Apr 11 2013

The Unbelievable Truth

Bank NotesIn this article I want to look primarily at the way new money is created for the economy. It is actually quite sobering to think that something so fundamental to the way we all live our lives is given so little critical thought. Yes, there is plenty of varied economic discussion on the television news and in the newspapers but that one key question as to precisely how new money is brought into being is rarely, if ever, asked. We’ll start by taking a closer look at how commercial banks actually operate and we’ll see that the way the vast majority of people think they work is quite different to the reality.

During 2007 and 2008 I, along with many many others, saw a great deal of money that I had invested in the UK banking sector disappear into thin air as the financial crisis hit home and the UK taxpayer was drafted in to bail out banks which were essentially bankrupt. I had bought into the conventional wisdom that financial services and commercial banking were the great British economic success story. My father had worked for the Royal Bank of Scotland for his entire career and his pension is heavily reliant on RBS shares after years of the bank incentivising staff by offering benefits in the form of company shares. The financial body blow I took as a consequence of my investment in both RBS and Lloyds TSB followed by continual doom mongering in the media about massive (and still rising) public debt and the need for big cuts to public services left me with a real sense of helplessness. As the years since 2007 and 2008 have passed this feeling had been replaced by one of grim resignation as to what the future might hold. I suspect I’m not alone in feeling this way.

I then heard a chap called Ben Dyson speaking on BBC Radio 4′s Four Thought programme. What he had to say astonished me. You too can be astonished by listening on the iPlayer should you so wish.

Have you ever puzzled over the perversity of the general fact that the wealthiest and most advanced countries in the world are also those with the highest levels of public debt? Have a look at the eye-watering global debt clock on The Economist website. The UK has one of the highest levels of public (and private) debt in the world and yet the evidence of my own eyes tells me that this is still, in global terms, a vastly wealthy country. We have been told, for example, that our schools cannot be modernised due to insufficient available funding. This is despite the fact that we have both the raw materials and the workforce (in the form of rank upon rank of unemployed people) sitting idle. In purely physical terms this plainly could be achieved so how is it possible that we cannot afford to do it? Surely human beings can achieve more. My contention is that we are being hamstrung by a deeply flawed financial system of our own making. Let’s dig a little deeper.

The above situation regarding modernising schools is accepted by the public at large because it is assumed that a lack of money actually means a lack of something vital. It is assumed by (almost) everyone that financial figures provide an accurate statement of our affairs as a nation. If we are in so much debt and only just managing to service those debts then we must work ever harder, cut spending on education, health and other public services, create jobs and increase manufacturing and exports. The problem is that every other country needs to do exactly the same thing because we’re all in massive debt. All countries need continual economic growth to service increasing levels of debt but indefinite economic growth in a finite world is an impossible dream. I want to show you that the assumption that the monetary statements and statistics currently used to make economic decisions are valid is seriously misguided. Money, as we use it in the modern world, is not a neutral medium, it does not reflect reality (note the absurdity of wealthy countries with massive public debt or wealthy individuals with huge mortgages). At this point when discussing the subject with people their eyes tend to glaze over or they begin to look at you like you have taken leave of your senses but bear with me here. The key to understanding the whole sorry structure is the way in which the vast majority of modern money comes into being.

Asked how a bank operates most people assume that the bank takes money from depositors and then lends that money out to borrowers, essentially operating as a middle man. In fact, to express the process in the simplest of terms, when a modern commercial bank or building society issues a loan in the form of a mortgage or a personal or business loan it essentially creates new money out of thin air as bank credit by typing a few digits into your account. This new money then goes out into the economy via adjustments in credit and debit columns in different bank accounts as you spend it. However, money created in this way is lent with interest payable on it over time. The interest amount is not created by the bank at the time of making the loan and so we must rely on economic growth to fund future interest payments. As things stand around 97% of all money in the economy has been created in exactly this way. So nearly every pound in existence is matched by an equivalent pound in debt. That doesn’t sound good to me and I’ll take some convincing that this is the best way to structure the economy. Read the last few lines back again. Money is created for the economy out of thin air and interest charged on it by commercial banks, not the state you understand, rather a commercial institution. It really is no wonder banks can generate such huge profits and pay their top staff such obscene salaries and bonuses. Don’t take my word for this:

“When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
Sir Mervyn King, Governor of the Bank of England [source]

The banks do not need to have the matching deposits before they make new loans to customers. It is a system known as fractional reserve banking. The proportion of deposits held in reserve by most institutions is actually quite low. In 1968 the reserve ratio requirement in the UK was over 20%. By 1998 it was just 3%. Today, brace yourself, there is no minimum requirement and the Bank of England operates a voluntary system!

