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Money v Making Stuff-Should Britain bid farewell to the golden egg of banking.
engineertony
Posted: 16 August 2011 23:16:49(UTC)

Joined: 24/05/2011(UTC)
Posts: 71

Rose G

All opinions are valid of course. The thread is debating whether Britain should generate its wealth by financial services, banking, insurance and such or "making things", i.e. manufacturing in competition with China, India, Germany, Japan, South Korea etc.

MrFiat

Wonderful stuff. I need to read over again.

Prof #326 wild west analogy

Yes very helpful. More or less agree on where we are now. It seems the wild west farmers have all stopped making things and everyone wants to be a service provider, the doctor will fix your kids, the banker will lend you money at an agreed rate of interest, the teacher will teach your kids to read and write, the insurance man will take your money and pay some of it back, you might need a sheriff and a judge, and a few shop keepers. So who is raising chickens & cows to pay these people, who is making things?

In our present times the Chinese, Indians, Germans, Japanese, South Koreans, etc are making things for us, and the third world is growing our food, but, they all want paying!! No problem, sell them some services and borrow some money to pay them. Next year borrow some more. The year after, think about the interest on all the borrowed money.


All

Family just finished watching "The Duchess" with Keira Knightley, Ralph Fiennes. French revolution looming and the upper classes getting worried. Quite relevant to this thread and my own gripes. We've not mentioned how these jokers came to own all the land and property and most of the cash, and where it's all gone up to the present time. Naturally I have never felt overjoyed to find my ancestors came from Ireland in the potato famine, while if fate had been more favourable I might have had a few old Etonians in the family, and been another Fred Goodwin, laughing at you all from my yacht in the Bahamas.

Happiness is something else, I don't post much because I've been piping an air supply from a compressor in my workshop to this computer room cum experimenting room in the house. Got to be done before winter as it's too cold in Scotland to work out there. Someone mentioned experience, well it never stops, I finally understand the various pipe thread standards from BSP, metric, UNC & NTP, some sizes almost fit, some are tapered some straight....now I know. Great joy today as I fixed the last air leak and tested pneumatic cylinders in a centrally heated room. You can't buy happiness & personal fulfillment, and you can't buy experience.



Jeremy Bosk
Posted: 17 August 2011 01:18:59(UTC)

Joined: 09/06/2010(UTC)
Posts: 1,316

engineertony

"All opinions are valid of course". I think you meant we are all entitled to our opinions. Someone who thinks black is white and up is down is entitled to free treatment in an NHS psychiatric ward. I find Rose's arguments are sometimes far too simplistic. Not enough to put her in the nut house though :-)

In the modern world most of us are Heinz 57s. The geneticists claim we are all descended from Primordial Eve who lived in East Africa around 150,000 years ago.
http://www.taipeitimes.c...hives/2002/10/27/177339

PS Sorry if this last remark upsets a few fundamentalist lunatics. Well, no I am not.
MrFiat
Posted: 17 August 2011 10:34:12(UTC)

Joined: 19/06/2009(UTC)
Posts: 11

Prof Eman @326,

This description is slightly idealistic and factually incorrect. Fiat money systems have historically been a disaster yet expedient.
For a history of money please see 'Gold Wars' by Ferdinand Lips. I was fortunate enough to read this book by chance back in 2002. For some unknown reason my wife thought it might interest me because I was convinced at the time that the inflation figures were rigged (house price inflation at 20%, RPI moved to CPI benchmark etc etc). Fractional reserve banking arguably is more of a problem than fiat money. To make it clear - fractional reserve banking allows banks to lend multiples of their deposits. The money multiplier is normally regulated. The financial crisis was caused by bad regulation of the fractional reserve system rather than fiat money itself.

Fiat money works in tandem with the welfare state. Engineertony's wild west analogy is not possible in a Fiat currency system. The wild west analogy is that of a barter system for soft commodities. But that quickly becomes backed by a hard commodity like gold, because hard commodities do not perish.

