Thursday 26 March 2009


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As I See It.......... by L. Berney


"The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple that the mind is repelled.”

- John Kenneth Galbraith, Economist, in his book “Money: whence it came, where it went”

Sources of the World’s Money Supply

The money of every currency, Dollars, Pounds, Euros, etc, originates from two sources: Government Money and Commercial Bank money.
  • Government Money is the money in circulation that has been issued by that currency’s Central Bank. It consists of coins, banknotes, bills and bonds issued by the Central Bank. This is “real” money.
  • Commercial Bank Money is created by Commercial Banks when they issue loans (mortgages, business and household loans). When a bank makes a loan, it creates additional money, “out of thin air”. This is “debt/money”. When a Commercial Bank makes a loan – issues debt/money – the total amount of money in circulation is increased. When the loan is paid back, the total amount of money in circulation is reduced.
  • Of the total amount of money in circulation globally, the amount of Commercial Bank generated money far exceeds Government money
Excessive Debt/Loan Money and the Credit Crunch

In the history of banking, banks originally lent out only a small proportion of the money that their customers had deposited with them. Gradually, over time, banks lent out more and more of those deposits. Eventually the total amount of debt/money they lent out became more than the amounts that were actually deposited with them. After the banks were “de-regulated” in the 1990s, the amount of debt/money commercial banks were lending out came to bear no relation at all to the amount on money deposited with them. By the time of the credit crunch (2007/8), Commercial Banks world-wide had got into the habit of lending out debt/money amounting to thirty, forty and even as much as fifty times the amount of the money that was deposited with them! At that point, inevitably, the debt bubble burst.

In 2007, the whole of the world’s economic system – the “free market”, capitalism, the living standards we all, both rich and poor, had got used to – depended entirely on the existence of the huge and ever growing amounts of debt-generated money in circulation. When in 2008 the debt bubble burst, the banks suddenly stopped lending. However, outstanding debts were and still are being paid back to the lending banks – the result is that the total money in circulation is being reduced rapidly.

With less money in circulation the world’s economies are slowing down, businesses and factories are closing, people are being sacked and homes are being re-possessed. People everywhere are holding on to what money they have and are spending only on essentials. Everyone’s standard of living is going down. We have a recession, if not a depression.

Mr. Micawber, in Charles Dickens' David Copperfield, summed it up:

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

With the recession worsening, the world expects governments and politicians to “do something about it”.

What people mean by “doing something about it” is for governments to do whatever it takes to get back to the high living and employment standards of 2007. Clearly, that can only happen if the total money supply and economic activity round the world is returned to what it was in 2007. But we all now know that the level of debt incurred in the 2007 level of money supply is unsustainable.

The Politicians’ Solution

Since the banking crisis of 2008, the commercial banks have learned a lesson; they have returned to the prudent lending practices of 50 years ago (we don’t want to make the same mistake twice!). Moreover, much tighter government “regulation” (i.e. a brake on bank lending, and thus further reducing the money supply) is the political order of the day.

So, what is the solution? Governments and politicians round the world are floundering around to find an answer. The answer they say is, “to get the banks lending again” In the main, two solutions are being pursued: Quantitative Easing and Fiscal Stimulus.

Quantitative Easing

What is “Quantitative Easing?” In brief, it means increasing the amount of Government Money (“real” money) in circulation. As the amount of Commercial Bank debt/loan money shrinks world-wide, the idea is to replace it with Government Money so as to keep the total amount of money in circulation at the level it was before.

The way Governments do this is to have their Central Banks buy up assets - usually government and corporate bonds. How? The Central Banks simply create money out of thin air – just like the Commercial banks did before! The institutions selling those assets to the Central Bank (Commercial Banks, Insurance Companies, etc) will then have "new" money in their accounts, which theoretically should boost the overall money supply so that the Commercial Banks can, “start lending again”.

Fiscal Stimulus

A Fiscal Stimulus is triggered by cutting taxes and/or increasing government spending on infrastructure improvement, major public works and the like. It is so called because this increases the total amount of money in circulation and therefore (hopefully) stimulates a country’s level of economic activity, at least in the short run.

My conclusion

Will the measures being taken work? Will they, as the public demands, get employment and living standards back to the levels of 2007 again, and then go on getting better every year?

No prizes for the answer. You don’t have to be an Einstein to see through the contradiction and the fallacy in the “solutions”.

My opinion is supported by Henry Kissinger, former US Government Minister of State, who summed it up nicely yesterday in a BBC News clip:

What they (the politicians) are doing is substituting a public debt crisis for a private debt crisis...

As I see it, over the last 25 years or so, due to the commercial banks issuing ever more debt/money (phoney money?), the whole world has been living well beyond its means – there has been a BOOM. Now that the inevitable has happened, and as the excess volume of debt/loan money works its way out of the economy down to a sustainable pre-1970 level again, as it must, the world economy is going to experience one-hell-of-a BUST!


