Sunday, 8 December 2013

Running an economy backwards

This is borrowed over, as anything relevant can be here including guest posts if anyone wants to send me anything themselves. I read this yesterday, maybe by Max Keiser but not relevant, that explained the British economic policy clearer than anyone else could.

Imagine pulling a piece of string. It will follow you everywhere and move as far as you do if you do, but if you then turn and push it then you will move and it will hardly go anywhere. Stay in the same spot and keep pushing harder and harder and it can and will never go any further as physics dictates what you are doing is impossible.

The economy works the same way. I have already written about growth, and in week one economics they explain the size of an economy is the total assets. I know using accounting tricks you can cheat and include debt, but that does not really mean it has grown, it just means they want to hide bad performance. So using official criteria, not government puff, an economy grows based on physical added value. This includes natural resources like North Sea gas or oil, manufacturing and added working hours as they earn more through, as Marx put it, the sweat of their brows which was all the working class had to offer. You don't really create growth through debt, any more than unpaid profits, however likely they may or may not be, as technically they are liabilities not assets. Unlike Enron's version, which is fraudulent and not meant to be taken on by their prosecutors as they realised it was a good idea for them to use.

Pulling the piece of string is the only way to move it directly, so are the genuine means to economic growth. There are no other means to grow an economy as the accounts must get a higher bottom line or it's just rearranging slices of the same cake endlessly without making new ones. Therefore the British growth model, based on borrowing and spending, is the same household model which caused the credit crash and left many people with five and six figure personal debts as well as any mortgages. Yes, they spent a lot of that money, but it wasn't theirs, they just took it from somewhere else, spent it, and at best replaced it if they managed to pay it back. The money supply grew as the interest was paid, in other words, it caused inflation as more money had been put into the economy with no additional production. A proper economic model is to create more so people earn more and spend more. That, like pulling a piece of string, is the only way to move an economy upwards, anything else is just moving it around in the same place, and the only reason Britain is growing now is through debt and inflation, which caused the second world war when it happened in Germany. That is the way we are going, and no other direction till off a cliff, the only known destination of running an economy backwards. It is the same as pushing the brake to move a car, or cut a cake into a hundred pieces and spend the rest of your life rearranging it hoping one way will do it. The only difference here being it's harder to see what they're doing and they can throw smoke and mirrors up in front of it to divert your attention, like using inflation as growth. No way Jose, that's fraud, nothing else.

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