The problem with gold is that it is a limited resource. If distributed fairly there would not be a problem. But what happened in the 19th century was that the liberals (who had the right idea) came unstuck with one aspect of human nature - that is what happens when a few people in the system make it their mission to grab all the resources. This is what the industrialists effectively did - think Rockefeller or Carnegie. Land is the same - it's a limited resource - and that is why the wild west farmer analogy doesn't stand up. WIth a commodity backed currency money really is power. In a fiat currency the power is given to those who engineer and manage monetary policy. In principle those people are elected through democratic means or appointed by people elected via democratic means. Thus, in principle at least, fiat money is fairer than commodity based money.

There are three principle features of a fiat currency which need to be understood.

(1) Fiat money is potentially always in abundance as it is by definition not a limited resource.
(2) Fiat currencies are always devaluing. It's the RATE of devaluation relative to others that is important. See point 3 for why.
(3) Fiat currencies are locked in step with economic GROWTH. The perfect system would have money supply growing at same rate as GDP at same rate as inflation (or same rate of devaluation if you prefer).
(4) The argument goes that growth is necessary to provide opportunity. Economists refer to "animal spirits" - ie keeping up with the joneses. Yes, that is why we have so many fads and bubbles - they are part of the system. And it is why trends are so powerful in our culture. The Fiat currency system amplifies the trends.
(5) Point (3) and (4) are redistribution of wealth by stealth

The above would apply in a closed system with no external influences.

The problems start when the closed systems (national economies) have to interact.

Thus we come to the point of engineertony @331.

The reason we must continue to have interest rates at 0.5% is because it's the only way to compete with other economies. Otherwise what banks will do is try to profit from differentials in interest rates between currencies which in turn increases the value of the currency which in turn makes the economy of that currency less competitive.

How much money banks can make in this environment I do not know. But what I do know is that our economies are now held hostage to exchange rate movements driven by national bank interest rates. Banks are now, more than ever, making their profits by taking bets on exchange rate movements - ie frequently moving huge amounts of money between currencies. Is this actually helping any economies? Does this help our economy? In some ways I think yes.

To put it another way. Should money represent a medium of exchange or should it represent a store of wealth?

Why isn't any of this taught in school?
Jeremy Bosk
Posted: 17 August 2011 10:55:02(UTC)

Joined: 09/06/2010(UTC)
Posts: 1,316

MrFiat

"Why isn't any of this taught in school?". Because some of it is contentious, because many of the ideas you discuss probably need a higher level of mathematics and a wider background in geography, history, sociology, social psychology... than is possible to fit into the already crowded GCSE timetable. Because there are very few economically educated teachers (or economists in general). Because so much time is wasted at school by bad teaching, poor discipline and motivation (pupils and teachers). Because most adults and children get too much pleasure from pontificating on matters of which they are substantively ignorant. Facts, reason and logic get in the way of humanity's passion for rolling about in the dung heap of ignorance.

Oh, that feels better!

Graham Barlow
Posted: 17 August 2011 12:15:42(UTC)

Joined: 09/03/2009(UTC)
Posts: 203

All you frustrated and worried people who are wondering why we dont make anything in Britain , just read up the basic laws of Capitalist Economics. Capital follows the lowest cost for manufacturing a product. There are countless examples of manufacturing moving around the World in search of the lowest cost. The prime example you must have all seen on the BBC was the Leeds Suit manufacturer. In business for over 100 years. With Unionised labour and the ever increasing minimum wage , national insurance contributions ,Pension deficits. The family realised finally that they were approaching bankruptcy,or an unsellable suit costing £25 each. What was the answer? Make everybody redundant except very key personnel, sell off the Leeds factory, Keep the warehouse. Go to China build a new factory, train new staff who work a 6 day week for an average wage between £30 and £40. Production went through the roof and the average suit came in at under £4 each. The family are now multi millionaires, and the biggest suit(Low cost) supplier in Europe.If Britain wants to get back into manufacturing, then it has to get all its operating costs down to compete with the rest of the World. The City's financial services have been copmpetetive so far. Whether they will remainso remains to be seen. Political interfeering is always a major cost that effects the bottom line, and we all live off the bottom line. Never forget.
Jeremy Bosk
Posted: 17 August 2011 12:48:30(UTC)

Joined: 09/06/2010(UTC)
Posts: 1,316

Graham

Yes. So Britons must either:

accept appalling wages and conditions

educate themselves to a high enough level that they can still find decent work (in this country or abroad)

get jobs in services, most of which are badly paid

use their brains, learn languages, use the financial skills of the City and venture capitalism, use the inventiveness of scientists and engineers... and create a better future which includes manufacturing

or research cannibalism for when the decline becomes unstoppable.

