Foray into an area reserved too: money - Part 3
Foray into an area reserved too: money - Part 3
I come back on a very good study by ATTAC independent group that not only returns to the basic historical that led us to the current economic situation of the entire planet, but was widely anticipated and explained the risks that have occurred since the book which dates from 2004 ... the group continues its observations and interventions, and I am personally quite agree with their conclusions, and history:
Cash and aggregates, another world
Bank money is being expanded significantly, we now distinguish the current means of payment, that everyone uses every day, and everything that can be a financial capital, such as shares of a listed company or a passbook. This led to the definition of monetary aggregates associated with liquidity, that is to say, the availability of means of payment.
The aggregate more "liquid", called M1, or all of the circulating currency, includes all means of payment available immediately, that is to say the currency and accounts.
The second aggregate M2 is M1 which we add all the credit in the short term, that is to say, the sums deposited in booklets or on deposit accounts available within less than two years. A particular amount can go from one aggregate to another, for example a deposit ticket handed over the counter to be set to a libretto goes from M1 to M2. And if, as in M2, the bank lends, it puts on a deposit account and it returns to M1.
To form M3, M2 is added to other debt securities and money market securities, which are pure credits.
The total domestic debt includes all loans, whether in the form of bank loans or issuing securities, and whether loans to companies, governments or individuals.
Some figures do understand that the circulating currency, that are manipulated every day, and that comes to mind when it comes to money, is actually almost nothing compared to all those credits which the economy depends , that is to say with respect to all payment methods: in 1999, the M1 aggregate was evaluated, France, 358 billion euros, while total domestic debt was nearly six times larger, nearly 2,100 billion euros, ... more a half times the gross domestic product!
Payment methods used for transactions in the financial markets are a much greater than the only currency circulating amount. Especially since these transactions involve all kinds of marketable securities, not only bonds issued by companies to finance their investments, and are of the credit, but also on the actions that are of Deeds. We will return.
There is thus much more money is owed to the banks than is outstanding. It is clear that the debt can never be completely refunded if anyone (individuals, industrial, commercial or government) who have a credit in a bank decide to repay their bank, not only all the money would be needed and he n 'there would have any more outstanding, but in addition, it is no longer sufficient, it still miss much. But how to pay when you do not have the money? - Borrowing from a bank, that it will pay interest, etc. It's a vicious circle, open to the infinite spiral.
The banking system, guard rails?
The Bank of France was in charge of bringing some serious organization.
We discussed the fact that it is the issuing legal tender Institute, that is to say, it is what controls the production of coins and notes. It is through payments at commercial banks that these "species" enter circulation: When these banks fail to "cash" for their clients, or they are buying "cash" already in circulation "is refinancing" with d 'private financial institutions (the interbank market), if they are addressed to the Central Bank. This then plays them for the role of "lender of last resort" by providing the monetary base in exchange for debt that they had "boarded" and are then called "rediscounting". The monetary base and created against party debt is called credit money first level.
On the other hand it is the Central Bank, which holds the current accounts of all commercial banks (said secondary to distinguish in this hierarchy) including the Treasury. It is the "bank of banks" which it requires him to file the required reserve fiat currency, it relates to their accounts and that it included in its liabilities. These reserves, the amount of which depends on the size of each bank, that is to say that this credit bank issues were, originally instituted to compel banks to ensure in cases of massive requests lawful money from their customers.
This feature is the way that has been found to allow the Central Bank to put pressure on money creation ex nihilo by secondary banks and other financial institutions. But note well that this is only an indirect pressure, changes in the rate of reserves allows the central bank to encourage or restrain money creation by commercial banks.
And looking more closely, one discovers that there are two types of interest rates, according to the lender and the borrower.
When it is the clients who lend to banks (current accounts, savings, savings plans housing), it comes to lending rates. To attract people's savings, these rates are guaranteed and often regulated, but they are low or even zero in the case of traditional checking accounts. The flexibility of banks on the deposit rates is low.
But when on the contrary it is the financial intermediaries who open credit to their customers, they apply their so-called lending rates, and although the money, they say, has no odor, these rates are fixed this time "the head of the customer", they depend on the "quality of the borrower," that is to say its ability to pay. In fact there is a benchmark lending rate, said the base rate, which is linked to interest rates, those refinancing of banks with the central bank. This base rate is the same for everyone, but it represents only what is required for borrowers "first class", those with their bank feels they "have deep pockets." For other clients, banks charge a margin above the base rate, margin increases as the customer is considered less safe. And in addition to these interest lending rates, banks are generally charge their customers various fees, commission fees, management fees, records, etc., which are rarely displayed, and can vary greatly from bank to another. These free rate can be very high; we simply say that a broker takes a "usurious" rates when including commissions, it exceeds 33% of the average rate as estimated by surveys!
