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6/27/2019

This Motley Fool, From 2009 via 2011 Freinds gained and innocence lost.
rogerglewis Uncategorized March 12, 2017 70 Minutes

Frameworks of Understanding. ( Mine as it developed.)

I have found since starting to become actively interested in these matters 3 years ago my own view had changed considerably and the signposts to a critical analysis of the current system seem more in evidence now. Whether this is because my own framework of understanding is more developed or because I am now just finding what I am looking for because I have a predisposed bias to finding what I want to find I don’t know I was involved in an online discussion about House prices on the Motley fool web site back in Feb 2009, My thinking has changed hugely and its an interesting read both the Cliff Dárcy article and the discussion that follows.

https://web.archive.org/web/20130613040127/http://sturdyblog.wordpress.com:80/2011/04/08/to-whom-do-we-owe-this-money-exactly/
To Whom Do We Owe This Money, Exactly?April 8, 2011
tags: Anthony Reuben, austerity measures, bail-out, Bank of England, banks, cuts, David Cameron, debt, deficit, financial crisis, GDP, George Osborne, gilts, global financial crisis, government bonds, government gilts, IMF, Lloyds, mike hewitt, national debt, NickClegg, OBR, ODM, Office for National Statistics, publi sector cuts, public service cuts, RBS, to whom to we owe this money, Who owns UK debt, Who owns US debt, world factbookI have followed the political debate about the austerity programme of cuts relatively closely over the last few months. I have been witness to countless television and radio debates in which the importance of our credit rating status, so that we may borrow money on better terms, is repeated with military-drummer-like regularity; in which any possible criticism of the assault currently under-way on public services is met with lachrymose alacrity by three words “our national debt”.
Equally, I have been amazed by the rarity of the question “to whom do we owe this money?” It is a fairly esoteric subject, but an important one nevertheless – don’t you think?
Let’s take Cameron, Osborne and Clegg’s puerile analogy of “households in dire trouble” and “maxed out credit cards”. In that situation the first thing I would do would be to sit down and list the entities to whom I owe money; a list of creditors. Only such a list could give me an overview of which are the high interest loans I can pay straight away, whether any restructuring were possible, who would be happy to wait a bit. Is there such a list? If there is, I haven’t seen it. I could not find it on the websites of the OBR, Bank of England, IMF, ONS, or the rather elusive Office of Debt Management (“ODM”).
I will take an analytical leap. It’s a short leap, so bear with me. Governments are very good at hanging bells on figures that help their cause. It is my assumption, and I think it is a fair one, that when things are difficult to find, it is because they are rather inconvenient.
So, I continue to endlessly trawl through information trying to find an answer, but with no success. Instead, I find titbits of aggregated data which only give rise to more questions.
A list of countries by external debt, compiled from the CIA’s World Factbook, makes fascinating reading. I find the figure at the top of the list jaw-dropping. It is a total figure for “the World”. According to this total, the “World” is in external debt to the tune of just under 60 trillion US dollars. Or 95% of the entire world’s GDP. Go back and read that again. How can this be? Is there an alien entity lending US dollars that I know nothing about? Or is the world in debt to private individuals, so isolated and untaxable that they do not count as part of the GDP of any country? Is the fact that, looking down the list, the lowest figures (or unlisted figures) are all totalitarian regimes or tax havens, important?
Next, I found this excellent analysis of US debt, by Mike Hewitt (an economist that until a few years ago was a high-ranking official with NATO). He found that, looking at US external debt, the biggest single creditor by a clear country mile was Japan. Japan itself has one of the largest external debts as a percentage of GDP. One of its main creditors is (you guessed it) the US. An analysis of US debt from 2001 to 2006, shows that the group most in debt (about double the next contender) was “Private Households”. Next were “Federal Government”, “Non-Farm, Non-Corporate Business”, then “Non-Financial Corporate Business”. Banks or Financial Businesses do not even appear on the top ten of debtors. The top four creditors (groups of entities to whom the US owes this money) were “Foreigners”, “Commercial Banks”, “Insurance Companies” and “Federal Reserve”. The same financial sector that the US went further in debt to rescue two years later. Perhaps we are not all in it together.
Next, the BBC piece “Who owns the UK’s debt” by Anthony Reuben. Reuben explains: “In the case of the country as a whole, the way it borrows money is by issuing gilts, which are IOUs, promising to repay an amount of money on a particular date and a specified interest rate until then.” These gilts are issued and auctioned by the ODM. So tracing who buys them, should reveal who owns our debt. Here you are:

To Whom Do We Owe This Money, Exactly?April 8, 2011
tags: Anthony Reuben, austerity measures, bail-out, Bank of England, banks, cuts, David Cameron, debt, deficit, financial crisis, GDP, George Osborne, gilts, global financial crisis, government bonds, government gilts, IMF, Lloyds, mike hewitt, national debt, NickClegg, OBR, ODM, Office for National Statistics, publi sector cuts, public service cuts, RBS, to whom to we owe this money, Who owns UK debt, Who owns US debt, world factbookI have followed the political debate about the austerity programme of cuts relatively closely over the last few months. I have been witness to countless television and radio debates in which the importance of our credit rating status, so that we may borrow money on better terms, is repeated with military-drummer-like regularity; in which any possible criticism of the assault currently under-way on public services is met with lachrymose alacrity by three words “our national debt”.
Equally, I have been amazed by the rarity of the question “to whom do we owe this money?” It is a fairly esoteric subject, but an important one nevertheless – don’t you think?
Let’s take Cameron, Osborne and Clegg’s puerile analogy of “households in dire trouble” and “maxed out credit cards”. In that situation the first thing I would do would be to sit down and list the entities to whom I owe money; a list of creditors. Only such a list could give me an overview of which are the high interest loans I can pay straight away, whether any restructuring were possible, who would be happy to wait a bit. Is there such a list? If there is, I haven’t seen it. I could not find it on the websites of the OBR, Bank of England, IMF, ONS, or the rather elusive Office of Debt Management (“ODM”).
I will take an analytical leap. It’s a short leap, so bear with me. Governments are very good at hanging bells on figures that help their cause. It is my assumption, and I think it is a fair one, that when things are difficult to find, it is because they are rather inconvenient.
So, I continue to endlessly trawl through information trying to find an answer, but with no success. Instead, I find titbits of aggregated data which only give rise to more questions.
A list of countries by external debt, compiled from the CIA’s World Factbook, makes fascinating reading. I find the figure at the top of the list jaw-dropping. It is a total figure for “the World”. According to this total, the “World” is in external debt to the tune of just under 60 trillion US dollars. Or 95% of the entire world’s GDP. Go back and read that again. How can this be? Is there an alien entity lending US dollars that I know nothing about? Or is the world in debt to private individuals, so isolated and untaxable that they do not count as part of the GDP of any country? Is the fact that, looking down the list, the lowest figures (or unlisted figures) are all totalitarian regimes or tax havens, important?
Next, I found this excellent analysis of US debt, by Mike Hewitt (an economist that until a few years ago was a high-ranking official with NATO). He found that, looking at US external debt, the biggest single creditor by a clear country mile was Japan. Japan itself has one of the largest external debts as a percentage of GDP. One of its main creditors is (you guessed it) the US. An analysis of US debt from 2001 to 2006, shows that the group most in debt (about double the next contender) was “Private Households”. Next were “Federal Government”, “Non-Farm, Non-Corporate Business”, then “Non-Financial Corporate Business”. Banks or Financial Businesses do not even appear on the top ten of debtors. The top four creditors (groups of entities to whom the US owes this money) were “Foreigners”, “Commercial Banks”, “Insurance Companies” and “Federal Reserve”. The same financial sector that the US went further in debt to rescue two years later. Perhaps we are not all in it together.
Next, the BBC piece “Who owns the UK’s debt” by Anthony Reuben. Reuben explains: “In the case of the country as a whole, the way it borrows money is by issuing gilts, which are IOUs, promising to repay an amount of money on a particular date and a specified interest rate until then.” These gilts are issued and auctioned by the ODM. So tracing who buys them, should reveal who owns our debt. Here you are:

So, the majority are owned by financial institutions. And more particularly, there is a huge spike in the purchase of gilts by Banks around the time when the country was putting itself in more debt by the single, highest amount in living memory. In order to underwrite the Banks’ liabilities and bail-out and stabilise the sector. So, the UK was borrowing money, in the name of ordinary taxpayers, FROM THE BANKS in order to stabilise THE BANKS.
But surely, surely- surely – not the actual Banks that we were bailing out…
Lloyds Banking Group’s Report and Accounts for 2010, state that the company has been buying government gilts increasingly, to cover its pension and benefit obligations. Their “Liquidity and Funding Risk” statement from the same year states clearly that “Primary liquidity assets are FSA eligible liquid assets including UK Gilts, US Treasuries, Euro AAA government debt and unencumbered cash balances held at central banks.”
The RBS Report and Accounts for 2010 states that their figures include “an £18.0 billion increase in the gilt liquidity portfolio.” On page 291 of the same document they confirm that this includes UK gilts.
By this point of my research, my hands were shaking with rage. Somebody must be kicking up a huge fuss in the House of Commons over this, I told myself. A search for the word “gilts” through the Hansard’s House of Commons Debates reveals only two mentions. Only one of them is related to the question “to whom to we owe this money?” and that is only on domestic vs foreign ownership.
So, I invite the tax lawyers, the economists, the MPs, the journalists that read this to answer my question; to give me a simple, lucid explanation of why I have this all wrong. I plead with them to reassure me that this is not how it appears; that we do not borrow money from and pay interest to the same people that were the cause of the collapse; that ordinary people like me are not trapped in a perpetual game of Monopoly where someone else always wins the “prize at the beauty contest” and the only card we pick up is a “library fine”; where we never pass “Go”, but always land on “Super-Tax”.
And if they cannot answer my question, then why the hell are they not asking it?
Read the Answer to this Question HERE.
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143 Comments leave one →

Bill Kruse permalink
April 8, 2011 4:24 pmBeneath all that obfuscation lie the banks, Alex, to whom we must necessarily owe the money as they alone can create it. The game is that when our government wants money, instead of creating it itself for free instead it grants license to create money to the banks and borrows it from them, at interest, when they create it, interest which we poor fools have to find ourselves from the money already in circulation. In my view the banks should simply have no place in this equation, it’s a centuries old scam that’s only survived this long because so few people understand it. If you want to find stuff in Hansard about the banks and their monopoly on credit-creation (money creation) there’s some links on here http://www.economania.co.uk/where-money-comes-from.htm The banks normally just laugh at us and have done for centuries. I suspect they may be a little concerned these days though as this is the information age and there’s never been one before, they’ve never had to survive one of these and I think they’re concerned by their current high profile. It’s in all our interests that they don’t make it.
BB
Reply
- Roger Lewis permalink
  April 9, 2011 4:30 pmHere Here!
  Reply
- rosemary rimmer permalink
  April 12, 2011 12:06 amWho do ‘we’ owe the money to? The answer is…
  China, which has lent all the money from the lower cost goods they produce back to the West, rather than in improving the quality of life of the Chinese back home.
  Reply
  - Olaya permalink
    December 18, 2011 1:57 pmWell, then who does China owe theirs too? http://www.reuters.com/article/2011/10/10/us-china-debt-idUSTRE79901L20111010
- fippletest permalink
  May 17, 2012 9:42 amA banking licence is anything but a licence to create money.
  An account held with a central bank means that the central bank ensures that an account is kept of what is lost or gained by a commercial bank. Banks would and do refuse to do business with each other as soon as they suspect that a competitor enjoys an unfair advantage.
  Reply
  - Trepp permalink
    June 6, 2012 9:46 pmIsn’t fractional reserve banking a license to create money?
cynicalHighlander permalink
April 8, 2011 4:39 pm“And if they cannot answer my question, then why the hell are they not asking it?”
Because non of them have a clue and listen to the so called ‘Experts’ who are nothing more than mouthpieces.
Try reading Golem XIV – Thoughts
Reply
Cath permalink
April 8, 2011 4:42 pmThank you, thank you, thank you. I’ve been asking this very question for I don’t know how long now. Probably in a slightly different form “who are these markets they speak of?”
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Stevyn Colgan permalink
April 8, 2011 5:10 pmInsightful as ever. Let me know if you ever find the answer. I suspect I’ll hear it from you before I hear it from the ‘opposition’ …
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Leigh Caldwell permalink
April 8, 2011 5:55 pmVery good questions – the answers are not as mysterious as they may seem though. I am out just now so let me just briefly comment:
On the question of World Debt, this is gross not net debt. That is: if I owe you £100 and you owe Graham £100 and Graham owes me £100, this would count as £300 of debt. When actually of course, there is no net debt in the system at all. It can be hard to get figures for assets which is why debt is usually reported on a gross basis.
Re the banks, this is exactly what we would expect to happen. If the bank runs up a hole in its balance sheet of £10 bn and we bail it out with £10bn of public money, it can’t keep it all in wads of cash. It needs to buy some kind of asset which is stable and can easily be traded: gilts are the obvious candidate.
And the banks were not bailed out for free – they either have to pay interest on the short term loans we gave them, or they had to give us their shares in return for the bailout. So yes, we are paying them interest on the gilts they hold, but they’re paying (or have paid) even more back to us in interest on their borrowings.
Over time the banks will have more demand for loans, and more ability to make loans (once their remaining assets have either been sold or are more clearly valued) and they will sell the gilts off gradually. They are holding onto them now just because they are still recovering.
The government will also claw back some of the bailout money via the bank levy, though this is quite small and it will take a few years to have much of an impact.
Will come back later to see if this has helped answer the question clearly or not.
Reply
- sturdyblog permalink*
  April 9, 2011 11:22 amThank you Leigh. One of the most cogent answers I have had. I understand what you say, but I certainly don’t accept the “everything is exactly as it should be” tone that other responses seem to adopt.
  I shall make some general points, instead of replying individually to others comments. The points as I see them, are:
  1. This is a very important question which is not being asked and has a direct bearing in our handling of our debt. There is a deliberate attempt to frighten people into believing that a bailiff, representing some anonymous entity, will knock on the UK’s door any moment. The distinguishing feature of Ireland’s, Greece’s and Portugal’s debts was that it was largely externally held. Not the case for the UK.
  2. There is a disturbingly circular element to the debt, which appears to me bogus and self-perpetuating.
  3. The repayments being quoted by the government to service the interest of the debt, are overstated (if indeed an large amount goes straight back into our coffers through the BoE and the element that goes to RBS and Lloyds increases the value of our holding there).
  But I must take exception with one aspect which seems to emerge as a theme from some responses.
  This is not like me owing Graham £100 and Graham owing you £100. Because there is an element of interest and return on investment which accrues endlessly and from which the Banks skim profit.
  A more appropriate, if dramatic, analogy would be to say that I need to transfer a pint of blood from me to Graham, then from Graham to you. It has been decided that leeches are the most efficient mechanism. But each time I have to draw more blood than I need to give, because the leeches feed too. The larger the circle, the larger the community of leeches we support.
  Not to mention the absurdity and perversity of the UK underwriting a guarantee for all their liabilities, which include massive loans to the UK. Very similar to a self-certified mortgage and we all know now what a bad idea they were.
  Fanatic supporters of the Free Market must recognise that intervening to save a business from going bust – no matter how big or important – is an aberration. So, if they accept the hand-out, this practical manifestation that markets don’t always work things out on their own, they should be willing to accept a level of regulation that goes with it.
  Reply
  - Trooper Thompson permalink
    April 10, 2011 5:06 pm“Fanatic supporters of the Free Market must recognise that intervening to save a business from going bust – no matter how big or important – is an aberration.”
    Of course. What do you think libertarians like Ron Paul have been shouting about all through this?
- Mike permalink
  January 19, 2012 9:40 pmBanks pay no interest because they gain this for free by charging interest to others and only pass on a small percentage of interest to whoever they loan a sum from thus how can they lose.Is not interest un-earned income.then….where does it come from
  The world system of capitalism will only work with perpetual debt for if all debt was paid off there would be no cash.Every form of currency is only released +interest
  IE if 1 coin was produced and borrowed out + interest…….where does the interest come from ……thin air ,or would they accept a bag of potatoes…including interest thats a bag of potatoes + 3 more………..ah but oh no the coin must be paid + interest
  This mathmatical equation = interest does not exist = therefore no one owes anything to anybody any time anywhere……..very simple isnt it……..you are witness to an illusion
  Reply
mick permalink
April 8, 2011 6:07 pmI would imagine the biggest part of the spike in ownership of government debt from banks comes from the bank of englands quantatitive easing scheme which bought up a vast amount of gilts.
I am slightly surprised that you are so angry about the fact that banks that have been bailed out have subsequently bought government debt. Government bonds are some of the most frequently traded financial products and it would be surprising if banks did not own some.
Reply
GiltyPleasures permalink
April 8, 2011 6:11 pmInteresting post, but I’m not sure I catch the thread of your argument.
All governments raise debt by selling bonds. These bonds tend to be bought by financial institutions needing a place to store money over a defined period with a credible guarantee that they’ll get it back. Treasury debt provides that guarantee, more or less. The tradeoff for the buyers for all this safety is that the rate of return is very, very low.
Who would buy such a thing? Well, any institution that needs safe place to keep other peoples’ money without seeing it eroded by inflation. Banks, pension funds and the like, in other words.
In that context, it’s obvious that RBS and Lloyds have bought gilts. Both were shown in 2008 to have a huge amount of toxic shit backing their up customer deposits. Likewise all the other banks. They all needed to replace their toxic shit with something, and government bonds are the default option.
