is to explain, in simple language, how to navigate an increasingly complex world. We find people who think differently about education, business, finance, economics and life so we give our audience the capability to make more insightful decisions.
At the same time I have been writing this blog about Empires, war, plague, famine, the subjects mentioned in Revelations. When I came to give it a name, the Four Horsemen was already present on the web in a myriad of forms, books, images, music etc. etc. so I called it the 4oarsmen of a poxy list. I have since found that there is a youtube channel called the 4oarsmen; it’s about rowing. Recently I became aware that Renegade had written a book and produced a film. I was rapt! Here was a condensation of how I thought expressed by some of the great minds. So I set about extracting the bits that had relevance to my life in Australia – because much of what is said has direct correlation to how economics and banking works in this country. So this will be a work in progress. Using the video I’ll gradually build segments based on what I’ve written elsewhere and what is happening in real time.
In the 2018-19 Budget, the Australian Government announced it would introduce an economy-wide cash payment limit of $10,000 for payments made or accepted by businesses for goods and services. Transactions equal to, or in excess of this amount would need to be made using the electronic payment system or by cheque. The Black Economy Taskforce recommended this action to tackle tax evasion and other criminal activities. It’s hard to take the recommendation by the Taskforce seriously when the magnitude of payments for goods and services is about 5% of payments made. The vast majority of the Black Economy is corporate, [particularly tax fraud by international miners and multinationals like Apple and Google] and criminal [including drugs and money laundering]. The new legislation will have no effect on the black economy. The bit that will make most people upset is:
It is also offence to make or accept a cash donation equal to or in excess of $10,000. The maximum penalty is up to two years imprisonment and/or 120 penalty units [$25,200].
IMO the biggest problem with forcing a cashless society is that young people already suffer from ‘financial abstraction’. In a bid to make the visitor experience as ‘frictionless’ and ‘seamless’ as possible, Disneyland spent over $1 billion on a ‘magic band’. With this colorful, plastic bracelet visitors can access their hotel room, the park and all its rides, purchase meals, drinks, ice-creams and all that Disney memorabilia that you never knew you, or your children, wanted! Seamlessly your visit just cost a huge amount more than you had planned – but how? Disney cleverly realised that by eliminating queues and ticketing issues, the visitor experience becomes easier and more enjoyable – seamless. Families can immerse themselves in all the park has to offer and spend more time ‘making memories’ [read, ‘spending money’] as, with the magic band linked to visitors’ credit cards, purchases become frictionless. The Disney magic band and how it operates, especially psychologically, is a telling example of how increasingly disconnected from physical money we have become, and how our financial habits have changed as we move to virtual transactions.
Today’s currency is increasingly digital, and the legislation proposed will hasten the disconnect with reality with money becoming more of an idea and less of a physical reality and the theory that our relationship with money changes depending on whether it’s real or not, is a concept known as financial abstraction. Research has suggested that we spend more when we swipe or tap, with most studies finding we spend up to 18% more when not dealing with cash. And so, at the heart of financial abstraction is this – as money becomes less tangible our spending becomes greater, we are not handing over cash and so there is less sensation of loss, we don’t feel the pain associated with spending. The greater the disconnect with our money, the less real our money is to us and the more we spend.
The facts show capitalism to be not in crisis at all. It is stronger than ever, both in terms of its geographical coverage and expansion to areas (such as leisure time, or social media) where it has created entirely new markets and commodified things that were never historically objects of transaction. Geographically, capitalism is now the dominant (or even the only) mode of production all over the world: in Sweden the private sector now employs more than 70% of the labour force, in the US it employs 85%, and in China the private sector produces 80% of the value added. This was obviously not the case before the fall of communism in eastern Europe and Russia, nor before China embarked on what is euphemistically called its “transformation”.
