Continuing on from the previous blog, here are some further extracts from ‘The Production of Money’ by Ann Pettifor:

Wielding the weapon of interest, finance capital effectively holds societies, governments and industries, but also the entire ecosystem, to ransom over repayment of its loans. This predicament is particularly tragic given that, in theory, the development of banking and of sound monetary systems should have ended the power of any elite to extract outsized returns from borrowers. Today, just as in earlier pre-banking eras, interest rates remain high in real terms, even in rich countries. However, this is only because these societies, elected governments and industries have conceded such despotic power to finance capital.

In Chapter 4 she tells us how the ‘broken record’ phrase governments trot out is ‘there is no money’. That sword through the heart of civil society is a painful experience we have suffered all our lives, and tells us Austerity will continue.

Ann Pettifor:

We live in turbulent political and financial times, and in a global economy dogged by failure. We survive precariously on a planet warmed by human greenhouse gas emissions and disturbed by a human-induced mass extinction. The financial system is currently volatile, corrupted and widely discredited. Scandals of mis-selling, theft, manipulation and fraud abound. And the cry ‘there is no money’ for projects that society holds dear echoes all around us. We are assured that ‘there is no money’ for care of the elderly, or for the mentally ill, or for social housing. There is no money for the commissioning of operas, plays or other forms of artistic creation. There is no money for public investment in water conservation, renewable energy, flood defences, the retrofitting of old, energy-leaking properties, or other investments designed to protect society from climate change. One of the reasons for this chorus of defeatism is the global overhang of debt, and the conflation by many economists (and indeed the public) of both public and private debt. In this chapter I hope to deal with both the ‘there is no money’ meme, and the differences between public and private debt, and why public debt, at times of weakness, ought not to be a barrier to public investment. ‘The state has no source of money’ At the heart of the politically inept responses to the financial crisis is an ideologically driven and mendacious conviction: that while society can afford to bail out a systemically broken banking system, it cannot afford to finance and address economic failure, youth unemployment, energy insecurity, climate change, poverty and disease. Society, it is argued, ‘has no money’ to finance these challenges, to stimulate recovery or create employment.

Every citizen who hopes to get answers to why we have been struggling like this for so long should sit down and read this book. It is so refreshing, it is like therapy to read it, to scrape the fog away of mixed messages spouted by ‘experts’ and politicians.

Debt is defined as an asset by its owners: creditors and international financiers, including private equity investors. Assets are valuable in themselves – think of the rent extracted from property, from income streams generated by the purchase of a football club, or from companies in the form of dividends, etc. But debt (or a loan) is also an asset and has value as a source of ‘rent’ in the form of interest payments made over time. Finally, debts (for example, a bank’s mortgages) are useful as income-generating collateral for leveraging even more borrowing or debt. Think of phone network providers that have thousands of contracts with users. These contracts represent streams of revenue into the future, and holding these contracts provides the phone network company with the collateral needed against further borrowing.

Too much debt carried by borrowers living in austere times leads to defaults, thus the economy deflates beyond rescue.

The politicians responsible for enforcing austerity policies had not just imposed unnecessary suffering and dislocation on millions of people, their communities and countries. They had not only caused public debt to rise. They, in fact, caused disillusionment with democracy to set in among the unemployed and impoverished in Europe and the US. Austerity and the collusion between politicians and the finance sector opened up political space for right-wing, populist political parties like Donald Trump and the Tea Party in the US, the National Front in France, and Golden Dawn in Greece. These were among the social and political consequences of democratic politicians enacting policies that enrich the few while impoverishing the majority; policies based on the interests of the robber barons and on the flawed theories of ‘defunct’ economists.

To see democracy threatened as a result of financial gambling run by those who think they are amongst the brightest brains in the world, is to despair of present day support for this modus operandi we seem saddled with.

Ann Pettifor reminds us, later in her book, that the rate of interest on money is merely a ‘social construct’. We must remember that; some of us have had our financial lives stubbed out by these ‘constructs’.

High rates of interest do harm to the majority and favour the rentier.