The bailout was to fund the detoxification. The fact that bailed-out banks are using government bonds to rebuild their balance sheets, and not lose depositors’ money, provides a neat little element of circularity rather than some conspiratorial grassy knoll.
Reply
Tom permalink
April 8, 2011 6:13 pmI certainly don’t have an answer for you, but note that the category you are asking about is not just banks, but also the Bank of England.
Another question is just how much of that nearly £200bn debt is actually owed to the Bank of England rather than other banks.
I think that when they were printing money as part of the quantitative easing measures, they created a debt, owed by the government to the bank of england, so that the new money was balanced on the accountancy sheets because otherwise it would simply be inflationary, as the total sum of money in the economy would have increased.
Any interest on that is paid by the government to the government and the debt is therefore costing us nothing in interest payments.
Reply
Melina Theocharidou permalink
April 8, 2011 6:38 pmOn this tangent, a story a friend of mine posted when the Irish Banks nearly ‘collapsed’:
It’s story time girls and boys, “How to overcome national debt”.
  It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the town.
He stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
And that, Ladies and Gentlemen, is how the bailout package works.
Reply
- Gus permalink
  April 12, 2011 10:32 amExcept that the hotel owner is €100 out of pocket, as the €100 he was paid by the hooker settled her debt, and he then gave it away to the German traveller.
  Reply
  - Whitt permalink
    April 12, 2011 12:20 pmActually the hotel owner is not out any money at all as he’s settled his debt with the butcher…
polly permalink
April 8, 2011 6:55 pmYou’re confusing the debt and the deficit. Also, the reason that Bank of England line spikes is because that’s how quantitative easing works – the Bank of England issues more money by buying Gilts. It isn’t a big conspiracy – the figures are there for anyone to find out (Google ‘Bank of England quantitative easing’ and you’ll find it was headline news). Also, if you take out a pension, pension funds put your money in Gilts – a safe place that will let them pay out as people retire. They’re not holding them in any sinister way. Insurance companies buy Gilts with your premiums so that they can pay out if you have an accident. GDP is gross domestic product – the amount of money a country makes, not the other people’s debt it happens to be holding, so there are no shady individuals. It isn’t your fault that everyone is retweeting this blog as if it’s a well-informed piece of writing, but if you really are a former economist you’re being very disingenuous.
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Patrick Osgood permalink
April 8, 2011 7:17 pmYou’re quite right to point out that the question of to whom do we owe our national debt is a very important question, one that has a real impact on policy.
As you’ve discovered, around 80 percent of our national debt is held domestically, and a large part is held by banks.
Why do we do this?
Economists have know since 1829 that, when a recession hits, there is a sudden and large drop in demand for goods and services and a sudden increase in demand for money and safe assets, and until that demand is sated and nothing else improves, a recession is likely to continue.
Banks used to think that AAA-rated mortgage-backed securities based on loans to ninjas in Alberqueque were safe assets, and they got regulators to agree that they were safe enough to meet regulatory requirements on how much equity they must hold as an insurance against foul-ups.
Of course, this turned out to be a bad move.
After Lehman, banks decided that their mortage securities were uncertain, illiquid, and possibly toxically low-value, so they wanted to trade them for liquid cash and properly safe debt.
Because of the collapse in tax receipts, the Treasury needed the Bank of England to issue a lot more debt to pay the bills. This the Bank did, The BoE also swapped a load of crap assets for government debt, to increase the money supply and oil the gears of the financial system.
Additionally, the BoE had to issue loads of debt in order to raise cash to inject into equity stakes in RBS and Lloyds etc.
Further, the banks now have to hold proper safe assets as equity against foul-ups, and have been told that, within the next few years, they will need to hold more still.
Because the demand for governemnt debt was (and remains) so high, we pay interest to these banks at a very very low rate. The current interest on 10 year gilts is 3.75 percent, and, as you can see from the graph, most of the debt purchased by banks was a few years ago, when rates were even lower. Also, the UK benefits from one of the longest debt profiles in the world (we don’t have to renew our credit line very often compared to the US, for example).
What I’m trying to do is paint a picture of a situation where, post nationalisation and so on, everything is very interconnected (and weird).
The implications of this are several. The first is that our debt burden is a lot less onerous than people think, because we owe ourselves most of the debt. What poeple with money in the UK are telling the goverment is “take our money and punt it into the future, because we don’t want to do anything with it”.
You can see how – contra Osborne, Clegg & the Tories – unfazed markets were by all this debt by looking at gilt yields over the last 4 years: no great movement, other than a reduction in the rate as the BoE slashed interest rates and the flight to gilts took off.
The second is that the government needs to listen to the market and use their appetite to lend to the govt by doing things that stimulate demand and get the economy going again: profitable investment (like that Sheffield Forgemasters loan that the Tories rejected) is an excellent way to do this.
This is why what Osborne is doing is fundamentally dumb – he’s put the UK in panic-mode when our credit rating is solid gold and the big problem is that the govt is the only player right now ready and able to invest and spend.
Your rage is well-placed to the extent that banks, instead of using their new equity and credit lines to start lending productively, are using the state’s money for valueless speculation that makes them money at no benefit to anyone else. Bob Diamond says he wants to increase the risk profile of Barclays: he evidently means taking more bets rather than making more loans to businesses that will get people back to work.
But there is little to be annoyed about more generally. Our financial systems needed a large injection of cash and safe assets to get back in it’s feet, and while it is excruciating and unjust to see them already carrying on as before, we do need a banking sector and could not make one in our preferred image overnight.
The fact that so much of our debt is held domestically is a really good thing. It shields us from predatory investors like those circling eurozone countries, and it allows the state to stand up when the private secotr sits down. The real scandal is that, instead of doing this, George Osborne is chopping off the state at the knees.
The economist who makes all this really clear is Brad DeLong. http://delong.typepad.com/sdj/2010/10/the-british-conservatives-have-no-theory.html
DeLong’s introductory Econ 101 series from UC Berkley is second to none, and available for free from iTunes U – go listen!
Reply
cynicalHighlander permalink
April 8, 2011 7:36 pmWho Owns The Bank Of England?
Basically we are being sucked deeper into debt which we will never have the means to pay back. I suppose slavery is the road we are being sucked into aided and abetted by our inept leaders with there complicit media.
Newsnet Scotland
Reply
Superbass100 permalink
April 8, 2011 7:40 pmThanks once again for another brilliant piece of research.
Reply
Just to rub salt in the wound permalink
April 8, 2011 7:55 pmJust to rub salt in the wound the reason why the financial institutions were able to buy up the gilts is because of the nature of the bank bailout package and the following stimulus.
1. QE (virtually “printing money”) – BoE buying gilts, but also other debts (e.g. bank debts) which allowed banks etc to purchase gilts.
2. Low interest rates – banks able to borrow from BoE at 0.5% – makes sense to borrow at this low rate and buy a higher yielding gilt instrument — no??
3. Credit guarantee scheme – allowing banks to rely on the HMG AAA rating for thier debt issues therefore being able to borrow at lower rates than would otherwise have been the case. Again it might make sense to use some of this borrowing to buy gilts if the yield on them was high enough.
The intention behind the policy was (1) to stop the banks falling over leading to a payments system close down (i.e. no cash in machine, no credit card transaction for joe public, no pay)
(2) to enable the banks to start lending again.
If terms of (1) it was sucessful – at least for now – without banking reform though the banks will fall over again.
However it doesn’t work well for (2) because the banks are still playing games on the money markets instead of lending any of money out.
The worst thing that Labour did was conceed on the need for cuts in the run up to the last election as this set the media narrative in concrete. (Though what they could say in the face of such a hostile and wilfully stupid mainstream media I do not know).
A lot of the debt problem is sort of unreal if you think about how much of it springs from the BoE manipulating the figures. It therefore should simply (ha ha) be a matter of controlling banks who hold this debt (debt we gifted to them). Post the crash – the banks (and credit ratings agencies for that matter) did not have a leg to stand on. However it has never been clear from the press reporting exactly how much the banks benefited (and are still benefiting) from these measures – only the RBS and HBOS bailouts were ever really explained (how often do you hear “of course [insert name of UK bank] did not take the governments bailout money”. They did – they all did.
OK now I’ve depressed myself.
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Michael permalink
April 8, 2011 7:58 pmSimply remarkable article. Brilliantly written and conclusively clear.
They are robbing us blind and blaming us for it so they can tax us more for a debt we never created. They think they’ll enslave us in debt, well I think they forgotten their history lessons.
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Frances Coppola permalink
April 8, 2011 8:29 pmYes, you’re right. It’s circular. We bailed them out with money we borrowed from them.
The spike you noticed I think is caused by quantitative easing, which involved the govt issuing new debt in order to buy (not redeem) its own (pre-existing) securities. This debt was bought by banks and used to improve their liquid asset ratios, a regulatory requirement imposed on them by the Govt after the banking collapse. The aim of quantitative easing was to expand the money supply in a controlled manner and recapitalise the ailing banks. But it increased the total amount of government debt, and all of it is owed to the banks. It had to be done this way because the Government cannot create money directly, it can only do it by borrowing.
So yes, part of the “national debt” is held by banks in the form of Govt securities, and we pay interest to them on this debt.
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owen vyse permalink
April 8, 2011 9:29 pmExcellent. Exactly what I’ve been wondering – but with added research.
Linked this to my fb and blog. Unfortunately it’s not about what you ate for dinner or how cute your dog is so no one will read it. But linked, nevertheless.
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Johnson permalink
April 8, 2011 9:30 pmYou’re not wrong but there’s another bit to be looked at. The banking system got into a real mess because it was putting a load of its money into questionable debt (sub-prime mortgages, etc). So when the money markets froze, the banks didn’t have any short term funds to keep themselves running – either the Governments stepped in to provide that liquidity or they would go to the wall (and the horrors of that would make today’s shitty economy look like a picnic).
At the same time, the banks were told/worked out for themselves that it would be a good idea for them to invest in safer bets i.e. gilts. So yes, a lot of banks have lots of government IOUs but the ones we bailed out we now own so that works out about level. The banks still had money to invest but they mustn’t use it to prop themselves up otherwise you end up in an Enron situation.
To use the crass personal banking metaphor – imagine that the banks are someone who has run up a £10,000 credit card bill. They get a personal loan to pay it off (so they don’t get declared bankrupt) and decide to be more responsible so they invest 20% of their salary each month in the company that gave them the personal loan. At the end of the day, the loan will be paid off (with interest) – i.e. we’ll sell shares in the banks at a profit; the person is now more responsible – i.e. they have secure investment in gilts rather than get rich quick sub-prime bundles and nobody has to be declared bankrupt.
Of course the catch is that instead of £10,000, it’s several hundred billion, the individual doesn’t seem to be that much more responsible and to allow us to make the loan, tens of thousands of Government employees will be laid off.
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Mark permalink
April 8, 2011 10:36 pmThis probably also accounts for why the bond markets didn’t punish the UK when it opted for austerity after the election, when the markets had, at that point, already punished Ireland for opting for austerity. Good research.
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Snoop Dog permalink
April 9, 2011 1:57 amYou owe the money to me.
Come on, cough up bitch’s
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Dave permalink
April 9, 2011 3:14 amI think you’re great, you’re better than anyone who writes for the papers.
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Mike permalink
April 9, 2011 4:12 amHopefully this will go viral and cause the media to push it into the public eye.
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Roger Lewis permalink
April 9, 2011 4:59 amThe fall of debt money capitalism can not be more than 20 years away the failure of Western governments to address the balance in 2007 when they had the chance was a real cop out showing how democracy really functions in our so called democracies. Of course the role of America in the perpetuation of an inherently divisive system can not be underestimated I do believe that the world will evolve away from the broken system that currently prevails I have been reading very gingerly into the concept of Gian democracy there is some interesting stuff on the web from a guy called Roy Madron. There is also some very interesting work which I first came across on kunskapskanalen on well being and inequalities in societies published by RIchard Wilkinson.

http://www.gaiandemocracy.net/articles/GD%20-%20Shared%20P%20and%20P.pdf
I had a breif correspondence with Roy about Richard Wilkinson and Kate Pickets work after seeing the lecture Wilkinson gave in Sweden I couldn’t get it out of my mind so much so that six months later I found it on You Tube to hear it again.
http://prosperityuk.com/the-problem/
Henry Ford was asking the same questions that you are asking here back in the 1920′s
the Prosperity UK web site has some very good research and analysis of what Roy calls the Global Monetocracy, the system of Debt Money . I think my research is going to lead me to the notes for Bretton Woods, the end of the Gold Standard and all of that. that was all around the time that Henry Ford gave his speech I think.
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- Roger Lewis permalink
  April 9, 2011 11:51 amEdit Bretton woods was in 1944, just about to start ploughing through it anyway, its nearly 30 years since I read anything about it anyhow.
  Reply
EnorMouse permalink
April 9, 2011 8:45 amThe first thing that you need to understand is that the big banks did not suffer a cash crisis – there was no run on them – they suffered a liquidity crisis, in so far as they would no longer be able to comply with the calculation of liquidity requirement as set out by the FSA.
The pieces of paper that were issued as investments backed up by the mortgages, were classed as market tradeable investments, in so far as they were being bought and sold between the banks and as such were considered to be part of the banks liquid assets, that could be converted into cash at short notice.
When the crisis hit, the market for these ‘investments’ disappeared almost overnight as no one knew what they were really worth, even the ones backed by good mortgages or underwritten by insurance companies. Accordingly, as they could not be readily converted into cash, they could no longer be classed as liquid assets.
This is where the Government stepped in. They did not bail out the banks with cash, they bought shares in the banks, paying for them with government bonds aka gilts. As there is an active bond market, these bonds were considered to be liquid assets and filled up the hole left by the mortgage backed investments no longer being classed as liquid.
So no, the banks that were being bailed out did not lend the money to the Government for the bail out, but instead the Government acquired shares in the banks, which they may yet make a profit on, by issuing the banks with a load of new bonds, which the banks have continued to hold. It was all a paper chase.
The reason that cuts are needed is to do with Government overspending since the end of WWII and the introduction of the welfare state. The Governments of the day have been funding a chunk of this spending (which has been keeping the electorate happy) by using state pension contributions to fund current spending. There is no money to pay for all the future pensions that have been promised and no accounting for this liability. Estimates of the size of this black hole range between £5 and £9 TRILLION pounds, which makes the tens of billions used to buy into the banks little more than chickenfeed.
If you want to worry about anything, it is this black hole which works out about £250,000 per household and as yet no one is paying any interest on it.
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Alan P permalink
April 9, 2011 9:37 amI have got to a similar point with my own research, but from a slightly different angle – ie if you look at British debt over the last 100 years we are near the bottom of the long term range, not the top.
There is a “cashflow” problem right now because we are borrowing against the post 2008 crash conditions (which was caused by taking all our money to give to the banks), but that is standard Keynesian economics.
What I don’t understand is quite why the Govt wants to rack down so tightly on this model.
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Alan P permalink
April 9, 2011 9:55 amBy the way I did also read that CIA thing, and of course all they did was sum all the debts and not net them off against the owings. One would almost suspect that they think it is a normal model that you foist debt onto taxpayers while keeping interest payments private
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Peter Cowen permalink
April 9, 2011 10:02 amOK nice article and some good questions but questions that I thought rather obvious but I could be oversimplifying.
The banks buy up gilts and make other -as part of their standard business practice. The banks we saved are owned by the government and expected to run normally and profitably and this includes the investments, none of which are safer than government gilts. We will at some point sell Lloyds for a profit and Northern Rock and NRAM, who knows maybe a profit from them it is to early to tell.
It should also be noted that the majority of our debt is not a product of the banking crisis though the general tone of your writing suggests to me you’d like to conflate the two. Furthermore our structural deficit is the result of lost tax receipts and a massive boom in public services (865000 public sector employees over 12 years was unsustainable levels of growth).
It should also be noted that this has nothing to do with QE, we may still yet pay the price for that though.
You should really bear in mind that the current crisis is a product of a global economy that refused to go into recession in 2001 as would have been perfectly normal but stubbornly gambled with monetary policies like cheap interest rates and regulatory bodies that were ever expanding but growing ever more incompetent it seems.
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- adrianskilling permalink
  December 7, 2011 5:23 pmA shame(!) Northern Rock was sold off at a loss of between £400m and £650m. http://www.bbc.co.uk/news/business-15769886.
  I mostly agree with your causes for the crisis, government policy seems to be growth at all cost, never mind relaxing regulation, hurting citizens or whatever. You haven’t mentioned the oil price which massively spiked before the crisis which was a burden the economy could not take leading to the collapse in growth. Oil fuels the economy, its a primary energy source with which we have found no suitable replacement. Along the debt based money and the lack of growth our debts cannot be payed.
  One aspect is that ALL(~98%) money is debt based money but the debt cannot be paid off, since the money to pay it off has to be borrowed which incurs more interest.
  Reply
Bill Kruse permalink
April 9, 2011 10:26 amSome more research for you, if you wish. Now you’ve got this far, ask yourself; How do we come to be in this predicament at all, how did something so insidious and wrong as the National Debt ever begin? Clue; George Downing. That’s right, the Downing Street guy. Some research into him will prove revealing, I know; I’ve done it.
