The
Financial Crisis ...
The financial crisis happened in 2008, the year
I retired. This dire situation was rescued with
the help of the “money tree” which Theresa
May denies exists. The Bank of England
created £435bn of quantitive easing, by
(literally) printing money, the effect of which
was to increase their reserves, reserves which
can be used to buy gilts (Government debts)
and provide a tranche of money for the banks
to borrow. Gilts are normally considered to be
safe investments and as a result of all the
money being directed towards buying gilts, the
price increased. This had the effect of reducing
the interest paid and this encouraged the city
banks, hedge funds etc to leave them alone
and to invest in corporate bonds and shares
which give higher yields. In addition, the Bank
of England has also been buying corporate
bonds, and lowering the interest rates close to
zero.
CITY ELITES
The banks have been borrowing vast amounts
of money from this huge increase in the Bank
of England reserves at 0.5% or thereabouts.
The city elites have abused the leverage of
this debt expansion, amassing huge profits.
Under fractional reserve banking regulations
the banks only need to keep, say, 10% of the
money officially on their books. They can lend
out the other 90% to individuals and
businesses in order to expand the economy
and, in theory, that is what the Bank of
England wanted them to do. However, this has
not happened. Many companies have
borrowed from the banks at 1% interest and
used the money to buy back their shares on
the open market, contributing significantly to
the extraordinary rise in the FTSE 100. The
CEOs of these companies receive massive
bonuses based on shareholder value, not
because their companies have been
innovative or more productive but as a result
of share buy-backs. This has resulted in a
stock market bubble which must surely burst in
the not-too-distant future.
MISPLACED FAITH
When I retired I existed on my 25yrs teachers’
pension and in 2012, my state pension kicked
in. At the moment I am a “happy bunny”. I am
financially secure until the financial system
collapses – which can’t be far off.
I had thought that the Federal Reserve, the
Bank of England the European Central Bank
et al would be able to organise within the Bank
of International Settlements in Switzerland a
smooth process whereby they “kicked the can
down the road” for perhaps 20 years or more.
However, after reading “The Black Swan” by
Nassim Nicholas Taleb (2011) I realise that my
faith in central banks was probably misplaced.
Since then we have seen the Brexit vote, the
Trump presidency, the financial ascendency of
China, the electoral result in Germany and the
massive flow of thousands of tons of gold from
western banks to China, Russia, India etc.
Whilst perhaps not individually responsible, it
does seem that these “black swans” represent
a cumulative disruption of the status quo.
Derivatives are contracts between parties
based on a variety of assets including stocks,
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