Tuesday, 31 December 2013

Advertising Standards Authority condone bank's lies.

The idea that banks simply "lend" money in the normal sense of the word is actually false. I wrote about this before here. You may have noticed however, that banks are happy to use the word "loan" in their advertising. So I decided to write to the Advertising Standards Authority (ASA) to see what they had to say on the matter. According to their website, the ASA's mission is to "ensure that advertising in all media is legal, decent, honest and truthful". Let's see...

In their reply, they said...

"we acknowledge that the wording could be seen as being technically inaccurate"

...interesting. Note that "technically inaccurate" is a euphemism for lie. Reminds me of terminological inexactitude!

They went on to say...

"we consider that the ads are unlikely to mislead consumers into making a transactional decision with regard to the advertisers’ services that they would not have otherwise made"

I would dispute their claim, certainly in the long run. If more people, including economists, were aware of the true workings of our crazy monetary system, the entire course of our economic history would probably have been quite different and so many of the loans that were taking place in the run up to the credit crunch would never have taken place. Allowing banks to lie in their advertising is just one more contribution to the world's misunderstanding of money. Apart from anything, what are the ASA doing, allowing any lies in adverts at all? Sure, there are many adverts that have comedy lies, or unreal events that everyone knows are unreal. But lies where the viewer will probably believe the lie to be true? Surely that can't be allowed.

I strongly suspect the ASA is a sham organisation who's main purpose is to protect advertisers from genuine regulation, just like self-regulation by the British press. The ASA are gutless and toothless.

Monday, 23 December 2013

Peter Mandelson demonstrates his ignorance of our monetary system

When Peter Mandelson appeared on the Andrew Marr show on 22 Dec 2013, he was asked about the state of economy. He said "we've got to see people earning more and their personal indebtedness reduce". Unfortunately, under our current fractional reserve monetary system, most of the money supply is created by people's personal indebtedness; reducing that, will reduce the amount of money available for people to earn! Its impossible to achieve what he's asking for without changing our monetary system.

Friday, 20 December 2013

An irritation with MMT'ers

The sectoral balance equation gives the *impression* that if the government runs a surplus of $X during one year then the money supply available to the private sector to use must be whatever it was at the start of the year minus $X.

But this is not true. Fractional reserve banking allows the private sector to increase or decrease the money supply independently of whatever the government does. So the *contribution* of the government's policy to the money supply may indeed be -X, but the size of the private sector's money supply could have changed by any amount.

Maybe an MMT'er would admit this if probed, but why don't they say it in the first place instead of misleading everyone?


After some back and forth on Twitter, and being directed to read this, I'd like to say some more...

A huge component of the current economic crisis is the size of the money supply and the amount of private debt (the two are closely related). But the debt is not debt *to* the government sector. It is debt to others within the private sector (I'll label this as internal borrowing). Note that MMT'ers favourite quantity, the "net financial assets" does not measure the private sector's internal borrowing, because it nets out as zero.

Having a conversation about what to do about the economic crisis and debts without talking about the private sector's internal debt is just leaving a huge elephant in the room. Where is an MMT article about the that? Where is the article "MMT'ers use sectoral balance equation to deduce policy to control internal private debt"?

Thursday, 19 December 2013

Why our monetary system contributes to the gap between rich and poor

* We have a monetary system in which loans create money and repayments destroy money. So at any one time the amount of money in the economy is approximately equal to the amount of outstanding loans.

* Most (90% ish) of the outstanding loans in the economy have been for the purposes of buying assets (mostly housing, but also stocks and shares).

* Rich people are keen to borrow to buy assets when they have confidence that the price of those assets are going to rise.

* If the rich lose confidence that asset prices are going to rise they will be less keen to borrow money. This will shrink the money supply and lead to recession, like in the 1930's where the money supply fell by about a third.

* The only way the government know how to prevent a collapse in the money supply is to do everything in their power to give rich people the confidence that asset prices will rise. This means that the government are actively doing everything they can to ensure that the rich asset owning classes become richer at the expense of poorer people. Things like "help to buy", whose primary effect is to increase house prices.

* Making the rich richer is the only thing governments can think of to prevent a financial collapse! How long are we going to continue with this madness?

* Switching to full reserve banking means that the money supply can be held stable without handing the rich more money from the poor.