Thursday, 12 January 2017

Godfrey Bloom’s crackpot ideas on banking.



Godfrey Bloom, former UK Independence Party Member of the European Parliament, exhorts us to read his allegedly insightful book on banking in the tweet below.




Godfrey Bloom also has a habit of assuring us that he is “always right” or words to that effect. So clearly we all have much to learn from him (ho ho). E.g.:



Anyway, I thought I’d have a look at his book which is entitled “The Magic of Banking”.

I do like Bloom’s politically incorrect views and tweets. His political nous is way superior to that of self-styled “political commentators” who write for broadsheet newspapers.  However, his ideas on banks are not well thought out.

First, he is obsessed by inflation. For example on p.2 there is a chart (see below) showing a one year period during the worst of the German inflation in the early 1920s. (Actually p.2 is part of the foreword and is written by someone else, but that chart couldn’t possibly have been inserted without Bloom’s approval).




 



Now that’s a bit like having a picture of the Titanic sinking at the start of a book on ships designed to persuade readers that ships are not safe. I shouldn’t need to point this out, but shipbuilders, ship owners, etc are well aware of the dangers of crashing ships into rocks, icebergs and so on. That’s why they spend large amounts on navigation aids, and on training ship captains, navigators etc. It is also why rocks are marked by buoys and so on (gasps of amazement).

Likewise in the case in banks and economics generally, we’re all aware of the dangers of excessive inflation. That’s why most governments have an inflation target of around 2% (more gasps of amazement).


Basic maths.

Bloom also seems to have a problem with basic maths. That is, on p.14 there is another chart showing the exponential increase in the money supply between 1960 and 2010 with the heading “How can this continue?” Well the answer is that given ANY level of continuous year after year inflation (2% or whatever) there will be an exponential increase in the money supply and an exponential fall in the value of money.

As to how that can continue, the answer is “very easily”. As Bloom rightly points out, dollars are now worth a less than tenth of what they were worth before WWI. But what of it? We just have very roughly ten times more dollars, and dollars continue to perform the function they have always performed, namely obviating the inefficiency of barter.

A hundred years from now, dollars will be worth a tenth or less of what they are worth now, but what of it? The problem eludes me.

Certainly money is no use as a form of LONG TERM saving. But that’s not its main function. Its main function is to avoid the inefficiencies of barter, which it does very well.

Apart from the above flawed points on inflation, Bloom’s work is not too bad up to p.17, but then serious mistakes appear on that page. He claims that bank bailouts at the height of the recent crisis cost taxpayers “trillions”. As he puts it:

“Trillions of dollars, pounds and Euro’s just put on account for future generations to somehow pay off. Such is the enormity of the debts and the cost of servicing them that it is inconceivable they can be repaid.”

Well first, the “trillions” figure is a mile out. EXACT figures for the bailout are hard to come by, and presumably because the revolving door brigade wants to obfuscate and muddy the whole question as to exactly what the bail out cost. However, far as I can see, the maximum amount the Fed loaned out at any one time was around one trillion dollars, while the AVERAGE amount loaned out over the 18 months of the worst of the crisis was around $600bn. That’s according to the chart in an article by Mick West entitled “Debunked: The Fed “gave away” $16 trillion…”

Moreover, all of that one trillion was paid back, so in that sense there was no cost for the taxpayer. However, there WAS a cost for the country as a whole in that there was a gross mis-allocation of resources. That is, instead of lending money to private banks at Walter Bagehot’s famous “penalty rate”, the actual rate was near zero. I.e. the loans were sweetheart loans.

The normal rule in free markets is that resources go to whoever bids the most for them. And a bunch of corporations who bid nothing for loads of lovely money are pretty obviously not the most commercially viable corporations or borrowers in the country. I.e Main Street would have paid good money for some of that freshly printed central bank money.


That horrendous national debt.

Also on p.17, Bloom falls for the popular myth that the national debt is out of control, and we’re on the verge of bankruptcy. Bloom is clearly unaware that the debt in the UK as a proportion of GDP is nowhere near where it was just after WWII or in the middle of the 1800s.

Think I’ve had enough of this nonsense. I can’t be bothered reading any further.



2 comments:

  1. Bloom is a prize jackass.I wouldn't waste one minute of my time on him either.
    On the cost of the Bailout point I keep adding that we have suffered a recession and low growth as a direct result of the banks folly.Tim Geithner says he has read papers showing about 10-15% of GDP lost per year,which adds up if you want to calculate that back from around 2008/09.

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