William Franklin

Prologue to the William Franklin Blog

Sun, 28 Jun 2009 12:03:38 +0200

My father William Franklin [1] Etherden was a trade union man who looked after the interests and aspirations of the lowest-grade civil servants working for the Ministry of Defence at the Woolwich Arsenal. Masons and not communists were his union's main problem in the 1950s.

This was his day job and he did it well...so well in fact that he was blacklisted and never promoted. This did not endear him to my mother, whose day (and night) job was to make ends meet and bring up her four boys to be good middle-class citizens striving for success. As one of Margaret Thatcher's regiment of middle class women, my mother had little sympathy with the struggles of Civil Service Clerical Association (CSCA) members.

However on race nights (Mondays, Thursdays and Saturdays) my father moonlighted behind the betting desk with William Hill at Catford Greyhound Stadium...I wish now that he had shown me the ropes. He also studied form when my mother wasn't looking...and broke even on his betting...or so my father assured his wife.

t my mother was not convinced and confiscated the bulk of his Civil Service earnings the moment he brought them home each month. Her father had not approved of her proposed marriage to one of the notorious 'Etherden Brothers'...who had, it was rumoured, been mixed up in some dubious goings-on at the Royal Mint where my father and two of his brothers, Jack and Percy, worked during the 1930s depression.

After my father's death in 1984 my mother discovered that her father's misgivings were not without foundation. My father had been declaring only half of his earnings at William Hill to my mother, thereby depriving her of the pound a week pay rise he received in the 1970s. My daughter was one of the principal beneficiaries of this windfall...spent on packets of Polo Mints

Mind you, my mother had an inkling that all might not be what it seemed. My father lived the last ten years of his life with a pacemaker monitoring for heart flutters. This device has been implanted after a mild heart attack on one of his Catford evenings. Unfortunately my father did not collapse at the betting office but on the terraces of Catford Greyhound Stadium. Oops!

In 2006 I decided to resurrect the family tradition...but betting on economies instead of dogs and gee-gees. I am not interested in breaking even...and have no intention of bankrupting myself. I am in this for the money...if I am so smart why aren't I rich? Just so...I will be.

But betting 21st Century style means spread betting on the prices of spooky things like carbon speculations, pipeline monopolisings and currency volatilities when backed by legally enforceable contractual agreements...with identifiable counterparties. These usurious and tax-exempt winnings will be transmuted into proper property...not improperty.

My trading account with IG Index will be the work-horse and the family firm of William Franklin & Sons Limited will be the carriage to carry my father's descendants into the blue beyond...once post-depression confusions start to clear and the next generation of Black Swans glide out from the reeds...masquerading initially as Ugly Ducklings

Background Notes
[1] The last Royal Governor of New Jersey,William Franklin was the only son of Benjamin Franklin. The latter's duties once included printing money, laws, and documents for the people of Pennsylvania. Not a lot of people know that.
[2]Helena is the wife of Goethe.

Comments

Usury Free Banking

Sun, 28 Jun 2009 11:14:04 +0200

Usury Free Banking by William Shepherd
© William Shepherd 2008

Twenty years ago Margrit Kennedy [1] published a short book entitled Interest and Inflation Free Money. She cited German studies by Helmet Creutz [2] of the Interest Content in the prices of different products and services. Her conclusion was that inflation was caused by interest-bearing money.

The studies also suggested that the greater the capital content and the longer the term of the funding, the higher the proportion of interest in the price. In the case of water and sewerage service interest could account for half of the price. Kennedy believed that much of a country’s business and economic activity could be interest-free.

The fifth chapter of Henry Swabey’s History of Usury and the English Church is about Church Mints and R.H. Tawney in his ten-essay introduction to Thomas Wilson’s Discourse Upon Usurye devotes two of them to the subject of the Elizabethan exchanges.

Mints and exchanges are the bedrock of every financial system. The edifices built upon these basic foundations are seldom essential for the sound operation of a real economy. Over elaboration and complexity, in and of itself, is often the problem. ‘When something is wrong,’ Leopold Kohr [3]

One interesting conclusion arising from Swabey’s investigation is that over the past thousand years, mints and exchanges have come and gone in England. As the enforcement of the Church’s Doctrine of Usury has waxed and waned, so Coinage Power has flown to and from the centre.

Good times and bad times in the Real Economy seemed to correlate with the flow. Decentralised mints would appear to be essential for prosperity. There are periods in the past thousand years of England’s written history when these mints and exchanges served the needs of the gentlemen, the shop-keepers and the yeoman farmers who had a part to play in the cash economy of their age. But they were seldom more than a small minority.

