Leo Foresta

Part II: The heavy side of reality

The global crisis

The multi-facet crisis we face today has been in the offing for decades but only started to really shake most peoples’ imagination when the weaknesses of the financial system were revealed to all in 2008. Then the very heart of materialist society was hit. To grasp what happened then and is currently unfolding we need a quick sharp look at the development and key modalities of finance.

Finance revolves around the twin concepts of money and debt, which govern relationships between individuals not prepared to deal with each other on the natural basis of free gift or barter. When a mum or dad prepares a meal, or unblocks the sink or replaces a bulb, they do it for free. Within a family such services are provided free. And the same has been true within traditional communities for thousands of years. When a stranger turned up, rules of hospitality ensured he was offered shelter, food and sometimes even sexual favours, all for free. At some point in history dealings with strangers took a different turn. For someone outside the group to obtain a product or service, he had to pay, i.e. immediately give something in return. And the something had to have a “value” equivalent to whatever he received. Once the idea of value was implanted, a need appeared for a yardstick to compare and exchange values easily: money. It could be stones, goats, gold, anything tacitly accepted by all.

Once goods and services were no longer free, the need arose for those who momentarily couldn’t pay to be lent the means of payment against a promise of reimbursement at a later date. For a long time, debt and money were two separate concepts. However, at a point in time nearer to us they got very closely associated. Merchants who kept other peoples’ gold in their vaults realised that the paper receipts they issued were themselves widely used as money. This was a new form of money: “fiat money” that people trusted as reliable substitute for “real money”, namely gold or other precious exchangeable commodities. And gold merchants also realised that people holding receipts only rarely asked for redemption in gold. Therefore it was possible to lend by simply writing new receipts supposedly representing real money, which in fact did not exist. Banking was born. Let’s be aware that lending something that doesn’t exist opens the door to stealing subtle energy from one another. By lending money at an interest without actually taking anything out of their vaults, gold merchants started to make big profits. Of course they couldn’t push the game too far. They had to limit the issuance of receipts to a level such that they could always redeem in gold the few receipts presented to them for withdrawal.

Today gold no longer plays any role in money[1]. But the banking game is hotter than ever. When you borrow to buy a car, your bank simply creates an accounting entry in its computer system: debit loan granted to you, credit your bank account. With your account being credited you can pay the seller of your car. His account gets credited while yours is debited. If his account is in the same bank as yours, your bank only has to create a purely internal entry. If the seller is with another bank, the transaction has to go through an interbank clearing process. This clearing involves the various commercial banks participating in the country’s monetary system. Their accounts with the central bank are credited or debited daily on the basis of the net flow from all transactions involving customers of different banks. If over a period money tends to flow out of a particular bank, the account of that bank with the central bank diminishes alarmingly, in a way similar to the situation of a gold merchant whose reserves dwindled because more people than expected presented receipts for redemption in “real money”.

But nowadays, there is no more “real money” in the system. So what happens then? To prevent the bank in trouble to fail like a gold merchant running out of gold, the central bank steps in and grants a loan to the commercial bank. It does this by creating an accounting entry in its own computer system: debit loan to the commercial bank, credit the current account of the said commercial bank. As long as the central bank extents credit to a commercial bank, the latter is assured of survival, unlike the gold merchant running out of physical gold. In effect the central bank has the power to create as much artificial gold in the shape of pure fiat money as it deems necessary. That power is a unique privilege.

Who confers that unique privilege to the central bank? Officially the State. Given the importance of such power for the whole of society and the fact that such power comes from the State, you would assume that the central bank was publicly owned and effectively part of government. But no, in many important cases it isn’t. The US central bank, aka “Federal Reserve”, is owned by private shareholders, and so are a number of European central banks, some of them co-owners of the European Central Bank. Furthermore, executives of central banks are mostly individuals who spend large parts of their careers in the world of banking and finance. So the people they grant credit to by creating new fiat money are their good pals. All of them belong to a charmed circle of relations – if not always friends – in commercial banking, central bank and government treasury. Oh, you’re beginning to smell rats? Quite right you are. A system clouded in opaque intimidating jargon, endowed with considerable power, and operated by a select few in close relationships with the people they are supposed to control, is bound to become corrupt.

