W Bowles: Economic 1001 – Interesting Times


Richard Moore

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From: The Editor <•••@••.•••>
Date: October 24, 2008 1:39:23 PM GMT+01:00
Subject: Economic 1001 – Interesting Times

(And you know you should)

Economics 101 – Interesting times

by William Bowles  Friday, October 24, 2008 12:50

‘May you live in interesting times’, traditional Chinese curse

Being raised in a family of Reds has its pluses and its minuses, one of the minuses being a decidedly unworldly approach to economics. It was as if wealready lived in a socialist world but of course nobody else did. The upshot of this was a total incomprehension as to the value of money, and not merely the value but its importance.

This must sound strange coming from someone who professes to know the ‘answers’ to what ails us but then life is complicated, people are contradictory and we don’t always do what’s in our own best interests, besieged as we are by the forces of capital. For alongside this there is always the question of fear and insecurity about the future, about who we are and what we should be.

Now I know I’m not alone in this, yes sure, we all know we need money but it wasn’t always this way. Indeed there was a time when to earn one’s living through wage labour was considered the absolute pits and something to be avoided at all costs (excuse the pun). Those times are long gone but not forgotten, at least by me.

Now it’s not like we were rolling in cash, my dad earned twelve quid a week as a union organizer for the Musicians Union and my mum didn’t work (my dad was a rather old-fashioned commie). We had no savings, possessed no property, no insurance, nothing. Thus when he died when I was aged ten, we were broke, I mean really broke and finally even made homeless. Thus my folks understanding of the world of capital had little to do with the world we actually lived in. What a paradox eh but in this, we were not alone.

So imagine if you will, that you live in a world where the ‘laws’ of economics are a mystery confined to the high priests of finance (much as the workings of the weather used to be solely the province of the shamans). Holding on to this knowledge is vital and explains why so many opposed and still oppose the creation of a real education system.

Indeed so many aspects of our life flow from restricting knowledge of the workings of our economy which is why when push comes to shove, capitalism is presented to us a ‘force of nature’ over which we have little or no control.

Thus the eminently sensible solution to the current crisis of making credit a public utility gets no play whatsoever in the media (even as they choked on the word nationalization but reluctantly had to admit that the glorious market, supposedly the solution to all that ails us, had failed yet again).

But then again revolutionaries are almost always romantics and dreamers, driven by such old-fashioned ideas as justice, brother- and sisterhood and a deep conviction that the world can be a better place for all of us, if only…

There is a certain irony involved here for as the alleged harbingers of a new economic and social order, our understanding of the nature of economics was decidedly lacking, even today as the events of the past weeks and months so clearly demonstrate. Have we learned nothing? Apparently not. No, let me qualify that: Our history has been stripped from us, just like all those trillions. The lessons from the past have deliberately, serially, erased from our collective memory.

And obviously we are not alone in this for how else do we explain the vast confidence trick that has been played on us by the pirates, who have it seems, sailed away into the sunset with our hard-earned moola and nary a whimper from us a we stand and watch, gobsmacked by the sheer scale of the thievery but unable to do a damn thing about it. For whatever you may think of Marxism or even socialism, Marx was first and foremost an economic philosopher, he spent his entire life unpacking the nuts and bolts of capitalism and thus far has been proved totally correct even if we socialists have failed to fully absorb his understandings.

Trillions stolen and we are left to pick up the tab. But then again, what else is new? They’ve been at it for centuries but it seems the lessons of the 19th century (let alone the 20th) havenot been learnt in spite of Marx spending an entire lifetime figuring out how it worked.

Yeah, sure we know that capitalism is run by a bunch of ripoff merchants but the world is a complex place and economics in spite of being the fundamental conditioner of life is for most of us, beyond our ken and kept that way.

This explains of course why it’s so easy to pull the wool over our eyes. We have no ready answers just an understandable sense of outrage at the sheer incompetence and shortsightedness of our political class in leading us (again) into a world of chaos and destruction. Yet the bottom line is that capitalism lives only for today.

It would help however if the mass media told the truth for once about the nature of the disaster but of course, those who serve the ruling class really have no choice in this matter. Imagine if you will if any of the media servants of capital did try and tell it like it is, they would be shown the front door pronto (not that there’s any chance of this happening, see the latest Media Lenspiece on just what kind of people get employed by the corporate/state media in the first place).

The corporate media have been elevated in status that in earlier eras would have been accorded to the gods, their arrogant dismissal of us mere mortals is legend.

Thus it’s up to us to try and explain to a world kept ignorant of the very basis of our existence, what in hell is going on.

“Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank’s capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.”

One of the best explanations I’ve come across recently is in Ellen Brown’s essay ‘Financial Meltdown: The Greatest Transfer of Wealth in History’, (from which the above quote is taken) in which she explains in lucid and concise terms the exact nature of the con game that’s been played on us for the past three hundred or so years.