BB
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Neil permalink
April 9, 2011 10:38 amThe biggest “lender” are pension funds and insurance companies (buying gilts to fund annuities i.e. pensions). So the easy answer to “who does the government owe this money?” is that they owe it to ME and I want it back before I retire thank you. If the government wants to keep running up debts it cannot pay, I want a higher interest rate on the money I lend them through my pension fund. The higher rates are to pay for the risk that the government cannot pay and I lose my pension. Are you following this so far?
The banks increased their purchase of gilts due to the Basel 2 regulations on capital requirements – this is supposed to make them more stable than if they invest in hedge funds, or would you prefer they continued gambling?
These debt numbers make perfect sense, all sensible people know that it is OUR money that the government is spending. It always comes back to a basic question – do you want your hard earned money to go to your family and your old age, or to go on fighting pointless wars in Iraq, overpaying useless local authority managers, or paying benefits to millions claiming to have “bad backs” (incredible how the UK seems to have 27% of the adult population registered as disabled, whereas it’s only 7% in Italy)
http://www.realising-potential.org/stakeholder-factbox/disabled-people-worldwide/
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Peterh permalink
April 9, 2011 10:43 amGreat article. Is the answer that capitalism only works if money moves? If everyone put their cash under the bed the economy would collapse. The primary way to make money move is through debt. So governments buying and selling debts (sometimes from the same people!) has just been a way to get it moving again?
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oldpolitics permalink
April 9, 2011 10:55 amIn fairness we did essentially order them to do it
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/09/regulators_agree_7_capital_rat.html
And the Bank of England has done £200bn of Quantitative Easing. Even allowing for some of that having been used to buy private sector bonds, it accounts for most of the yellow line, there.
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Roger Lewis permalink
April 9, 2011 11:20 am“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people.”
Henry Ford, Muscle Shoals 1921
http://query.nytimes.com/mem/archive-free/pdf?_r=3&res=9C04E0D7103EEE3ABC4E53DFB467838A639EDE
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Roger Lewis permalink
April 9, 2011 1:10 pmBretton woods led me here from a footnote, very interesting.
http://video.google.com/videoplay?docid=-2550156453790090544#
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jim streets permalink
April 9, 2011 2:28 pmCan anyone get the media interested in this question? It does seem fundamental!
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Minus permalink
April 9, 2011 3:11 pmWith re: The large surge in gilt ownerships by banks, the Bank of England bought £200b of government gilts due to Quantitive easing. http://www.infiniteunknown.net/2009/11/07/bank-of-england-extends-quantitative-easing-to-200-billion/
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KT permalink
April 10, 2011 9:03 pmThis sounds remarkably like a debt Pyramid scheme…………..
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forex robots reviews permalink
April 11, 2011 3:38 amI just wanted to make a quick comment to say I’m glad I found your blog. Thanks
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Sampson permalink
April 11, 2011 10:04 amIf your interested in the way that the banks work (yes I know they don’t really “Work”, but let’s go with it) then I suggest you all check out http://www.positivemoney.org.uk/
The banks operate something called the “Fractional Reserve” system, which allows them to create “New money” as debt. Each time one of us takes out a loan the bank creates, in effect, a pair of IOU’s. The first is clearly your promise to repay the amount lent, plus interest. The second, more surprisingly, is the banks promise to pay you the loan amount, which it has just created by typing in a few numbers on its balance sheet.
In essence this amounts to private, for profit institutions having the power to issue currency. All they need to do this is a banking licence. They typically hold less than 5% of the money they lend out as deposits.
This means that for every percentage point of growth in the economy the banks take 0.95 of it as profit. So the country makes an extra £1,000,000 in GDP and the banks hover up £950,000 of it to pay out as bonuses to a few of its staff.
It is in essence a total, complete and utter con. What is the point in worrying about sovereign debt if we don’t have sovereign control over our own money supply?
Lets look at some facts.
The banks expand the money supply by lending and deposit cycles.
Currently they expand the money supply by around 10% each year. You will note that the economy does not grow by anything like this amount.
They do not expand the money supply in a planned, even fashion. During the boom, say 2003-2007, they expand the money supply as quickly as they can, by lending out money that, in a good percentage of cases cannot be paid back, until the system collapses. Then we hit the bust. At this point the banks stop lending new money and the rate of repayment overtakes the rate of lending, the money supply contracts, and the economy takes a nose dive. Now usually governments step in at this point and start spending to keep the money supply up, and the economy ticking over. What this government has done is cut its spending, which further reduces the money in the economy, deepening the crisis, reducing the tax take needed to pay the debts. Of course this causes yet further holes in the public finances, causing more pain, and further cuts. Sound familiar?
Well this is what happened in the 1930′s when a different bunch of economically illiterate clowns decided to instigate austerity measure during a recession. That caused the Great Depression (much lie the one we are currently going through)and was only ended by World War II, and we all know how that panned out.
So what can we do about it?
Simple, prevent the banks from lending money that they don’t have, and don’t have permission to lend. Change the law to stop them creating new money.
The money needed for economic growth would then be issued by the BoE and given to the government to spend as it see’s fit (citizen income, public services, infrastructure, green investment , no income tax or whatever). This would then allow a degree of control over the economy that is unheard of today. It would not solve all of the worlds problems, but it would mean that a “booming” economy would benefit us all, rather than just a few rich bankers.
Ask yourself this; given the economic success we have been told we had for the last decade, do you think you’re any better off? Are you better off than a person in you position ten years ago?
Unless you’re a banker I’m betting the answer is no.
Visit http://www.positivemoney.org.uk/
get involved in changing the system so it can benefit us all. The alternative is to face a fresh crisis. The bust in each cycle is get closer together. The scale of the crisis increases each time. How long before it is permanently broken? Do we want to be around when that happens?
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- Roger Lewis permalink
  April 12, 2011 9:36 amThis is really the answer. The Commission for separating Retail from ( Investment ) Banking is a very poor sham.
  I have rationalised it down to my own simplistic Metaphor of a Tail Wagging a Dog my king of Country Lads analogy to what this is all about.
  . Have you considered that ultimately so called Investment Banking relies on the concept, and a concept is what it is, of Debt Money.
  That is a money supply based in a system of IOU’s that are accepted by FIAT( not the Italian Car Giant) as currency. We as the general population accept this Debt Money and it is the fact that we can exchange it for food and shelter that we accept it in payment for our work.
  At the most fundamental level investment banking needs retail Banking and the Debt money fractional reserve system that is licensed by those who Govern Us , it has been this way more or less from the time of George 1.
  There is a rather overblown and pompous tail (Investment Banking) wagging a once proud and loyal Dog( Just about everyone else including the extinct breed of wonderful hardworking executive Branch bank managers)In business my first Bank manager was Called Bill Turner he worked for Nat West in the Westferry Road Branch in the East End of London.( He was pensioned of in the mid Nineties ).
  Now although considered cruel in some circles you really want to Doc, the Tail of your Gun Dog.
  Time to Doc the Tail of the banking system. Without docing the tail the dog will be destroyed having been driven half mad.In this case it may well be that this Dog has to be destroyed and we will have to train another one.
  This is a very troubling question. Thank you Sturdy Blog for initiating such a helpful discussion
  Reply
Tom Tough permalink
April 11, 2011 10:15 amI alwasys thought that the value of currency had to be backed up by gold reserves. Or has that now gone out of the window? It seems that the Western Goverments through Quantative Easing are creating money from nothing.So why do we not need a wheelbarrow full of cash for a loaf of Bread??
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Elizabeth Greener permalink
April 12, 2011 5:04 amI read this with interest. Regardless of who we owe the money to the people who are most affected are still the poor and the vulnerable. It is the government’s way of ensuring that those with little are paid less, keeping wages low and prices high. It is time to stand up and be counted and let them know that we are not taking this lying down. Will we ever come out of recession, not while it means that wages can be kept low and people fear for their jobs.
The gap is ever widening between the haves and have nots – this is no accident
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James Paton permalink
April 12, 2011 5:37 amHi
Fansinating. Very interesting and extremly useful anaylsis. Sucha hiuge pity its unreadable.
White type on black background is impossible to read for some,and dare I say pretentious? Please do consider changing it and therefore help those you like what you’ve got to say , be able to read it.
Thnakls
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Philo permalink
April 12, 2011 8:32 amAnyone remember the old Morecombe and Wise gag. Eric says to Ernie, ‘Lend me two pounds’, so Ernie gets out two pound notes. Then Eric says to Ernie,’I'll only take one of them then you will owe me one pound and I will owe you one pound and we’ll be quits.’
Whatever conspiratorial game the banks and the Government are playing between themselves they are funding it at the expense of the British People. I was taken by Sturdyblog’s analogy in his follow up piece where he likens the banks to leeches. They are in the business of making money out of nothing for their own gain. They are not producers, they are not even a service industry because they only serve themselves.
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zenix permalink
April 12, 2011 10:17 amThe short answer is that we owe the debt to anyone willing to lend it to us (although mainly pension funds and financial institutions).
Banking may or may not all actually be a big circle supporting a colony of leeches (although speculative banking most certainly is), but unless we want to ensure that no-one’s going to lend to us for at least a decade then not paying the debt isn’t an option.
Not borrowing for a decade might also be a good thing, but we can’t do it right now mainly because we’re borrowing around £150 billion a year and if you thought the cuts sounded bad, wait ’til you see what it takes to knock 10% of GDP off government spending all at once.
The one interesting anecdote I would point out is one about the bank of England. QE is where the BoE prints money and uses it to buy financial products (mainly govt. debt) in order to stimulate the economy (how that works is a little too invloved to explain here but they probably explain it on their website). But have you ever thought about how it actually works?
BoE prints money –> more money in circulation but same number of goods (houses, cars etc. as before) –> each good corresponds to a bit more money –> prices go up to compensate for all this new money –> inflation goes up.
QED, Quantitative easing is effectively the bank of england stealing our money (through higher inflation) in order to lend it to the government. Am I the only one who thinks that if QE actually stimulated the economy, then that would imply high inflation is good for growth?
Oh yeah, and stealing is wrong, and the Bank of England (or any bank for that matter) should not have a license to be able to steal, at will, from the British people.
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Sampson permalink
April 12, 2011 11:28 amzenix
QE is not quite the same as the BoE stealing our money through inflation, but nearly. It does however keep money circulating when the rich go into panic mode and start hoarding all the currency they can get their thieving little mitts on.
You do seem to have missed the whole point about the accounting practices of the banks though.
Every time they “lend” money out, they are in effect doing the same thing as QE. They create an IOU in your name (punch the money into an account for you) and you right them an IOU for the amount “loaned” plus the interest you’ll need to repay.
What is the difference you ask?
Well when the BoE uses QE it does so, so that there is still money moving through the system, staving off the worst of the potential effects of the credit crunch (the fact that the banks are too scared of failure to create any more new money). It is done in the short term interests of society at large, with a mandate from the public, via the government (another debate I know).
The commercial banks do it every day. The charge interest on the money they create. They never had any sort of mandate from the people, because 99% of the people of the UK do not even know that the banks lend out money they do not in fact have.
This in effect subsidises the banks to the tune of tens-hundreds of billions of pounds a year (depending upon whether it is a boom or a bust year).
In essence it is like a Welfare system for already rich.
Now there are many alternatives to this system. Personally I prefer the positive money solution (see http://www.positivemoney.org.uk/)
, but I would like to see this system combined with digital money (in which every pound has an ID code, so that even electronic money cannot easily be counter-fitted). Other alternatives, such as the old gold standard, result in a flat currency, which is a serious issue in a growing economy/population. Besides there is a finite amount of gold, and we will need ever increasing amounts of currency to represent the goods that a growing population needs to live on. A fixed currency would end up with deflationary consequence’s (increasing production, but fixed amounts of currency).
I think the main point though is that the banks need to be prevented from creating their own currency. That should be the preserve of government or non-government, public bodies to decide. The benefit for a growing economy should be with the labour markets, not the money markets.
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- Roger Lewis permalink
  April 12, 2011 12:00 pmHere here,
  Where do I cast my vote for this?
  Reply
Sampson permalink
April 12, 2011 2:39 pmRoger Lewis
Unfortunately you don’t.
The Tories spent over £10 million during the election. More than half that amount was donated by the bankers, so the current government has already been well paid to see that things don’t change in our favour.
I, amongst many others, have been writing to my MP, The BoE, the Treasury, even the BBC (who’s coverage has been very one sided), but there is simply not enough people who know what is going on and what the alternatives are.
We need to start putting massive pressure on the system to change. The alternative is to sit back and wait for the collapse, but that will result in war, famine and unprecedented bloodshed. We have all but recreated the economic and social conditions that led to the Second World War, but this time it could well go nuclear!
Unfortunately the politicians and oligarchs that make up the capitalist cleptocracy feel rather to safe and conformable at the moment. I think they will not change unless their lives seem to be threatened by mass civil disorder.
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- Roger Lewis permalink
  April 12, 2011 3:45 pmHi Sampson,
  I fear you may be right, lets hope not though.
  One wonders how to get the BBC or some other mass media to set out all the facts and alternatives, social media is probably a more likely conduit though.
  We can but try to pass on what we feel we know and try to understand a way forward with those around us.This blog seems to me to be remarkably effective at setting out the concerns, Positive money and economania also seem very level headed and helpful for those of us who are interested but do not wish to be preached too.
  Most people have had bad first hand experiences of the banks like me they may have probably half doubted that it was maybe largely their own fault.
  No one likes a fix when all is said and done, lets not give up hope just yet.
  thanks for you thoughtful posts here and links I have found them very helpful.
  Best wishes
  Roger
  Reply
gina b permalink
April 12, 2011 4:13 pmone more thing….a lot of money comes from us and our spending power. Remember the blind panic after 11 Sept 2001 when New Yorkers stayed away from the shops? Shop For America!!
Well – we could organise ourselves to target our spending – or not spending.
We have some power if we co-ordinate it.
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Chris Hemmings permalink
April 15, 2011 10:07 amSimple answers to the original question are threefold:
1. – To the planet as we’ve extracted and exploited at a frightful and frightening way for the last few decades and left our natural environment and ALL its inhabitants reeling in a wholly unstable way so’s no-one can foresee future reactions let alone “put them right”.
2. – Our children who will have to face this chaos as it unfolds.
3. – “The Chinese”, of course, although we are locked in economic combat now as the bilateral nature of our symbiance is tested to the full. Yeah they thought they needed us but are quite reasonably questioning this now. We have to be weaned off the addiction.
Luckily resolution of the first criterion is the only fundamental issue at stake and when we resolve collectively to address these vast problems all else becomes irrelevant.
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jamesjpaton permalink
April 15, 2011 10:47 amYou couldn’t make it up!
If we were to develop a monetary system from scratch today – which could be done by legisaltion – after all new currencies and arrangements are created all the time – would we really have such an exploitative nasty system of managing money, and one in which bits of paper (bonds and gilts) are used to make huge amounts of money through their trade for a very few, with absolutley nothing useful produced and no communal benefit.
Have we as a spieces, with all our advantage and apparent brain power, really come to this? To quote Monty Python in the meaning of Life, ‘hope there is more intelligent life out there in space, ’cause there’s bugger all here on earth!’
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Ian Saunderson permalink
April 15, 2011 12:04 pmYes – it’s an old scam of course – it was a scam when it was re-invented (1690 Bank of England) and it is today. It will bust the world economy for sure unless stopped – and sooner than most think -it is well out of control now. Too many politicians are incredibly ignorant or in on the scam (for surprisingly small amounts of money they will sell their country into trillions of dollars of “debt”). Probably why politicians have such low respect – they play along with flagging up utterly irrelevant issues to distract anyone from looking at the real issues and endlessly get involved in issues that are nothing to do with their own job – again to distract. It is painfully simple – it’s a robbing scam. By the way – wars are the common tool to greatly increase the debt, distract and take out countries that won’t play their sordid game. From the Napoleonic, WWI and WWII to the “War on Terror” – many more of course but those were the biggies to take out the UK (was the world super power till then) and beggar eurpoe in general. The US will be next of course – too many savvy Senators there still and the population is still too rich for some’s liking. Oh most of you know all this already and there are many great videos out there to fill in the detail – who can I vote for? Could they stay alive? Would the BBC et al take them out with Panorama and the like – probably. Make sure you have a log cabin and some gold I say.
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rogerglewis permalink
April 16, 2011 7:16 amExcellent Lecture delivered to House of Lords in 2000.
http://www.honest-money.com/talk.htm
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rogerglewis permalink
April 16, 2011 7:54 amhttp://www.honest-money.com/images/THE%20CONTINUING%20RISK%20TO%20THE%20BANKING%20SYSEM-final%20draft.pdf
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Kyong Morely permalink
April 18, 2011 9:35 amI seriously enjoy what you post right here. Extremely insightful and intelligent. One concern though. I’m running Firefox with Debian and parts of your current page layout pieces are a little wonky. I realize it’s not a normal set up. But it’s something to hold in the mind. I wish that it will probably help and keep the finest quality writing.
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Tiesha Bocchini permalink
April 18, 2011 12:01 pmThis is a really great blog. Thx to the auther
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Kris Bonanno permalink
April 18, 2011 12:42 pmHey friend can i publish some paragraph of your article on my little blog of university.I have to publish a good articles out there and i really think your post Fits best into it.I will be grateful to give you an source link as well.I have two blogs one my own and the other which is my college blog.I will publish some part in the university blog.Hope you do not mind.
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Ed Barrett permalink
April 18, 2011 7:45 pmA few books spring to mind you might like -
Naomi Kline’s ‘The Shock Doctrine’
Sebastian Faulks’ ‘Human Traces’
and one I haven’t read yet, but looks interesting: ‘The Master and his Emissary’.