Most people when faced with this reality will throw up their hands and wave you away, denouncing you as a conspiracy nut or sad obsessive. There must be good, sound and wise reasons for the system operating like this they say. The system has evolved into the current form through incremental alterations designed to try and stop instability in the economy. As far as I can tell, after a lot of reading on the subject, there are no good reasons for the system to operate like this. The system as it currently operates carries a 100% guarantee to increase inequality over time and makes full employment all but impossible. No realistic appraisal of society could state that the economy responds to what people actually want out of life. Do we actually want to send our young children into nurseries at 6 months and send all new mothers (or fathers for that matter) back out to work? Do we want a system that forces the state to top up people’s salaries via tax credits just to give them a living wage? Do we want a system that demands economic growth to service government debt (currently to the tune of around £125 million every day)?

Clearly, changing the current system is not a small task. The necessary steps as I see it are, very briefly, as follows:

1. Abolish the practice of fractional reserve banking and remove the ability for commercial banks and building societies to create new money.
2. Create a new, accountable and transparent public body to create new money for the economy debt-free when able to do so in times of low inflation. This body should be free from influence by lobbyists from either the state or the financial services industry.
3. The new money should be put into the real economy, via government spending, rather than into the financial markets.

This is the first of several posts on this topic. I’d very much welcome comments and debate. Perhaps I’m overestimating just how many readers will have made it this far but nonetheless, do get in touch.

By • Modern Life, Money, Reform • 0 • Tags: , , ,

Feb 1 2013

Remember you must die

Memento MoriIn the recent past I have enjoyed a few of Muriel Spark’s short stories, You Should Have Seen The Mess I thought was wonderful. Memento Mori is the first of her novels that I have read and it certainly won’t be the last.

The novel is set in London in the 1950s and in just over 220 pages the plot revolves around a group of elderly friends/rivals and staff. The individual characters and the interactions between them are entirely convincing, being rendered with acute, subtle and witty observation. Likewise, though the subject matter is the inevitability of death and the various afflictions, physical and mental, of old age, the novel is far from being a morbid or a depressing read. In fact, despite the subject matter the book is riddled with humour and an appreciation for the absurd. Ms Spark weaves an elaborately complex plot composed of mysterious phone calls, long-hidden marital secrets, blackmail, old familial enmities and even murder. The novel is extremely well constructed and is held together by a candid and omniscient narrator.

The story begins with the simple but effective device of an anonymous telephone caller who says, firstly to Dame Lettie Colston but subsequently to most of the principal characters at one time or another: “Remember you must die.” They presume it is a nuisance caller, or suspect that one of their enemies or a spiteful relative is trying to frighten them. However, the caller speaks in different voices and accents to different people and has an inexplicable knowledge of their movements. The reader will try and solve the mystery of the anonymous calls several times during the novel, each time more convinced he has the solution at hand only for Spark to draw back a curtain to reveal further intrigue in the very next chapter. Could the caller be Death himself? This supernatural explanation to the mystery, though patently ridiculous, is as close as the reader gets to a solution to the ongoing intrigue.

How the characters react to or interpret the message about their inevitable death provides a window into their attitudes to life in general. Those who seem most put out by the unwelcome caller’s words are those who choose to read merely a vague but very personal threat into the message before returning to filling their remaining time on Earth with matters of seemingly little or no import. Those who take a more philosophical view towards being reminded of life’s ultimate destination seem to go on to achieve a greater satisfaction from their day-to-day lives.

Muriel Spark is sometimes accused of being a cold and distant writer but I believe she shows considerable insight and compassion for some of her characters here, describing human failings with refreshing frankness but entirely without malice. A description late in the novel of hearing the way an elderly man in a care home for the mentally ill spoke “as if his tongue was in the way” brought the scene succinctly yet very movingly to life.

Although the book was written at the end of the 1950s it could very well have been written this year. Time may wither the body and the mind but this novel remains untroubled by the passing of the years. The mystery of the anonymous calls left hanging unresolved in the air at the novel’s close adds a particularly satisfying element of the macabre. Deftly written, without a word wasted, the novel can be easily digested in a day or two but will linger in the reader’s mind for a good deal longer.

So, how does it end? Everybody dies.

By • Book Reviews • 0 • Tags: , , ,

Jan 8 2013

Pulling hair and eating dirt

madnessSome people of my acquaintance think of Madness, the London ska band who rose to fame in the late 70s and early 80s, as a novelty act but in my experience they never fail to induce a sense of poignant nostalgia within me and I always enjoy listening to them. In their early career the band were associated with the skinhead subculture which had originated in London during the late 60s. Contrary to popular assumptions the skinheads were not uniformly far right neo-nazis and their number contain people holding views from across the political spectrum. The skinhead subculture in the first generation was originally based more on the rude boy culture of Jamaica and that of the British mods in terms of fashion and music and was to a very large extent non-racist and apolitical. Madness tried to distance themselves from the nazi-saluting, po-going subsection of the revivalist skinheads who regularly attended their gigs during their early years in the late 70s.

