G20 - The Outcome

[Marmora Man]

I was surprised that while there was comment on the G20 protests - there has been no comment on the outcome of the conference.

The leader's statement following Thursday's G20 is here: G20 Statement

Does it represent anything more than pious wish lists or statements of the bl**ding obvious and will it make any difference?

My view tends toward the sceptical - tho' it was encouraging that worldwide stockmarkets rose slightly on Friday - tho' this probably reflected underlying trends with an extra degree of optimism rather than any strong belief in the power of the politicians to make a real difference.

[bigbadwolf]

I think the only visible outcome of the G20 summit was after the protests 'Deal or no deal' got it's audience back.

[HAL9000]

G20 = back to business as usual? I don't think so.

It was a wasted opportunity to address the real problems we face.

An economic system based on fractional reserve banking (as our global economy is) must eventually collapse - it's just a sophisticated Ponzi scheme.

The only thing that keeps it going is perpetual growth - a trend that peak oil and climate change will soon reverse.

The next financial collapse will take us back to the Stone Age, IMHO.

[SteveT]

HAL9000 wrote:- The next financial collapse will take us back to the Stone Age, IMHO.

This one might yet do that, were not through it by any means IMHO.

[HAL9000]

SteveT Wrote:

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> HAL9000 wrote:- The next financial collapse will

> take us back to the Stone Age, IMHO.

>

> This one might yet do that, were not through it by

> any means IMHO.

I agree that this one is not over yet and that it could get a lot worse. I don't think this is the Big One, though.

Today's remedies may well have set the stage for a global meltdown in the not too distant future, probably triggered by a confluence of events such as the effects of unforeseen tipping points coupled with food/resource/energy shortages along with widespread societal collapse.

If and when it comes, it'll happen very quickly - few will survive.

[louisiana]

It's all fiddling while Rome burns.

I think a lot of people have yet to realise that 'returning to where we left off' is not a medium-long term option. Anyone aiming to do that can't see the bigger picture. But unfortunately that's the way most politicans (and bankers and captains of industry) think.

[dulwichmum]

My darling boy Max asked why everyone is so excited that Mr Obama Bin Laden is in town! (queue crash course on world politics)...

The result of the G20 in real terms - I think of Obama every twenty seconds. The man is a god!

[Marmora Man]

An economic system based on fractional reserve banking (as our global economy is) must eventually collapse - it's just a sophisticated Ponzi scheme.

I think you overstate the problem. The Warden of Nuffield College, Oxford outlined his thinking about the credit crunch recently in an article I read somewhere - essentially, as I remember it the problem is / was as follows:

1. Banks came into existence to arbitrage between depositors that wanted to place their money in a safe haven while earning some interest and borrowers that wanted to have access to capital and were prepared to pay for that access.

2. The problem is that depositors want to be able to call on their money at short notice while borrowers often want to hold onto it for a long period. Borrowing for a mortgage is typically 25 years - savings are held typically for far less a period of time.

3. Banks usually hold a % of their total liabilities in readily available reserves. So a bank with ?100m of liabilities (borrowings- owed to their depositors) and ?100m of assets (loans due to be paid back) would hold 10% - 20% in reserves.

4. The reserves should be looked after very very carefully in safe, readily convertible to cash, assets.

5. Regrettably some (all?) treasury departments of large banks thought they could be clever and earn more for their bank by "investing" the resrves in rather more exciting, but ultimately dodgy, assets.

6. Result - the reserves were lost / drastically reduced and the banks started to topple.

Not a Ponzi scheme as you suggest and the idea that we're doomed to be taken back to the stone age is hyperbole. There is a recession - it will continue for some while - many people will suffer losses of jobs, savings, houses etc but the world and its economy will return to a more stable pattern until the next economic cycle results in a similar downturn.

[JetSetWilly]

bigbadwolf Wrote:

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> I think the only visible outcome of the G20 summit

> was after the protests 'Deal or no deal' got it's

> audience back.

and the jeremy kyle audience thought it was a new boy band on tour.

[HAL9000]

Marmora Man Wrote:

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> HAL9000 wrote:

>> An economic system based on fractional reserve

>> banking (as our global economy is) must eventually

>> collapse - it's just a sophisticated Ponzi scheme.

> Not a Ponzi scheme ...

With respect, your comments do not touch upon the underlying issue. I suspect that you are not familiar with the principle of Fractional Reserve Banking [FRB]. If so, it may be helpful to review Paul Grignon's 47-minute animated presentation "Money as Debt" available in five parts on youtube. Money as Debt: Part 1

FRB is a systemic flaw that facilitated the current crisis without actually causing it.

To reiterate my original point: an economic system based on FRB will collapse in the absence of continual growth.

[Huguenot]

Hal9000, I think you're kinda missing the point.

Fractional reserve banking isn't so much printing money, as the redistribution of money in the present against value that will be derived in the future: the loans have to be repaid for the system to work.

