Thursday 2nd of July 2020

The big interest rate lie

It may come as a surprise to many people but banks 'print' money, the government has no real control over monetary policy and as a result has almost no control over the economy at all.

What do you mean banks print money?

 When you go to a bank and get a loan on a mortgage the bank is not lending money which someone has actually deposited with them. They just record your debt and create electronic money by recording a credit in someone else’s account. You pay interest on the money they just created. Why do you pay interest on something which cost nothing to create?  - because banks decide you should and there is nothing we can do about it.

Interest rate movements, besides just transferring money from the poor to the rich (a monopoly rent on debt and money creation for the banks shareholders) are the way the government tries to stop people and corporations from asking the bank to lend them money. The amount of money circulating depends on whether you and the bank think you can afford to pay the money back, not on government monetary/economic policy.

 Printing money! Doesn't that create inflation?

Yes. Printing or creating money be it paper or electronic does create inflation. So the more banks lend, the higher the inflation rate. What does the government do about it? All they can do is raise interest rates. But interest rates just raise the banks profits.

It doesn’t matter what happens, the banks make more money and we all get deeper and deeper in debt and the banks make record profits in the billions of dollars, a large slice of which, about 25%, goes offshore and other countries get our coal and other minerals for free.

The money supply is increasing around 7-8% a year (This figure is called M3 in the technical literature).  The Government does not control the money supply and therefore cannot control inflation which it benefits from in any case by way of increased taxation revenues and the like with bracket creep, capital gains tax etc.

What this also means is that the real inflation rate is by definition around 7-8%. The CPI (Consumer price index) is basically a hoax to slowly whittle away at the real value of low wages, pensions and unemployment benefits. Inessential items get cheaper while healthy food, housing and utilities get more expensive. Healthy food gets more expensive and poor people get obese from eating all the cheap crap that we get sold. Studies demonstrate this.   

If the real inflation rate is at 7-8% this makes apparent economic growth an apparition and is merely an unadjusted inflation measure. Because unadjusted inflation represents the transferal of wealth from the poor to the rich invertors look kindly upon countries with a high apparent growth rates like Australia.  High corporate profit likewise is merely an indicator of the distribution of goods and services between workers and employers within an economy and not indicative of economic prosperity. Corporate profit is just rent on a workers salary.

There is no economic justification for interest rates on housing loans and constantly printing more money just makes it almost impossible to make sensible and wise investment decisions  by distorting market feedback mechanisms, that is, prices - if that is, you have a few bucks left over after paying the mortgage to invest in anything  but basic survival.  The big lie.


Little known material Ilan. Here's some material that was important in my own education on these matters.

Steve Keen, Debunking Economics: The naked emperor of the social sciences

Michael Rowbotham, Goodbye America! Globalisation, debt and the dollar empire 

 The latter is especially good on the issue of money creation and the 'multiplier effect'. The former has the advantage of being by an Australian, which means he can spell, 'globalisation'.

This is a fairly incomplete

This is a fairly incomplete picture of the way things work. A starting point for learning about how the banking system works is the Reserve Bank's Payments Operations page. The Exchange Settlement accounts system forces each bank to have things balance out. Money "creation" occurs not because of the way the loans are recorded, but because the recipient of the payment will put the money into another bank, and that bank will lend the money out again. This does not lead to inflation though, because what is created is not value, but a flow of funds (or obligations) that will have to flow back the other way at some point.

A documentary on these matters

Hi Ilan and Hamish,

There is an interesting documentary called The Money Masters that is well worth looking at.  It provides an excellent overview of these matters, including the history of central banks and the effects of fractional reserve banking.

I wonder why this material so little known.

Hamish - what is your education on these matters?  Economics is not my field of expertise, but I sure would like to hear from someone who does have such expertise and is familiar with these matters. Ilan, how did you become familiar with this material?

Trans fats...

From Al Jazeera

US fast foods get supersized fat

Thursday 13 April 2006, 9:14 Makka Time, 6:14 GMT

A study of two leading restaurants found wide variations in trans fat content from country to country, from city to city within the same nation, and from restaurant to restaurant in the same city.

The differences were to do with the type of frying oil used, and the main culprit appeared to be partially hydrogenated vegetable oil, which is high in trans fats.

Estimates a few years ago indicated trans fats prematurely killed 30,000 to 75,000 Americans a year.

read more at Al Jazeera

I've heard about this story

I've heard about this story before and I believe it's all true.

There is something I don't understand though, why should we worry if those money are printed or not. As far as I am concerned I know that the interest rate has an important role in balancing the overall financial system, the Government knows that and we should also understand it.

Sure, there are plenty people complaining about credit card debt but this is also our fault, we need to know how to handle money and how to handle credits.

Thanks for sharing this! We

Thanks for sharing this! We cannot blame the changes in our economic situation these days. The only that we can do is to face the fact and be able to adapt on those changes. Whatever we are facing right now, global economic crisis will still affect everyone. To lessen these effects, we need to find the best options to save our money and invest on the things that we need and not on those that we want. Food, for example, is a basic commodity. If you are experiencing financial problems these days, why not try eating healthy foods. Talking about eating healthy, April 27th was KFC Free Grilled Chicken Day. KFC Free Grilled Chicken Day was put on by Kentucky Fried Chicken to promote their new, healthier alternative option, Kentucky Grilled Chicken. Kentucky Grilled Chicken, the Original Recipe and Extra Crispy still come under fire from groups concerned with public health and heart disease, and animal rights groups protesting the treatment of chickens. A lot of people would give a cash advance to get more fast food chains to offer healthier fare. Regardless, KFC is still selling, and is a popular brand the world over. So anyone who didn't want to use installment loans to buy their own grill hopefully participated in KFC Grilled Chicken Day.