Until the early 1980s, most of the financing of the economy was so effected by credits granted by banks and financial institutions. Or they belonged mainly to the public sector. In France, in 1984, the nationalized banks
controlled 87% of deposits and 76% of appropriations. This is called "the economy of debt administered."
The scheme, in the "war boom" has created an environment adapted to the needs of the economy by promoting the rapid growth of productive investment. May grant certain sectors preferential funding, through soft loans, lower than market prices, the policy had a little control over the economy. Although banks, abandoned long ago, money creation was largely and indirectly regulated by the Central Bank, which provided as "the credit crunch". And the state maintained by the intermediary, "some" control over the country's financial activity.
And then, wham, in a few years, all this has been upset in the name of an ideology that is imposed on all so-called "developed, one after the other economies:
In the mid-80s, under the pressure of Think Tanks (20) inspired economists such as those of the Chicago school, in the wake of monetarist Milton Friedman or Friedrich von Hayek, the regime gave way to the regime "economy liberalized financial markets. "
(20) Read about Evangelicals market by Keith Dixon.
By 1985 the share of administered rate loans was gradually réduite.En 1987 is the credit crunch that has been deleted. And in 1989 it was the turn of exchange controls.
Meanwhile, in 1986, the nationalized banks and major financial institutions have been privatized. (YH: Historically, it is the "left" who did the work that the "right" could not do before with President Valery Giscard d'Estaing, although the movement was Inrush by changing laws President Pompidou ...)
At the same time was created the "single capital market", which means that all transactions, whether in cash, short or long term, are now available to all economic agents, whether or non-financial, whether domestic or foreign.
The great, the super, hyper-capital market
The creation of the "unique" capital market was the explosion of a market multiple ... who devoted the stranglehold of finance on the economy, the more total grip that even the state was subjected to this market by Act 1993 (see above "when the state is forced to borrow from the private").
Enumerate, without insisting, its multiple facets.
For starters, its interbank market allows banks to arrange them, one may have available cash that others need. It is for the Central Bank to fix the so-called policy rates: the rate "refinancing on the interbank market," who serves as a reference, and both said rate "ease" the ceiling and floors between which the interest rate may change. In fact, these rates vary from day to day, so it's not monetary policy that requires the interbank market, but the law of supply and demand, that is to say the law market.
The market in which the public usually hears about is the financial market, ie the Exchange. Two kinds of securities (or "securities") are not bought and sold there: shares of companies "listed" and bonds.
Buying shares in a company that is buying a portion of its capital. This obviously raises the risk if the successful business, its rating, or rather the symbol of its shares goes up and it is possible to realize a gain if you manage to sell more expensive they have been purchased. It can also happen if the benefits are very high, the shareholders' meeting decides to pay a fraction (a dividend) to all shareholders. But nothing is guaranteed and the company can see its shares lower, for example if a rumor suggests that it has problems. In exchange for the risk that they share and the shareholders are entitled to participate in the election of the Board of Directors of the company appoints its boss and is supposed to control. But this usually happens between "large" shareholders, insiders, and small does not make weight (a recent exception landmark: small shareholders of Eurotunnel just succeeded to agree to change the direction, the behavior had proved truly catastrophic).
By buying bonds issued by a company, it is no longer to become co-owner, but to lend him money. Indeed, when a company needs a loan and does not wish to approach a bank, it issues bonds by pledging on the duration and interest rate of the loan. Thus assured of compensation and reimbursement to date, the buyer of such debt securities takes much less risk than buying a stock and it has, therefore, no right to intervene in the internal company policy.
Financial markets are thus used to pump the savings into big business. And the pump running so strong that in 2003 it had pumped into the world a whopping 19.554 billion dollars (compared to the global GDP was about 30,000 billion).
The explosion of financial markets was also reflected by the birth of a new business, the contracts that are traded on the derivatives market and serve the businesses protect themselves against a variety of financial risks, such as changes in interest rates, fluctuations in exchange rates and even took raw materials.
For all those "financial products", there are the new home market in the second hand market. This is the first, also called primary market, new furniture securities are offered to the public, while the secondary market traded securities previously issued and sold (possibly by professional speculators).
