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Monday, 15 October 2012

Never a borrower or a lender be ...

Polonius' unwanted advice to his son in Shakespeare's famous play is not as trite as it might seem. As he says, a 'loan loses both itself and a friend,' which is something the World's Bankers might do well to take on board. Throughout history, when the economic realities bite on borrowers, it is the lenders that usually end up getting the grief. This was one reason the Jews have been demonised down the centuries, usually because, thanks to 'religious' rules that forbade Christians and Muslims from practicing 'Usury,' they've ended up as 'bankers' to the wealthy and the crowned heads of state. And if there is someone you really don't want owing you loads of money at high rates of interest - it's a King. Especially if his 'nobles' also owe you money and can see an advantage in getting out of repayment.

That is what led to the last major 'Jew killing' in Britain, with the imprisonment (for their protection) of several hundred Jews in Clifford's Tower in York - which was then set on fire, killing them all. It was also the reason the King of France accused the Knights Templar of 'heresy.' He had to have some excuse for seizing the Order's assets. It was either that or default on his repayments to them. It certainly helped that almost all the 'noble families' of France and most of the crowned heads of Europe were up to their eyebrows in debt to the Templars at the time. The Monasteries of England made the same mistake with Henry VIII and his nobles.

The maths is simple. Once you owe so much you can't redeem the capital because the interest takes everything you have, it becomes a choice between going bankrupt and losing everything, or seizing the assets of the lender. Ordinary folk have only the first choice. Kings (read modern governments) usually find the second much more attractive.

The first step, of course, is to demonise the lender. It's all his fault, he lent me more than he should, he's greedy, he's irresponsible ... Recognise the headlines? Of course there are rogues and there is greed present, but it is present among those 'borrowing' as well. After all, they are not forced to borrow. They have the choice of not buying or not spending the money. OK, again, there may be some situations where spending is an essential, but not every time or for everything.

Governments always borrow. They don't, contrary to popular belief, 'own' the money supply either. Governments get 'their' money from taxes levied on the populace, which includes those 'evil' banks and all the other commercial and industrial organisations. As they quickly discover, you can only tax people to a certain level and then you hit resistance. Push beyond that limit and you quickly find yourself dealing with barricades, angry citizens and sometimes armed rebellion. Those countries with very high tax rates often find that the really wealthy decamp and 'domicile' themselves somewhere less taxing. A lot of others soon find ways to play the 'loopholes' in the system and evade tax. Tax takes often fall when rates go up, something Mrs Thatcher proved when she cut rates and increased the tax revenue!

The trouble we face now is that, especially in the Western democracies, attempts to apply 'socialist' economic ideas have resulted in governments borrowing a lot more than they can get in tax revenue. As long as the 'Balance of Trade' supported this, they got away with it. As long as they could count on 'growing' populations and increasing jobs, they could also collect money to 'invest for the future' and spend it. Now a whole raft of things have changed the face of economic 'progress' in the West, including some very bad practices in the banking system. Far too many governments have borrowed way beyond what their tax revenue and economic circumstances can support. Industrial sell-off to foreign owners and the transfer of whole inductries and assets to the East has compounded it with a massive rise in 'Social Support' costs (it has always amazed me that those who rushed to cash in on the 'Peace Dividend' and slash Defence Budgets, failed to see the cuts to military and the supporting industries cost around four times the saving in lost jobs, industrial closures and lost research).

Yes, speculation in the Markets, bad investment and profiteering have made a bad situation, but I would suggest that these have merely exposed the weakness at the heart of it all - those massive government loans. There alone the numbers represent astronomic distances rather than money. There really isn't that amount of 'wealth' in the world. As Marx noted, wealth lies in the ability of the worker to produce something in exchange for something else, not in the bits of metal or paper with which he or she is 'rewarded.' The problem now is that most western (and a few eastern) governments owe far more to the banks than they can ever hope to repay - and the costs just keep on rising each time a politician opens his mouth to make more promises than he can pay for.

So now we are starting to hear politicians blaming the banks. The gullible wave placards outside the headquarters of the banks, or 'camp' in public spaces to 'occupy' the cities. In the UK we have even had one Party start to talk about 'nationalising' the banks, and now about 'breaking them up.' I suspect they have completely failed to realise that, as Lenin discovered in 1918, all they'll get from that in this day and age will be loads of paper debt, and empty vaults. Even so, I rather suspect that a number of governments are already looking at how they can pull off Phillip VI of France's stunt in 1314 - and kill the banks while grabbing all their assets.

Historically, it is the traditional way of cancelling any "national" debts ...

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