I remember vividly the night of October 9th 1981 when I, a wide-eyed 10-year-old, was taken along with my brother to see Madness perform at the Edinburgh Playhouse. Of particular note was the large polystyrene caber, painted brown to look like real wood, which was brought onto the stage by the band and thrown to the crowd to be torn to enthusiastic shreds. By the magic of the Internet I can even give you a setlist:

Set: Embarrassment / Sign Of The Times / Close Escape / A Day On The Town / Bed and Breakfast Man / Disappear / Pac A Mac / When Dawn Arrives / My Girl / Cardiac Arrest / Promises Promises / Take It Or Leave It / Shut Up / Tomorrow’s Dream / Mrs. Hutchinson / Baggy Trousers / Missing You / Madness / Grey Day
Encore: One Step Beyond / It Must Be Love.

Another distinct memory of the evening was an ebullient skinhead in high-leg maroon Doc Martens boots dancing precariously on the wooden ledge at the front of the dress circle many metres above the seething stalls. A great first gig for a ten year old boy.

Around eighteen months later my Dad took my brother and I for a haircut in advance of us going to a new school the following week. Before the barber fired up the clippers, we convinced Dad that a “crew cut” wasn’t really a skinhead at all and that it absolutely wouldn’t be too short or make us look like we’d either had a serious case of head lice or been born into a family of vicious criminals *cue angelic smiles*. My Mum went apeshit when he got us home.

Here, for your auditory pleasure, is the 1980 release Absolutely. A great album.

Madness – Absolutely by Aoife Dempsey on Grooveshark

By • Misc., Parenting • 0 • Tags: , ,

Nov 26 2012

Temper

Whilst lying in the recovery position on my sofa the other day, after returning from the school drop-off, I overheard an altercation between a mother and her young child in the street. The child, who must have been around 2 or 3, was dawdling along, the way young children are prone to do and this, perhaps oft-repeated lack of urgency prompted a shrieked “HURRY UP!” of alarming volume from the child’s mother. Accompanying this roared command was a sharp pull on the youthful arm, the better to awaken the girl from her dreamlike distractedness. The pull of the arm was perhaps a little harder than the mother would have chosen to apply in a less tempestuous state of mind and had the inevitable effect of prompting immediate and noisy tears from her daughter.

This not very edifying scene will probably be familiar to many people as it is played out, in many permutations, in supermarket aisles, on public transportation and on suburban streets up and down the country on a daily basis. Let me be clear, I am not posting this in order to point disapprovingly at this small departure from restrained parental control while tutting loudly from the the moral high ground. No. What this short episode forced me to contemplate was my own conduct over the previous 6 years while acting as the primary care-giver and guardian to my own twins. The wide-eyed look of barely restrained fury worn by the harassed parent outside my window is one to which I have to admit to being no stranger. I will wager that the vast majority of parents will admit to themselves, although perhaps not to others (even their spouses or partners), that they have, on occasion, found themselves at the very precipice of sheer unbridled rage as a result of their child-rearing responsibilities.

There has only ever been one smacked bottom in my house - not my own, alas. I once resorted to administering two short, sharp smacks to my (then) 3-year-old son’s backside as he entered a new and ferocious state of tantrum as a difference of opinion on the necessary rigidity of my child nap-time regime escalated. Immediately afterwards, as I stood trembling with rage in our kitchen, listening to his mournful tears upstairs, I was consumed with regret. Why had I, normally so placid and in control, allowed myself to become so wound up and furious? He was, and still is, just a child.

Just because I have only resorted to smacking on that one occasion does not mean that I consider myself some kind of model of parental fortitude and reserve. Anger and rage have other ways of manifesting themselves. I recall vividly one or two incidents when doors have been slammed, by me,  so violently that cracks have appeared in the surrounding wooden frames. On one particularly memorable afternoon, the force applied while slamming a bedroom door was enough to tear the skin on my fingers. I think I was close to tears that day. The wooden paneling of one of the doors in our house carries a hastily applied patch of filler to conceal the hole I had made while hammering on it in a state of helpless frustration brought on by some particularly challenging toddler-related difficulty.

I don’t want to give you the impression that I am constantly marauding around our house, seething with anger and destroying furniture. I am not. These were only ever isolated incidents and I find that now my children are a little older these furious reactions have become almost non-existent. Perhaps they are easier to reason with, now that they have the rudiments of empathy built into their growing brains. It is sometimes tempting to insist that it was my keenly-felt frustration at finding myself, the “man of the house”, doing the majority of the childcare and domestic chores that ultimately was the source of the smoldering rage. Tempting, but unsatisfying. Of course, I regret those explosions of anger, and I often torture myself wondering what effect they may have had on my lovely children. In the end, they know that I love them and they probably cannot even remember these incidents. By way of comparison, a laboriously planned and executed extended trip by train to Aberdour Castle 3 years ago may as well have never taken place, given the 100% absence of this trip from the memories of both my kids.