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Expat Rentals Singapore permalink
April 19, 2011 12:01 pmt’s worth pointing out that that is gross debt, not net debt. It’s not supposed to sum to zero.
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http://golemxiv-credo.blogspot.com/
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Sampson permalink
May 4, 2011 11:32 amFor those of you interested in banking reform there is already a quite well established campaign here in the UK, started by a couple of rather good economists.
Please visit http://www.positivemoney.org.uk/
and get involved.
As it currently stands the UK’s economy supports the banking system to the tune of tens of billions a year. They are basically sucking up over 95% of all the profits made by the UK PLC.
This money could be used to pay a citizens wage, pay for services such as health care and policing. Instead it is used to make millionaires of the privileged offspring of the already rich.
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Confused person permalink
May 17, 2011 4:18 pmIs the government having to “bail out” the banks because the banks have no money due to the government not having paid its debt to them?
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- Roger Lewis permalink
  May 18, 2011 4:31 amThe current problem is the result of the old adage that there is no honour amongst thieves, you can lump the government in with the thieves but they are really only lieutenants to the banking God Fathers on this one. The banks essentially called each others bluffs on who had gambled beyond the level of the juice ( Vig) they could extract from their numbers game on the street ( we are the Mugs , The Marks ). The result of the Mexican stand-off amongst the Banks was the liquidity crisis and the banks had to admit they had overdone it gambling the future juice away and they were bust. Cue the lieutenants agreeing to put the squeeze on the mugs More Taxes less benefits etc etc and even where we can’t pay in our lifetime it is a blood debt of honour which can never be paid.
  We have been sold as patsies by the governments whose franchises were bought and paid for by the Godfathers and the cost of the addiction of the vainglorious politicians has cost the Godfathers nothing they sold the politicians their own promise to pay which is our ability to pay Taxes.
  There is a great film called inside job and one commentator uses the Mafia analogy to describe two party politics look at any numbers or Drug racquet and its social hierarchy and the banking system becomes very easy to understand the money is however homeopathic at best and a placebo in all but name.
  Reply
Roger Lewis permalink
May 18, 2011 5:17 amJust posted this at Golem XIV as well.
RogerGLewis said…
Hi Golem and hello to all the other excellent contributors of comments to this blog, there is a lot of reading to do here with the links which are also posted and I will get through it “one grain of sand at a time”.
I was directed here by a comment posted in Sturdy Blog http://sturdyblog.wordpress.com/2011/04/08/to-whom-do-we-owe-this-money-exactly/#comment-610
There are more and more people seeking answers to unasked let alone unanswered questions my comment is directed more to those who like me agree that there absolutely is a very bad problem and it is what Roy Madron calls the Global Monetocracy its a coporate Oligarchy that has hijaked the Agenda in pursuit of its own narrow interests.
My suggestion is to suggest a simple but effective direct action we can all take to force the hand of Governement where we can vote with the economic power we do still have.
All private Business owners and Individuals should Close bank accounts and trasfer all deposits out of the Banks in private hands and open accounts with the sate owned Banks RBS and Llyods and so forth
THose banks should then be kept in Public ownership and there should be a return to a credit based Honest Money system If any of the other Private Banks survive without Public Assistance them good for them but more regulation and very strict regulation regarding the usefullness of the funn money merry go round needs to follow.
By forcing the issue this way the actions of politicians would be very accountable how would they be able to repeat the current change in Narrative.
Just a quick post and basic idea I’d happily throw all my effort into a joint effort to initiate such a campaign if upon full discussion and reasoning a caucus of opinion felt it was a worthwhile plan.
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Sampson permalink
May 19, 2011 11:02 amRoger Lewis I like the idea of using the “state controlled” banks to leverage influence on the government, but I fear it could not work for a number of reasons.
Firstly, the Tory government would almost certainly sell on its shares, even if they lost the country a fortune to avoid being held to account by the electorate. It would be relatively simple and would not require an act of parliament. Gideon Osborn could just sign the papers.
The other main issue, and one that is little known and little understood is the role of a shareholder in a company. In most case buying shares in a company does not give you any sort of voting rights or influence on the way the company is run. The board of directors and Company regulations will simply tell you to sell if you don’t like it. Look at the fact that the banking boards are paying out even more in bonuses now than they did before the crisis occurred. You would have thought that the shareholders would have voted NO, NO, NO, but in reality they did not have any say in the matter. The only hope is the government, but they took most of their campaign funds from these same bankers (tens of millions).
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rogerglewis permalink
May 19, 2011 2:32 pmHi Sampson,
I understand the point you are making the effect of all depositors going to the State owned banks would force a crisis on the other banks I feel and with every one watching the state owned banks I suspect that the coalition might well fall and any precipitate action taken by a chancellor of the exchequer would be illegal and surely be held to account.
On shareholders voting for remuneration of Boards etc I think one of the problems is that the pension funds are run by the same self justifying system and turkeys as we all know don’t vote for Christmas.
I am rushing out but will give it a bit of thought over the next few days.
There are still some honest people left in Westminster and there must be a way to get something to start to stick.
Best Wishes,
Roger
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Sampson permalink
May 19, 2011 7:40 pmRoger I had not considered the effect that moving all that money would have on the rest of the banking system. It could precipitate the inevitable total systemic crash, that I think we can all see is a mathematical certainty.
But that was not quite what I was getting at. People power (ala 38 Degrees) can stop them selling off the forests or water down the NHS privatisation bill, but we will not easily force monetary reform, because it hits directly at the power of the rich to have the economy work for them. Like I said Osborn does not need permission from parliament or anyone else to sell the governments shares in the banks. This would prevent any sort of influence being leveraged over them in this way.
As for the power of shareholders, it is almost non-existent with most shares. If you don’t like the way the company is run your only choice is to sell out. So you don’t get any influence here either.
I should say that the mere fact that we are having this discussion is a very sad reflection on society. It just brings home the fact that the populous simply has little or no power.
For anyone interested Professor Mary Mellor, Emeritus Professor of Sociology at Northumbria University gives a rather illuminating interview here
http://www.positivemoney.org.uk/2011/05/positive-money-podcast-episode-2-professor-mary-mellor/
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- Roger Lewis permalink
  May 23, 2011 12:53 pmHi Sampson, I have been preoccupied with some other reading the oast couple of days, yet to hear back from Positive money I voluteered to help out on line I live in Sweden these days.
  Anyway here is some encouraging stuff happening in the US the Bank of North Dakota I am sure you will be aware of these other initiatives are very encouraging.
  I posted the link to my Facebook with this thought.
  https://www.facebook.com/l.php?u=http%3A%2F%2Fpublicbankinginstitute.org%2Fstate-info.htm&h=ebc4b
  This is the stuff, come on get some of the local councillors who hopefully are not up to their necks in Westminster back scratching toady BS to push for some of this. Nationalise Llyods and RBS regionalise them into divisions by counties and launch their own credit money if needs be call it the peoples pound.
  The old one Stirling Currency can be called the pound of flesh they certainly have had their pound of all our flesh ( Good Old Shakespeare, Merch of Venice)
  I like Ellen Browns writing will have a look at your link to professor mellor now.
  Best Wishes,
  Roger
  Reply
Roger Lewis permalink
May 23, 2011 1:38 pmGreat interview with Professor Mellor , I really enjoyed that very inspiring.
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rogerglewis permalink
June 1, 2011 4:34 amI owe a great deal to Sturdy Blog for raising this question and to the many comments and links posted. So thanks everyone. I hoe plenty of people are getting some new insights into how the world and the economy seems to stack the cards against the everyday Joe and Johanna.
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Thomas permalink
September 15, 2011 10:41 pmIf the banks are the only people who lend money and you can only get money lended with intrests rates, so they give out 100 and expect 110 back. how can this ever work??? It’s a giant pyramid scheme that’s doomed to fail every 70-100 years. Look back in history. People who are at the top are just hoping to cream as much as they can, then they retire with millions. quickly replaced by the next person hoping to do the same. Therefore nothing ever changes! People who have a greed for money naturally will work in banks therefore you Greedy bankers etc
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Tapestry permalink
September 25, 2011 4:53 amHow can you explore this topic without reference to the role of central bankers?
Equally do you know that the top 500 companies in the USA are all partially (10-20%) owned by a mere 4 banks? (Dean Henderson)
Those banks are owned by a small group of families all inter-married.
Try reading http://the-tap.blogspot.com/2010/02/who-owns-bank-of-england.html
and catch up with Dean Henderson.
If you want to find out what really lies behind the debt, you need to understand the tiny cartel that controls the world’s financial system.
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- Roger Glyndwr Lewis permalink
  October 3, 2011 5:39 pmTapestry this was and is a stellar blog on the issue that turned a lot of people on to the rather cosy ** Free Market” enjoyed by a small cartel well hidden behind some common and trusted ( for want of a better word) institutions. I certainly went on to a lot of further research prompted by the question posed in this blog.
  There are a lot of predjudices and cherished certainties that people will not let go of easily this blog raises the debate intelligently and patiently within the comments there is a lot of recommended or suggested reading including your own which informs the debate admirably.
  Time for us all to re double our efforts to get those we love and those we care about to start asking the same questions
  Reply
Jim Duthoit permalink
November 20, 2011 3:33 pmInteresting article. Like you I have tried to discover just how much the UK owes the World Bank and the IMF and have come up with no available information – and this in the age of Google. Like you I would like to know exactly what this means in real terms, and who are the people behind both organisations. Like you I am not altogether impressed that we, ordinary British people have bailed out the financial institutions and now find ourselves indebted to them – really? And like you I am a little perplexed by the fact that no one in Westminster seems to be even willing to raise such concerns.
Odd world; I will call back to this site.
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anna vyse permalink
December 23, 2011 11:14 amI have read all of your reasearch and very detailed, as usual, All I really have to say is that American life just keeps getting from to horrible to nightmareish. People here are still losing jobs and businesses only to work for “big box” stores, hence losing their homes and then killing themselves. If not the horrible fate of suicide, they are now sentenced as criminals for staling their family groceries or selling their own perscriptions and bodies ro earn monney to live. My advice is pay a better wage and the people who work will be able to spend more, giving an economy boost to these countries will increase spending also not having to make criminals out of our neighbora and friends.
The problem is that the state only cares about the state and not those who keep the economy running.
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Jim Duthoit permalink
December 31, 2011 5:52 pmI came across this site because I had asked myself the same question (To whom do we owe all this money?) and then Googled it. I also found that a second question I had asked – why, after the financial crisis of 2008, have so few people questioned the free markets? – was also mirrored here, ie: “People presenting themselves as experts, expressing surprise at my anger, because the situation is precisely as it should be.”
‘Group Think’ is the term for a paradigm or a shared outlook. Group Think ensures that the underlying values of the group are never questioned because they are so widely held that they are assumed to be true. This means that anyone who challenges the shared outlook is regarded as an outsider. This limits any solutions to those already being applied, and treats all novel approaches as dangerous or unnecessary. If no other solutions are permitted, it is difficult to see how there can be any outcome other than more of the same.
Perhaps the more pressing question is whether the present situation is sustainable, fixable, or whether there will be further decline leading to an eventual crisis. I do not have an answer to that.
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- sturdyblog permalink*
  January 5, 2012 8:47 amThank you.
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jamesjpaton1 permalink
January 11, 2012 6:42 pmAn acquaintance has challenged me on these figures suggesting we need to look at net instaed of gross debt. Does that make any kind of difference to the overall arguement. I suspect not but woul like to be informed prior to a coming debate with him. my basic undersatndign is that we have put the piublic in debt to rescue a private sector industry to an extent we have never seen before. It begs the (albeit rhetorical) question why public debt was not increased to under the 1979 and 1982 Conservation administrations to restructure and modernise the so called called’ failing nationalised industries of old i.e. water, electricity, oil, gas, telecomms, coal, steel, gas, ship building, trains, buses and public housing
Reply
Fred Allen permalink
February 15, 2012 12:37 amGive this a listen, it takes some time to load, and the themes are challlenging but it seems to corolate quite well with the statement.
http://iamthewitness.com/audio/Muhammad.Rafeeq/TFC.SMITH.RAFEEQ.03-03-2010.mp3
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Annonymous permalink
May 3, 2012 12:13 pmWe owe it to everyone and no one.
Its owned or owed to the central banks or treasurys within each country.
America for instance. The federal reserve prints the money and then sells it to the banks in the form of Gov Bonds. This essentially means the bank is promising to pay the FRB the money back (with interest) The bank then reserves a tiny proportion of the money and with the rest they double the amount of available credit (post the reserve) and loan the (non-existant money)either to ourselves or other smaller financial institutions with a contract to agree that the money will be paid back (with more interest than the banks would pay to the FRB).
So you could argue that we owe money to no one because the money doesnt even exist.
There was a case in the early ninties a gentlemen failed to meet his mortgage payments so the bank tried to reclaim the house.
The man took the bank to court to argue that the money didnt even exist and he won. There are more details to this story but trust me reasearch it…
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fippletest permalink
May 17, 2012 9:35 amMoney is a promise to pay, owed to whosoever the promise to pay is made to, simple as that. “PROMISE TO PAY THE BEARER” on the face of a bank not means that something is owed to the owner of the money.
The problem is then the willingness to trade on the promise to pay but with no actual demand for redemption.
Reply
Iva C Rogers permalink
May 27, 2012 7:12 pmI agree with cynicalHighlander
Debt seems to be the path of inevitability for us Brits now and at the same time we are expected to bail out Greece.Where is this bottomless pit of bail out money hidden I’d like to know? Would the Greeks bend over backwards to help us in our hour of need?
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allan black permalink
June 6, 2012 12:11 pmI’ve been asking this question for years
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paul permalink
June 6, 2012 5:02 pmA good place to start to understand what is going on and how this all ties in with other world events is: watch the following documentaries on google videos or youtube: Wake up call- remastered edition, Zeitgeist,The money masters, The Obama Deception, America freedom to fascism, Endgame, Terrorstorm, Monopoly Men.
Or google the following keywords: New World Order, Federal Reserve Fraud, Cashless society, Problem-Reaction_Solution,Bilderbergoup,Microchip
Reply
paul permalink
June 6, 2012 5:06 pmsorry, went a bit wonky at the end. See: Bilderberg group, Microchip Implants, cashless society, North American Union.
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- George bush permalink
  July 9, 2012 10:17 pmWhen will every average poor working person and that is everybody but the elite few realise that we are all been used by the elite group, No government can do anything about it, there are the few who control all countries and that includes the almighyt USA, If all country owe money to each other then why no just right off all debt and start fresh, Imagine no national debt and all personal debt gone, A new start but the elite few who are the Rothschilds & Rockefellers – Trillionaires Of The World will not allow this to happen, think about it and research
  Reply
Chattanooga Remodeling permalink
August 7, 2012 3:59 amIt is really important for us to know on how to spend our money wisely. It is especially that we are suffering with lots of economic crisis.
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bob bell permalink
August 17, 2012 2:34 pmWheres my posting am I to believe you are a Rothschild follower one of few indoctrinated to follow the creed
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Jim Duthoit permalink
August 20, 2012 11:54 amWhen I think about the present economic climate, I find myself unable to settle on any single outlook to help me understand it. I have only ‘fragments’ and to date the fragments have not yet congealed into anything like a clear picture.
For example, many of the more destructive forms of economic behaviour have arisen because of the ‘bonus culture’ in the banking system. Bonus culture means that once targets are set, all activity is directed towards achieving them. It was, I think, the bonus culture that led to mis-selling, libor rigging, money laundering, and widespread lending to the ‘sub-prime’ mortgage market. So is the problem the bonus culture?
Yet this is not the complete picture.
The economist Richard Duncan has coined the term ‘Creditism’ to describe the present economic climate. Duncan is no left-winger, but he says that Capitalism is dead, and what we now have is Creditism, whereby every step will lead not to the creation of further wealth, but to further debt. So is the age of unending material prosperity over?
But again this is not the whole picture.
It could be said that the housing market is a Ponzi scheme. Charles Ponzi made exaggerated claims about the profits he could make on trading on the difference in the price of International Reply Coupons. Ponzi made no such profits, but simply paid existing clients with the investments from new clients. It is an extraordinary fact that a journalist published an article pointing out the scheme was a fraud. Ponzi took the journalist to court and successfully sued him for libel. No one wanted to know the scheme was a fraud – so is the problem the ‘Madness of Crowds’?
And yet again this is not the full picture.
We seem to have bought into the notion of the wisdom of the markets. Everywhere we hear “It is dangerous to interfere with the markets”, and so the markets must be left to their own devices. So banks merge until they become too big to fail, and practices emerge which are too complicated to monitor (derivatives) or too complex to define in legal terms. The London Whale loses 6 billion and then ‘leaves’ J P Morgan. So is the problem one of complexity?
Putting all this together we might conclude that the West is heading towards economic disaster. And yet is it? Many Eurosceptics, for example, claim that the Euro is about to collapse, and produce evidence on a weekly basis to support this claim. Yet when I look at Europe (without the blinkers) I do not see an economic situation as bad as, say Cuba, the Soviet Union or Maoist China – indeed, it is nowhere near that. Is the prediction of economic collapse yet another example of an imagined crisis such as ‘bird flu, swine flu or the millenium bug’?
And then of course there is the ‘blame game’ – ie, it’s all the fault of left-wingers/right-wingers/greedy bankers/stupid people who took out too much debt/public spending/corrupt politicians etc. While each of them can be blamed, none of them seems guiltier than any other. So is the problem that we have a system where no one is in control and therefore no one can be held responsible?
