The Recession Part I - What is it?

(From Hamstreet & District Parish Magazine November 2011)

At the risk of being accused of getting 'stuck in the groove' I am going to elaborate on an issue which seems unavoidable these days. Every time you turn on the radio or TV, it's there; open a newspaper and it's splashed across every page; in fact, from what I am hearing it is now affecting many people's daily lives. Yet few people know exactly why recessions happen and quite frankly the media aren't likely to tell you.

Having looked into this online and attended presentations about this topic in London I thought I'd pass on the gleaned information. Apologies if it's a bit heavy but you may just find this interesting!

Now, it seems that recovery is always viewed in terms of how much people are borrowing - the more we borrow, the better the the economy is doing. But wasn't this crisis caused by debt in the first place? So how is starting the debt-snowball rolling again going to provide any kind of long-term solution?

Let's find out why they like it so much then!

Banks are allowed to lend out nine tenths of the total actual money within their keeping, although it is still available to the depositer, miraculously being in two places at once! When somebody borrows money, this is credited to their bank account (usually with a different bank).

This bank in turn can then lend out nine tenths of that money (along with all the rest in their keeping). The next bank in the chain can lend out nine tenths of what they receive and so on. When you add up the chain of loans made possible by the actual capital in the first bank it amounts to nine times the 'real' money. Interest will of course be levied on all of this. So, where is all the money to pay the interest on nine times every pound that is in circulation going to come from?

That's right – you've got it – ultimately it will come from more loans!

In other words the debt will always increase and as a result repossessions, bankruptcies and recessions will always happen with this system.

Once you realise that the availability of money has nothing to do with any actual value that it has in terms of the goods and labour you can buy with it, the gaping holes in the way things are done become obvious. This wasn't always the case, as once upon a time banks had to back up all currency with gold reserves.

Ditto for the fractional reserve 'nine times' loaning system. Inflation was virtually zero for hundreds of years until this system came about. In other words, we didn't have this nonsense before so we don't have to have it now!

Right, is everybody still with me, as it gets more complex still?

When the debt gets out of hand a 'solution' called quantitative easing is often used. I have heard two slightly differing accounts of how this works:

Either way, the Bank of England electronically creates a sum of money out of thin air for the banks to loan out. Some sources state the BofE receives bonds or assets from the Government for doing this; others say that they receive investments from the banks in return. Either way, creating the money requires little more than pushing a button and the rewards are massive.

Now, does any of this sound fair? If I print my own money it is illegal and I get nothing (other than a spell in the slammer). So, here's an idea, why not create this same money electronically (for nothing) and give it to the NHS, public transport, education, etc. and all the things that benefit the public but are having their budgets slashed instead? The devaluation of existing currency would be no worse than creating the same sum and giving it to banks, and the overall standard of living of the masses would improve – now isn't this what politicians are supposed to do – look after the best interests of the majority?

Current cuts are merely a temporary (and for many, painful) fix to an underlying problem, being that the way we do things is simply unsustainable. An economy cannot grow forever to pay off an ever-increasing sum of interest that doesn't exist.

Why? Because we live on a finite planet. How on earth do they think constant growth is going to be possible? Are we going to start drilling for oil on Mars?

Even if you support the cuts, I have witnessed what it is like for my friend in Hackney who recently had her front door kicked in by neighbours, yet the police have told her that they don't have the resources to pursue such 'trivial matters' in court.

And would you be pleased to be one of those cancer patients told you can't have any medication because of a prediction about your life expectancy (as it's clearly more important that the banks have the money)?

Good system hey?

Quite how we put a stop to this madness is the tricky part as the whole world now uses this crackpot system. What's more Britain seems to have staked its entire future on the banking sector. I think the only thing concerned people can do is take on as little debt as possible and spread the little-known facts about how it all works until pressure for change becomes unignorable. Some people say to me 'You're naïve to think it will ever change'. They probably said the same kind of things to those who wished to abolish slavery.

Sadly for those who are borrowing just to buy basic provisions, it seems they are already in way too deep. And those in the city who will benefit from all this are no doubt laughing all the way to the...