Since 1991, the national market dung beetle is organized into sections: there is the first market, the official, whose values are determined on a daily basis, the secondary market was created in 1983 for SMEs (small and medium enterprises ), the new market, opened in 1996, facing the financing of "ups" technology, and OTC on companies that are not yet or no longer listed on the official market the market.
Finally include the mortgage market, which facilitates the real estate financing by giving credit institutions the opportunity to sell their mortgages. This market has led to an innovation in the United States, known as securitization of receivables. Basically, say it allows lenders (banks and other credit organizations) to refinance by selling their receivables to non-bank investors and thus more safely manage the risks associated with these loans.
The stated aim of all these transformations, which constitute what is called a revolution, was to facilitate the comparison of all global supply and demand of capital in any form whatsoever. No longer reserved for banks choose to invest it is now exercised by "the invisible hand of the market" under the pretext that such a market on a global scale was the key to development and prosperity, the poor countries would have access to the rich countries. It was the end of poverty ...
The reality is the opposite of those promises: it is the big companies in rich countries that have benefited from this type of development, at the expense of the poor. Because the operation of the "main" is a fable, explains a witness JEStiglitz, and
can trust him since he was responsible for policy development as Vice-President of the World Bank, in 1997-1999.
Here is what this expert, Professor in five prestigious universities (Yale, Oxford, Stanford, Princeton and Columbia): "The famous" hand
invisible ", regulating the market? It is invisible because it does not exist. The market will not regulate itself. The "trickle" dear to Reagan, for whom the rich getting richer "trickles" always on the poor? This is simply not true. "(21)
Money has become ... capital (e)
In 1999, almost all banks in France as in all industrialized countries, had returned to the private sector and the capital markets have taken in managing the economy, a growing share compared to bank financing. Rest assured, banks will have lost nothing, they just expanded their activities to otherwise participate in the global economy, playing an additional role through financial markets. For example, whether the sale of new shares at an IPO or a capital increase or a bond issue, companies are forced to go through the through a bank, in which they must then, of course, pay a corresponding commission. This does not mean that banks have so far given their privilege of opening credits ex nihilo. In this area, the coverage rate (22), fixing a limit, is somehow a bridle on their neck. They recognize that the reserve requirement is for them a guarantee against bankruptcy, but if the strap is too tight, they fear that their investor clients to look elsewhere, that is to say in the financial markets, their funding. This shows that investment, that is to say, the dynamism of the economy even more dependent on this rate since the great turning "the economy liberalized financial markets." In addition, major American banks have established their risk assessment systems, allowing them to determine their reserve ratio which is obviously not without consequences on competition between banks themselves. And so it was that the era of "Cooke ratio" (c = 0.8) just ended with an agreement in Basel May 11, 2003: the ratio "Basel II" is not universal, it will be flexible. And it will, as the saying Professor at Dauphine (former CEO of Paribas) "the best investment" by "paying the risks one by one", it will increase the flexibility of the American giant. (YH: proven today (2014): Goldman Saks and JP Morgan for example, even with a few setbacks ... hold the world in their hands!)
Even without understanding the meaning and scope of these reforms, the public can see in the daily news bulletins, and for several years, that the movements of the stock market have the spotlight, and even those usually before football which is saying something! We see it as encouraging ordinary people to play its future on the Exchange, to persuade him that nothing beats the market to earn him the fortune he must dream.
The financial turmoil has indeed left the capital rein and the economy has been put at their service. But the promised fruits of this windfall spreading over the so-called developing countries are not at the rendezvous. The anti-globalization movement calling for a moratorium during which it would be possible to review these benefits. This moratorium is still denied, and during that time, the United Nations Programme for Development (UNDP) found that 840 million people still suffer from malnutrition in a world that has never produced so much ... (in 2003). - 1 billion in 2010 ...
Credit "old" to the "modern" credit
All these changes thus represent a radical change in monetary habits. But this change is insidious because the vast majority of the population still do see a value in the currency used to buy real economic assets, and possibly subject to delay purchases. Yes, and we will come back, there is more trade in goods, economic exchange has become the sale-purchase of a good or service against the currency, whose nature is different. Of these transactions, the most common, everyday, are a relatively small amount, so that the public sees money as the circulating currency. He is not aware that the currency has become a symbol experts call the consideration of financial capital. Now this symbol hides immense power over the real economy, and it is a decision tool used however irrationally, because we know that on THE market became single, motivation rather reminiscent
Players at the casino than responsible for the future of the world.