Why does this matter? Any solution that addresses only part of the situation will not solve the problem at all, but quite probably make it worse. For example, the bank bailout of three years ago meant many of the underlying problems in the banking system were never addressed.
So all of the above are elements in the present situation, and many of them have been pointed out by others. What is missing is the overview that makes sense of why this is happening. Perhaps others can suggest this, or suggest who might have it.
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FreddDagg permalink
August 25, 2012 5:58 amHi
I reckon you have to ask the question which has an obvious answer “Who owns these financial institutions?” A few people so rich we can’t begin to comprehend it. And as people have stated. If every country in the world is up to it’s eyeballs in debt, to who is this money owed. If virtually everyone is in debt to whom is the money owed. A survey from CS First Boston done around 10 years ago reported in the New Zealand Listener was instructive. It surveyed Australia and discovered less than 1% of Australians owned around 98% of the land ( the places where people lived and worked) , the businesses ( the places where they worked), the banks ( to who all interest payments are owed ) and the entertainment facilities ( where all the workers occasionally seek respite and reward). Thought about this and then thought. What they are really saying is the 1% of people in all practical terms “own” the other 99%. of the population. I suggest people watch the movie “The Hunger Games”. To me modern society is not much different just slightly more subtle in some countries. In other countries the exercise of power including by so called ‘civilised” countries such as USA is even more brutal.
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mmmm permalink
September 26, 2012 8:51 pmanyone have the feeling things are being controlled by someone or some people other than government? if the government owes money to these corporations or organisations then surely they must have some form of control over policys laws etc.?
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michael permalink
November 8, 2012 12:46 amBasically we are a species that created a system that enslaved ourselves, the monetary system runs off inevitable debt, money… is debt. every bill in your wallet is owed to somone by somones, we are passing around a bunch of IOU’s because thats all this is. This whole thing that makes the world go round is fake, its a big game and truthfully we can stop this anytime, its like we are playing a never ending game of monopoly. we act as if money is actually some god given use of trade that we have to use. there has to be another way… there is no reason everyone should have to work and pay taxes and all this other bullshit. we are screwed as a species that is all i have to say. honestly, who do we owe this money too? the answer is no one, we dont owe anyone anything because its a big sham, its a big game and I for one no longer want to play, im off the merry go round.
Reply
Norman Wallace permalink
November 14, 2012 2:45 pmSo we could write off all the debt and start again with a clean slate where no country has a “national Debt” and none is paying crippling interest to the banks that started it all (That is except our friends the American Republican Party who pulled the rug from under the financial markets by removing the guaranties from the subprime market vertually at a stroke). A very interesting and informative article, thank you.
Reply
fso520 permalink
December 24, 2012 7:48 amFantastic post! This is something which has frustrated me for a while, the politicians say we just need to get over this ‘hump’ by tightening our belts, yet they never respond to my queries of how long it would take to pay off the national debt, what repayment plan do they have and who are they paying it to… the answer is that we are in a system of perpetual debt because of the fractured way in which we operate our money and in the style of business our country operates under ie) turning private debt into public debt.
There is something fundamentally wrong when we accept this warped status quo, it’s right that we start asking questions and literally follow the money. The old spin that ‘we are all in this together’ won’t do for me… public spending is going down, taxes are going up… where is the money going, why are we paying more for less?
Reply
james permalink
January 25, 2013 5:49 amThe speedy red wolf jumped over the lazy dog
Reply
Mark permalink
April 23, 2013 7:35 pmSearch YouTube for “the money masters” and “zeitgeist addendum” for the answers
Reply
glenn payne permalink
May 7, 2013 2:39 amTheir is no debt it’s all fake to keep you under control,wake up sheepole!!!
Reply
Connor permalink
May 30, 2013 1:18 pmSorry for the possible ignorance here and I’m an inexperienced 17 year old but to sum it up the only debts that actually matter are the ones that leave the country and all money leaving the country is what makes us broke?please correctly my faults!
Reply

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So, the majority are owned by financial institutions. And more particularly, there is a huge spike in the purchase of gilts by Banks around the time when the country was putting itself in more debt by the single, highest amount in living memory. In order to underwrite the Banks’ liabilities and bail-out and stabilise the sector. So, the UK was borrowing money, in the name of ordinary taxpayers, FROM THE BANKS in order to stabilise THE BANKS.
But surely, surely- surely – not the actual Banks that we were bailing out…
Lloyds Banking Group’s Report and Accounts for 2010, state that the company has been buying government gilts increasingly, to cover its pension and benefit obligations. Their “Liquidity and Funding Risk” statement from the same year states clearly that “Primary liquidity assets are FSA eligible liquid assets including UK Gilts, US Treasuries, Euro AAA government debt and unencumbered cash balances held at central banks.”
The RBS Report and Accounts for 2010 states that their figures include “an £18.0 billion increase in the gilt liquidity portfolio.” On page 291 of the same document they confirm that this includes UK gilts.
By this point of my research, my hands were shaking with rage. Somebody must be kicking up a huge fuss in the House of Commons over this, I told myself. A search for the word “gilts” through the Hansard’s House of Commons Debates reveals only two mentions. Only one of them is related to the question “to whom to we owe this money?” and that is only on domestic vs foreign ownership.
So, I invite the tax lawyers, the economists, the MPs, the journalists that read this to answer my question; to give me a simple, lucid explanation of why I have this all wrong. I plead with them to reassure me that this is not how it appears; that we do not borrow money from and pay interest to the same people that were the cause of the collapse; that ordinary people like me are not trapped in a perpetual game of Monopoly where someone else always wins the “prize at the beauty contest” and the only card we pick up is a “library fine”; where we never pass “Go”, but always land on “Super-Tax”.
And if they cannot answer my question, then why the hell are they not asking it?
Read the Answer to this Question HERE.
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Bill Kruse permalink
April 8, 2011 4:24 pmBeneath all that obfuscation lie the banks, Alex, to whom we must necessarily owe the money as they alone can create it. The game is that when our government wants money, instead of creating it itself for free instead it grants license to create money to the banks and borrows it from them, at interest, when they create it, interest which we poor fools have to find ourselves from the money already in circulation. In my view the banks should simply have no place in this equation, it’s a centuries old scam that’s only survived this long because so few people understand it. If you want to find stuff in Hansard about the banks and their monopoly on credit-creation (money creation) there’s some links on here http://www.economania.co.uk/where-money-comes-from.htm The banks normally just laugh at us and have done for centuries. I suspect they may be a little concerned these days though as this is the information age and there’s never been one before, they’ve never had to survive one of these and I think they’re concerned by their current high profile. It’s in all our interests that they don’t make it.
BB
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- Roger Lewis permalink
  April 9, 2011 4:30 pmHere Here!
  Reply
- rosemary rimmer permalink
  April 12, 2011 12:06 amWho do ‘we’ owe the money to? The answer is…
  China, which has lent all the money from the lower cost goods they produce back to the West, rather than in improving the quality of life of the Chinese back home.
  Reply
  - Olaya permalink
    December 18, 2011 1:57 pmWell, then who does China owe theirs too? http://www.reuters.com/article/2011/10/10/us-china-debt-idUSTRE79901L20111010
- fippletest permalink
  May 17, 2012 9:42 amA banking licence is anything but a licence to create money.
  An account held with a central bank means that the central bank ensures that an account is kept of what is lost or gained by a commercial bank. Banks would and do refuse to do business with each other as soon as they suspect that a competitor enjoys an unfair advantage.
  Reply
  - Trepp permalink
    June 6, 2012 9:46 pmIsn’t fractional reserve banking a license to create money?
cynicalHighlander permalink
April 8, 2011 4:39 pm“And if they cannot answer my question, then why the hell are they not asking it?”
Because non of them have a clue and listen to the so called ‘Experts’ who are nothing more than mouthpieces.
Try reading Golem XIV – Thoughts
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Cath permalink
April 8, 2011 4:42 pmThank you, thank you, thank you. I’ve been asking this very question for I don’t know how long now. Probably in a slightly different form “who are these markets they speak of?”
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Stevyn Colgan permalink
April 8, 2011 5:10 pmInsightful as ever. Let me know if you ever find the answer. I suspect I’ll hear it from you before I hear it from the ‘opposition’ …
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Leigh Caldwell permalink
April 8, 2011 5:55 pmVery good questions – the answers are not as mysterious as they may seem though. I am out just now so let me just briefly comment:
On the question of World Debt, this is gross not net debt. That is: if I owe you £100 and you owe Graham £100 and Graham owes me £100, this would count as £300 of debt. When actually of course, there is no net debt in the system at all. It can be hard to get figures for assets which is why debt is usually reported on a gross basis.
Re the banks, this is exactly what we would expect to happen. If the bank runs up a hole in its balance sheet of £10 bn and we bail it out with £10bn of public money, it can’t keep it all in wads of cash. It needs to buy some kind of asset which is stable and can easily be traded: gilts are the obvious candidate.
And the banks were not bailed out for free – they either have to pay interest on the short term loans we gave them, or they had to give us their shares in return for the bailout. So yes, we are paying them interest on the gilts they hold, but they’re paying (or have paid) even more back to us in interest on their borrowings.
Over time the banks will have more demand for loans, and more ability to make loans (once their remaining assets have either been sold or are more clearly valued) and they will sell the gilts off gradually. They are holding onto them now just because they are still recovering.
The government will also claw back some of the bailout money via the bank levy, though this is quite small and it will take a few years to have much of an impact.
Will come back later to see if this has helped answer the question clearly or not.
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- sturdyblog permalink*
  April 9, 2011 11:22 amThank you Leigh. One of the most cogent answers I have had. I understand what you say, but I certainly don’t accept the “everything is exactly as it should be” tone that other responses seem to adopt.
  I shall make some general points, instead of replying individually to others comments. The points as I see them, are:
  1. This is a very important question which is not being asked and has a direct bearing in our handling of our debt. There is a deliberate attempt to frighten people into believing that a bailiff, representing some anonymous entity, will knock on the UK’s door any moment. The distinguishing feature of Ireland’s, Greece’s and Portugal’s debts was that it was largely externally held. Not the case for the UK.
  2. There is a disturbingly circular element to the debt, which appears to me bogus and self-perpetuating.
  3. The repayments being quoted by the government to service the interest of the debt, are overstated (if indeed an large amount goes straight back into our coffers through the BoE and the element that goes to RBS and Lloyds increases the value of our holding there).
  But I must take exception with one aspect which seems to emerge as a theme from some responses.
  This is not like me owing Graham £100 and Graham owing you £100. Because there is an element of interest and return on investment which accrues endlessly and from which the Banks skim profit.
  A more appropriate, if dramatic, analogy would be to say that I need to transfer a pint of blood from me to Graham, then from Graham to you. It has been decided that leeches are the most efficient mechanism. But each time I have to draw more blood than I need to give, because the leeches feed too. The larger the circle, the larger the community of leeches we support.
  Not to mention the absurdity and perversity of the UK underwriting a guarantee for all their liabilities, which include massive loans to the UK. Very similar to a self-certified mortgage and we all know now what a bad idea they were.
  Fanatic supporters of the Free Market must recognise that intervening to save a business from going bust – no matter how big or important – is an aberration. So, if they accept the hand-out, this practical manifestation that markets don’t always work things out on their own, they should be willing to accept a level of regulation that goes with it.
  Reply
  - Trooper Thompson permalink
    April 10, 2011 5:06 pm“Fanatic supporters of the Free Market must recognise that intervening to save a business from going bust – no matter how big or important – is an aberration.”
    Of course. What do you think libertarians like Ron Paul have been shouting about all through this?
- Mike permalink
  January 19, 2012 9:40 pmBanks pay no interest because they gain this for free by charging interest to others and only pass on a small percentage of interest to whoever they loan a sum from thus how can they lose.Is not interest un-earned income.then….where does it come from
  The world system of capitalism will only work with perpetual debt for if all debt was paid off there would be no cash.Every form of currency is only released +interest
  IE if 1 coin was produced and borrowed out + interest…….where does the interest come from ……thin air ,or would they accept a bag of potatoes…including interest thats a bag of potatoes + 3 more………..ah but oh no the coin must be paid + interest
  This mathmatical equation = interest does not exist = therefore no one owes anything to anybody any time anywhere……..very simple isnt it……..you are witness to an illusion
  Reply
mick permalink
April 8, 2011 6:07 pmI would imagine the biggest part of the spike in ownership of government debt from banks comes from the bank of englands quantatitive easing scheme which bought up a vast amount of gilts.
I am slightly surprised that you are so angry about the fact that banks that have been bailed out have subsequently bought government debt. Government bonds are some of the most frequently traded financial products and it would be surprising if banks did not own some.
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GiltyPleasures permalink
April 8, 2011 6:11 pmInteresting post, but I’m not sure I catch the thread of your argument.
All governments raise debt by selling bonds. These bonds tend to be bought by financial institutions needing a place to store money over a defined period with a credible guarantee that they’ll get it back. Treasury debt provides that guarantee, more or less. The tradeoff for the buyers for all this safety is that the rate of return is very, very low.
Who would buy such a thing? Well, any institution that needs safe place to keep other peoples’ money without seeing it eroded by inflation. Banks, pension funds and the like, in other words.
In that context, it’s obvious that RBS and Lloyds have bought gilts. Both were shown in 2008 to have a huge amount of toxic shit backing their up customer deposits. Likewise all the other banks. They all needed to replace their toxic shit with something, and government bonds are the default option.
The bailout was to fund the detoxification. The fact that bailed-out banks are using government bonds to rebuild their balance sheets, and not lose depositors’ money, provides a neat little element of circularity rather than some conspiratorial grassy knoll.
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Tom permalink
April 8, 2011 6:13 pmI certainly don’t have an answer for you, but note that the category you are asking about is not just banks, but also the Bank of England.
Another question is just how much of that nearly £200bn debt is actually owed to the Bank of England rather than other banks.
I think that when they were printing money as part of the quantitative easing measures, they created a debt, owed by the government to the bank of england, so that the new money was balanced on the accountancy sheets because otherwise it would simply be inflationary, as the total sum of money in the economy would have increased.
Any interest on that is paid by the government to the government and the debt is therefore costing us nothing in interest payments.
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Melina Theocharidou permalink
April 8, 2011 6:38 pmOn this tangent, a story a friend of mine posted when the Irish Banks nearly ‘collapsed’:
It’s story time girls and boys, “How to overcome national debt”.
  It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the town.
He stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
And that, Ladies and Gentlemen, is how the bailout package works.
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- Gus permalink
  April 12, 2011 10:32 amExcept that the hotel owner is €100 out of pocket, as the €100 he was paid by the hooker settled her debt, and he then gave it away to the German traveller.
  Reply
  - Whitt permalink
    April 12, 2011 12:20 pmActually the hotel owner is not out any money at all as he’s settled his debt with the butcher…
polly permalink
April 8, 2011 6:55 pmYou’re confusing the debt and the deficit. Also, the reason that Bank of England line spikes is because that’s how quantitative easing works – the Bank of England issues more money by buying Gilts. It isn’t a big conspiracy – the figures are there for anyone to find out (Google ‘Bank of England quantitative easing’ and you’ll find it was headline news). Also, if you take out a pension, pension funds put your money in Gilts – a safe place that will let them pay out as people retire. They’re not holding them in any sinister way. Insurance companies buy Gilts with your premiums so that they can pay out if you have an accident. GDP is gross domestic product – the amount of money a country makes, not the other people’s debt it happens to be holding, so there are no shady individuals. It isn’t your fault that everyone is retweeting this blog as if it’s a well-informed piece of writing, but if you really are a former economist you’re being very disingenuous.
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Patrick Osgood permalink
April 8, 2011 7:17 pmYou’re quite right to point out that the question of to whom do we owe our national debt is a very important question, one that has a real impact on policy.
As you’ve discovered, around 80 percent of our national debt is held domestically, and a large part is held by banks.
Why do we do this?
Economists have know since 1829 that, when a recession hits, there is a sudden and large drop in demand for goods and services and a sudden increase in demand for money and safe assets, and until that demand is sated and nothing else improves, a recession is likely to continue.
Banks used to think that AAA-rated mortgage-backed securities based on loans to ninjas in Alberqueque were safe assets, and they got regulators to agree that they were safe enough to meet regulatory requirements on how much equity they must hold as an insurance against foul-ups.
Of course, this turned out to be a bad move.
After Lehman, banks decided that their mortage securities were uncertain, illiquid, and possibly toxically low-value, so they wanted to trade them for liquid cash and properly safe debt.
Because of the collapse in tax receipts, the Treasury needed the Bank of England to issue a lot more debt to pay the bills. This the Bank did, The BoE also swapped a load of crap assets for government debt, to increase the money supply and oil the gears of the financial system.
Additionally, the BoE had to issue loads of debt in order to raise cash to inject into equity stakes in RBS and Lloyds etc.
Further, the banks now have to hold proper safe assets as equity against foul-ups, and have been told that, within the next few years, they will need to hold more still.
Because the demand for governemnt debt was (and remains) so high, we pay interest to these banks at a very very low rate. The current interest on 10 year gilts is 3.75 percent, and, as you can see from the graph, most of the debt purchased by banks was a few years ago, when rates were even lower. Also, the UK benefits from one of the longest debt profiles in the world (we don’t have to renew our credit line very often compared to the US, for example).
What I’m trying to do is paint a picture of a situation where, post nationalisation and so on, everything is very interconnected (and weird).