An example of “loan-culture” thinking:

Since commercial banks are economising and closing down unprofitable branches, it was recently suggested that the 6,000 UK post offices should offer a banking service. One of the criticisms was that this would not be of any use since, “ office banks, being new, would not have any money to lend out”!!!

Wednesday 18 March 2009


As I See It…….. by L. Berney

The role of the British (and every other Nation’s) Armed Forces is,
  • Firstly to defend the Nation and its Dependencies from foreign attack
  • Secondly, to support and render assistance to the civil authority in the event of a crisis, (civil disorder, natural disaster etc)
Currently, the British Armed Forces comprise 196,000 personnel. Of these some 30,000 are deployed overseas in the following 19 areas:

Ascension Island
Diego García
Falkland Islands
Saudi Arabia
Sierra Leone

Why are British troops in these areas, and what are they doing there?

Afghanistan and Iraq In 2001 George Bush invaded and occupied these two countries and Tony Blair caused Britain to go to war against them too. This was contrary to the wishes of the great majority of the British people (witness the mass anti-war demonstrations). Eight years later, over 10,000 British forces are still there.

The British troops are in the main employed in defending themselves and, when they are not doing that, attempting to kill the “enemy”. The “enemy” are, in fact Afghan and Iraqi nationals attempting to drive foreign invading armies from their country – an aspiration with which I, personally, sympathise.

When in 2001 Britain invaded Afghanistan and Iraq, neither country posed any threat to Britain or to British interests. In my opinion, and in the opinion of the majority of British people, British forces should not have invaded those countries and should not be there now.

The Balkans, Cyprus, Ethiopia, Georgia, Sierra Leone, and Liberia The British troops perform a peace-keeping role in these six countries. In effect, their job is to prevent the citizens of these countries from killing each other. For example, incredibly, the British have maintained Military peacekeepers (and their families) in Cyprus for 34 years!

None of these countries form any sort of threat to Britain. In my opinion, British troops should not be there -- the citizens of those countries should be left to resolve their differences in their own way.

Belize, Brunei, Canada, Kenya, Oman, and Saudi Arabia There are, apparently, British forces stationed in these countries but, other than “training the local military” and “at the request of the current ruler” I am unable to discover exactly what they are doing there.

Whatever they are doing, clearly those countries are not any sort of threat to Britain and, as I see it, British forces have no justifiable business there and should return home.

Germany Since the end of World War II, the British Army and Air Force have maintained extensive facilities and personnel in Germany. In the “cold war” period, it was thought important for the British forces to be nearer to a possible West/Russia War zone. Now the reason is said to be that there are insufficient accommodation and training facilities in Britain to house them.

In 2007, there were some 23,000 British troops in Germany and another 32,000 people “associated with their presence” According to the BBC, the British presence contributes 1.5Billion Euros annually to the German economy.

In my opinion, an urgent investigation needs to be undertaken as to whether British Forces still need to remain in Germany.

Ascension Islands, Diego Garcia, Falkland Islands, and Gibraltar These are British Dependencies, some of the last remnants of the great British Empire. The British troops there form the British Garrison. It is questionable as to whether these four Dependencies should now be granted their independence and so allow their British garrisons to return to the UK.

What of the costs incurred by British Forces overseas?

The 2009 overall budget for the British Armed Forces is £43 Billion ($61 Billion). Britain spends more on its armed forces than any other country in Europe, although the population of Russia, France, Germany and Italy are all greater than that of the UK’s. About a half of the British £43 Billion expenditure will be taken up by the deployments in Iraq and Afghanistan.

In human costs, the deployments in Iraq and Afghanistan have cost the lives of some 300 British service personnel and several thousands others have been wounded. (Not to mention the hundreds of thousands of Iraqis and Afghans the British troops have killed or wounded, and the vast amount of infrastructure and property that has been destroyed.)

Overseas combat and peacekeeping roles

The overseas combat and peacekeeping roles being undertaken by the British Forces are in support of resolutions of the United Nations, NATO and the EU. Deploying troops in support of these resolutions is, however, voluntary; each member state decided whether or not to send its troops -- and if so, how many. For example:
  • In the invasion of Iraq, France, Germany, Russia and many other countries elected NOT to take part. As the war escalated, many of the countries who had originally contributed troops pulled out; notably Spain’s 1,300 men in 2004 and Holland’s 1,350 men in 2005.
  • In Afghanistan, there are currently 8,300 British troops deployed, second only to the Americans, and more than twice the number of troops the Germans have there. Ireland has 7 and Portugal has 30 men there -- but Austria has only one!

As I see it, Britain should use its armed forces strictly and only in the role that they are meant for, namely the protection of Britain from foreign attack, and for internal use as and when required.

I believe that British Armed Forces should NOT be deployed for combat and peacekeeping duties overseas. I believe that the 30,000 men and women currently serving outside of Britain and its Dependencies should be brought home forthwith.

