Tuesday, 1 April 2014

Scratching the surface

There is a single principle in place which is so simple and basic once learned it can be applied wherever it is required, and used in turn to undo the mystery created by propaganda merchants such as governments and advertisers, basically everyone who is out there to cheat you by offering you something which is the exact opposite of what it actually is. I will illustrate this using existing points from here you may well be familiar with already, and of course serve the further purpose of repeating the principles till they sink in and become part of you like an old friend. Some are as simple as that, where what they offer is the exact opposite of what it appears once inspected, others are not as clear but just take a little more effort to uncover, and at least realise are probably not anything like they seem on the surface.

This extends a standard principle operated by children, where everything is taken literally, and if not certain many assign their own meaning to it, which can often last throughout their lives subconsciously until recognised and removed. Children tend to be 'joiners', that is those who accept any offer from those they know and trust, which is why many attend demonstrations from anything to global warming, Palestinian rights, and the Occupy movement etc., even though they clearly have no idea what they are demonstrating about, and besides the ones brought up as activists who simply inherit the mindset automatically, many would never want to be connected with as grown adults. That mindset continues to some extent throughout life unless you wake up from it, accepting what those you trust in authority tell you and do not check up or investigate further as they seem exactly what they are, but can be exactly the opposite.

Here are some examples I have mentioned before, but will use to see them in direct operation:

Low interest rates: Yes, how on earth can cheaper borrowing be a bad thing? But interest rates do not operate in isolation. Borrowers are one part of the total linked economy, and as the books always balance at the end (even if some appears initially to be gone) if you have a fixed amount in circulation at any one time then if borrowers are apparently (as it may not really be the case anyhow) paying less, then it is balanced by an equal loss elsewhere. Saving the borrowers a few percent is costing savers that amount directly. It is as simple as that. Now in a profligate economy if far more people are borrowing then it will still help the majority the most, on the surface. But long term no economy can be sustained by borrowing without at least an equal growth in material capital, so it can never last that long before a major crash when borrowing makes up that much of the total. Normally savers outweigh borrowers, certainly in Britain, by about 70/30, so for the 30% who save on their borrowing, 70% lose. Every year it is costing the economy as the money is removed from circulation as instead of being spent in the greater economy goes to pay the banks directly.

Then, the real beneficiaries of low interest rates are the banks, as who else pays base rate? The government. So the government and banks can borrow at base, and the banks always lend for a spread whatever the base rate so makes little difference to them as long as they are turning over business for commission. If base rates are 0.5% and a mortgage is 4% the banks make their 3.5%, if 3% and 7% they still make 7%. So the banks are barely affected as they tend to keep the spread similar as that is the market rate. But when the banks borrow at 0.5%, and either make a massive deal with a tiny profit, if the profit is over 1% then they do very well investing millions, which is never possible at higher base rates as such 'overnighters', as they bet on a currency or commodity moving up or down overnight with huge amounts borrowed with minimal risks, if they made 1% with base rates any higher such a simple means to profit would be impossible. Hence their huge bonuses in the five years base rates have been 0.5%. Is it beginning to make sense now? And the few who profit, the mortgagors? Well they have split into existing owners, who will profit, but remember they are only a part of 30% so not utilitarian, as it does not benefit the majority, all transactions taking place at the time of low rates rather than before they begin are not affected. Why is that? Because estate agents work by how much a buyer can afford a month. If the amount of the mortgage itself goes down then they simply raise the price, as the market relies on what the customer can just manage to afford. So as soon as mortgage rates fall house prices rise directly, as the two are linked and you can't beat the system.

Therefore if you subtract all new buyers (including those selling or first time buyers), you have a small core of people holding a mortgage which has gone down, while their house price goes up, but if rates do not fall then if they sell and buy again (as they will unless they die) they will pay the higher price and lose all their initial savings. In the end only those who buy at higher rates and don't sell before they go down and up again will save very much, the rest will cash it in as soon as they sell as they will buy on the new market and pay far more than they would have had house prices not risen.

