Wednesday, 20 May 2015

The Economist’s ideas on why debts are so high.

The Economist claims there are two reasons why we’re “addicted to debt” (to quote the title of their article). First, one of the main forms of debt, i.e. mortgages, involves tax perks. Second, The Economist claims that people over-estimate the safety of debt.

Doubtless those are valid reasons, but there is a third reason, namely that we subsidise the commercial banks that create much of the debt: there’s the small matter of that $13 trillion of public money was used to rescue banks in the recent crisis in the US. (Yes that’s trillion, not billion.)

Of course that’s not to say that private banks got a subsidy worth thirteen trillion. But certainly some of that public money was loaned to private banks at a near zero rate of interest.

It’s impossible to say what a REALISTIC rate would be. No doubt that varies from bank to bank. But as a rough guide, Warren Buffet loaned five billion to Goldman Sachs during the crisis at 10%.

Now if you can borrow a few billion (or perhaps trillion) at 0% when the realistic rate is 10%, well that’s one hell of a subsidy, isn't it?

As for any idea that the dozy corrupt incompetents in high places and their bankster / criminal friends have any intention of ceasing to rob taxpayers with a view to subsidising banks, well that’s just pie in the sky. One of my local radio stations, Smooth Radio, has an advert at least once a day saying quite explicitly that bank deposits in the UK are backed by UK taxpayers. I assume the same goes for other regions in the UK.

Perhaps a more accurate summary of the situation would be thus. Politicians are near 100% clueless when it comes to banking and banksters know it. Banksters only have mutter something about economic growth being hit if bank lending declines, and politicians fall for it every time. Thus banksters have no trouble at all in wheedling billions of dollars and pounds of free money out of politicians every year.

1 comment:

  1. I think this is correct.
    Giethner said in his recent book on the crisis that the main asset banks have is their "credit worthiness",take that away and they cannot function.The government thus ensures that banks and their actual assets are backed by the state in a crisis until such a time as things return to normality.Bank's creditworthiness becomes the state's creditworthiness.
    No other industry gets this very generous back stop so comprehensively.We now have a banking sector that, in the main,will be bailed out in the "national interest".You can scarcely put a price on that kind of back stop.It is an immeasurable subsidy,since it is backed by the entire fibre of any nation.


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