Saturday, 2 November 2013

How Mass Immigration Destroys the Economy Over Time

I was only going to put the one post as I didn't want to distract from the main point I wanted to make however....


How Mass Immigration Destroys the Economy Over Time

There are two lobbies for mass immigration. The PC Left say it is good because of diversity. The banksta Right say it is good for the economy. This post only addresses the latter and explains why they're wrong.


Short Answer:
- because it reduces the velocity of money and thus creates a hidden deflation


Long Answer:

What's the standard banksta argument against people who say taxing the rich is the solution to a problem? They say that although those individuals are very rich there aren't that many of them so if you multiply their wealth by their numbers and then divide the total between the entire population it doesn't come to very much.

And they're right.

However that is the exact same reason why trickle-down economics doesn't work.


Velocity of Money

For any given size of money supply there is also a velocity - how fast and furious does that money supply circulate in the economy. The faster the money supply is circulating the greater the *effective size* of the money supply.

If the size of the money supply is M and the velocity of money is v then the *effective* money supply is vM. This means that if the velocity of money is going down then even if the size of the money supply is static or increasing the *effective* size of the money supply can be decreasing i.e. deflation.

So what does the velocity of money mean if you have a prosperous middle class with a lot of disposable income?

It means the electrician pays a surveyor to survey the house he plans to buy. The surveyor pays the auto-worker for a car. The auto-worker pays a dentist for some work on his teeth. The dentist pays the electrician for some work on his house etc.

The *same money* rapidly circulating around the economy increases the velocity of money and therefore the *effective size* of the money supply.

A large prosperous middle class has a *very high* velocity of money.


Numerically, say income can be spent three ways
- necessities
- discretionary spending
- stored wealth
and say the velocity of money of each unit spent in each category is
- necessities 1
- discretionary spending 2
- stored wealth 0
then if you change the *proportions* of each category within your economy then you will change the overall velocity of money within the economy and that will change the effective money supply


What happens to the velocity of money if you have mass immigration?

Supply and demand leads to a decline in the value of labor which leads to a decline in the average income of the majority while increasing the average income of the rich. This has two effects:

1) the middle class' income is switched from high velocity discretionary spending to lower velocity necessities

2) the rich's discretionary spending may go up but there are few of them and they already have more than they need so at least some of the transferred income switches from high velocity discretionary spending among the middle class to low velocity stored wealth among the rich.


There is a caveat. You need to export something to pay for your imports and those exporting industries need to be competitive but that's it. If you have *enough* competitive exporters to cover your imports - either through better technology or cheap energy or any other way - then that is *all* you need.

Deliberately lowering average incomes and destroying the middle class on the basis of improving the economy has the opposite effect. It creates a hidden deflationary spiral through reducing the velocity of money.



There is a lot more to it e.g. the stagnation effect if mass immigration is used to transfer all productivity increases to the rich but that's the gist.


As an aside this also explains how usury creates economic stagnation through transferring discretionary spending into fixed loan repayments. When bankstas create debt saturation during a credit boom they turn high velocity discretionary spending into low velocity debt repayments and effectively create a hidden deflation through reducing the velocity of money.

(This is basically how Europe was kept stagnant for c. 1000 years after the fall of Rome.)


If you look at the huge productivity increases since 1965 and how it was all plundered by the rich through keeping average incomes down with mass immigration, and then imagine the prosperity effect if that added wealth had been passed on to the middle class as discretionary spending over the last fifty years instead, then America today would look like 1950s sci-fi.


Friday, 11 October 2013

How the Western Banksta System Kills Millions (by accident)

People operate on the basis of cost vs benefit.

If a billionaire spots a £1 coin on the street and no-one is watching he'll pick it up and feel pleased because the cost of picking it up is less than the benefit. (He won't do it if people are watching because the cost to his pride is more than the very marginal benefit to a billionaire of an extra £1.)


How does banksta-ing work? The central banks set a limit on the total money supply and the individual banks are allowed to conjure new money from the magic money tree up to that limit. This is done through fractional reserve banking i.e. if the central banks set the reserve ratio to ten then for every £1 of people's savings an individual bank holds that bank can lend out £10. The bankstas then make their money off the loan interest on the money they just invented.

What this means is it is in the interests of the bankstas to lend out the *maximum* amount possible because that maximizes the loan interest and that maximizes the benefit side of the equation.

So the benefit side of the equation = maximize loans.

The cost side of the equation is "if we lend too much and people can't repay it then we lose money."

So far so good.

The problem is that the cost part of the equation relies on *memory*. It relies on people *remembering* (at a personal or an institutional level) what happened last time they lent too much.

So in the banksta's cost vs benefit equation the benefit part is fixed (maximize loans) while the cost part (remember what happened last time) is cyclical.

In particular there will be a cycle based on the average human lifespan. Once all the people who were around "last time" have passed on then all their personal memory disappears with them.

So when the people who were around last time are still around the benefit vs cost equation is:

chance of a credit boom = (urge to maximize loans) - (number of people who remember what happened last time)

When the people who were around last time have all passed on then the equation becomes

chance of a credit boom = (urge to maximize loans) - (0)

So they create a credit boom which lasts for a number of years and everyone feels richer than they really are because of the cheap and readily available credit but eventually the supply of credit exceeds the ability of the creditors to ever repay it and you get a credit bust.

