TREAT US LIKE IMBECILES? | 7.2] Money: The Transmission Mechanism
In normal commercial transactions, money is benign. It helps people to transact their goods or services.
Stresses surface, however, when banks expand credit on the back of the rising price of land. They use land as collateral. In doing so, they lock the money system into the classic pyramid system selling scam made famous by Charles Ponzi.
In 1903, Ponzi lured investors with the promise of high returns. He borrowed other people’s money to pay successive waves of investors. They all thought they were on to a good thing until, one day, someone realised that value was not actually being created.
It was impossible for all the investors to get rich: the last in to the scheme would be the biggest loser.
When bankers fabricate money (credit) to lend to a borrower whose land is rising in value, they emulate Mr. Ponzi. Why?
Because the escalating value of the land is nothing more than an increase in debt.
Value is not being added to the wealth of the nation.
Bankers won’t acknowledge this, because self-esteem requires them to promote the idea that their operations are respectable.
In fact, it is a financial scam on a scale that dwarfs anything that Charles Ponzi could have imagined in his wildest dreams.
All is well, while the debt-based price of real estate is rising. Banks are willing to increase credit.
The buy-to-let mania in Britian was one vehicle that allowed banks to expand the circulating credit.
A self-feeding process is triggered in which borrowers go deeper into debt to pay for rising property prices, which justify further increases in debt and so on in a vicious inflation of the bubble. In the end, the bubble must burst.
Property prices collapse and the “money” disappears into the ether.
Why don’t economists in the Fed, Bank of England or the Reserve Bank of Aust. understand the impact that this ‘financial transmission mechanism’ has on the economy?
There is no mystery about the transmission process. All they need to do is read the history of Charles Ponzi on Wikipedia.
Excerpt. 2010: The Inquest by Fred Harrison.
...Understand? Obvious. Greed.