The implications of this are several. The first is that our debt burden is a lot less onerous than people think, because we owe ourselves most of the debt. What poeple with money in the UK are telling the goverment is “take our money and punt it into the future, because we don’t want to do anything with it”.
You can see how – contra Osborne, Clegg & the Tories – unfazed markets were by all this debt by looking at gilt yields over the last 4 years: no great movement, other than a reduction in the rate as the BoE slashed interest rates and the flight to gilts took off.
The second is that the government needs to listen to the market and use their appetite to lend to the govt by doing things that stimulate demand and get the economy going again: profitable investment (like that Sheffield Forgemasters loan that the Tories rejected) is an excellent way to do this.
This is why what Osborne is doing is fundamentally dumb – he’s put the UK in panic-mode when our credit rating is solid gold and the big problem is that the govt is the only player right now ready and able to invest and spend.
Your rage is well-placed to the extent that banks, instead of using their new equity and credit lines to start lending productively, are using the state’s money for valueless speculation that makes them money at no benefit to anyone else. Bob Diamond says he wants to increase the risk profile of Barclays: he evidently means taking more bets rather than making more loans to businesses that will get people back to work.
But there is little to be annoyed about more generally. Our financial systems needed a large injection of cash and safe assets to get back in it’s feet, and while it is excruciating and unjust to see them already carrying on as before, we do need a banking sector and could not make one in our preferred image overnight.
The fact that so much of our debt is held domestically is a really good thing. It shields us from predatory investors like those circling eurozone countries, and it allows the state to stand up when the private secotr sits down. The real scandal is that, instead of doing this, George Osborne is chopping off the state at the knees.
The economist who makes all this really clear is Brad DeLong. http://delong.typepad.com/sdj/2010/10/the-british-conservatives-have-no-theory.html
DeLong’s introductory Econ 101 series from UC Berkley is second to none, and available for free from iTunes U – go listen!
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cynicalHighlander permalink
April 8, 2011 7:36 pmWho Owns The Bank Of England?
Basically we are being sucked deeper into debt which we will never have the means to pay back. I suppose slavery is the road we are being sucked into aided and abetted by our inept leaders with there complicit media.
Newsnet Scotland
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Superbass100 permalink
April 8, 2011 7:40 pmThanks once again for another brilliant piece of research.
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Just to rub salt in the wound permalink
April 8, 2011 7:55 pmJust to rub salt in the wound the reason why the financial institutions were able to buy up the gilts is because of the nature of the bank bailout package and the following stimulus.
1. QE (virtually “printing money”) – BoE buying gilts, but also other debts (e.g. bank debts) which allowed banks etc to purchase gilts.
2. Low interest rates – banks able to borrow from BoE at 0.5% – makes sense to borrow at this low rate and buy a higher yielding gilt instrument — no??
3. Credit guarantee scheme – allowing banks to rely on the HMG AAA rating for thier debt issues therefore being able to borrow at lower rates than would otherwise have been the case. Again it might make sense to use some of this borrowing to buy gilts if the yield on them was high enough.
The intention behind the policy was (1) to stop the banks falling over leading to a payments system close down (i.e. no cash in machine, no credit card transaction for joe public, no pay)
(2) to enable the banks to start lending again.
If terms of (1) it was sucessful – at least for now – without banking reform though the banks will fall over again.
However it doesn’t work well for (2) because the banks are still playing games on the money markets instead of lending any of money out.
The worst thing that Labour did was conceed on the need for cuts in the run up to the last election as this set the media narrative in concrete. (Though what they could say in the face of such a hostile and wilfully stupid mainstream media I do not know).
A lot of the debt problem is sort of unreal if you think about how much of it springs from the BoE manipulating the figures. It therefore should simply (ha ha) be a matter of controlling banks who hold this debt (debt we gifted to them). Post the crash – the banks (and credit ratings agencies for that matter) did not have a leg to stand on. However it has never been clear from the press reporting exactly how much the banks benefited (and are still benefiting) from these measures – only the RBS and HBOS bailouts were ever really explained (how often do you hear “of course [insert name of UK bank] did not take the governments bailout money”. They did – they all did.
OK now I’ve depressed myself.
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Michael permalink
April 8, 2011 7:58 pmSimply remarkable article. Brilliantly written and conclusively clear.
They are robbing us blind and blaming us for it so they can tax us more for a debt we never created. They think they’ll enslave us in debt, well I think they forgotten their history lessons.
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Frances Coppola permalink
April 8, 2011 8:29 pmYes, you’re right. It’s circular. We bailed them out with money we borrowed from them.
The spike you noticed I think is caused by quantitative easing, which involved the govt issuing new debt in order to buy (not redeem) its own (pre-existing) securities. This debt was bought by banks and used to improve their liquid asset ratios, a regulatory requirement imposed on them by the Govt after the banking collapse. The aim of quantitative easing was to expand the money supply in a controlled manner and recapitalise the ailing banks. But it increased the total amount of government debt, and all of it is owed to the banks. It had to be done this way because the Government cannot create money directly, it can only do it by borrowing.
So yes, part of the “national debt” is held by banks in the form of Govt securities, and we pay interest to them on this debt.
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owen vyse permalink
April 8, 2011 9:29 pmExcellent. Exactly what I’ve been wondering – but with added research.
Linked this to my fb and blog. Unfortunately it’s not about what you ate for dinner or how cute your dog is so no one will read it. But linked, nevertheless.
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Johnson permalink
April 8, 2011 9:30 pmYou’re not wrong but there’s another bit to be looked at. The banking system got into a real mess because it was putting a load of its money into questionable debt (sub-prime mortgages, etc). So when the money markets froze, the banks didn’t have any short term funds to keep themselves running – either the Governments stepped in to provide that liquidity or they would go to the wall (and the horrors of that would make today’s shitty economy look like a picnic).
At the same time, the banks were told/worked out for themselves that it would be a good idea for them to invest in safer bets i.e. gilts. So yes, a lot of banks have lots of government IOUs but the ones we bailed out we now own so that works out about level. The banks still had money to invest but they mustn’t use it to prop themselves up otherwise you end up in an Enron situation.
To use the crass personal banking metaphor – imagine that the banks are someone who has run up a £10,000 credit card bill. They get a personal loan to pay it off (so they don’t get declared bankrupt) and decide to be more responsible so they invest 20% of their salary each month in the company that gave them the personal loan. At the end of the day, the loan will be paid off (with interest) – i.e. we’ll sell shares in the banks at a profit; the person is now more responsible – i.e. they have secure investment in gilts rather than get rich quick sub-prime bundles and nobody has to be declared bankrupt.
Of course the catch is that instead of £10,000, it’s several hundred billion, the individual doesn’t seem to be that much more responsible and to allow us to make the loan, tens of thousands of Government employees will be laid off.
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Mark permalink
April 8, 2011 10:36 pmThis probably also accounts for why the bond markets didn’t punish the UK when it opted for austerity after the election, when the markets had, at that point, already punished Ireland for opting for austerity. Good research.
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Snoop Dog permalink
April 9, 2011 1:57 amYou owe the money to me.
Come on, cough up bitch’s
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Dave permalink
April 9, 2011 3:14 amI think you’re great, you’re better than anyone who writes for the papers.
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Mike permalink
April 9, 2011 4:12 amHopefully this will go viral and cause the media to push it into the public eye.
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Roger Lewis permalink
April 9, 2011 4:59 amThe fall of debt money capitalism can not be more than 20 years away the failure of Western governments to address the balance in 2007 when they had the chance was a real cop out showing how democracy really functions in our so called democracies. Of course the role of America in the perpetuation of an inherently divisive system can not be underestimated I do believe that the world will evolve away from the broken system that currently prevails I have been reading very gingerly into the concept of Gian democracy there is some interesting stuff on the web from a guy called Roy Madron. There is also some very interesting work which I first came across on kunskapskanalen on well being and inequalities in societies published by RIchard Wilkinson.

http://www.gaiandemocracy.net/articles/GD%20-%20Shared%20P%20and%20P.pdf
I had a breif correspondence with Roy about Richard Wilkinson and Kate Pickets work after seeing the lecture Wilkinson gave in Sweden I couldn’t get it out of my mind so much so that six months later I found it on You Tube to hear it again.
http://prosperityuk.com/the-problem/
Henry Ford was asking the same questions that you are asking here back in the 1920′s
the Prosperity UK web site has some very good research and analysis of what Roy calls the Global Monetocracy, the system of Debt Money . I think my research is going to lead me to the notes for Bretton Woods, the end of the Gold Standard and all of that. that was all around the time that Henry Ford gave his speech I think.
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- Roger Lewis permalink
  April 9, 2011 11:51 amEdit Bretton woods was in 1944, just about to start ploughing through it anyway, its nearly 30 years since I read anything about it anyhow.
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EnorMouse permalink
April 9, 2011 8:45 amThe first thing that you need to understand is that the big banks did not suffer a cash crisis – there was no run on them – they suffered a liquidity crisis, in so far as they would no longer be able to comply with the calculation of liquidity requirement as set out by the FSA.
The pieces of paper that were issued as investments backed up by the mortgages, were classed as market tradeable investments, in so far as they were being bought and sold between the banks and as such were considered to be part of the banks liquid assets, that could be converted into cash at short notice.
When the crisis hit, the market for these ‘investments’ disappeared almost overnight as no one knew what they were really worth, even the ones backed by good mortgages or underwritten by insurance companies. Accordingly, as they could not be readily converted into cash, they could no longer be classed as liquid assets.
This is where the Government stepped in. They did not bail out the banks with cash, they bought shares in the banks, paying for them with government bonds aka gilts. As there is an active bond market, these bonds were considered to be liquid assets and filled up the hole left by the mortgage backed investments no longer being classed as liquid.
So no, the banks that were being bailed out did not lend the money to the Government for the bail out, but instead the Government acquired shares in the banks, which they may yet make a profit on, by issuing the banks with a load of new bonds, which the banks have continued to hold. It was all a paper chase.
The reason that cuts are needed is to do with Government overspending since the end of WWII and the introduction of the welfare state. The Governments of the day have been funding a chunk of this spending (which has been keeping the electorate happy) by using state pension contributions to fund current spending. There is no money to pay for all the future pensions that have been promised and no accounting for this liability. Estimates of the size of this black hole range between £5 and £9 TRILLION pounds, which makes the tens of billions used to buy into the banks little more than chickenfeed.
If you want to worry about anything, it is this black hole which works out about £250,000 per household and as yet no one is paying any interest on it.
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Alan P permalink
April 9, 2011 9:37 amI have got to a similar point with my own research, but from a slightly different angle – ie if you look at British debt over the last 100 years we are near the bottom of the long term range, not the top.
There is a “cashflow” problem right now because we are borrowing against the post 2008 crash conditions (which was caused by taking all our money to give to the banks), but that is standard Keynesian economics.
What I don’t understand is quite why the Govt wants to rack down so tightly on this model.
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Alan P permalink
April 9, 2011 9:55 amBy the way I did also read that CIA thing, and of course all they did was sum all the debts and not net them off against the owings. One would almost suspect that they think it is a normal model that you foist debt onto taxpayers while keeping interest payments private
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Peter Cowen permalink
April 9, 2011 10:02 amOK nice article and some good questions but questions that I thought rather obvious but I could be oversimplifying.
The banks buy up gilts and make other -as part of their standard business practice. The banks we saved are owned by the government and expected to run normally and profitably and this includes the investments, none of which are safer than government gilts. We will at some point sell Lloyds for a profit and Northern Rock and NRAM, who knows maybe a profit from them it is to early to tell.
It should also be noted that the majority of our debt is not a product of the banking crisis though the general tone of your writing suggests to me you’d like to conflate the two. Furthermore our structural deficit is the result of lost tax receipts and a massive boom in public services (865000 public sector employees over 12 years was unsustainable levels of growth).
It should also be noted that this has nothing to do with QE, we may still yet pay the price for that though.
You should really bear in mind that the current crisis is a product of a global economy that refused to go into recession in 2001 as would have been perfectly normal but stubbornly gambled with monetary policies like cheap interest rates and regulatory bodies that were ever expanding but growing ever more incompetent it seems.
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- adrianskilling permalink
  December 7, 2011 5:23 pmA shame(!) Northern Rock was sold off at a loss of between £400m and £650m. http://www.bbc.co.uk/news/business-15769886.
  I mostly agree with your causes for the crisis, government policy seems to be growth at all cost, never mind relaxing regulation, hurting citizens or whatever. You haven’t mentioned the oil price which massively spiked before the crisis which was a burden the economy could not take leading to the collapse in growth. Oil fuels the economy, its a primary energy source with which we have found no suitable replacement. Along the debt based money and the lack of growth our debts cannot be payed.
  One aspect is that ALL(~98%) money is debt based money but the debt cannot be paid off, since the money to pay it off has to be borrowed which incurs more interest.
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Bill Kruse permalink
April 9, 2011 10:26 amSome more research for you, if you wish. Now you’ve got this far, ask yourself; How do we come to be in this predicament at all, how did something so insidious and wrong as the National Debt ever begin? Clue; George Downing. That’s right, the Downing Street guy. Some research into him will prove revealing, I know; I’ve done it.
BB
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Neil permalink
April 9, 2011 10:38 amThe biggest “lender” are pension funds and insurance companies (buying gilts to fund annuities i.e. pensions). So the easy answer to “who does the government owe this money?” is that they owe it to ME and I want it back before I retire thank you. If the government wants to keep running up debts it cannot pay, I want a higher interest rate on the money I lend them through my pension fund. The higher rates are to pay for the risk that the government cannot pay and I lose my pension. Are you following this so far?
The banks increased their purchase of gilts due to the Basel 2 regulations on capital requirements – this is supposed to make them more stable than if they invest in hedge funds, or would you prefer they continued gambling?
These debt numbers make perfect sense, all sensible people know that it is OUR money that the government is spending. It always comes back to a basic question – do you want your hard earned money to go to your family and your old age, or to go on fighting pointless wars in Iraq, overpaying useless local authority managers, or paying benefits to millions claiming to have “bad backs” (incredible how the UK seems to have 27% of the adult population registered as disabled, whereas it’s only 7% in Italy)
http://www.realising-potential.org/stakeholder-factbox/disabled-people-worldwide/
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Peterh permalink
April 9, 2011 10:43 amGreat article. Is the answer that capitalism only works if money moves? If everyone put their cash under the bed the economy would collapse. The primary way to make money move is through debt. So governments buying and selling debts (sometimes from the same people!) has just been a way to get it moving again?
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oldpolitics permalink
April 9, 2011 10:55 amIn fairness we did essentially order them to do it
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/09/regulators_agree_7_capital_rat.html
And the Bank of England has done £200bn of Quantitative Easing. Even allowing for some of that having been used to buy private sector bonds, it accounts for most of the yellow line, there.
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Roger Lewis permalink
April 9, 2011 11:20 am“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people.”
Henry Ford, Muscle Shoals 1921
http://query.nytimes.com/mem/archive-free/pdf?_r=3&res=9C04E0D7103EEE3ABC4E53DFB467838A639EDE
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Roger Lewis permalink
April 9, 2011 1:10 pmBretton woods led me here from a footnote, very interesting.
http://video.google.com/videoplay?docid=-2550156453790090544#
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jim streets permalink
April 9, 2011 2:28 pmCan anyone get the media interested in this question? It does seem fundamental!
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Minus permalink
April 9, 2011 3:11 pmWith re: The large surge in gilt ownerships by banks, the Bank of England bought £200b of government gilts due to Quantitive easing. http://www.infiniteunknown.net/2009/11/07/bank-of-england-extends-quantitative-easing-to-200-billion/
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KT permalink
April 10, 2011 9:03 pmThis sounds remarkably like a debt Pyramid scheme…………..
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April 11, 2011 3:38 amI just wanted to make a quick comment to say I’m glad I found your blog. Thanks
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Sampson permalink
April 11, 2011 10:04 amIf your interested in the way that the banks work (yes I know they don’t really “Work”, but let’s go with it) then I suggest you all check out http://www.positivemoney.org.uk/
The banks operate something called the “Fractional Reserve” system, which allows them to create “New money” as debt. Each time one of us takes out a loan the bank creates, in effect, a pair of IOU’s. The first is clearly your promise to repay the amount lent, plus interest. The second, more surprisingly, is the banks promise to pay you the loan amount, which it has just created by typing in a few numbers on its balance sheet.
In essence this amounts to private, for profit institutions having the power to issue currency. All they need to do this is a banking licence. They typically hold less than 5% of the money they lend out as deposits.
This means that for every percentage point of growth in the economy the banks take 0.95 of it as profit. So the country makes an extra £1,000,000 in GDP and the banks hover up £950,000 of it to pay out as bonuses to a few of its staff.
It is in essence a total, complete and utter con. What is the point in worrying about sovereign debt if we don’t have sovereign control over our own money supply?
Lets look at some facts.
The banks expand the money supply by lending and deposit cycles.
Currently they expand the money supply by around 10% each year. You will note that the economy does not grow by anything like this amount.
They do not expand the money supply in a planned, even fashion. During the boom, say 2003-2007, they expand the money supply as quickly as they can, by lending out money that, in a good percentage of cases cannot be paid back, until the system collapses. Then we hit the bust. At this point the banks stop lending new money and the rate of repayment overtakes the rate of lending, the money supply contracts, and the economy takes a nose dive. Now usually governments step in at this point and start spending to keep the money supply up, and the economy ticking over. What this government has done is cut its spending, which further reduces the money in the economy, deepening the crisis, reducing the tax take needed to pay the debts. Of course this causes yet further holes in the public finances, causing more pain, and further cuts. Sound familiar?