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Thursday 5 March 2009


As I see it......... by L. Berney



  • Average debt per household (including mortgages) -- £59,702
  • Average debt owing by each adult person (including mortgages) -- £30,500
  • Total debts, 2008 (personal and mortgages) -- £1,457 Billions
(a Billion is one thousand million -- 1,000,000,000)

Of which:
  • Total personal debts --  £233 Billions
  • Total mortgages -- £1,224 Billions
  • Total debts 5 years ago -- £1,100 Billions
  • Total debts 10 years ago -- £550 Billions
  • Total debts 15 years ago -- £400 Billions
  • Number of properties with mortgages -- 11.7 Millions
  • Average mortgage amount per property -- £104,000
In 2008 the Citizens Advice Bureaus dealt with -- 4,760 debt problems a day

  • Number of credit cards in circulation -- 71 Millions
  • Value of transactions in 2008 -- £124 Billions
  • Persons or firms declared bankrupt in 2008 – 300 a day -- over 100,000 in the year
  • Estimated for 2009 -- 400 a day – another 140,000 in the year
  • Property being bank re-possessed in 2008 -- 125 a day
  • Estimated for 2009 -- 200 a day
  • Average decrease in house prices in 2008 -- £102 a day
  • Average house price in February 2008 -- £147,000
  • A year ago --  £219,000 -- down 33%
  • Estimate of new cars to be registered in 2009 -- 1,720,000
  • Actual for 2007 -- 2,400,000 -- down 28% in 2 years

The total population of the UK is 61 Millions

Of the 61 Millions total:
  • In work -- 29.4 Millions
  • Unemployed seeking work -- 2.0 Millions
  • Of working age but not seeking work -- 7.9 Millions
  • Retired, and under 16s -- 21.7 Millions
  • Unemployment is now at -- 6.3% or 1 in 17 of the workforce
  • Unemployed total is currently increasing by -- 1,500 a day
  • Unemployed estimate total end-2009 -- 3,000,000 – that is 1 in 10 of the workforce
  • A year ago, £1 was worth €1.40 – today €1.10 – a fall of 21%
  • A year ago, £1 was worth $2.05 – today $1.42 – a fall of 31%
  • A year ago the FT100 Share Index stood at 5980 – today 3850 – a fall of 36%
  • Income for savers. A year ago, the Bank of England interest rate was 5% -- now 1%
  • In 2001, money deposited in banks approximately equaled money loaned out by banks
  • In 2008, money loaned out was £700 Billions more than the money deposited

  • In 2008, UK imports cost £46,097 Millions more than receipts from exports
  • 5 years ago, UK imports cost £25,995 Millions more than receipts from exports
  • 10 years ago, UK imports cost £6 801 Millions more than receipts from exports
  • 11 years ago, UK imports cost less than receipts from exports

As at February 2009, there is no evidence of the recession ending. On the contrary, the recession is deepening. Housing prices are still falling, bank re-possessions are increasing, unemployment is increasing, car sales are falling, bankruptcies are increasing, the value of the pound is going down, and the import/export trade gap is widening. In general, most people, rich and poor, are spending as little as possible and buying only necessities.

It has to be realized that the economy and the level of personal expenditure prevalent in 2007 was based on, indeed relied on, a very high level of business and personal debt. Events of the last 12 months have shown that debt level to be unsustainable – in 2008 the debt bubble burst. 

As the living standards of 2007 were achieved only through an unsustainable debt level, it is clear that the future economy and standard of living of the UK will inevitably have to be reduced to a lower and sustainable level.

For the debt burden to be kept within sustainable limits, the country must return to the prudent practices and regulations of the past. In my view, the following regulatory principles will have to be implemented.
  • Housing.    Mortgages will have to be limited to not more than 80% of a conservative valuation of the property, and the lender will have to ensure that the payment terms are within the purchasers means. This will probably result in an increase in rented property and a reduction in house-ownership.
  • Cars and large household items. “No deposit” offers will have to be illegal and the seller will be responsible to ensure that the payment conditions are within the purchaser’s means. Personal loans by banks will have to be severely restricted.
  • Consumer spending, smaller items. The concept of Credit Cards will have to be discontinued –Debit Cards only. Retailers will still be able to extend credit to their customers but only at their own risk.
  • Business loans. Regulations will have to be in force to restrict bank loans to businesses for essentials only; to eliminate purely speculative bank lending. Businesses seeking speculation funds will have to attract private, not bank funds. Alternatively, they will have to raise funds by sharing their equity.
To the question – “When will the recession end?” – the answer is (as I see it) that the recession will continue until the excess debt has been worked out of the economy and the amount of the nations debt has been reduced to a sustainable level. That, in my opinion, will not be in 2009 or in 2010. It might be in 2011, more likely to be in 2012.

To the question -- “When will things return to what they were in 2007?” – the answer is (as I see it) -- “They won’t – at least, not in the foreseeable future”.