There is a ongoing problem I find with a lot of economists. They confuse correlation with cause. Because we have a correlation of firemen with fires, we cannot say the the firemen caused the fires. And so it is with the correlation between Germany’s current wealth (and China’s) and the Ireland’s and PIGS in general’s demise. The cause is wrongly construed by our host and many of the economists and I think it is unhelpful and misleading and it creates conflict and we start slagging off Germany calvinistic attitudes versus the fickle nature of the Paddies etc. All is about creating conflict.
Let’s be very clear – unless we identify the cause, asking Germany or China or whoever to fix it is plain stupid and amounts to racial incitment.
Another correlative mishap is our political mismanagement and this crisis. Wrong again. That is not the fundamental cause. The more we bang on about our crappy institutions the more we are heading off to nowhere land.
Our host says “Economics is not about morality lessons, but about trade and commerce.”. Actually I disagree vehemently. It is about the management of scarce resources in a finite world – where trade and commerce is but one set of tools for same. Right now, it seems the only metric in use by economists is financial and which is about as attached to reality (which is really about people’s real lives) as Startrek is to spudpicking.
The root cause of our problems lies in natural tendency of unregulated financial systems to form oligarchies – who basically only see reality as a number on a bank account. These guys do not care if a few billion live on the breadline or basically die off and they issue a tool which drive that distorts demand to a point that you wind up paying interest in perpetuity with the capital staying firmly in their grasp.
Any discussions which has us slagging off our institutions, our neighbour nations etc has these goups laughing their heads off cos they know we are creating a another money making opportunity – look at Spain right now.
Unless we discuss this natural tendency of unregulated financial systems to form oligarchies we are screwed – all of us. Stop taking about the modern opiate of the people – soccer. It’s a game for numbing the minds of audiences – that’s all that is going on.
When you think about it every Government, every business and every household all have bank accounts and all our money is in the banks, apart from the little bit of cash in the economy which currently stands at around 3% of the total of all out bank balances.
And yet, the same Governments, same businesses and same households are all in debt to the banks. The entire money supply is already in the banks and yet, we still owe the entire money supply to the banks. How could this be?
The reason for this is that banks create money, in the form of accounting entries, through lending and in doing so they create a matching debt to every euro they create. This is obviously the root cause of the debt crisis.
Reducing our debts is not a solution either since when processing a loan repayment banks cancel the money out of existence along with the debt.
This is the essence of how our economy runs and it’s a terrible way to attempt to run an economy.
At the moment Germans are confident enough to organise loans from their banks and in doing so they are confident to create new euros. However this is an unsustainable system and one which cannot go on for much longer, even in Germany.
One solution to the debt crisis involves allowing each country’s Central Bank to create bank-account money for their Governments as well as cash. This money would crucially be debt-free as source.