This leads to the directly link second illusion which I already wrote about here specifically. To recap, no one who lives in their house (as opposed to rents another or more to others) gains from price rises, as it costs them more initially (inflation, and on your greatest ever purchase), and then again if it goes up as 10% of £100,000 is half as much as of £200,000, so the cash difference in trading up becomes wider and wider as the percentage rises, making improvements harder and harder as a direct result. House price rises are pure inflation with no benefits to anyone, any more than your gas or food prices going up. Just because they are an increasing asset, unlike nearly all others which depreciate over time, they are not an investment, as they are not liquid. If you sell up you will always need to live somewhere, and therefore you can never convert your asset or profit on it to cash as unless you want to downsize, which the majority of people will not until retirement possibly, then your standard of living will permanently fall if you have a cheaper house for more cash. There's no way round it, moving abroad means their assets tend to rise more slowly (Britain has some of the highest rises worldwide), so you will probably never afford to move back as the difference will be too much to fill if you wanted to.

The economic are the easiest to illustrate, but to one extent or another you can directly apply this formula to many more things, and others indirectly. Take socialism. This is a less obvious and direct illusion, but one young people tend to see as 'caring' and 'inclusive' etc., mainly as they have probably never lived under it, and they don't realise where all that money has come from to care for the poor. So while their parents work hard and find money to look after them well, they do not realise were this socialism in operation then if their parents are doing well through years of effort, they would lose maybe half their money or more. It would go to pay for everyone else, not who you wanted it to go to, or necessarily even knowing where it was going, it would simply be returned to the state, which socialism believes is above the individual, as a collective, and knows better how to spend its money (note, no longer 'your' money) than you do. Yes, you may get free health care and cheap travel, but it may be at the expense of petrol costs which are taxed to subsidise public transport, as again the money has to come from somewhere, and under socialism it comes from those who are worth the most as they have the most to take away. So like the low interest rates, unless you are one of the group of people who benefit from socialism, basically the unfortunates and long or short term unemployed or sick, you will make a net loss. And your wealth will be capped. If you end up paying 70% or more of the earnings above it then it will barely make any difference per extra (marginal) hour worked after that point, and as a result even the economy stops growing as after 50% it will, as people will work less, cheat and leave the country, while lower rates people will be happy to work and pay fairly.

So socialism looks wonderful to most children who see things as simple and black and white, and do not see beneath the surface yet, but in fact only works with very poor countries who can only get better, once they become fairly affluent then they can still support those unable to look after themselves under capitalism as the economy has grown enough to afford it.

Now imagine CO2 was either not rising or not considered harmful, no possible reason would exist for wind, solar and wood power as they don't work. Or electric cars. Don't take my word for it, look around for the figures. They don't deliver. People would be burning coal which is cheap, abundant, and now scrubbed clean before it leaves the chimney. Oil would not be restricted from drilling or transporting (Obama is blocking the Keystone pipe which would make oil far easier to transport from Canada), and the market would operate, with scientists and inventors working on thorium, fusion, magnet motors and hydrogen power in their own time, which will all be literally harmless (unlike nuclear) and far cheaper than fossil fuel, but need decades to develop commercially.

So instead they create illusory machines which do nothing. A wind turbine cannot produce any more energy than the wind chooses to produce at that time, cannot be stored for later and cannot be used when not required. And they draw power. Solar are known to be capable of a little more eventually, but no more than a known conversion limit. Either way the light is 25 times weaker on the surface than above the atmosphere, and known to be too diffuse for home use rather than small appliances only. And although you can store the power during the day you won't get much spare for overnight, you'd need to spend more than the cost of the house to do it just in the summer. But in the winter they fail as the light is far weaker and only for a few usable hours, so cannot deliver. Imagine using wind and solar for a hospital for a few days if you want a proper picture of it. I already mentioned electric cars, which besides taking hours to recharge and don't have interchangeable batteries as an alternative, cannot be charged if they run out away from a point. And as they draw power for traction and electrical equipment from the same source then you simply can't tell how long it can last per journey, as if it gets cold, dark or wet the power drain will increase drastically. That is the essential nature of an electric car, and besides vastly complicated and expensive hybrids, a purely electrical vehicle, like a wind farm, can never deliver the whole time. Yes, if you never drive very far you may get away with it if you charge it each night, but what use is a car you can't use beyond local trips?

If you think of any more things which look good on the surface but are the exact opposite then please add them in the comments and I will add them here. It isn't too different from people playing the shell game in the street, who put a ball under one of three shells and you watch and bet the one it's under. Of course your chance of winning is only 1/3 if it's a fair game, but they cheat to make it almost zero, but get accomplices to pretend to play and win and suck people in. Once they realise then the money's gone and it's too late. Don't be like those tourists, learn from other's mistakes or experiences before they catch you out.

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