One of the times in England’s history when mint and exchange matters came to a head were in the reign of Good Queen Bess. The end result was the Usury Act of 1571. There are two aspects to the Parliament of 1571's deliberations on the act. Firstly they took the Francis Bacon line (see his Essay on Usury...a masterpiece of concise erudition) and in effect did an ABC analysis of the problem of usury by saying there is outrageous behaviour (A), sensible socially acceptable behaviour (C) and then a grey area in between (B).

As a first approximation civil society was given the OK to adopt 10% as the discerning factor (Bacon put it at 5%) and the Doctrine of Discernment is a key concept in Catholic Christian Ethics.

So we get Class A Usury as anything over 10%, Class B Usury as 0-10% and Class C Usury at 0% and under...at which point the Lender pays the Borrower a Stewardship Fee for looking after his money.

Secondly Parliament adopted distinctly different approaches to the three classes of usury in the administrative procedures of the Doctrine of Usury.

Class C cases are dismissed out of hand. ‘No case to answer! Don't waste the Court’s time! Credit makes the world go round! Of course the Merchants are right and the Theologians are splitting hairs! Go dance on pins! However The Poor should pay lower and not higher rates of interest for their credit. Why? Because they are poor so they don’t have any money. Christian Charity, common courtesy and run-of-the-mill justice.

Class A cases are also dismissed...but done so by the Courts so that the dismissal is backed up by the full force of the Law, its Prisons, and its Law Enforcers and the Property Confiscators. The Penalty imposed on the Usurer is three times the amount stolen...although previously as Swabey demonstrates it was much worse than this for the Usurers...eternal damnation, no Christian burial and then some.

One of the real subtleties in the Act of 1571 is the manner in which Civil Society is commanded to deal with Class B Usury. Here the Parliament of 1571 takes what constitutes in effect a Citizen's Arrest approach. Tawney's understanding of this is spot on in his Compromise of 1571 essay where he quotes from the author of The Death of Usurie (1595)...Page 82 in the full text version.

John Calvin (1509-1564) is often cited as the theologian who drove the wedge into the Doctrine of Usury and set the merchants free from the constraints of its traditional prohibition. It is true that in the United States in the nineteenth century it was the Calvinist churches who sided with the Bankers against populist politicians like Andrew Jackson [4] and their championing of the public right to issue currency. But the Calvinist churches misunderstood the subtlety of Calvin’s teaching and the context in which he developed his doctrine.

The principal villain was not Calvin but Bentham. Jeremy Bentham (1748-1823) equated interest with usury. It seems he knew no better. He was a blunt man. The measure of his success is clear from any survey of a dozen undergraduates. Eight of those asked will have no idea what usury is and the other two will tell you it is an old-fashioned word for interest.

One of the most exciting developments in recent years has been the way in which the Grameen Bank have recreated the system of usury-free mints and exchanges formalised in England by the Usury Law of 1571 and have developed the techniques of lending out money to the poor at interest but not at usury. And they are ridiculously successful.

The Loan Recovery Rates of nearly all Grameen Banks are in the high nineties and average 98%. This compares with the 70% and below for many conventional banks…before taking account of the billions upon billions of write-offs and write-downs generated by the Credit Crunch.

Grameen Loans meet the fairness criteria of the Doctrine of Usury by being subject to renegotiation by the borrower in the light of his changed situation. They also follow the ABC Analysis approach of the 1571 Law of Usury by specifying a repayment ceiling above which they do not go. The Grameen ceiling is twice the sum borrowed...a Repayment to Principal Ratio of 2.0.

In my 1998 Canterbury Papers, I suggested a ceiling of 1.3 as a way to compel the financial system to incorporate the period of the loan, the interest and the fees into a single measure. Grameen's thinking is along similar lines.

Discussion of public policy should be refocused away from interest rates which are bedevilled by the (minor usury induced) problem of inflation, to concentrate instead on the Judaic seven year rule...and mortgages in this country now stretch out to 50 years and beyond...by combining principal and interest into a single acceptable/unacceptable usury index based on the money received by the Borrower and the money returned to the Lender. [5]

The Grameen Banks provide microcredit programmes at interest rates that fit into one of two zones: the Green Zone, which equals the cost of funds at the market rate plus up to 10 percent, and the Yellow Zone, which equals the cost of funds at the market rate.

Other microcredit suppliers are now moving into the Red Zone above these rates of interest with profit-maximization as their goal. But the Grameen Banks avoid this territory. They are not in business to earn large profits for shareholders and other investors but have very different objectives. Institutionalising the traditional Moneylender System is not one of them. In Bangladesh, for instance, the Grameen Bank has very successful Home Loans for The Poor and Microcredit Lending to beggars.

The Grameen Home Loan Programme should be the model for the first Public Credit issue in the UK. Instead of turning building societies into unsuccessful bankers which was the effect of the act of vandalisation by the Thatcher Government, they should have been confederated into a Freddie Mac and Fannie Mae at the county level and outsourced to Grameen for the introduction of Grameen principles for one-home owners in the UK.

