with a profit and loss system cannot really survive with your usury. You have not been responsible for industrialization and progress and plenty -- those things have advanced as far as they have in spite of you – and can go much further and faster to a better future without you.

But, as Bagehot concluded in Lombard Street, “I have written in vain if I require to
say now that the problem is delicate, that the solution is varying and difficult, and that the result is inestimable to us all.”

DE: Yes, inestimable to all – but of inestimable unearned windfall transfer of wealth
through engineered deflation – for your class and inestimable misery and pain
of debt that wells on our backs until we are crushed and die early for my class.

You know it and all of those around you know it. My class does not know it. It must be by far your greatest fear that one day they will.

Dick Eastman - Yakima, Washington

THE DICK EASTMAN INTERVIEW - discussing in the last third of the interview of the 2nd hour -- who deflation is the slave driver of the common man -- how by keeping money tight and draining as much money from the country -- even by selling you their gold to get our dollars out of the domestic economy loop -- the multiply the size of our debt burden -- while denying that deflation is taking place. But of course there is deflation. All of our distressed and foreclosed properties are selling at deflation prices. The gas and food we buy are not the result of monetary price inflation, but rather by monopoly pricing practices of the oil companies and agribusinesses and other monopoly corporations and combinations -- since our small domestic competition for them have been ruined and driven out by their deflation machine. There is no inflation. Deflation is killing us and gold is the handmaiden of deflation. Their wealth is our debt slavery and deflation makes ever heavier the chain around our necks.

12/04/2010 Saturday -
1st Hour: With Peter Hebert.
2nd Hour: With
Dick Eastman.

http://www.americanfreedomradio.com/Barrett_10.html
"After a shaky start you picked up steam and put out a lot of important information. " -- Barrett

What social credit it can make this world a happy debt-free place.
http://www.citizensamericaparty.org/socialcredit.htm