(The size of the bust being proportional to the size of the boom.)


nb Over-borrowing is literally not possible without over-lending *and* if we assume there will always be people who want to over-borrow then the critical institutional argument is over how the decision to over-lend comes about.


nb If people have a fixed income divided into fixed costs and discretionary income then taking on debt shifts the balance from discretionary to fixed as the loan repayments are part of their fixed costs.

Someone with an income of £200 pounds and fixed living costs of £100 has a discretionary income of £100. If they take on debt with total loan repayments of £100 then their fixed costs are now £200 and their discretionary income is now zero.

At that point even an extra £1 of debt repayments can unravel *all* the existing debt.

Debt saturation.

(The effect of debt saturation and the lack of discretionary income on the potential for economic growth and innovation should be obvious.)


Bankstas will always repeat this cycle because of the internal logic of the western banksta system: the benefit part of the equation is *fixed* while the cost part is based on memory and therefore *cyclical*.


nb It doesn't matter who is running the banksta system. If the same system is copied by the Chinese or Ugandans or Buddhist monks the outcome will always be the same because the internal logic is based on universal principles: 1) people operate on cost vs benefit and 2) people have an average lifespan.


Humans usually get round these kind of problems by using institutional memory to take the place of personal memory e.g. seat belt laws or "cleanliness is next to godliness." The same thing happens with banksta-ing - but only up to a point.

For example after the last time the bankstas trashed the world economy back in the 1920s - leading to the Great Depression, WWII and scores of millions dead - laws like the Glass-Steagal Act were passed in the USA to act as a safeguard.

The problem with institutional memory in the banksta context is simply the sheer amount of money involved creates overpowering temptation so when most of the people who were around during the last bust have passed on and all the personal memory has passed on with them then the memory of why the institutional safeguards were put in place goes too and the bankstas get rid of them.

So in the late 1990s, seventy years after the 1920s boom-bust cycle that led to the Great Depression (and ultimately WWII), most of the people around in the 1920s had passed on and the memory of what happened last time had passed on also so the bankstas bribed or bamboozled the political class in Britain and America to get rid of all the institutional safeguards that had been put in place after the giant boom-bust of the 1920s and 1930s. In the USA it was things like repealing Glass-Steagal. In the UK it was "light-touch" regulation i.e. no regulation.


So that's how the western banksta system kills millions of people by accident. There is an inherent human flaw in the system which creates a giant boom-bust on a roughly 70-80 year cycle. The busts lead to deflationary spirals, mass unemployment, hunger etc which leads to wars, revolutions and general civil strife which leads to the bloodshed.

The 2008 bust has already marked up quite a high death-count* and we're nowhere near out of it yet.

(*The dollar's status as the global trade currency means Bernanke exported part of the inflation he created to cushion the deflationary spiral in the US. However that exported inflation is part of the reason for the food price rises that lie behind the revolutions and bloodshed that have been happening in the middle-east.)

The 1920s bust led to the Depression and WWII. If you look back 70-80 years from that you'll find another one, go back another 70-80 you'll another etc.


nb The scale gradually decreases as you go back in time. Initially the internal logic of the banksta system and the resultant boom-bust cycles will have operated on a town/city scale. As banks linked up the cycle moves to a regional then provincial then national then european then western and now global scale. So if you look back you'll see the cycles occurring but at lower scales as you look further back i.e.

- 2008 (global scale)
- 1920s (western industrial scale)
- 1840s (european scale)
- 1760s (national scale)
- 1600s (sub-national scale
- pre-1600s (regional or town/city scale)


Question: If banksta-ing is so bad and has been so immensely destructive for so long why hasn't everyone noticed?

Answer, because there's an exceptional case where the net effect of banksta-ing is more benign than malign and that is during times when there is massive and sustained innovation.

The root of the problem is bankstas have an incentive to create loans as they make money off the interest so when there is nothing worthwhile or productive to invest in they still lend the money (because they make money out of doing so) thus creating worthless and ultimately destructive boom-bust cycles.

But what if worthwhile investment opportunities are being created faster than the bankstas can conjure money from their magic money tree?

In that situation - and only that situation - their ability to conjure money out of thin air is net benign.

That situation existed in England / Britain / British Empire / America during the Industrial Revolution.

(I'd suggest the Industrial Revolution may even have required the banksta system.)

So everyone looking at the success of Britain / America would naturally copy their banksta system without realizing it is only net benign in the context of massive and ongoing innovation. Outside that context it is (net) immensely malignant and destructive.


Possible Solutions

1) Limit the Damage:

Deglobalize banking. If it's kept at a national (or state) level you create a system of bulkheads so the boom-bust cycles are contained at a lower scale.

2) Replace the System:

a) Get rid of central banks setting the money supply and have the state expand and contract the money supply through public works and taxation.

b) Get rid of fractional reserve banking or at least limit it to a very low ratio like two. A very low multiple will still create boom-bust cycles but the size of them will be restricted.

3) Adjust the system so the reserve ratio is determined by the rate of innovation:

If you could come up with a metric for the level of innovation then you could have a system where every year you calculate the rolling average of that metric over say the last ten years. The reserve ratio would then be set by that rolling average.

The base default ratio would be set very low but if the level of innovation was going up then the reserve ratio would go up and the banks could lend more money. If the innovation metric was going down then the reserve ratio would go down and the banks could lend less money.

If such a system worked it ought to allow the benefit of the bank's magic money tree without the massive cost in blood and destruction from all the wars and revolutions caused by the banksta's boom-bust cycle.