Friday, 28 February 2014


Quantitative Easing: State sponsored theft on a larger-than-industrial scale from the working and middle classes to the mega rich. In addition to denuding the mass of the population of their meagre resources, employment and welfare, the proud cultural heritage of countries such as the United Kingdom is also being ruthlessly plundered.

It's Friday. It's Financial. It must be FRIDAY FINANCIAL
with the blog's money and banking expert JULIAN SAYER.

This week Julian takes a look at how RBS has managed to take billions of taxpayers’ money and, err, piss it against the wall.

MUCH to the dismay of the British taxpayer, the Royal Bank of Scotland (RBS) announced their latest financial results this week. Only another £8.2 billion pound loss, bringing the staggering total of losses since 2008 to £46 billion.

This raises a lot of questions, but the one I want to illustrate today is how does a bank survive these losses, and continue to operate in the financial world. The very simple explanation is Quantitive Easing (QE.)

Quantitive Easing is simply the art of creating money out of thin air via central banks, in our case The Bank of England. That money is then given to commercial banks such as RBS, in exchange for huge chunks of toxic debts that the bank has on its balance sheet, and are effectively worthless. The commercial banks are then meant to use these magically created new funds to start lending to the economy and everything in the economy will be hunky dory.

However, that hasn't happened. So what has happened since the financial crisis broke in 2007? Well, first off, the banks moved the goal posts on lending. Fearing more losses they reduced the criteria on which they lent, cut the amount of mortgages they issued, reduced the overdrafts they lent, and cut new lending almost overnight. This in turn had a disastrous effect on the real economy, businesses cut back, many went to the wall and unemployment soared. Hundreds of thousands of businesses have gone to the wall over the last few years. So if the banks weren't lending this new money, what did they do with it?

In essence they put it in their asset reserve account and got paid interest on these billions of pounds. The investment banks would have also been paid commissions on the bond purchases by the various central banks, again raking in millions in commission and fees. Finally, the loans they did make (at 5% plus on money that they were given essentially for free) were to the very rich and wealthy who were never at any risk of defaulting. These wealthy individuals and companies then used the money to mop up all the assets around the world that were sold in the distressed economies. Houses, boats, bonds, art, land, farms, stocks and shares, you name it the rich bought it! Asset prices soared and the rich got a whole lot richer.

So let's be clear on what happened, a lot of the poor and middle classes lost their jobs, their houses and their dignity, while the rich counted all the money they had made. This is no exaggeration on what has actually happened, there are numerous reports to back up this chain of events. Here are a few quotes that confirm the biggest theft in history!

Billionaires have admitted that they are the beneficiaries of QE. For example, billionaire hedge fund manager Stanley Druckenmiller said the following about QE:

“This is fantastic for every rich person,” he said Thursday, a day after the Fed’s stunning decision to delay tightening its monetary policy. “This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”

Economics professor Randall Wray wrote

"Thieves … took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen. They screwed workers out of their jobs, they screwed homeowners out of their houses, they screwed retirees out of their pensions, and they screwed municipalities out of their revenues and assets.

Financiers are forcing schools, parks, pools, fire departments, senior citizen centres, and libraries to shut down. They are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in fire sales at prices rigged by twenty-something traders at the biggest and most corrupt institutions the world has ever known."

Another economics professor Steve Keen wrote

“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Finally, these policies I have just touched on, have shown to dramatically increase the income inequalities around the world.  The gap between the haves and have-nots is wider than ever. This proves to be a further drag on economic activity and makes the cost of living ever more difficult and a happy retirement that bit further away.

THE biggest news story of the week has been the revolution in the Ukraine. While the TV cameras focus on the demonstrations and unrest, the oligarchs will be busy brokering deals with the investment banks and eying all the country's assets ripe for plunder.

Supposedly a deal had been brokered behind the scenes, before the people took matters into their own hands. Sadly, for the Ukraine it will be an all too brief moment of freedom, before the harsh economic realities hit. If the Ukraine can avoid civil war, or invasion, it's unlikely they can avoid a default and have a banking collapse. Sadly, they will be stuck in the iron like grip of the IMF, or whoever bails them out, for years to come.

ANOTHER story of note in the economic world, are the escalating currency wars that are beginning to take hold around the globe. Currency wars are very bad for global economic growth, and one sure sign that countries are beginning to panic. The latest country to devalue their currency is China. This is a direct retaliation to Japan, who started the currency war over a year ago, in an attempt to revive its exports and economy. Yep, that's the same China that was meant to be the economic powerhouse of the new world and would save the world's economy. I think not. More on that another time.

Next, I see the latest figures on real income in the UK have shown that incomes in the UK are back at 2002 levels, while inflation continues to eat away creating the cost of living crisis we are all witnessing.


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