FRB is vital for growth, but not dependent upon growth to work. Growth is the only way of sustaining new cash generation in FRB, but without growth the value of existing circulation doesn't reduce.

FRB allows one to make an investment now, on the assumption of future earnings. For example, taking the gold standard referred to in the video, the outlay required for a gold mine doesn't follow proportionate to the value of the gold extracted. You have to invest heavily at first, and the return is long-term. Without FRB, this resource couldn't be exploited.

The same applies with agriculture, you invest in spring to benefit in autumn. So without FRB, we couldn't feed the world.

FRB isn't dependent upon growth, but is heavily reliant on the confidence that the initial assumptions will make good and the loan will be repaid. If the loans made were ill-conceived, and made assumptions about the ability to repay that in hindsight were illogical, then you get a run on the banks, and FRB stops working.

The system only collapses if the bad debts exceed the reserves. In fact this isn't quite true, because you get the lemming effect (the reason why 'true' markets cannot work in execution), so sometimes perfectly functional situations will collapse because everyone gets the shits. See UK banks when the yanks and the krauts went short: we'll only guess at their motivation.

Hence you can regulate FRB by increasing the requirements from cash reserves to exceed perceived threat levels.

Sub-prime lending was rapidly turning out to be a mistake, as bad debt levels were consistently exceeding the assumptions made when the loans were exchanged. It only took the right two guys to start talking in a bar, and the fear that this could be a problem was enough to damage confidence, and undermine FRB.

FRB loans are made against many types of future collateral such as resources, services and labour. For example, our mortgages exist on the assumption that we'll repay the debt with future labour.

The confidence of home ownership encourages us to invest in our property and hence generate more wealth by improving our assets - whether that's a vegetable patch or an attic room.

Growth starts to falter when FRB stops being calculated against timescales and productivity estimates that are reasonable, e.g. our working lifetime when calculating mortgages.

You get massive periods of growth when we collectively believe that our society is growing faster than we expected. We get downturns like a hangover when our optimism evaporates.

However, getting rid of FRB is utterly silly, and prevents us investing now to reap future benefits. Pol Pot would probably think it was a bright idea, but few others.

[Marmora Man]

Hugenot,

Mostly you and I differ but I appreciate your explanation and refutation of the FRB proposition as laid out by Hal9000. I'm neither an economist nor a banker but the argument that FRB was the cause of today's credit crunch and will be the cause of a future meltdown to a stone age society did not appeal to my intuitive common sense view of the world.

[Mikecg]

LOL!

[louisiana]

And peak oil?

And climate change?

Which were both points that HAL9000 highlighted.

Both PO and CC are at odds with a perpetual (exponential) growth model (which an every rising population etc. demands).

[Marmora Man]

Peak Oil will not be a problem - there are many alternative energy supplies and science will solve that issue. Fusion energy is a real possibility within the next 25 years - which would "eat" the existing nuclear fission by products and produce carbon neutral energy from all kinds of inputs.

Climate Change is still, I believe, an overhyped and overheated (no pun intended) thesis. I am old enough to remember having to worry about the new "Ice Age" that was considered to be the big environmental issue in the late 60's / early 70's. That turned out to be untrue as well.

Interesting article in today's S Times - flora is growing bigger and faster due to enhanced availability of CO2, and is therefore absorbing more CO2 - illustrating a bio feedback loop that will have a stabilising impact.

[SeanMacGabhann]

MM - Interesting takeaway from an article which includes the caveat:

"However, scientists have warned against drawing false comfort from such findings. They point out that although levels will boost plant growth, other factors asso-rising CO2 ciated with climate change, such as rising temperatures and drought, are likely to have a negative effect.

Semenov said: ?Global warming will increase the frequency and magnitude of extreme weather events which may have a significant impact on crop productivity.? "

[louisiana]

Marmora Man Wrote:

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> Peak Oil will not be a problem - there are many

> alternative energy supplies and science will solve

> that issue.

So are you one of the 'scientists' that will be solving this?

There are indeed many alternative energy sources - but they don't work out so cheap, and there will be very hefty infrastructure conversion costs (think petrol station infrastructure, for example), to be acheived in short timescales, if lifestyles are to be maintained.

The consequence of PO is not 'no energy', but 'expensive energy'. That will impact in many ways.

Fusion energy is a real possibility

> within the next 25 years

Or is perhaps a fairytale.

[????]

Did they really say anything? I don't think so....I read through the statement curtesy of The Indie...nothing really said, politicians flexing their egos and preening their vanity..

Maybe will help with confidence, extra money to the IMF will stop the fear of implosion in the CEE countries with subsequent carnage in the banking sector (especially German/Austrian banks)...the symbolism of China taking a major part was the most interseting thing to me.

In terms of demos - the biggest financial crisis in a lifetime in one of the engine rooms its growth and we get 5000 on the streets and some for the camera kicking in of a window or two....no revolution coming our way anytime soon!

[HAL9000]

My dear Huguenot, much of what you've said doesn't make sense within the context of Fractional Reserve Banking so I can't respond in a meaningful way.

