The addictive substance is credit

Credit at very low rates of interest is treated as “free money,” for that’s what it is in essence. Recipients of free money quickly become dependent on that flow of credit to pay their expenses, which magically rise in tandem with the access to free money. Thus when access to free money is suddenly withdrawn, the recipient experiences the same painful withdrawal symptoms as a drug addict who goes cold turkey.
Free money soon flows to malinvestments as fiscally sound investments are quickly cornered by State-cartel partnerships and favored quasi-monopolies. The misallocation of capital is masked by the asset bubble which inevitably results from massive quantities of free money seeking a speculative return… credit-poor economies are suddenly offered unlimited credit at very low or even negative interest rates. It is “an offer that’s too good to refuse” and the resultant explosion of private credit feeds what appears to be a “virtuous cycle” of rampant consumption and rapidly rising assets such as equities, land and housing…everyone and his sister can suddenly afford to speculate in housing, stocks, commodities, etc., and to live a consumption-based lifestyle that was once the exclusive preserve of State Elites… the addictive substance is credit and the speculative and consumerist fever it fosters.
The “too big to fail” Eurozone banks … could loan virtually unlimited sums to the weaker sovereign states or their proxies. This led to over-consumption by the importing States and staggering profits for the TBTF Eurozone banks. And all the while, the citizens enjoyed the consumerist paradise of borrow and spend today, and pay the debts tomorrow.
Tomorrow arrived, and now the capital foundation – housing and the crippled budgets of post-bubble Member States -has eroded to the point of mass insolvency.

Charles Hugh Smith Why the EU is doomed

The Slog

The Coalition has been dealt some ghastly cards, and most of the short-term blame for the coming real austerity lies firmly with the bankers and New Labour over-spenders who put flash and news conference bollocks before real needs. But over the long-term, the lack of foresight about demographic trends (and the need to diversify our economy) have been pushed down the road by successive governments since the early 1970s. And of course, we cannot leave this subject without noting that the gold-pensioned Mandarins have given very little in the way of advice over that time. Arse-covering, vote-catching and mad greed have, together, hastened our arrival at this awful cliff-face. But the disaster will be ten times worse than it need be if the current Government doesn’t realise that this is a national emergency – one to make Dunkirk look like a gentle regatta. I could’ve delved far more deeply into the knock-on tidal wave of effects that will result from rising interest rates and growing national debt repayments; but after a while with statistics, a sort of snow-blindness kicks in.

John Ward What lies ahead

In recent weeks The Slog has been revealing the extent to which the many minions of Rupert Murdoch keep cropping up in the Hackgate saga, part of the long and complex corruption of the British political and media establishment. Strangely The Slog has also had difficulties with internet service providers, so goes offline for periods without good reason being given.

The Future of Money

Forthcoming at the Saint Augustine Institute

THE FUTURE OF MONEY

May 12th 2011

Edward Hadas Re-Setting Money

Edward Hadas is Associate Editor of the Financial Times Lex column. His Human Goods and Economic Evils: A Moral Approach to the Dismal Science is published by ISI. Here is a snippet from his Economics, Finance and the Good

The genius of the modern financial system is that it relies on and develops the human desire to work together for the common good but takes the human inability to be perfectly generous into account. For the system to work well, the rewards for sharing must be neither too small to entice or so large that greed is encouraged to grow. Further, unless those who labour within the financial system are carefully supervised, the large sums of money (representing large claims on resources) which pass through their hands will nourish the noxious forces of greed and recklessness.

I do not think the current financial crisis will destroy industrial economies. They are built on too firm a foundation of trust for that. The reconstruction of the financial economy can, however, be an opportunity for economists to make more room in their discipline for a pearl of great price – the good.

June 9th 2011

Paul Mills Time to give Gold a Chance? – What the Bible really says about money and debt

Paul Mills works as an economist for the IMF and is on the board of the Cambridge Papers, published by Jubilee Centre. His Should Christians support the Euro? is here and you can see him on video here and here

Both at 6.15pm on Thursdays at St Margaret Lothbury (map)