And bear in mind this con game financed slavery which in turn financed the European industrial revolution, for at the heart of capitalism is the role of finance capital. The great merchant banks of Europe which built their wealth initially on trade, quickly realized the immense profit to be gained from trafficking in humans and the loot used to finance the industrial and scientific revolution. The rest as they say, is history.

So what is it that on the one hand is so obvious yet so difficult to pin down? Brown’s essay (and that of many others I might add, see the End Note) talks about the central role of interest in the scam, and I note in a piece that the colossal meltdown of finance capital has not touched the banks of the Islamic world where charging interest is decidedly un-Islamic (see ‘Islamic banking escapes fallout’).

The point about interest is that it is essentially wealth produced from thin air, and confined to those with sufficient capital to lend to those who possess nothing except their labour. And it’s at the point where the two intersect that the sleight-of-hand takes place. For there is only one place this theft can take place and that’s from our labour which explains why so many millions are going to be thrown out of work.

The course of the industrial revolution can be defined as one where our skills and our tools were taken from us, leaving us nothing to sell but our labour. In turn we received cash, enough to survive on but definately not enough with which to open a bank and lend to it others and charge interest.

Thus the connection between finance and work is an intimate one, indeed the two go hand-in-hand. The early banks were not by accident called merchant banks, for trade requires finance, not only for the ships but with which to buy the goods. Why is this such a difficult concept to comprehend? The answer is not only in the lies told to us about the true causes of events but in the fact that the capitalist way of life is prresented to us as a ‘force of nature’ over which have only limited control.

Expansion, colonization, slavery, empire have all the appearance of an inexorable force (albeit one confined now to history, at least that’s the way it’s presented to us), they call it progress, civilization, technology, and worst of all, conquering nature as though it were our enemy.

And it is also not by accident that the emergence of the scientific revolution flowed from the same source, those early merchant bankers who financed the development of accurate clocks for example, without which controlling a global empire was nigh on impossible. And once on this path there is no turning back, inexorably, ‘progress’ and ‘growth’ become the buzzwords.

So what is it about debt or its euphemism, credit? Why is it central to modern capitalism? The fact is without it there would be no capitalism as we know it. Mass production requires mass consumption, and it’s never-ending, as each ‘new’ product reaches saturation point another one must be created and commensurately our desire to possess must be stimulated else the entire thing grinds to a halt.

It’s an amazing trick really, we are enticed into living in a world of commodities that will, we are told, make our lives richer, more fulfilled. Every ruse in the book is used to persuade us so; our fears and desires turned against us merely so profit can be made and at the end of the day, we remain unfullfilled, wanting more in the vain hope that this time we will enter that wonderful world of things, where illusion is transformed into reality.

It’s a one-way street, for there is no fulfillment waiting for us when we return from our ‘shopping expeditions’, only another trip, another debt to be incurred, another dream to be (hopefully) realized, this time. And very few of us are exempt, including myself from this desire to be somebody else, to be somewhere else.

As John Berger put it, ‘the fantasy of the faraway place, the fantasy of being somebody else, the fantasy of the skin’ (Ways of Seeing). A drug more powerful than cocaine. We are encouraged to be dissatisfied with who and what we are, we are persuaded that if only we had this or we had that, we could reach that faraway place but it is always just beyond our reach. Thus we live in a world of illusions, powered by debt.

But beneath the tinsel and enticing images of ‘that other place’ is something crude and vulgar that enslaves us in its tantaiizing embrace, the world of money, the solution to all our woes. The problem of course is that to enter this paradise of things, we need money, money we don’t actually possess, but wait, it’s there for the asking, all you need is that small rectangle of plastic that unlocks the door.

And once on the treadmill, it’s virtually impossible to get off, there’s all those debts to pay, will it never end? Well for many, yes. The illusion shatters and the shallow world of possessions reveals itself for what it really is, penury.

The ‘vanishing trillions’ of course have brought the reality of debt into focus but even here, there seems to be much confusion about whether the missing money actually existed in first place. Let me put it this way, there are two processes involved here:

On the one hand we have banks/mortgage companies handing out loans, often under fraudulent conditions ie, misleading the borrowers about the real size of the repayments and on the other, ‘repackaging’ the loans and selling them on to insurance companies, pension and investment funds, even other banks, where they are hidden inside complex financial instruments.

In turn these ‘packages’ of paper are traded by hedge fund operators, derivatives merchants et al, who bet on their future value, either up or down and skim a percentage off the transaction (the banks too, made money by charging a ‘transaction fee’ as well as selling these dud pieces of paper to each other!). And we are talking here about millions if not billions of transactions made over the years and we know what compound interest does, within a relatively short space of time, the debts increased exponentially.


Meanwhile, back in the real world, millions are defaulting on the loans they should never have been sold in the first place, and it cascades into credit card debts, indeed the entire nine yards of credit-based consumption becomes untenable.