Well this is what happened in the 1930′s when a different bunch of economically illiterate clowns decided to instigate austerity measure during a recession. That caused the Great Depression (much lie the one we are currently going through)and was only ended by World War II, and we all know how that panned out.
So what can we do about it?
Simple, prevent the banks from lending money that they don’t have, and don’t have permission to lend. Change the law to stop them creating new money.
The money needed for economic growth would then be issued by the BoE and given to the government to spend as it see’s fit (citizen income, public services, infrastructure, green investment , no income tax or whatever). This would then allow a degree of control over the economy that is unheard of today. It would not solve all of the worlds problems, but it would mean that a “booming” economy would benefit us all, rather than just a few rich bankers.
Ask yourself this; given the economic success we have been told we had for the last decade, do you think you’re any better off? Are you better off than a person in you position ten years ago?
Unless you’re a banker I’m betting the answer is no.
Visit http://www.positivemoney.org.uk/
get involved in changing the system so it can benefit us all. The alternative is to face a fresh crisis. The bust in each cycle is get closer together. The scale of the crisis increases each time. How long before it is permanently broken? Do we want to be around when that happens?
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- Roger Lewis permalink
  April 12, 2011 9:36 amThis is really the answer. The Commission for separating Retail from ( Investment ) Banking is a very poor sham.
  I have rationalised it down to my own simplistic Metaphor of a Tail Wagging a Dog my king of Country Lads analogy to what this is all about.
  . Have you considered that ultimately so called Investment Banking relies on the concept, and a concept is what it is, of Debt Money.
  That is a money supply based in a system of IOU’s that are accepted by FIAT( not the Italian Car Giant) as currency. We as the general population accept this Debt Money and it is the fact that we can exchange it for food and shelter that we accept it in payment for our work.
  At the most fundamental level investment banking needs retail Banking and the Debt money fractional reserve system that is licensed by those who Govern Us , it has been this way more or less from the time of George 1.
  There is a rather overblown and pompous tail (Investment Banking) wagging a once proud and loyal Dog( Just about everyone else including the extinct breed of wonderful hardworking executive Branch bank managers)In business my first Bank manager was Called Bill Turner he worked for Nat West in the Westferry Road Branch in the East End of London.( He was pensioned of in the mid Nineties ).
  Now although considered cruel in some circles you really want to Doc, the Tail of your Gun Dog.
  Time to Doc the Tail of the banking system. Without docing the tail the dog will be destroyed having been driven half mad.In this case it may well be that this Dog has to be destroyed and we will have to train another one.
  This is a very troubling question. Thank you Sturdy Blog for initiating such a helpful discussion
  Reply
Tom Tough permalink
April 11, 2011 10:15 amI alwasys thought that the value of currency had to be backed up by gold reserves. Or has that now gone out of the window? It seems that the Western Goverments through Quantative Easing are creating money from nothing.So why do we not need a wheelbarrow full of cash for a loaf of Bread??
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Elizabeth Greener permalink
April 12, 2011 5:04 amI read this with interest. Regardless of who we owe the money to the people who are most affected are still the poor and the vulnerable. It is the government’s way of ensuring that those with little are paid less, keeping wages low and prices high. It is time to stand up and be counted and let them know that we are not taking this lying down. Will we ever come out of recession, not while it means that wages can be kept low and people fear for their jobs.
The gap is ever widening between the haves and have nots – this is no accident
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James Paton permalink
April 12, 2011 5:37 amHi
Fansinating. Very interesting and extremly useful anaylsis. Sucha hiuge pity its unreadable.
White type on black background is impossible to read for some,and dare I say pretentious? Please do consider changing it and therefore help those you like what you’ve got to say , be able to read it.
Thnakls
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Philo permalink
April 12, 2011 8:32 amAnyone remember the old Morecombe and Wise gag. Eric says to Ernie, ‘Lend me two pounds’, so Ernie gets out two pound notes. Then Eric says to Ernie,’I'll only take one of them then you will owe me one pound and I will owe you one pound and we’ll be quits.’
Whatever conspiratorial game the banks and the Government are playing between themselves they are funding it at the expense of the British People. I was taken by Sturdyblog’s analogy in his follow up piece where he likens the banks to leeches. They are in the business of making money out of nothing for their own gain. They are not producers, they are not even a service industry because they only serve themselves.
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zenix permalink
April 12, 2011 10:17 amThe short answer is that we owe the debt to anyone willing to lend it to us (although mainly pension funds and financial institutions).
Banking may or may not all actually be a big circle supporting a colony of leeches (although speculative banking most certainly is), but unless we want to ensure that no-one’s going to lend to us for at least a decade then not paying the debt isn’t an option.
Not borrowing for a decade might also be a good thing, but we can’t do it right now mainly because we’re borrowing around £150 billion a year and if you thought the cuts sounded bad, wait ’til you see what it takes to knock 10% of GDP off government spending all at once.
The one interesting anecdote I would point out is one about the bank of England. QE is where the BoE prints money and uses it to buy financial products (mainly govt. debt) in order to stimulate the economy (how that works is a little too invloved to explain here but they probably explain it on their website). But have you ever thought about how it actually works?
BoE prints money –> more money in circulation but same number of goods (houses, cars etc. as before) –> each good corresponds to a bit more money –> prices go up to compensate for all this new money –> inflation goes up.
QED, Quantitative easing is effectively the bank of england stealing our money (through higher inflation) in order to lend it to the government. Am I the only one who thinks that if QE actually stimulated the economy, then that would imply high inflation is good for growth?
Oh yeah, and stealing is wrong, and the Bank of England (or any bank for that matter) should not have a license to be able to steal, at will, from the British people.
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Sampson permalink
April 12, 2011 11:28 amzenix
QE is not quite the same as the BoE stealing our money through inflation, but nearly. It does however keep money circulating when the rich go into panic mode and start hoarding all the currency they can get their thieving little mitts on.
You do seem to have missed the whole point about the accounting practices of the banks though.
Every time they “lend” money out, they are in effect doing the same thing as QE. They create an IOU in your name (punch the money into an account for you) and you right them an IOU for the amount “loaned” plus the interest you’ll need to repay.
What is the difference you ask?
Well when the BoE uses QE it does so, so that there is still money moving through the system, staving off the worst of the potential effects of the credit crunch (the fact that the banks are too scared of failure to create any more new money). It is done in the short term interests of society at large, with a mandate from the public, via the government (another debate I know).
The commercial banks do it every day. The charge interest on the money they create. They never had any sort of mandate from the people, because 99% of the people of the UK do not even know that the banks lend out money they do not in fact have.
This in effect subsidises the banks to the tune of tens-hundreds of billions of pounds a year (depending upon whether it is a boom or a bust year).
In essence it is like a Welfare system for already rich.
Now there are many alternatives to this system. Personally I prefer the positive money solution (see http://www.positivemoney.org.uk/)
, but I would like to see this system combined with digital money (in which every pound has an ID code, so that even electronic money cannot easily be counter-fitted). Other alternatives, such as the old gold standard, result in a flat currency, which is a serious issue in a growing economy/population. Besides there is a finite amount of gold, and we will need ever increasing amounts of currency to represent the goods that a growing population needs to live on. A fixed currency would end up with deflationary consequence’s (increasing production, but fixed amounts of currency).
I think the main point though is that the banks need to be prevented from creating their own currency. That should be the preserve of government or non-government, public bodies to decide. The benefit for a growing economy should be with the labour markets, not the money markets.
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- Roger Lewis permalink
  April 12, 2011 12:00 pmHere here,
  Where do I cast my vote for this?
  Reply
Sampson permalink
April 12, 2011 2:39 pmRoger Lewis
Unfortunately you don’t.
The Tories spent over £10 million during the election. More than half that amount was donated by the bankers, so the current government has already been well paid to see that things don’t change in our favour.
I, amongst many others, have been writing to my MP, The BoE, the Treasury, even the BBC (who’s coverage has been very one sided), but there is simply not enough people who know what is going on and what the alternatives are.
We need to start putting massive pressure on the system to change. The alternative is to sit back and wait for the collapse, but that will result in war, famine and unprecedented bloodshed. We have all but recreated the economic and social conditions that led to the Second World War, but this time it could well go nuclear!
Unfortunately the politicians and oligarchs that make up the capitalist cleptocracy feel rather to safe and conformable at the moment. I think they will not change unless their lives seem to be threatened by mass civil disorder.
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- Roger Lewis permalink
  April 12, 2011 3:45 pmHi Sampson,
  I fear you may be right, lets hope not though.
  One wonders how to get the BBC or some other mass media to set out all the facts and alternatives, social media is probably a more likely conduit though.
  We can but try to pass on what we feel we know and try to understand a way forward with those around us.This blog seems to me to be remarkably effective at setting out the concerns, Positive money and economania also seem very level headed and helpful for those of us who are interested but do not wish to be preached too.
  Most people have had bad first hand experiences of the banks like me they may have probably half doubted that it was maybe largely their own fault.
  No one likes a fix when all is said and done, lets not give up hope just yet.
  thanks for you thoughtful posts here and links I have found them very helpful.
  Best wishes
  Roger
  Reply
gina b permalink
April 12, 2011 4:13 pmone more thing….a lot of money comes from us and our spending power. Remember the blind panic after 11 Sept 2001 when New Yorkers stayed away from the shops? Shop For America!!
Well – we could organise ourselves to target our spending – or not spending.
We have some power if we co-ordinate it.
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Chris Hemmings permalink
April 15, 2011 10:07 amSimple answers to the original question are threefold:
1. – To the planet as we’ve extracted and exploited at a frightful and frightening way for the last few decades and left our natural environment and ALL its inhabitants reeling in a wholly unstable way so’s no-one can foresee future reactions let alone “put them right”.
2. – Our children who will have to face this chaos as it unfolds.
3. – “The Chinese”, of course, although we are locked in economic combat now as the bilateral nature of our symbiance is tested to the full. Yeah they thought they needed us but are quite reasonably questioning this now. We have to be weaned off the addiction.
Luckily resolution of the first criterion is the only fundamental issue at stake and when we resolve collectively to address these vast problems all else becomes irrelevant.
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jamesjpaton permalink
April 15, 2011 10:47 amYou couldn’t make it up!
If we were to develop a monetary system from scratch today – which could be done by legisaltion – after all new currencies and arrangements are created all the time – would we really have such an exploitative nasty system of managing money, and one in which bits of paper (bonds and gilts) are used to make huge amounts of money through their trade for a very few, with absolutley nothing useful produced and no communal benefit.
Have we as a spieces, with all our advantage and apparent brain power, really come to this? To quote Monty Python in the meaning of Life, ‘hope there is more intelligent life out there in space, ’cause there’s bugger all here on earth!’
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Ian Saunderson permalink
April 15, 2011 12:04 pmYes – it’s an old scam of course – it was a scam when it was re-invented (1690 Bank of England) and it is today. It will bust the world economy for sure unless stopped – and sooner than most think -it is well out of control now. Too many politicians are incredibly ignorant or in on the scam (for surprisingly small amounts of money they will sell their country into trillions of dollars of “debt”). Probably why politicians have such low respect – they play along with flagging up utterly irrelevant issues to distract anyone from looking at the real issues and endlessly get involved in issues that are nothing to do with their own job – again to distract. It is painfully simple – it’s a robbing scam. By the way – wars are the common tool to greatly increase the debt, distract and take out countries that won’t play their sordid game. From the Napoleonic, WWI and WWII to the “War on Terror” – many more of course but those were the biggies to take out the UK (was the world super power till then) and beggar eurpoe in general. The US will be next of course – too many savvy Senators there still and the population is still too rich for some’s liking. Oh most of you know all this already and there are many great videos out there to fill in the detail – who can I vote for? Could they stay alive? Would the BBC et al take them out with Panorama and the like – probably. Make sure you have a log cabin and some gold I say.
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rogerglewis permalink
April 16, 2011 7:16 amExcellent Lecture delivered to House of Lords in 2000.
http://www.honest-money.com/talk.htm
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rogerglewis permalink
April 16, 2011 7:54 amhttp://www.honest-money.com/images/THE%20CONTINUING%20RISK%20TO%20THE%20BANKING%20SYSEM-final%20draft.pdf
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Kris Bonanno permalink
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Ed Barrett permalink
April 18, 2011 7:45 pmA few books spring to mind you might like -
Naomi Kline’s ‘The Shock Doctrine’
Sebastian Faulks’ ‘Human Traces’
and one I haven’t read yet, but looks interesting: ‘The Master and his Emissary’.
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Expat Rentals Singapore permalink
April 19, 2011 12:01 pmt’s worth pointing out that that is gross debt, not net debt. It’s not supposed to sum to zero.
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Steve Finney permalink
April 22, 2011 1:59 pmHi there, now you are as angry as myself, the biggest financial scam in history. Great statistical research you have there. You might be interested in checking out David Malone’s blog, author of “The Debt Generation” it is a goldmine of relevant information concerning this subject & others relevant to it. Thank You for your efforts.
http://golemxiv-credo.blogspot.com/
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Mark-Lee:Giles permalink
April 27, 2011 8:10 amYou can easily understand this systemic manipulation of the cost or value of money or property; and to inherent, irreversible (and therefore terminal) multiplication of artificial indebtedness by interest…%%%%%%
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Sampson permalink
May 4, 2011 11:32 amFor those of you interested in banking reform there is already a quite well established campaign here in the UK, started by a couple of rather good economists.
Please visit http://www.positivemoney.org.uk/
and get involved.
As it currently stands the UK’s economy supports the banking system to the tune of tens of billions a year. They are basically sucking up over 95% of all the profits made by the UK PLC.
This money could be used to pay a citizens wage, pay for services such as health care and policing. Instead it is used to make millionaires of the privileged offspring of the already rich.
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Confused person permalink
May 17, 2011 4:18 pmIs the government having to “bail out” the banks because the banks have no money due to the government not having paid its debt to them?
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- Roger Lewis permalink
  May 18, 2011 4:31 amThe current problem is the result of the old adage that there is no honour amongst thieves, you can lump the government in with the thieves but they are really only lieutenants to the banking God Fathers on this one. The banks essentially called each others bluffs on who had gambled beyond the level of the juice ( Vig) they could extract from their numbers game on the street ( we are the Mugs , The Marks ). The result of the Mexican stand-off amongst the Banks was the liquidity crisis and the banks had to admit they had overdone it gambling the future juice away and they were bust. Cue the lieutenants agreeing to put the squeeze on the mugs More Taxes less benefits etc etc and even where we can’t pay in our lifetime it is a blood debt of honour which can never be paid.
  We have been sold as patsies by the governments whose franchises were bought and paid for by the Godfathers and the cost of the addiction of the vainglorious politicians has cost the Godfathers nothing they sold the politicians their own promise to pay which is our ability to pay Taxes.
  There is a great film called inside job and one commentator uses the Mafia analogy to describe two party politics look at any numbers or Drug racquet and its social hierarchy and the banking system becomes very easy to understand the money is however homeopathic at best and a placebo in all but name.
  Reply
Roger Lewis permalink
May 18, 2011 5:17 amJust posted this at Golem XIV as well.
RogerGLewis said…
Hi Golem and hello to all the other excellent contributors of comments to this blog, there is a lot of reading to do here with the links which are also posted and I will get through it “one grain of sand at a time”.
I was directed here by a comment posted in Sturdy Blog http://sturdyblog.wordpress.com/2011/04/08/to-whom-do-we-owe-this-money-exactly/#comment-610
There are more and more people seeking answers to unasked let alone unanswered questions my comment is directed more to those who like me agree that there absolutely is a very bad problem and it is what Roy Madron calls the Global Monetocracy its a coporate Oligarchy that has hijaked the Agenda in pursuit of its own narrow interests.
My suggestion is to suggest a simple but effective direct action we can all take to force the hand of Governement where we can vote with the economic power we do still have.
All private Business owners and Individuals should Close bank accounts and trasfer all deposits out of the Banks in private hands and open accounts with the sate owned Banks RBS and Llyods and so forth
THose banks should then be kept in Public ownership and there should be a return to a credit based Honest Money system If any of the other Private Banks survive without Public Assistance them good for them but more regulation and very strict regulation regarding the usefullness of the funn money merry go round needs to follow.
By forcing the issue this way the actions of politicians would be very accountable how would they be able to repeat the current change in Narrative.
Just a quick post and basic idea I’d happily throw all my effort into a joint effort to initiate such a campaign if upon full discussion and reasoning a caucus of opinion felt it was a worthwhile plan.
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Sampson permalink
May 19, 2011 11:02 amRoger Lewis I like the idea of using the “state controlled” banks to leverage influence on the government, but I fear it could not work for a number of reasons.
Firstly, the Tory government would almost certainly sell on its shares, even if they lost the country a fortune to avoid being held to account by the electorate. It would be relatively simple and would not require an act of parliament. Gideon Osborn could just sign the papers.
The other main issue, and one that is little known and little understood is the role of a shareholder in a company. In most case buying shares in a company does not give you any sort of voting rights or influence on the way the company is run. The board of directors and Company regulations will simply tell you to sell if you don’t like it. Look at the fact that the banking boards are paying out even more in bonuses now than they did before the crisis occurred. You would have thought that the shareholders would have voted NO, NO, NO, but in reality they did not have any say in the matter. The only hope is the government, but they took most of their campaign funds from these same bankers (tens of millions).
