Money money money….
January 12, 2013Posted by on
My seeming obsession with money relates essentially to those who, like me, are living on a fixed income with limited disposable income or residual income and wealth, knowing that my money is not ‘secure and sound’ (I refer to money, which most take to be synonymous with cash, a distinction that is increasingly blurred in a debt driven society). Moving on: In an effort to ‘lighten up my posts’, I set out to write an amusing piece on the subject of money, instead the following lead from Adrian Ash – The Daily Reckoning – Australia provided the scenario for a true life black comedy.
Hologram Tam (Thomas McAnea) was an expert in faking holograms for official documents, he was also an expert forger. In 2007, he was caught with nearly £1.06 million worth of counterfeit banknotes. The counterfeit notes were printed at his Glasgow business ‘Print Link‘, a registered company used as a cover for his counterfeiting operation. On his arrest, it’s estimated that Hologram Tam and his gang had put almost £700,000 of fake banknotes into Britain’s financial system. All told Hologram Tam’s printing works had the capacity to produce £2.5 million worth of counterfeit notes per day. Enough (it’s claimed) to potentially destabilise the British economy.
Print Link was forced to liquidate in 2007, owing more than £80,000 with Hologram Tam refusing to cooperate with the liquidator [Print Link staff were paid in (Ahem!) cash with no National Insurance or tax payments being made]. Subsequently, Hologram Tam was banned from being a company director until 2016 and jailed for 6 years 4 months.
Hologram Tam only had the capacity to print £2.5 million per day. Hardly comparable to the UK’s private banking sector, which helped grow the money supply by more than £625 million every day, 250 times greater than Hologram Tam’s threat. Hologram Tam was thrown into jail, his company liquidated and he was stripped of being a ‘company director’, for the ability to ‘potentially’ destabilise the economy. The UK private banking sector was thrown a lifeline, their companies re-financed and directors given ‘knighthoods’ for ‘actually’ destabilising the economy.
Throughout the 1960s and ’70s private-sector debt lagged behind the outstanding total of M4 money (the total – officially acknowledged – money supply). The deregulation of the financial services industry noticeably increased the volume of private-sector debt during the Tory early ’80s. However, during the New Labour period – 1997 to 2007 – the UK’s money supply, assisted by private sector debt, nearly tripled.
By the end of summer 2007 – just as the global “credit crunch” began to bite – total private-sector lending in the United Kingdom outstripped the sum total of broad money (M4) by almost half of one year’s entire economic output. Put another way, private households and businesses in Britain owed the banks 39% more in debt than actually exists in cash.
The scam is simple enough to spot, if not to stop. Lending £6.60 against every £1 on deposit makes for a tidy “arbitrage” between the cost of paying bank savers and the income earned from debtors. On the banks’ balance sheets creating credit in this fashion looks simply beautiful. Loans are called “assets”, but cash-on-deposit is a “liability”. So the more money the banks lend, the greater their assets. The less cash they accept from savers, the smaller their liabilities!
In the History of Money, Glyn Davis writes of the counterfeit Roman denarius: “The very fact of imitation indicated that the demand for money locally exceeded the official supply, a gap which the counterfeiter exploited directly for his own interest.”
Two thousand years later, Hologram Tam was merely improving liquidity for his local economy, in this case, that of drugs dealers, junkies and pimps in Glasgow.
Britain’s biggest mortgage banks were merely doing the same, by helping out would-be home owners with a flood of liquidity. In the process, pushing house prices up three-fold in the 10 years to 2007, doubling the proportion of income going to service and repay the resulting mortgage debt to a record 32% per month.
“Is it not quite illogical, indeed indefensible, that the state should be so concerned to maintain its sovereignty in the issue of coins or notes that it allows this new form of money, used overwhelmingly today, to be created outside its control”? Lord Beswick, HANSARD, 27 November 1985
Footnote: Future historians may muse over this period of our history as has been done over, the Dutch Tulip Mania, the Mississippi Bubble and the South Sea Bubble. Today’s economic cycle encourages the occurrence bubbles with the notional increase in the availability of fiat money for investments that promise a high returns. [Peter/Aasof]