DEBT CRISIS FOR DUMMIES

A SHORT EXPLANATORY GLOSSARY:

 

Private Banking – the principle of creating money as debt, through loans to and interest from borrowers. Private banks use deposits created or accrued via their retail or commercial banking outlets to finance investment banking, i.e. speculative gambling on the financial markets.  

Debts – all bank-created deposits created as loans or debts to customers count as assets for banks, even if they have next to no reserves to cover them in case of default (which is allowed under the system called Fractional Reserve Banking).

Defaulting – not being able to repay a debt to a private bank.

Toxic Debt – ‘bad loans’ that have a poor chance of being repaid.

Credit Crunch – what inevitably happens when  ‘toxic debt’ comes back to haunt the banks that greedily competed with one another to hand out ‘bad loans’ and in that way accumulate the toxic debts owed to them as inflated or over-valued assets. What happens is that banks stop lending to individuals and businesses or even to each other, whilst at the same time raising their interest rates to keep their profits up. The result is a slowdown in economic growth, with even totally viable businesses being unable to borrow from the banks.

Ratings Agenciesprivate companies, principally centred in America and responsible for assessing the credit-risk or ‘rating’ of individuals, companies and nations, thus supposedly avoiding the risk of default and the accumulation of  ‘bad’ or ‘toxic’ debt. Yet in the years of the property boom in America agencies such as Fitch earned themselves billions of dollars from  investment banks by being paid to give an ‘AAA’ rating to what the agencies already knew were ultra-high-risk investments, mortgages and other ‘financial products’ being sold to consumers. Between 2002 and 2007 Fitch gave a Triple A rating to 4 billion dollars’ worth of ‘junk’ assets and debt securities. The rating agencies also consistently gave and an AAA rating to the USA itself – a country that had long had a greater debt than any other.  And to divert attention from the U.S. economy and protect the U.S. dollar as an international currency the rating agencies began to downgrade the credit ratings of other, far smaller nations such as Greece and Ireland – and now Portugal, Spain, Italy and even France.  Only recently has one rating agency (Standard and Poor’s) pulled out of this game and removed Triple A status from the U.S. itself  – but only to put pressure on government – and under pressure from right-wing Republicans – to cut public and social spending for the poor. 

Credit Default Swaps – insurance in case of debt defaults, bought by speculators. Their value increases with the risk of default. Hence the interest of their holders in actually bringing about defaults, for example through downgrading the credit-rating of whole nations.

Interest  – additional money paid paid to banks to ‘service’ debt. Whilst individual debitors may be able to cover interest payments as well as redeeming their debts, in aggregate it is impossible – in principle – for all interest to be paid, thus turning ‘debt-servicing through additional interest payments’ into debt-slavery or serfdom. The overall interest burden on companies reduces their profits and increases their prices whilst at the same time puts downward pressure on wages – thus reducing investment and consumption and slowing the economic growth necessary to afford the repayment of interest-bound debt. 

Quantitative Easing – a device supposed to inject new money in the real economy for individuals and businesses.  In reality,  it goes straight into the hands of the banks – whether or not they lend it out to support businesses or individuals in need or just use it to increase their reserves. Quantitative easing is not governments directly  ‘issuing’ money and so it is not truly Public Banking or National People’s Banking. For it relies on governments issuing debts in the form of bonds or securities and selling them to the banks or financial markets.

Money Creation – currently a total monopoly of private banks, and not of the Bank of England or the Federal Reserve (itself a cartel) of private banks. Private banks can ‘create money from nothing’ by just keying in a deposit figure for loans – yet without needing by law to have full reserves to cover them. This ‘money from nothing’ could equally well be issued by state-owned central banks – from whom interest-free money could go directly into the real economy – without borrowing from private banks or going into the ‘casino’ of the financial markets.

Nationalised Banking, Public Banking or People’s Banking – the freedom of a country to issue its own money and inject it into the real economy  without borrowing at interest from private banks. Abraham Lincoln and John F. Kennedy were the last heads of government – besides Hitler – to attempt to do this. Both American Presidents were assassinated.

The Bank of International Settlements in Basel – an international organisation of central banks. Yet though it is neither elected nor accountable to any national government – or to any other body except itself – it expressly forbids all national governments signed up to it from introducing nationalised or public banking.  Originally owned by governments, it is now wholly owned by its member banks and meets to regulate the minimal reserves they are required to hold.

Fractional Reserve Banking – the key system governing the international banking system, permitting banks not to hold sufficient reserves and savings deposits to cover the loans they hand out, but instead only a small fraction of what they lend out.  As a result, banks effectively create fictional loan money at will, which in turn ends up as deposits in the hand of other private banks – which are then also free to lend out it most of it out whilst only keeping a fraction in reserve. The result is a pyramid ‘ponzi scheme’ of money creation by private banks, but one on which whole nations are dependent to create and maintain their money supply.

Full Reserve Banking – requiring all banks to maintain 100% or full reserves to cover the loans they would create as or from fictional money deposits.

Financial ‘Debt Crisis’ – the question here is crisis for whom? The term actually refers to an unavoidable contradiction in the system of international finance or ‘credit’ capitalism. For in this system all money is created as debt, and the competition between banks to accumulate money as debt imposes ever greater burdens on individuals, businesses and whole nations. If an individual can’t pay off a debt to a bank he is in financial debt crisis and may lose his home and property. If a business can’t pay its debts to a bank it is in ‘financial crisis’ and may lose go bankrupt and lose its assets. Yet if private and international banks are in crisis (for example through loss of value of their loans) the people must pay to rescue them – through their national governments being pressured to take on yet more debts – whilst at the same imposing ruinous ‘austerity measures’ such as tax hikes, privatisation and asset-stripping and massive cuts in wages and public services and welfare.

‘Sovereign Debt’ – the very opposite of national sovereignty. Sovereign debt is a result of national governments being forced to accept  debt-slavery and impose fiscal fascism and austerity terrorism of the sort demanded by the international banking system, Yet the only reason why they do so is because the entire money supply of nations remains in the hands of private and  international banks – and because the international banking system actually forbids them the sovereign right of issuing and investing their own interest-free money without having to borrow from the private banking sector. Only fully state-owned National People’s Banks would allow them to do so – to cultivate their economies by issuing money directly to and for the people – directly to and for individuals, families, businesses, industries, public works and social welfare. 

‘Social Nationalism’ – affirmation of the sovereign right of nations to issue their own  interest-free money directly to and for the people i.e. in the direct interests of society – and not in order to allow private banks to profit from interest-bearing debts at the expense of social well-being.  

For more information and analysis go to: 

www.nationalpeoplesparty.org.uk

www.positive.money.org.uk

www.webofdebt.com

www.bendyson.com

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