by Kieron Mcfadden
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The subject of recession is very topical right now for the very good reason that we are in one and a scary thing it is too.
We are in one because somebody decided to create one.
A recession is a very easy thing to bring about when you control money supply through the process of creating money out of thin air in order to lend it.
All you have to do is tighten up on bank lending - a so-called credit crunch.
In a system like ours that runs on debt, a credit crunch crunches the entire economy.
I've devoted this page to going over it again, although if you've already studied my other essays you will understand by now how it works.
The important thing to remember is that a recession is NOT a natural event, an act of God or a calamity that periodically just sort of happens that cannot be avoided.
A recession does not have to happen. It happens because somebody mucks about with money supply, creates a shortage of money and makes everybody miserable.
In a debt economy the aforementioned mucking about is done by whoever controls the policy of the banking cartels and for the express purpose of further enriching or empowering himself and his grubby pals at YOUR expense. It does not much matter who this twerp is. It is sufficient to know that such a criminal or committee of criminals exist and think of the rest of us rather like a herdsmen regards his cattle.
It is sufficient to know that once we reform the money system and run the economy on proper money, he or she will cease to matter much anymore because their power to inconvenience the rest of us will have gone forever. They will have to get a proper job, and produce something useful or starve.
So, how is a recession created? Simple, by choking off money supply. And how is that done in the modern world? By tightening up on bank lending, a so called Credit Crunch.
When money circulates in the economy because it is brought into existence by bank lending, if you constrict the amount of money being lent to people, you reduce the amount of money getting into circulation. When you do that, you create recession. That's all a recession is: a shortage of money in circulation.
To better visualize and understand this, let's imagine for a moment a non-existent but relatively sane economic system in which the government actually prints the money and spends it into circulation.
Let's imagine the economy had one hundred billion pounds circulating in it and this is pretty adequate for the smooth running of the economy. Each year our imaginary government collects £20billion in taxes and puts it all in a big safe somewhere. That leaves £80 billion in circulation. But our imaginary sane government spends the money it has collected on, say, building schools, roads, hospitals, dole handouts, state pensions etc. As it does so it spends the £20 billion into the economy and the £100 billion the economy needs to run smoothly is restored and everything is fine.
Now imagine that all of a sudden the government decides it is not going to spend all the £20 billion it collects in taxes but is instead going to make a big bonfire somewhere and burn £5 billion of it, spending just £15 billion back into the economy. The result is that only £95 billion will be in circulation so a shortage of money will be felt across the economy Money will be a bit scarcer, a bit harder to come by and everyone just that little but more desperate to get their hands on it. Industry will have that amount of difficulty suddenly in selling its goods and in paying wages. The consumer will find he has slightly less money to spend and thus we get the "drop in demand" that is not really a drop in demand but a sudden scarcity of that which people use to EXPRESS demand: money.
Of course, if the government burned £10 billion instead of £5 billion, or even £15 billion instead of £10 billion, the money scarcity would be that much greater and the recession that much more savage. The severity of a recession is directly propotional to how tightly money supply is constricted.
An important thing to notice too is that the anxieties, stresses, uncertainties and difficulties experienced by people as a consequence of that arbitrary toughening of the economic climate when the mythical government in our example decides to burn a pile of money, have nothing to do with how honest, loyal, industrious or clever they are. To say that is inherently unfair is a whopping understatement. It is cruel and completely unnecessary.
In a modern economy as discussed at length elsewhere, money is NOT supplied to the economy by government printing it.
Despite a complexity that hides it from view, it comes into existence and gets into circulation through bank lending. It is LOANED into circulation.
Therefore as soon as someone starts blathering on about tightening up on credit you know that as sure as might follows day we are gong to have a recession.
It SEEMS perfectly reasonable doesn't it? Too many people are too heavily in debt, there's way too much borrowing going on. People and nations should "live within their means" and "get out of debt." Therefore we are going to tighten up on how much we lend.
Now this WOULD make sense if we were running the economy on proper money. If government printed money and circulated it without a debt behind it, the policies of the banks on how much they are going to lend and at what interest would not affect the amount of money in existence. In fact there would be much less NEED for everyone and his cousin to borrow in the first place because the very existence of money would not depend upon borrowing!
The trouble is debt based money doesn't BEHAVE like real money. You steer the car in one direction and it veers off in another direction. You do what appears to be a sensible thing, such as trying to reduce the amount people are in debt and you get an "unexpected" result: money actually vanishes!
The supply of money is thus switched on and off like a faucet: increase money supply by making borrowing easier, reduce money supply by making borrowing harder.
The purpose of doing this from the point of view of the banking cartels is precisely and deliberately to BRING ABOUT a recession, as discussed at length elsewhere.
In a recession businesses go bust, shares crash on the stock markets and he who has easy access to credit by virtue of being a pal of those who control money supply can buy up a nice succulent slice of the economic pie at bargain basement prices. As the dust settles - we hope - on the latest episode of monetary mayhem, somebody just got an awful lot richer!
Of course what we have witnessed is chaos and in a chaos, even when deliberately caused, things get...well. chaotic and do not run smooth. People panic and make mistakes and even banks can get into trouble.
When they do, one can always pressure the poor old bewildered politicians to bale one out, which they have done.
But where does the government get the billions it uses to bale out some bank that has tripped over its own greed? From whom do they borrow the money? And who pays it back at interest? That's right, YOU do!
It is worth reflecting too that as we witness the spectacle of the money and stock markets where blokes in striped shirts and braces wave bits of paper about and trade computer numbers will inordinate numbers of zeroes after them, we are witnessing a global casino in operation.
There's no production occurring. People are manipulating numbers and in essence betting on the outcome. A lot of people are making millions without producing a damn thing, no goods and services that enrich their fellows in exchange for the wealth they receive. All take and no give.
As I discussed in What is Money, when you have a situation in which the system enables Joe to receive wealth (real goods and services) from Tom, Dick and Harry without giving any real wealth in return, Joe is a parasitic burden upon the honest labours of Tom, Dick and Harry.
If you, dear reader, are a producer; someone who does a job providing a service or making something of value, whether you running a company, driving a taxi, nursing the sick, policing the streets, playing music, creating a home, unblocking drains or predicting the weather, for Tom, Dick or Harry, you can substitute your own name.
Right now, millions of people across the globe who have done nothing wrong, who work hard and do their best, are facing an uncertain future through no fault of their own and I personally find this obscene.
The car continues to run on the wrong fuel. It will go on coughing and kangarooing down the freeway until we put the right fuel in it. We may just about recover from this current crisis and limp along at well below optimum until the next one. And there WILL be a next one.
Or of course we can start to demand change. We can start to insist that government removes from banks the privilege of money creation and get ourselves some stability.
I'll discuss our potentially very bright future in more detail in
Age of Prosperity - A Hoax-free Future
Love,
Kieron