Thanks also to globalisation and technological revolutions, new, hitherto nonexistent markets have been created: like the huge market for personal data, rental markets for own cars and homes [neither of which were capital until Uber, Lyft and Airbnb were created]. The social importance of these new markets is that by placing a price on things that previously had none, they transform mere goods into commodities with an exchange value. This expansion is not fundamentally different from the expansion of capitalism seen in 18th and 19th century Europe, when food, clothing, shoes and other goods that had been produced by households began to be produced commercially. Once new markets are created, a ‘shadow price’ is placed on all such goods or activities. This doesn’t mean that we all immediately start renting out our homes or driving our cars as taxis, but it means that we are aware of the financial loss that we make by not doing so.
These new markets are fragmented, in the sense that they seldom require a sustained full day of work. Thus commodification goes together with the gig economy. In a gig economy we are both suppliers of services (we can deliver pizza in the afternoons), and purchasers of services that used not to be monetised. Taking care of the elderly, of children, cooking and delivery of food, shopping, chores, dog walking and the like used to be done within households. When globalisation began in the 1980’s, it was politically ‘sold’ in the west – especially as it came together with the end of history‘ – on the premise that it would disproportionately benefit richer countries. The outcome was the opposite. Asia in particular was a beneficiary, especially the most populous countries: China, India, Vietnam and Indonesia. In Europe, as in the US, it disproportionately benefited the 1%. It is the gap between the expectations entertained by the middle classes and the low growth in their incomes that has fueled dissatisfaction with globalization and, by association, with capitalism.
Another issue that does seem to affect most countries is to do with the functioning of political systems. In principle, politics, no more than leisure time, was never regarded as an area of market transaction. But both have become so. This has made politics more corrupt. Even if a politician does not engage in explicit corruption during their time in office, they tend to use the connections acquired to make money afterwards. Such commodification has created widespread cynicism and disenchantment with mainstream politics and politicians. The crisis therefore is not of capitalism per se, but a crisis brought about by the uneven effects of globalisation and the expansion of capitalism to areas traditionally not considered apt for commercialisation. Capitalism has thus become too powerful, and it is in collision with strongly held beliefs. Unless it is controlled and its ‘field of action’ reduced to what it used to be, it will continue to disproportionately benefit the already rich.
Do we really need banks?
The Australian regulators did not see the GFC coming because of fake regulation including euphemistically self-regulation or ‘light touch’ regulation, Government economic policy for the past decades. Treasury economists and the regulators have been taught erroneously at universities that markets are efficient and fully informed; investors are rational; misconduct does not matter, bad loans do not matter; everything is self-adjusted for risk and the markets will find their equilibria in the best of all possible worlds. Regulation is assumed to be unnecessary and only hinders the economy finding its optimal equilibrium. Since the 1981 Campbell inquiry which articulated the policy of ‘minimum regulation and government intervention’, all subsequent reviews and inquiries have sought ways to reduce the intensity of regulation, so as to lower its costs. As the Hayne Royal Commission [HRC] has discovered, the regulators have virtually ceased to enforce the law. They found few reasons to monitor the industry proactively for wrongdoings. They do little research or analysis using the enormous data they collect. Their databases are a shambles, with many errors remaining through data disuse. The regulated entities are expected to self-report to the regulators any breaches of the law.
In February 2018, Financial Sector Crisis Resolution Act 2018 was passed as further measures to extort the economy to save insolvent Australian banks in a crisis through ‘bail-in’ of bank deposits and other bank liabilities. Such measures, if widely understood by consumers, may increase the likelihood of bank-run instability at the first sign of crisis. Also, since the measures guarantee a rescue effort, they create moral hazard, encouraging the banks to take even more unnecessary risks. The current financial system is morally decrepit, structurally unsound and financially unfair. Bank depositors are being euthanized slowly by low or negative real interest rates. They bear the risk of insolvency losses from bank speculation without getting any of the rewards. Retirement savers have had their superannuation systematically stolen. Everyone, except bank executives, suffers eventually from the asset bubbles created by the financial speculation of the banks, as we are witnessing now in the deflating housing bubble in Australia.
The banking system in tatters.
getupsolomon 