The upshot is two-fold: 1) the loans are so well hidden that nobody knows where they are nor what their (negative) value is and 2) the trillions made by the speculators have of course disappeared into offshore bank accounts, invested in private equity companies etc, never to be seen again, leaving the original lenders, the banks and mortgage companies owed trillions.

The irony here of course is that banks were complicit in creating these scam financial instruments in the first place! Great while it worked, they made billions in profits but sooner or later the bubble had to burst.

Worse still, because of the globalized nature of finance capitalism, the disease has been spread to the four corners of the planet. So yes, the trillions are real but only on paper but then it’s paper that makes capitalism function, it’s called interest.

So did the various governments, the US, UK etc have a choice about what to do about this vast debt? Yes, of course, they could have nationalized the banks and other financial institutions involved and told the shareholders to take a powder, then renegotiated all the failed mortgages.

Meanwhile, using the their ill-gotten gains the very same speculators step in and buy trillions in devalued stocks in a global garage sale! And not for the first time either as this happened when the Asian stock markets imploded in the 1990s.

So you’d be right to ask why, if this is not a crisis of our making, we end up paying for it? Well it’s simple, the governments operate not in our interest but to protect capitalism. Millions will be made homeless and jobless (some put the figure as high as 20 million thrown out of work as a result) in order to bailout a bunch of speculators and corrupt financial institutions.

And without credit to power consumption, the crisis cascades into the real economy, but the owning class have no problems even if their capital is devalued somewhat, they have enough to ride out the storm and as I’ve pointed out, some even make even more money out of our misfortunes.

End Note

Global Research have compiled an excellent compendium of articles on the subject which I am making available here:

The Architects of Derivatives and Sub-Primes: Greenspan and Cox Confess
– 2008-10-23

They Did It On Purpose: The Housing Bubble & Its Crash were Engineered by the US Government, the Fed & Wall Street
– by Richard C. Cook – 2008-10-23

Wall Street Hustlers Built a $100 Trillion House of Cards and Stuck You with the Fallout
– by Joshua Holland – 2008-10-23

Death of the American Empire
America is self-destructing & bringing the rest of the world down with it
– by Tanya Cariina Hsu – 2008-10-23
“Banking institutions are more dangerous to our liberties than standing armies” (Thomas Jefferson)

The Financial Meltdown: This Time Is Different
– by Stephen Lendman – 2008-10-22

Russian President Medvedev: Global Economy Pays for American Blunders
– 2008-10-22

OECD report ranks US third worst in inequality and poverty
– by Patrick O’Connor – 2008-10-22

What Went Wrong in the Capitalist Casino?
– by Tony Benn – 2008-10-22

Responses From The South To The Global Economic Crisis
International Political Economy Conference Final declaration
– 2008-10-21

France: Euro360 billion to bail out the banks
– by Antoine Lerougetel – 2008-10-21

Banks Admit They’ll Keep on Hoarding Cash
– 2008-10-21

Financial Crisis Could Leave 20 Million Jobless
– 2008-10-21

Pakistan facing bankruptcy as world financial crisis deepens
– by Vilani Peiris – 2008-10-20

`Armageddon’ Prices Fail to Lure Buyers Amid Selling
– by Pierre Paulden , Caroline Salas – 2008-10-20

Are Our Governments Making Matters Worse?
More Signs of a Coming Depression
– by Danny Schechter – 2008-10-20

The God That Failed: The 30-Year Lie of the Market Cult
– by Chris Floyd – 2008-10-20

Hard Times
– by Stephen Lendman – 2008-10-20

Up In Smoke: The Abridged History of US Investment Banking
– by Mike Whitney – 2008-10-19

Parsing Mr. Paulson’s Bailout Speech: The Unprecedented Giveaway of Financial Wealth
– by Michael Hudson – 2008-10-18

Another Ticking Time Bomb: $71.2 Trillion Dollars in “Unallocated” Derivatives
– 2008-10-18

Financial Crisis: Paulson Panics as UK, Germany find own solution
– by F. William Engdahl – 2008-10-18
The British nationalization was to be partial but effective and included a Euro260 billion ‘special liquidity scheme’ of Treasury cash to inject into the frozen inter-bank market

Financial Meltdown: The Greatest Transfer of Wealth in History
How to Reverse the Tide and Democratize the US Monetary System
– by Ellen Brown – 2008-10-17
All the king’s men cannot put the private banking system together again: it is a Ponzi scheme that has reached its mathematical limits.

Global Financial Meltdown: Sweeping Deregulation of the US Banking System
– by Michel Chossudovsky – 2008-10-17
The financial sector reforms of the late 1999s had set the stage for the current financial crisis

Stock Market Crash: Post Mortem for Milton Friedman
Interview with economist Robert Pollin
– by Mike Whitney – 2008-10-17

Asian markets plummet amid fears of global recession
– by Peter Symonds – 2008-10-17

EU call for global financial regulation masks intra-European and international tensions
– by Chris Marsden – 2008-10-17

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