Be changed without the mechanisms of money creation, assignment of banks have been expanded, diversified and extended to other financial institutions, also denied acting brilliantly on the economy in general, but always with the sole aim their own interest. And capitalism was able to deploy his imagination, inventing new markets where it is now possible to make a fortune or to ruin by selling or buying of risk, options, etc. Speculation is an art reserved for insiders, which the common people could be adversely affected, but he can not know.
Thus, for millennia, Assyrians to the Iron Lady, or roughly 2,000 years prior to 2000 years AD, credit corresponded to the delay between the choice of a purchase and payment; but, as expressed F. Rachline (23), "on departure and arrival, regardless of the credit period, a material made weight," emphasizing the fact that these terms banking have always been linked commercial or agricultural activities, then they never resulted in a stand-alone business, purely speculative, as is the case now. This "credit to the old" just to make room for a pure credit "is not based on anything other than himself," an advance as a bridgehead to be launched over a river whose the other side, if it exists, is invisible.
The franc to the euro
The principle of competition having been placed at the heart of the construction of the European Community, it was inevitable that, from its inception, the euro is under a single "control" the Market. The creation of the euro has not changed much of the way of money creation. Worse, public oversight tends to disappear a little more. The European Central Bank (ECB) now determines the discount rate of the euro, but it is not over run by elected than was the Bank of France and is less likely than ever to master the changes in the money supply. Its President is required to complete independence vis-à-vis the government, it should not obey their instructions, it does not even make their own.
One goal has been imposed by the Maastricht Treaty: prevent inflation exceeds 2% per year ... not to penalize investors.
Everything happens as if the financial and the "economists" in their service, were a world apart, an international statesman species exerting its own policy. The state organization of its own and manage its affairs independently (24). In Europe, for example, the government is the Executive Board of the ECB, it establishes its financial laws, it has its prefects, it is the national central banks, its electors, it is the Finance Ministers of States and its citizens are financial operators.
Note, however, a difference between the role assigned to the ECB and that of his American counterparts, the EDF. In Europe, the Maastricht Treaty requires each independently the ECB to ensure inflation and governments to reduce their deficit, whatever the circumstances. While in the United States, the relationship between the Fed and the administration are more flexible, is what has allowed President GW Bush to cut taxes while increasing military spending to a record deficit already mentioned . Europe and copy its neoliberal revolution in the United States, but adding a pinch, on this point, which hinders a priori its competitiveness against its biggest rival!
"Your money interests me!"
This unprecedented growth of international finance has revolutionized the global economy. Whereas before "the function of the international financial system to finance world trade and balance of payments, international financial flows have experienced explosive growth, no relation to the needs of the global economy" (25 ). In 1998, for example, 1.600 billion, equivalent to the annual GDP of France, have passed every day by the foreign exchange markets. These financial transactions are on average 50 times higher than those related to trade in goods and services.
International finance is derived from the financing of the economy to follow its own logic now, as denounced Passet "When the banker informed us, in an ad that had its moment of glory, that our money" interests ", it is our money that is, but it is he who derives power and influence. One can say the same for all institutions that concentrate our payment methods: banks and brokerage firms, pension funds, savings manager by which employees intend to finance their future pensions, hedge funds or fund performance, made for the purpose purely speculative, mutual funds, functioning as our Fund. These institutions concentrate a "firepower" formidable, much higher than that of the states "(26). Financial institutions (banks, insurance companies, investment funds and other pension funds) have objective search for the best performance from one currency to another, euros, dollars, yen for dollars, action to another, from one obligation to another. And it is to put these financial flows away from national taxation, protecting financial crime, that were created tax havens.
Anonymity money and banking secrecy and money allow the lucrative investment money, clean or dirty (that of drugs, weapons, mafia, etc.), so that companies and terrorists use the same ways to grow their finances.
Proposed by the Liberal Tobin to put some regulatory tax would penalize transfers that hedge the foreign exchange market and not those that are brought about by the exchange of international trade, as the former are distinguished by their frequency second "the long term, says one of these speculators, it gives me ten minutes! "
Evolving IMF: protect investors, not people.
In 1944 at Bretton Woods, was created when the International Monetary Fund (IMF) to regulate the international monetary market, the right of individuals and companies to invest abroad leurscapitaux was limited by most countries, including the United States, to prevent the
speculative harm trade relations. But asset managers have pressured Republicans backed governments a wealthy voters (Reagan and Bush), for the lifting of such barriers. After that it's the Democratic administration (Clinton) who took the Republican initiative to fund its election campaigns; and the IMF charter was amended ... It then became, in the words of the most moderate, the manager of the credit system, with the objective in the short term to assist international creditors, and in the long term, to increase the return on their capital. For cons, the IMF is not affected by the domestic debt, for example, that consumer unien states that on average, at the end of 2002 was 40% of its income.
