Caveat: I’m not an economist. I’m a scientist / engineer. I think that gives me an advantage.

I’m sick of this financial crisis. All of us, each and every one of us, bar the financial Mandarins that are “fixing” the mess they created, are being butt-fucked into the ground. “Austerity measures” are sold as some kind of panacea. Our wages are frozen. Inflation outstrips any miserly “indexed” gains grudgingly granted. Meanwhile, reports of “performance bonuses” to our financial overlords are back to pre-meltdown levels, often lump sums far in excess of what any of us will earn in a lifetime.

The approach to remedy this status quo seems an absurdist black comedy. It’s like watching a sinking ship being bailed out with teaspoons. As one example, the poor long suffering Greeks, where “austerity” measures are biting the hardest and, as always, hitting those already on a subsistence existence the worst.

In what can only be described as an economic Grand Guignol performance piece to rub salt into the wounds, in November Lucas Papademos, a career financier and former vice president of the European Central Bank, was promoted to head the Greek Provisional Government to replace George Papandreou’s failed Panhellenic Socialist Movement. A fox had been placed in charge of the hen house.

But nowhere does logic fail more than with the endless stream of financial bailouts to economies teetering on the brink of collapse. Can somebody please explain exactly how this improves anything?

  • A country is in danger of financial default because it is incapable of meeting it’s debt obligations
  • That country is given a slab of money to shore up the crisis, thus adding to the debt that has caused the existing problem
  • Due to being bailed out, that country’s credit rating is then lowered, thus increasing interest rates on the increased debt level
  • Lather, rinse, repeat.

Uhuh. Makes perfect sense doesn’t it? This is not a financial system, or economics. It’s a fucking loan sharking operation. And the only people that seem to understand this are the apes at the top of the financial system that are pulling all the strings. Our politicians are either bought and in their pockets, or too stupid to understand it. And the poor schmucks on the street? Well, we just have to eat our gruel and be grateful for it.

Consider the nature of debt with compound interest. From the cesspit of lies

These are the most basic formulas:

 FV = PV ( 1+i )^n\,

The above calculates the future value (FV) of an investment’s present value (PV) accruing at a fixed interest rate (i) for n periods.

It’s really junior high school math, at least outside of the US, but for those without sufficient numeracy skills, suffice it to say that for any value of n greater than zero, the repayment is always greater than the loan. What this means is that money gets printed. That which does not exist, *poof*, gets created out of nothing1. This is also called inflation. And what inflation does is devalue what the dollar in your pocket can buy. Just ruminate on that for a bit. There is of course no shortage of economists out there that are ready to pounce on me and tear me to shreds for this observation, but it will have little to do with the validity of my assertions and everything to do with committing the heresy of explaining it in such simple language. I guess economists have more in common with baboons than you would at first assume.

Now look at this cycle of bailouts. There is no realistic end in sight. Teaspoons and the Titanic. The debts of these borderline economies (PV, or “present value”) – and the number of such economies keeps rising – grows with each bailout, and each bailout increases i (or the “fixed interest rate”) due to a lowering of their credit rating. This cycle causes their overall obligations (FV, or “future value”) to grow exponentially, not linearly. Again, ruminate on that. Squeezing blood from a stone.

And the killer, where it affects all of us, is that all of this is imaginary money with no corresponding wealth generation (see note 1 below again) – sooner or later, the dollar in your pocket loses an amount of value relative to the interest that has been incurred. Everyone is a loser – everyone, of course, except those who run this extortion racket and who’s rate of return on private investments far outstrips the rate of inflation they create.

Now if you are not conversant with the issues that arise from infinite growth within finite systems, then please leave this blog and never darken it again. For the rest of you, I tend to liken this cycle of bailouts that propped up the US (and probably will again) and is currently trying to hold Europe together, as akin to driving a dynamite truck full speed down a dead end tunnel with the headlights off and hoping for the best. It is expecting this cycle of debt and imaginary money to be infinitely sustainable in a system that has been shown to be very, very finite.

Mention the phrase “printing money” to any politician and they will have a seizure whilst decrying it for the evil that it is and babbling about the Weimar Republic and World War 2. Yet that is precisely what is happening – this endless debt cycle is doing nothing other than print imaginary money for financial speculators around the globe. This is the world’s biggest rigged horserace that only the über-rich can bet on. The winnings are siphoned out of all of our pockets using all manner of sleight of hand, and these “bailouts” play a major role.

This cannot go on forever. It is not eternally sustainable. The collapse of the US mortgage market was just a taste of what happens when infinite usury suddenly bloats and exhausts its finite space2.

And if mentioning printed money doesn’t kill your politicians, try using “global default”. Where permissable, you’ll be locked away for eternity as insane. But what is so wrong about the idea? Really? Look at the alternatives that we are playing with. Can anyone, using simple terms, explain how its death throes will be a lesser evil? Is there an economist anywhere that can speak plain English? Isn’t biting the bullet earlier, rather than later, worth a teeny weeny bit of consideration?

Footnote – No I haven’t forgotten about The Naked Emperor and his baboons. Folks that know me know I go MIA from mid-December to January each year due to the freakshow that this time of year invokes and do little more than check email, look at tits and play poker when opportunity arises. Regular programming will resume shortly. The baboons can consider it a crassmass present – I have given them the impression that they have scared me into a cave a la bin Laden. Sorry, fuck you, but no. It’s just given be a wealth of new idiocy to work with.

1 – In the days of the gold standard, the only way that more money could be created was by digging up more gold. Money was not imaginary, it needed to relate to reality. Minor 2oth century potholes such as World War 1 and the Great Depression saw the gold standard entirely abandoned globally and replaced virtually everywhere by fiat money systems – “Fiat money is money that derives its value from government regulation or law” (via the cesspit). While this system was not as rigid as the gold standard, it was still predominantly governed by real factors such as GDP. This in turn has been abandoned over the last few decades in the western world as, led by the US, our economies transitioned from being “production based” to “debt based” economies. This is where our woes began. Anybody that believes we live in a “capitalist” system is kidding themselves. We are not governed by “capitalists” but by “speculators” – financial houses that create nothing and instead bet on rigged horse races with your money. Yes, it really is as simple as that. Their profits are created via imaginary money without creating any corresponding public wealth to pay for it. It *is* printing money.

2 – All the more inexcusable given the precedent of the ’80s savings and loans crisis. Absolutely nothing had been learned –