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rogerglewis permalink
May 19, 2011 2:32 pmHi Sampson,
I understand the point you are making the effect of all depositors going to the State owned banks would force a crisis on the other banks I feel and with every one watching the state owned banks I suspect that the coalition might well fall and any precipitate action taken by a chancellor of the exchequer would be illegal and surely be held to account.
On shareholders voting for remuneration of Boards etc I think one of the problems is that the pension funds are run by the same self justifying system and turkeys as we all know don’t vote for Christmas.
I am rushing out but will give it a bit of thought over the next few days.
There are still some honest people left in Westminster and there must be a way to get something to start to stick.
Best Wishes,
Roger
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Sampson permalink
May 19, 2011 7:40 pmRoger I had not considered the effect that moving all that money would have on the rest of the banking system. It could precipitate the inevitable total systemic crash, that I think we can all see is a mathematical certainty.
But that was not quite what I was getting at. People power (ala 38 Degrees) can stop them selling off the forests or water down the NHS privatisation bill, but we will not easily force monetary reform, because it hits directly at the power of the rich to have the economy work for them. Like I said Osborn does not need permission from parliament or anyone else to sell the governments shares in the banks. This would prevent any sort of influence being leveraged over them in this way.
As for the power of shareholders, it is almost non-existent with most shares. If you don’t like the way the company is run your only choice is to sell out. So you don’t get any influence here either.
I should say that the mere fact that we are having this discussion is a very sad reflection on society. It just brings home the fact that the populous simply has little or no power.
For anyone interested Professor Mary Mellor, Emeritus Professor of Sociology at Northumbria University gives a rather illuminating interview here
http://www.positivemoney.org.uk/2011/05/positive-money-podcast-episode-2-professor-mary-mellor/
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- Roger Lewis permalink
  May 23, 2011 12:53 pmHi Sampson, I have been preoccupied with some other reading the oast couple of days, yet to hear back from Positive money I voluteered to help out on line I live in Sweden these days.
  Anyway here is some encouraging stuff happening in the US the Bank of North Dakota I am sure you will be aware of these other initiatives are very encouraging.
  I posted the link to my Facebook with this thought.
  https://www.facebook.com/l.php?u=http%3A%2F%2Fpublicbankinginstitute.org%2Fstate-info.htm&h=ebc4b
  This is the stuff, come on get some of the local councillors who hopefully are not up to their necks in Westminster back scratching toady BS to push for some of this. Nationalise Llyods and RBS regionalise them into divisions by counties and launch their own credit money if needs be call it the peoples pound.
  The old one Stirling Currency can be called the pound of flesh they certainly have had their pound of all our flesh ( Good Old Shakespeare, Merch of Venice)
  I like Ellen Browns writing will have a look at your link to professor mellor now.
  Best Wishes,
  Roger
  Reply
Roger Lewis permalink
May 23, 2011 1:38 pmGreat interview with Professor Mellor , I really enjoyed that very inspiring.
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rogerglewis permalink
June 1, 2011 4:34 amI owe a great deal to Sturdy Blog for raising this question and to the many comments and links posted. So thanks everyone. I hoe plenty of people are getting some new insights into how the world and the economy seems to stack the cards against the everyday Joe and Johanna.
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Thomas permalink
September 15, 2011 10:41 pmIf the banks are the only people who lend money and you can only get money lended with intrests rates, so they give out 100 and expect 110 back. how can this ever work??? It’s a giant pyramid scheme that’s doomed to fail every 70-100 years. Look back in history. People who are at the top are just hoping to cream as much as they can, then they retire with millions. quickly replaced by the next person hoping to do the same. Therefore nothing ever changes! People who have a greed for money naturally will work in banks therefore you Greedy bankers etc
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Tapestry permalink
September 25, 2011 4:53 amHow can you explore this topic without reference to the role of central bankers?
Equally do you know that the top 500 companies in the USA are all partially (10-20%) owned by a mere 4 banks? (Dean Henderson)
Those banks are owned by a small group of families all inter-married.
Try reading http://the-tap.blogspot.com/2010/02/who-owns-bank-of-england.html
and catch up with Dean Henderson.
If you want to find out what really lies behind the debt, you need to understand the tiny cartel that controls the world’s financial system.
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- Roger Glyndwr Lewis permalink
  October 3, 2011 5:39 pmTapestry this was and is a stellar blog on the issue that turned a lot of people on to the rather cosy ** Free Market” enjoyed by a small cartel well hidden behind some common and trusted ( for want of a better word) institutions. I certainly went on to a lot of further research prompted by the question posed in this blog.
  There are a lot of predjudices and cherished certainties that people will not let go of easily this blog raises the debate intelligently and patiently within the comments there is a lot of recommended or suggested reading including your own which informs the debate admirably.
  Time for us all to re double our efforts to get those we love and those we care about to start asking the same questions
  Reply
Jim Duthoit permalink
November 20, 2011 3:33 pmInteresting article. Like you I have tried to discover just how much the UK owes the World Bank and the IMF and have come up with no available information – and this in the age of Google. Like you I would like to know exactly what this means in real terms, and who are the people behind both organisations. Like you I am not altogether impressed that we, ordinary British people have bailed out the financial institutions and now find ourselves indebted to them – really? And like you I am a little perplexed by the fact that no one in Westminster seems to be even willing to raise such concerns.
Odd world; I will call back to this site.
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anna vyse permalink
December 23, 2011 11:14 amI have read all of your reasearch and very detailed, as usual, All I really have to say is that American life just keeps getting from to horrible to nightmareish. People here are still losing jobs and businesses only to work for “big box” stores, hence losing their homes and then killing themselves. If not the horrible fate of suicide, they are now sentenced as criminals for staling their family groceries or selling their own perscriptions and bodies ro earn monney to live. My advice is pay a better wage and the people who work will be able to spend more, giving an economy boost to these countries will increase spending also not having to make criminals out of our neighbora and friends.
The problem is that the state only cares about the state and not those who keep the economy running.
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Jim Duthoit permalink
December 31, 2011 5:52 pmI came across this site because I had asked myself the same question (To whom do we owe all this money?) and then Googled it. I also found that a second question I had asked – why, after the financial crisis of 2008, have so few people questioned the free markets? – was also mirrored here, ie: “People presenting themselves as experts, expressing surprise at my anger, because the situation is precisely as it should be.”
‘Group Think’ is the term for a paradigm or a shared outlook. Group Think ensures that the underlying values of the group are never questioned because they are so widely held that they are assumed to be true. This means that anyone who challenges the shared outlook is regarded as an outsider. This limits any solutions to those already being applied, and treats all novel approaches as dangerous or unnecessary. If no other solutions are permitted, it is difficult to see how there can be any outcome other than more of the same.
Perhaps the more pressing question is whether the present situation is sustainable, fixable, or whether there will be further decline leading to an eventual crisis. I do not have an answer to that.
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January 5, 2012 8:30 amMagnificent site. Plenty of helpful information here. I am sending it to some buddies ans additionally sharing in delicious. And certainly, thanks on your effort!
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- sturdyblog permalink*
  January 5, 2012 8:47 amThank you.
  Reply
buy kinect permalink
January 9, 2012 4:46 pmUseful info. Lucky me I found your site accidentally, and I’m shocked why this twist of fate didn’t happened earlier! I bookmarked it.
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jamesjpaton1 permalink
January 11, 2012 6:42 pmAn acquaintance has challenged me on these figures suggesting we need to look at net instaed of gross debt. Does that make any kind of difference to the overall arguement. I suspect not but woul like to be informed prior to a coming debate with him. my basic undersatndign is that we have put the piublic in debt to rescue a private sector industry to an extent we have never seen before. It begs the (albeit rhetorical) question why public debt was not increased to under the 1979 and 1982 Conservation administrations to restructure and modernise the so called called’ failing nationalised industries of old i.e. water, electricity, oil, gas, telecomms, coal, steel, gas, ship building, trains, buses and public housing
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Fred Allen permalink
February 15, 2012 12:37 amGive this a listen, it takes some time to load, and the themes are challlenging but it seems to corolate quite well with the statement.
http://iamthewitness.com/audio/Muhammad.Rafeeq/TFC.SMITH.RAFEEQ.03-03-2010.mp3
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Annonymous permalink
May 3, 2012 12:13 pmWe owe it to everyone and no one.
Its owned or owed to the central banks or treasurys within each country.
America for instance. The federal reserve prints the money and then sells it to the banks in the form of Gov Bonds. This essentially means the bank is promising to pay the FRB the money back (with interest) The bank then reserves a tiny proportion of the money and with the rest they double the amount of available credit (post the reserve) and loan the (non-existant money)either to ourselves or other smaller financial institutions with a contract to agree that the money will be paid back (with more interest than the banks would pay to the FRB).
So you could argue that we owe money to no one because the money doesnt even exist.
There was a case in the early ninties a gentlemen failed to meet his mortgage payments so the bank tried to reclaim the house.
The man took the bank to court to argue that the money didnt even exist and he won. There are more details to this story but trust me reasearch it…
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fippletest permalink
May 17, 2012 9:35 amMoney is a promise to pay, owed to whosoever the promise to pay is made to, simple as that. “PROMISE TO PAY THE BEARER” on the face of a bank not means that something is owed to the owner of the money.
The problem is then the willingness to trade on the promise to pay but with no actual demand for redemption.
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Iva C Rogers permalink
May 27, 2012 7:12 pmI agree with cynicalHighlander
Debt seems to be the path of inevitability for us Brits now and at the same time we are expected to bail out Greece.Where is this bottomless pit of bail out money hidden I’d like to know? Would the Greeks bend over backwards to help us in our hour of need?
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allan black permalink
June 6, 2012 12:11 pmI’ve been asking this question for years
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paul permalink
June 6, 2012 5:02 pmA good place to start to understand what is going on and how this all ties in with other world events is: watch the following documentaries on google videos or youtube: Wake up call- remastered edition, Zeitgeist,The money masters, The Obama Deception, America freedom to fascism, Endgame, Terrorstorm, Monopoly Men.
Or google the following keywords: New World Order, Federal Reserve Fraud, Cashless society, Problem-Reaction_Solution,Bilderbergoup,Microchip
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paul permalink
June 6, 2012 5:06 pmsorry, went a bit wonky at the end. See: Bilderberg group, Microchip Implants, cashless society, North American Union.
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- George bush permalink
  July 9, 2012 10:17 pmWhen will every average poor working person and that is everybody but the elite few realise that we are all been used by the elite group, No government can do anything about it, there are the few who control all countries and that includes the almighyt USA, If all country owe money to each other then why no just right off all debt and start fresh, Imagine no national debt and all personal debt gone, A new start but the elite few who are the Rothschilds & Rockefellers – Trillionaires Of The World will not allow this to happen, think about it and research
  Reply
Chattanooga Remodeling permalink
August 7, 2012 3:59 amIt is really important for us to know on how to spend our money wisely. It is especially that we are suffering with lots of economic crisis.
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bob bell permalink
August 17, 2012 2:34 pmWheres my posting am I to believe you are a Rothschild follower one of few indoctrinated to follow the creed
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how much do pharmacists make annually permalink
August 19, 2012 6:50 pmexcellent publish, very informative. I ponder why
the other experts of this sector do not notice this. You should
continue your writing. I am confident, you have a great readers’ base already!
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Jim Duthoit permalink
August 20, 2012 11:54 amWhen I think about the present economic climate, I find myself unable to settle on any single outlook to help me understand it. I have only ‘fragments’ and to date the fragments have not yet congealed into anything like a clear picture.
For example, many of the more destructive forms of economic behaviour have arisen because of the ‘bonus culture’ in the banking system. Bonus culture means that once targets are set, all activity is directed towards achieving them. It was, I think, the bonus culture that led to mis-selling, libor rigging, money laundering, and widespread lending to the ‘sub-prime’ mortgage market. So is the problem the bonus culture?
Yet this is not the complete picture.
The economist Richard Duncan has coined the term ‘Creditism’ to describe the present economic climate. Duncan is no left-winger, but he says that Capitalism is dead, and what we now have is Creditism, whereby every step will lead not to the creation of further wealth, but to further debt. So is the age of unending material prosperity over?
But again this is not the whole picture.
It could be said that the housing market is a Ponzi scheme. Charles Ponzi made exaggerated claims about the profits he could make on trading on the difference in the price of International Reply Coupons. Ponzi made no such profits, but simply paid existing clients with the investments from new clients. It is an extraordinary fact that a journalist published an article pointing out the scheme was a fraud. Ponzi took the journalist to court and successfully sued him for libel. No one wanted to know the scheme was a fraud – so is the problem the ‘Madness of Crowds’?
And yet again this is not the full picture.
We seem to have bought into the notion of the wisdom of the markets. Everywhere we hear “It is dangerous to interfere with the markets”, and so the markets must be left to their own devices. So banks merge until they become too big to fail, and practices emerge which are too complicated to monitor (derivatives) or too complex to define in legal terms. The London Whale loses 6 billion and then ‘leaves’ J P Morgan. So is the problem one of complexity?
Putting all this together we might conclude that the West is heading towards economic disaster. And yet is it? Many Eurosceptics, for example, claim that the Euro is about to collapse, and produce evidence on a weekly basis to support this claim. Yet when I look at Europe (without the blinkers) I do not see an economic situation as bad as, say Cuba, the Soviet Union or Maoist China – indeed, it is nowhere near that. Is the prediction of economic collapse yet another example of an imagined crisis such as ‘bird flu, swine flu or the millenium bug’?
And then of course there is the ‘blame game’ – ie, it’s all the fault of left-wingers/right-wingers/greedy bankers/stupid people who took out too much debt/public spending/corrupt politicians etc. While each of them can be blamed, none of them seems guiltier than any other. So is the problem that we have a system where no one is in control and therefore no one can be held responsible?
Why does this matter? Any solution that addresses only part of the situation will not solve the problem at all, but quite probably make it worse. For example, the bank bailout of three years ago meant many of the underlying problems in the banking system were never addressed.
So all of the above are elements in the present situation, and many of them have been pointed out by others. What is missing is the overview that makes sense of why this is happening. Perhaps others can suggest this, or suggest who might have it.
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FreddDagg permalink
August 25, 2012 5:58 amHi
I reckon you have to ask the question which has an obvious answer “Who owns these financial institutions?” A few people so rich we can’t begin to comprehend it. And as people have stated. If every country in the world is up to it’s eyeballs in debt, to who is this money owed. If virtually everyone is in debt to whom is the money owed. A survey from CS First Boston done around 10 years ago reported in the New Zealand Listener was instructive. It surveyed Australia and discovered less than 1% of Australians owned around 98% of the land ( the places where people lived and worked) , the businesses ( the places where they worked), the banks ( to who all interest payments are owed ) and the entertainment facilities ( where all the workers occasionally seek respite and reward). Thought about this and then thought. What they are really saying is the 1% of people in all practical terms “own” the other 99%. of the population. I suggest people watch the movie “The Hunger Games”. To me modern society is not much different just slightly more subtle in some countries. In other countries the exercise of power including by so called ‘civilised” countries such as USA is even more brutal.
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mmmm permalink
September 26, 2012 8:51 pmanyone have the feeling things are being controlled by someone or some people other than government? if the government owes money to these corporations or organisations then surely they must have some form of control over policys laws etc.?
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michael permalink
November 8, 2012 12:46 amBasically we are a species that created a system that enslaved ourselves, the monetary system runs off inevitable debt, money… is debt. every bill in your wallet is owed to somone by somones, we are passing around a bunch of IOU’s because thats all this is. This whole thing that makes the world go round is fake, its a big game and truthfully we can stop this anytime, its like we are playing a never ending game of monopoly. we act as if money is actually some god given use of trade that we have to use. there has to be another way… there is no reason everyone should have to work and pay taxes and all this other bullshit. we are screwed as a species that is all i have to say. honestly, who do we owe this money too? the answer is no one, we dont owe anyone anything because its a big sham, its a big game and I for one no longer want to play, im off the merry go round.
Reply
Norman Wallace permalink
November 14, 2012 2:45 pmSo we could write off all the debt and start again with a clean slate where no country has a “national Debt” and none is paying crippling interest to the banks that started it all (That is except our friends the American Republican Party who pulled the rug from under the financial markets by removing the guaranties from the subprime market vertually at a stroke). A very interesting and informative article, thank you.
Reply
fso520 permalink
December 24, 2012 7:48 amFantastic post! This is something which has frustrated me for a while, the politicians say we just need to get over this ‘hump’ by tightening our belts, yet they never respond to my queries of how long it would take to pay off the national debt, what repayment plan do they have and who are they paying it to… the answer is that we are in a system of perpetual debt because of the fractured way in which we operate our money and in the style of business our country operates under ie) turning private debt into public debt.
There is something fundamentally wrong when we accept this warped status quo, it’s right that we start asking questions and literally follow the money. The old spin that ‘we are all in this together’ won’t do for me… public spending is going down, taxes are going up… where is the money going, why are we paying more for less?
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james permalink
January 25, 2013 5:49 amThe speedy red wolf jumped over the lazy dog
Reply
Mark permalink
April 23, 2013 7:35 pmSearch YouTube for “the money masters” and “zeitgeist addendum” for the answers
Reply
glenn payne permalink
May 7, 2013 2:39 amTheir is no debt it’s all fake to keep you under control,wake up sheepole!!!
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Connor permalink
May 30, 2013 1:18 pmSorry for the possible ignorance here and I’m an inexperienced 17 year old but to sum it up the only debts that actually matter are the ones that leave the country and all money leaving the country is what makes us broke?please correctly my faults!
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