My money is on cannibalism. With luck I will not live to see it.

Anonymous Post
Posted: 17 August 2011 21:11:48(UTC)
Anonymous 2 needed this 'Off the Record'

Mr Fiat at #333
Thank you for your contribution on money.
My simple example was not meant to be an exhausrtive analysis of all the functions of money.
Just a taster for engineertony to help him realise what some of the issues relating to money and services are.

Prof Eman
engineertony
Posted: 17 August 2011 22:49:14(UTC)

Joined: 24/05/2011(UTC)
Posts: 71

Graham,

I saw the Leeds family who moved production to China, and for the moment it seems to work. If we can manage to design and create, knowing our own markets better than the Chinese, then there is money to be made. We seem to have a balance of trade deficit with China along with most of the western world so how much longer we can expect them to work for us without being paid is a big question. How are financial services growing in Asia? Are we hoping they will never be able to run a bank or insurance company as good as us?

Jeremy,

Let's not get too downhearted. Some of us have lived through appalling wages and conditions. Forget canibalism, China might invade us on human rights grounds, because the rich would eat the poor.
If I need cheering up I just think of a two up and two down, outside toilet, rattling draughty windows, freezing cold beds and bedrooms, a coal fire with smog so dense you couldn't see a couple of yards, one cold water tap with a red stone sink, a tin bath that came out on saturdays. Diseases like scarlet fever, TB, polio, whooping cough, measles quite common. The whole family had flu and colds every winter. Coming home from school with no food in the house, waiting in the dark, maybe a candle, for my Dad to come home from work with some money. Meals of chips, chips and egg, chips and beans, chips and sausage, and toast and dripping for breakfast when I came back from my paper round at 8am, out at 6-30 am in the rain and the snow then out again in the evening with the evening papers seven days a week for just over a pound.
My mother longed for a council house but she never got one, my Dad caught malaria with the British Army in India and it seemed to flare up now and again. She did the weeks washing in a tub outside in the yard, scrubbing shirt collars with a scrubbing brush, and a kind of glass rubbing board, then she turned a big handle on a wringer to squeeze out the water.
They were happy, the war was over no more bombs and missing relatives, Uncle Tom was home with a bullet in his leg, Uncle Edmund had met a nice French girl. Dad's old home guard overcoat added to the bedclothes, and we never felt poor or badly off, in fact my Mum would go and help people she considered poor. That was life, we never thought of it as appalling or badly paid.

Let's see it as it is. Some jokers thought they would give lots of credit to anyone who wanted it, the media manipulated greed and jealousy to make people disatisfied with any level of living, even ten tellys, three cars, four holidays abroad, clothes & shoes & goodies galore but keep us hungry for more and more, a bigger telly, a smarter car, a more exotic holiday. It's gone too far, that's all. We're not going back to mud huts but we are going to manage with a bit less. It's all in your head, I've seen very happy people in the villages in Indonesia, and Malaysia, and didn't one of Onasis's daughters commit suicide presumably because she wasn't happy with her millions. We don't need an empire to be happy, we don't have to lead the world in science and technology or finance, what we need is contentment, mental peace.

Prof

Thanks for those understanding words.

Jeremy Bosk
Posted: 17 August 2011 23:36:07(UTC)

Joined: 09/06/2010(UTC)
Posts: 1,316

Tony

Yes, things have been worse and might get better. I might have posted this elsewhere on the site. It might cheer us all up.

http://www.firstworldwar.com/audio/1914.htm
Anonymous Post
Posted: 17 August 2011 23:56:44(UTC)
Anonymous 1 needed this 'Off the Record'

Engineertony
Pleased to hear from you again.
Please have a look at my post under anonymous 5, no #133 under the topic- Should the govt strip the rioters of their benefits?
How does that fit in with your ideas?

Prof Eman
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