In the global economy every large business is in theory[2] managed with the sole objective of maximising shareholder value. To achieve this, businesses not only try to sell ever more and squeeze their costs to increase profits, they also borrow in order to limit their equity basis. That way profits after interest on loans are high in relation to the amount that shareholders maintain in the company. Return on shareholders’ funds is thereby maximised. The trick is all the more advantageous when interest rates are low. In the banking business borrowing money enables to enlarge loan portfolios or financial market positions, which can increase potential gains considerably. It is also more risky. But who cares when the general atmosphere is euphoria?

From the summer of 2007 euphoria gave way to serious worries. Lenders became prudent and suspicious. Interest rates shot up as heavily indebted players desperately tried to renew their loans. When a really big name hit the wall in September 2008 widespread lack of trust nearly froze the system. Banks wouldn’t lend to each other even at very high rates. To prevent a chain reaction of bank failures, central banks and governments stepped in, extending ultra cheap loans and providing guarantees to all banks in difficulty. Immediate panic was brought under control and interbank lending was rekindled. But the naïve unlimited confidence in the system that had sustained economic growth and the explosion of financial activity over many years was gone.

Companies and households started to “deleverage”: spend less and repay some of their debts or at least avoid taking on new ones. But, while households and companies were by now more attentive to limit their spending and debts, governments had been forced to do the opposite to support economic activity. This caused markets to focus their attention on the creditworthiness of national treasuries, hitherto not really put into question. While troubled debtor countries within the euro-zone are in a particularly tight spot, other nations also face pay back time after years of unrealistic economic growth fuelled by cheap credit. The world economy holds water only because all major central banks are creating more money than ever before. They do this through ultra cheap loans to banks or through purchasing sovereign bonds from the financial markets (a procedure called “quantitative easing”).

There is a broad consensus among the elite that this has to be done in order to maintain the buoyancy of world finance, prevent bank failures, help governments and support demand in the economy. But the consensus is much more hesitant regarding what governments, as opposed to central banks, should do with public finances. A majority of decision makers regard austerity as absolutely necessary to prevent public debt from getting to even higher levels, but some economists and politicians maintain that severe austerity simply stifles the economy. And for everyone’s confusion, both assertions are founded. It was excessive debts of many economic actors – including governments – that led the system into a major crisis. Therefore reducing public spending to contain government debts is unavoidable. The problem is that severe austerity applied simultaneously in most developed countries squeezes world demand for goods and services. In sum, the whole system is torn between incompatible constraints. And despite all the talk, and manipulated statistics, about the “recovery”, the system remains in deep crisis.

But the elite keep thriving through the mess. Because they are directly or indirectly associated with multinationals which benefit from globalisation at the expense of employees and suppliers. Because they are often involved in sectors surfing on societal trends that are disastrous for most people and nature but lucrative for a few: degrading health and higher medical costs, ever lower quality of mass produced food, growing impact of large retail, various forms of institutionalised violence – war [3], security systems, law enforcement, private prisons, ..etc. And also because they are often close to the loop of new money created by central banks. And as such are well placed to gain from movements in financial and property markets.

How large, and how privileged is the elite? Let do some quick maths. A widely accepted rule of thumb is the 20/80 rule. This rule says that the top 20% of the population has around 80% of the wealth or income. The rule applies to the whole curve: in other words, the top 20% of 20%, i.e. 4% of the total has 80% of 80%, i.e. 64% of the total. And it goes on: the top 20% of the 4%, i.e. 0.8% has 80% of 64%, i.e. 51.2%. Yes, less than 1% of the population have more than half the wealth. And the lower half of the population have less than 1%. If you carry on with the simple maths you realise that a tiny tiny fraction of one percent has a sizeable portion of the total, far more than the lower half of the population. So don’t be surprised when you hear in the news than less than 100 billionaires have more wealth than 3 or 4 billion people.

