As another G20 Gabfest of World Financial Gurus and Leaders draws to a close.

The same old chestnuts get raked out of the fire once more and don’t you get sick of it?

It’s little more than Press Conferences, Photo Opportunities and the same old Hackneyed Soundbites. 

1. We’re making progress.
2. At least we’re talking to each.
3. The stumbling blocks have been recognised.
4. The root of the problem is trade imbalances.
5. It’s caused by currency flows which are dictated by exchange rates.

What a load of guff!

  The root of the problem is the cost of production 75% of which is wages and the cost of employing people. The world over it equates to a cost per hour of useful production. So if it’s tuppence per hour in China and two bucks per hour in the USA therein lies the problem. So the accountants and treasury advisers in a million and one ports of call around the globe, bear the real responsibility.

  When company A in the West say the USA, Europe or the UK, sees fiscal advantage in moving its call centre or manufacturing base to China, the Sub Asian Continent or the Pacific Rim and a beanie takes a cold hard look at the company balance sheet and sees the credit column exceeds the debit column by a cent or two. The decision to him is simple and his advice is – Doooo Itttt!

 

  How do I know this? I’ve been told face to face by Financial Advisors/Accountants that this is the way of the real world. Then we’re told that the real cause of a fall off in GDP or commercial Activity is the lack of Credit and to get the economy moving we need to borrow, spend and lend, in whatever order.

  Well these so-call financial institutions are already lent to the hilt with money they borrowed to finance their lending. It’s all due to what is known as Fractional Reserve Banking, where a bank exists on the back of retaining immediate access to a very small percentage of its actual deposits. A figure I’ve heard mentioned frequently is 8% that’s 8 pence or cents (take your pick) in every hundred pence or cents of deposits or borrowings. So if it looks like their life savings are off down the Swannee River, they’re soon queuing round the block to pull out.

  So if it’s not working on that basis, where is the money?

  Probably lost forever on the on the bonfire of bad debt and hubris, as everybody involved exhibits the (what me syndrome) in total denial that what they were doing, might just have been the root cause of all this mayhem, as the next big bubble deflates, to bite the dust.

 " It’s the ECONOMY STUPID," as former US President Clinton famously remarked. As long as people seek advantage one over the other, then use the tools of the legal system to wring the linen dry, when things look like going awry, as confidence falters. The end result will always be the same.

  For when you write off debt, you destroy credit and therein lies the dilemma. If the lack of economic activity chokes off the potential to earn, where is the money going to come from to pay off penal interest obligations. It only comes from the margin between lending and borrowing which across the financial systems of the entire world normally amounts to around 3%. So when you see these people charging an APR in the stratosphere, of as much as 25% and more therein lies the root of the problem.

  The cause of all this anguish is the Shylocks of the World, so we need to skin ’em alive before they skin us alive and clip-clop off into the sunset, saddlebags bulging fit to burst, with all their obscene loot. Job done!

Watch this space. I’ll be back!

Tom.