I am not an ogre.

By • Faitherhood, Parenting • 2 • Tags: , ,

Nov 16 2012

Shame


Upon returning around lunchtime from the weekly trip to the supermarket with our family supplies, our next-door neighbour, an irrepressible bachelor in his seventies, asked me with a wry chuckle “do you not have a wife for doing that sort of thing?” Our neighbour is never one to withhold comment, no matter how unintentionally contentious, on any subject and the delivery of this thoughtless query came as no real surprise. It did prompt me to do some mental raking over the well-trodden ground of the last 6 years, during which time I have been the primary childminder, cook and cleaner for our family.

This is not a role that I undertook completely willingly after the birth of our twins in 2005. I had, at that time, an expanding website development and hosting business, which was run from an office in our house. My wife found that giving up her job and staying at home to look after the children during their first year of life, along with the mundane domestic necessities which go along with that, was unfulfilling and stifling. During that first year of parenthood I was often compelled to abandon my post in the basement office and take up the domestic reins as increasing sounds of frustration and despair filtered through our house.

I will freely admit to being a bit of a traditionalist with regard to raising children. Believing, as I do, that a family benefits most and is less likely to succumb to chaos with one parent at home looking after the house and kids and the other parent out applying themselves to career progression and maximising their income. However, it does not follow that the stay-at-home parent need necessarily be the mother. I’m not a caveman! With a professed desire to safeguard her sanity, my wife returned to working 4 days a week when the twins were a year old and I then assumed my current role as the primary childminder and domestique. This arrangement was unsurprisingly much to the detriment of my own career at that time.

As things have turned out, my wife and I agree that I seem to be temperamentally better suited to being the stay-at-home parent. Many people will nod approvingly when I tell them of our domestic set-up, perhaps muttering platitudes about gender equality or modernity and so on, but nevertheless a few persistent niggles remain in my mind. While it is now crystal clear that there are no longer purely women’s jobs around the house; cooking, washing-up, cleaning, laundry etc.. there does still seem to be, very definitely, purely men’s jobs. I cannot ever recall my wife washing the car, attending to any gardening tasks, doing any decorating or carrying out kitchen appliance repairs for instance. Now, please don’t think I am just ranting in this digital backwater without ever confronting my wife with these observations. We have discussed these issues many times and it has, perhaps unsurprisingly, led to a degree of marital discord on occasion. I will say that one of the rather good things resulting from my stay-at-home parent status is the close relationship I have with my 2 children, something which can elude many fathers working full-time office hours.

The main thing I wanted to talk about in this post was the difference in the perceived value in the role of stay-at-home parent compared to that of the gainfully employed parent. I have felt, on occasion, a certain degree of being looked down upon by those who go out and punch their clock-in cards to draw a salary or even by some other parents. There can be a certain unspoken undercurrent of “why is he not out at work, providing for his family” or “that poor man, he mustn’t be able to earn what his wife is capable of”. Our society tends to view money as being more important that it actually deserves to be. Many working parents definitely hold the opinion that the stay-at-home parent has very little to do between dropping off children at school and picking them up again 6 hours later. Visions of endless cups of tea, The Jeremy Kyle Show, Bargain Hunt and scented bubble baths. This unjustified and short-sighted opinion would be quickly altered if the stay-at-home parent went on a two week strike and it was seen just how quickly comfortable domesticity might turn into chaotic squalor.

If the stay-at-home parent happens to be male there is also the isolating experience of spending time in the sometimes baffling and often surreal surroundings of motherworld. You are definitely not shunned by the other mothers at nursery, school or playpark, indeed you may sometimes be viewed as an interesting curiosity but you will not find true acceptance. The bonhomie of other stay-at-home dads would be the obvious place to start looking for camaraderie, but I personally have never felt much real connection in those relationships. No matter how many times someone says to me that the old gender stereotypes are a thing of the past, I need only glance fleetingly at my own experiences over the last 6 and more years to know bollocks when I hear it.

This subject has been tossed around in my head for years and it always comes back to one thing. Personal, deep-rooted feelings of shame and also the (largely) unconscious projection of that feeling by others. I know that, as far as my parental status goes, I have nothing to be ashamed of and that, conversely, I should look upon having stood up to the endless chores, potty training cataclysms and the intellectual Death Valley of multitudinous supermarket visits as a small personal victory. We may wish that we could abandon all the traditional family gender role stereotypes and ditch these feelings of shame, a lot of people believe we already have, but you might as well – to quote another stay-at-home dad – be wishing for the moon on a stick.

By • Faitherhood, Parenting • 0 • Tags: , , , ,

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