The situation is obviously dire for the poorer half, which is not new. But is also becoming very tricky for many folks who used to think of themselves as middle class, even relatively comfortable middle class. Globalisation has made these people almost totally dependent on an integrated economic clockwork supported by the large scale deployment of hard technologies. When this monstrous machine starts stuttering it is not easy to change one’s life style and turn to more humane, smaller scale, local operations. Many families are completely cut off from the land and from nature. Not only do they have no access to land, but they lack elementary know how for growing anything, since producing food is now the job of the few working in industrial agriculture. Besides, they often lack even basic cooking skills – i.e. a little above being able to stick a ready made dish into the microwave. And this is true for women as well as men. Many middle class households live in suburban areas where congestion and high fuel costs create ever greater impediments to mobility and cause considerable stress. Mass retail sites difficult to access by means other than the car have long replaced most independent local shops in all developed countries and the phenomenon is on its way in poorer countries. Health care in developed countries has become extremely technical and insensitive to people’s personal lives. Besides, its cost is increasing all the time. Given all these trends, middle class folks who until recently were the backbone of developed societies find themselves in a completely new situation with unclear prospects and considerable immediate pressures, frustrations and sources of anguish.

Nevertheless, most of them still appear reluctant to even consider a fundamentally different way of life. The majority remains solidly materialistic, bent on pathetic competition, steered by fear and the vagaries of ego. Caught in that mentality, most people are prepared to accept anything that contributes to keeping the system going: destroying forests, poisoning soils, replacing natural plants by GM varieties, fracking, encouraging junk food, etc. They are prepared to accept even what affects them directly, in their own bodies and minds: absorbing unhealthy food and drink, receiving large doses of high frequency electromagnetic emissions, swallowing medicines with significant side effects, and so forth. In spite of every stress, fear and disillusion, their basic loyalty is still with the system, with mainstream medicine, industrial agriculture, large retail and mass entertainment. Even war mongering by their leaders is accepted. To many people total submission to the will of the elite is unavoidable. No alternative exists, they think. So why try and resist?

But recent revelations in several countries have opened a can of even more troubling darkness. While on going destruction of the planet’s eco systems is now almost accepted as routine fact of life, substantial evidence is coming to the surface not only of irresponsibility and corruption in high spheres of society, but also of wide criminal perversion, raping and paedophilia with a satanic flavour. And weird symbols related to the latter filter through society in advertising, video clips, films, comic strips. You can see them in clothing, tattoos, cars, company logos, and architecture. And to the sensitive mind this perversion of society is intimately linked to our beautiful planet being disfigured. Both are manifestations of distorted flows of subtle energy and misaligned entities in the invisible layers of reality.

However most people still don’t grasp what is going on. They may be perturbed by things being revealed or suspected, but they still cling to the idea that they live in a society driven by desirable technical progress. Few realise that a new form of tyranny is taking hold everywhere, even in countries once regarded as free democracies. A rather spongy version of fascism without a dictator, a multi-facetted tyranny: financial, technological, medical, political, with devious criminal aspects and bits of old ideologies used as pure theatricals. It’s not too clear what the full motivations of the shadowy characters behind this new tyranny really are. Money is obviously high among them. So is arrogance. Perhaps also a manic desire to do better than nature, to be “cleverer than God”. Conspiracy theorists offer various hypotheses, such as the objective of drastically reducing world population or establishing Zionist supremacy. A puzzling aspect of the whole business is how members of the conspiring elite propose to protect themselves from the consequences of what they set in train. Most probably they are themselves so confused and blinded by the belief system they try to impose on the masses.

In any case a multi-headed new tyranny appears to be moving its pawns everywhere amid considerable confusion. Superficially it looks as if the ruling elite and the vast army of its submissive servants have all the cards in their hands. All of this, however, is only the shallow end of reality, the visible portion. But what is behind it? What are the unseen dynamics of what may look a terrifying dystopia about to morph into reality?

Copyright © Leo Foresta 2014

[1]In 1971 the American authorities took the US dollar out of the Gold Standard. The US dollar and all other currencies became free floating abstractions disconnected from any physical commodity.

[2]In practice the interests of senior management regularly prevail over those of shareholders if they aren’t the same people

[3]ironically named “defence”