This brings us to the problem of Third World debt. Indeed, what's going to happen when the economy of a country, usually third world is sick and its local companies are forced to borrow abroad? - The IMF is involved because "outside of a conditioned IMF agreement, there is no possible international loan" and it requires borrowing governments to take, under the name of "structural adjustment pacts" (NOT) the necessary measures to ensure as soon as possible repayment of international creditors, that is to say, to maintain the value of the local currency. These measures, which involve privatization, austerity to limit imports and facilitate exports, reduced government spending and disruption of productive investments, resulting in increased unemployment and declining production, thus income, etc. form the so-called Washington Consensus. They are in the logic of the credit system, even if they are disastrous for the population. Because the IMF was not designed to help people in struggling countries, but to avoid international lenders to be harmed, that is to say, not to be repaid in full and with interest.
Investors stressed the risk to demand even higher interest it seems possible that the borrower country may not be able to repay them. But the worst part is that it's not them who take this risk, because if, despite PAS, a country can not pay, the IMF pays, and at taxpayer expense!
(21) Joseph E. Stiglitz, in When capitalism loses his head, ed Fayard, 2003
(22) See above "creation ex nihilo by banks
(23) Francis Rachline, "Let the money. Capitalism and alchemy of the future. "
(24) Details are provided on the organization of the ECB in the book The European Central Bank, and Francesco Papadia Carlo Santini. But this little book, published by Banqueéditeur and written by two bankers, the first of the European Central Bank, the second of the Bank of Italy is mainly a defense, uncritically, the directives given to the ECB by the Treaty Maastricht. For analysis and criticism, read The euro without Europe, how to see No. 61, January-February 2002, ed Le Monde Diplomatique.
(25) D.Plihon, the new capitalism.
(26) In Passet, In Praise of globalism. Chapter I, the real masters of the world, pages 31-32.
At this stage of our study we can conclude that at least two misconceptions are widespread. First they most often argue as if there was a fixed amount of money and should "do with." When in fact, such a constraint is exercised over the state. It also seems that many people are convinced that it is the government of a country that determines the mass of the currency in circulation, whereas it is in contrast to privately owned banks that issue bank money, which benefit and, in addition, the power to choose the beneficiaries of this windfall.
We realized that since it can be created easily by simple games paperwork, money-symbol has lost the guarantee that was his link with a wealth materialized. The development, first gradual, insidious, but has accelerated in recent decades, makes one see today (written in 2003 and unchanged since ...)
• monetary creation defies political decision, it has no general interest objective and increases inequality;
• creation mode that does not allow, for example, to finance a public-but not "profitable" utility, because it could not repay, nor, a fortiori, pay interest linked to the creation bank. Include thousands of examples of the dramatic consequences of the need to return any funding. For example, basic research: there is only the state that can fund basic scientific research that does not result immediately or never on a market and profitable application. In the particular case of medicine, private pharmaceutical companies, more and more large, research funding so-called "carriers", expected a rich clientele drugs, and they require market exclusivity through patents; by cons, research on diseases called "orphan" because rare is abandoned, potential customers are not sufficient to attract the investment! Constantly encountered similar situations in all areas: a common, or region, is facing a clear need, such as the construction of a bridge, a nursery or a highway for which existing skills, architects, workers available, and all materials and machinery needed. Lacks the credit. The construction can not be done because the human needs do not control the creation of money and the government are subject to these constraints;
• that this method of money creation does not weigh only this directly on society in all public areas: it requires any business that needs credit to repay more than it borrowed. This requirement directs the choice of companies which are thus induced either to offset their increased costs by "savings" made about working conditions or neglect "by economy" precautions deemed too expensive, either to adjust their selling prices in order to pay the interest on their loans, in which case it is the customers who pay the interest, so that pay an annuity to the banking system.
Inability to fund unprofitable business obligation earnings growth, the need to reduce costs, this method of money creation weighs on society in all areas of health, working conditions, environment, knowledge, evolution, culture ...
Which should lead public opinion to ask a few questions:
• Where does the choice of method of money creation?
- No political debate is at its origin.
• A there was spontaneous?
- History has shown on several occasions (including in France, two coups Napoleonic) pressure on those in power to impose the privileges banks still enjoy.
• This choice is it immutable?
- Nothing to do, especially not the money, it has changed throughout its history ... (YH: and there was even, there are only 450 more years, entire civilizations that passed by...)
To be continued in Part IV