Much in the news lately about unfair bank charges. Plenty about overdraft charges – but what about interest?
Let’s examine why we have interest on loans. If you borrow 500K from your mate, while you have it, he doesn’t have use of it. He can’t use it to further his own interest and so it isn’t in his interest to loan it to you. In order to make it in his interest, you have to offer him compensation. You not only agree to return his money after a set time, then, but with extra money on top as compensation. That extra money is, quite literally, his interest in doing the deal.
All fair enough.
When you get money from a commercial bank, though, none of this applies as you aren’t loaned anything. Instead the banks create new money in your account. This isn’t the same thing as lending you what’s theirs and so being deprived of the use of it. They aren’t deprived of this money in any way; they never had it in the first place. Why should they have any compensation then? They didn’t lose out in any way. There is no actual or potential loss.
I’m aware that it is recorded in their accounts as a debit, (or whatever), but that’s just the way banks choose to do their accounting. They can just as easily decide not to. That’s the way things developed because it suited the banks, not because it was fair or appropriate.
So where’s all the complaining about that?
The only economic indicators suggesting we’re out of recession are ones that work in the shadow economy, not the real one. when all these things were initially determined as indicators of anything much, there wasn’t any such thing as a shadow economy. We’re being measured against outdated criterion. All the QE has been going straight into the shadow economy and staying there, that’s why there’s been no inflation in the one we use. In real-world terms, we’re worse off than we were at the start of the crisis, we face the same problems and we’re far more in debt. This is the National Debt ‘owed’ to bankers who’re demanding we pay them back billions they never had in the first place. We all work for the banks, there’s no two ways about it.
don’t always follow each other. I know it used to be that way but these are times without precedent. People keep talking about in recession (booooo!) or out of recession (yaaaay!) as if they’re bad or good things but really nowadays they’re irrelevant things. It’s as if money has taken a life of its own, spun off into some cyberFrankenverse where old rules simply don’t apply any longer. All the quantitative easing the governments are indulging in is expanding the monetary base but not this one, not the one that you live in and I live in. It simply adds volume to the monster in cyberspace. That doesn’t affect us here in the real world. Very few people seem to get that this is an entirely new game in some regards. We never had this cyber aspect before, there wasn’t the facility to create electronic money. There may be inflation at some future date but it’s by no means inevitable.
Printing money into the economy would normally precipitate inflation. This isn’t happening and won’t happen because the money isn’t going into the economy. It’s going into the banks. The banks are their own world now, they only interface with the wider economy. If they choose not to use this money as a base to create more money into the broader economy then there will be no inflation as the broader economy has no more money in it. They choose instead to address their own internal problems, applying the printed money to their own self-inflicted wounds. The banks played with fire, and burned the world. Handed the first aid kits to multiply and pass around, they prefer to keep them for themselves.
This will continue for as long as the government chooses to hand over newly-printed money to the banks. In their vaults, they don’t have red ink, they have black holes. The securitisation of debt means it was sliced and diced, reackaged, redistributed so many times it will be impossible to either determine who owns what or how much is actually owed. The only realistic way to deal with this, then, is to treat it as infinite. That’s impossible. It couldn’t end. We’d be feeding it printed money foever, and it wouldn’t make a dent. This appears to be the Bank of England’s policy though. Hmmm. I suspect this is because they’re utterly clueless about what to actually do and this disguises that fact by making it look like they’re doing something. Everybody fusses about the potential significance of what they’re doing (inviting inflation) but miss the real significance (they have no solution to the ongoing crisis so they’re stalling). They can keep this up forever, and it looks as though they will, but it won’t solve the problems of the economy (which is that it isn’t designed to work for us in the first place) and it won’t precipitate inflation either.