Hint: it may help to watch all five parts of the cited video.

[HAL9000]

Marmora Man Wrote:

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> Hugenot,

>

> Mostly you and I differ but I appreciate your

> explanation and refutation of the FRB proposition

> as laid out by Hal9000.

Hugenot has neither explained nor refuted anything regarding FRB.

> I'm neither an economist nor a banker...

Who would have guessed :)

[Marmora Man]

Hugenot has neither explained nor refuted anything regarding FRB.

His explanation makes a lot of sense to a layman - the YouTube video's are strong on assertion - short on facts / exposition.

[HAL9000]

Marmora Man Wrote:

-------------------------------------------------------

> Hugenot has neither explained nor refuted anything

> regarding FRB.

>

> His explanation makes a lot of sense to a layman -

It doesn't address the underlying issue, though.

> the YouTube video's are strong on assertion -

> short on facts / exposition.

I chose the video link because it explains the subject in a way that a layperson should be able to grasp.

For more facts/exposition: Google: Fractional Reserve Banking

[Huguenot]

Okay, so I've bored myself now with watching this sanctimonious twaddle.

It appears to make several key assertions that challenge wealth creation as debt:

* Interest is amoral and a sin

* Money supply exceeds existing value

* It only works alongside growth

* The natural endpoint is that the banks own everything and we are slaves

* That this is a massive conspiracy against the people by an illuminati

* That banks should be nationalised and interest should be outlawed

* That money supply should be tied to existing value

I have no tolerance for religious arguments about usury. The facilitation of all services is necessary for any investment, these services may be the acquisition of goods or labour, or the provision of money to pay advance fees (before value is extracted). Interest is merely the bank's 'service' fee for providing the service.

Interest also provides a useful check on the system, as it discourages excessive borrowing, and encourages efficiency.

Money supply is supposed to exceed existing value, as it's predicated on future repayment - i.e. not the sum total of our value now, but our future value when we have reaped the rewards of our investment.

FRB does not only work alongside growth. This is incorrect. FRB is only profitable if the banking system continues to issue new loans. However, FRB doesn't cease to work if the supply of new loans dries up, as the repayment of previous loans continues. Not much fun for the bankers though.

The 'enslavement' of the population is only theoretically possible if the average joe on the street takes out more in loans than they are capable of repaying based on future earnings. If this happened on a large scale, FRB would fail without the repayments and the banks would close. This is effectively what happened last year. It didn't result in enslavement, it resulted in nationalisation. See 'Credit Crunch' for more details - it's a natural correction of poor banking practices.

The illuminati consipracy is childish. Quoting drunk old men out of context is propoganda.

Nationalised banks are unlikely to be able to differentiate between poor and efficient loans, because the shareholder (the voter) is the same individual who is requesting the loan. It would result in the starvation of funds for necessary but unpopular projects, as money was siphoned off to popular but pointless projects.

Outlawing interest may be popular by ending what is considered to be a tax by the wealthy elite, but the reality is that it also removes natural checks and balances from our system. Interest payments ensure that bigger loans must deliver bigger returns.

Finally tying money supply to existing value is short sighted. We must invest now to develop products and services that will be required in the future. This means borrowing against future value, which means money supply must exceed existing value.

Overall I thought the programme was somewhat informative, but heavily one-sided. Its proposed solutions were unworkable, and the nationalisation of banking services and removal of interest is both witless and dogmatic.

The proposed solution wasn't socialist, it was communist - a system involving the removal of investment incentives such as interest resulted in the collapse of soviet and chinese systems far faster than the odd credit crunch in western societies.

As the programme pointed out, the western system's around 300 years old, neither of the oriental communist philosophies reached 40.

[macroban]

> The 'enslavement' of the population is only theoretically possible if the average joe on the street takes out more in loans than they are capable of repaying based on future earnings. If this happened on a large scale, FRB would fail without the repayments and the banks would close.

Better watch out for wage deflation then.

If Singapore goes for the predicted 4% devaluation of the Singapore Dollar then it might get personal.

[Huguenot]

Lol!

I'm praying for devaluation. My cash holdings were/are in sterling. Last summer when I was otherwise diverted UK:$SG was 1:2.8, now it's 1:2.24. So I'm already 20% down on my capital when I wasn't watching. A 4% correction would mean I'm only 15% down. Yay. Bring it on.

If you're talking about wage deflation in the sense of salary cuts, I'm not impacted directly as I'm self-employed and effectively paid on dividend. I already suffer wage-deflation if the business slows.

Regarding wage-deflation in the greater marketplace, well really it's the same thing as cutting spending power through inflation or currency management. At least wage-deflation is transparent.

My view is that there is a mismatch between 'western' individual spending power (the top 20% of the world's population) and their contribution to global wealth generation. In other words I think western peeps are getting rich off the backs of developing world workers.

I would like to see an correction in the spending power of individuals across the world to see wages come more into line with contribution. If that means wage-deflation in the UK and inflation in China and India, well, we saw it coming didn't we?