The Grameen Struggling Members Programme currently lends microcredit to 100 000 beggars. To date the Beggars Loan Programme has lent out 95 million taka and had 63 million of it repaid. Meanwhile 10 000 beggars have managed to take themselves off begging.

Background Notes

[1] http://www.margritkennedy.de. Diagrams are based on the Helmut Creutz charts in the 1995 New Society Publishers edition of Interest and Inflation Free Money by Margrit Kennedy (ISBN 0-86571-319-7).
[2] Helmut Creutz, Wachstum bis zur Krise, Basis Verlaf, Berlin, 1986.
[3]Leopold Kohr
[4]Andrew Jackson
[5] In this country the Office of Fair Trading has a de facto definition of unacceptable monopoly as in excess of 30% market share. So let's use the same number so that the break point between Class A and Class B Usury is not ten percent (or 8 or 6 or 5) but the point at which Repayment to Principal Ratio exceeds 1.30.

Comments

The Paine Plan

Sun, 28 Jun 2009 09:45:14 +0200

Tom Paine’s Plan for the Public Finances by William Shepherd
© 2009 William Shepherd

William Shepherd is an English radical economist. Born at the end of the World War II, he was a regular contributor to Fourth World Review from 1987 to 2007 and the author of The Rise & Fall of the Swedish Green Party (1982-1997) published in 1989. He works as an Investigative Historian living in the English West Country and is co-founder of the public policy institute Cliff Edge Signalling Company (see www.cesc.net). This essay was first published in 2001 as part of a small pamphlet entitled England’s Landed Property.

Introduction

In September 1795 James Monroe wrote that ‘Paine’s illness was so grave that there was a danger that he would not survive more than a month or two.’ Tom Paine was indeed in poor health. He suffered from constant chest pains and now his jail fever had returned. In America rumours of his death began to circulate. In England William Cobbett reported that Paine was ‘living as a helpless invalid, suffering from a type of paralysis that took away the use of his hands’.

On November 26, 1795 Carl Cramer, a translator of Rights of Man, wrote of his distress at Paine suffering ‘incurably from the torture of an open wound in the side, which came from a decaying rib.’ But these well-meaning gentlemen underestimated Paine’s robust constitution and will to live. Attended by Dessault, a well-known Paris surgeon, Paine regained full strength.

Napoleon Bonaparte was expanding the influence of the military in French politics and Paine saw little future as a Deputy to the French Convention. So during his convalescence he took up his pen. In the judgement of his contemporaries the results were sensational. The firebrand radical pamphleteer was back…as the learned professor of political economy.

The evidence was in two pieces he wrote in the winter of 1795/96. The first, Thomas Payne, à la Législature et au Directoire, ou la justice agraire opposée à la loi et aux privilèges agraires... Agrarian Justice opposed to Agrarian Law and to Agrarian Monopoly...was a proposal for a citizen’s income funded by an inheritance tax. The second, The Decline and Fall of the English System of Finance was about the collapse of the Bank of England and the manner in which it would come about.

The Paine Plan

Paine’s decision to publish Agrarian Justice had been triggered by reading the Bishop of Llandaff’s sermon praising the division between rich and poor as ‘a sign of God’s wisdom’. In France following the austerity of the Jacobin dictatorship the salons were reopening and conversation flourishing. But with the new Directory’s abolition of the old economic controls imposed by the Committee of Public Safety, government spending and inflation were skyrocketing, brigandage was flourishing, and misery had become widespread. Deputies and high state officials protected themselves by calculating their salaries in myriagrams[2] of cheese, the army lived by pillage, and townspeople and villagers were rescued from starvation by food removed from the peasantry.

While France's citizenry was falling on hard times the rich were getting richer. For Paine this rising inequality was not just a French phenomenon. ‘Making one part of society more affluent, and the other part more wretched than would have been the lot of either in a natural state’ was a central problem of civilization. He likened the division between poor and rich to ‘dead and living bodies chained together,’ but insisted that the poverty was an artificial, humanly produced blight. God did not make rich and poor; only men and women. God created the earth and granted man the right to occupy it. But the rich had come to regard the acquisition of property as an end in itself, to be held forever ‘as if the Creator had opened a land office issuing title deeds in perpetuity’.

In his biography Tom Paine: a political life (Bloomsbury, London, 1995, 644 pages, ISBN 0747525439, £9.99) John Keane writes (pages 425-427) that Paine 'favoured the preservation of a private-property, market driven economy, but argued that its self-destructive dynamism…its tendency to generate wealth by widening the income gap between classes…could be tamed by institutionalizing the basic principle of each person’s entitlement[3] to full citizens’ rights.' Here is Tom Paine.

‘The accumulation of personal property,’ was the result of ‘paying too little for the labour that produced it; the consequence of which is that the working hand perishes in old age and the employer abounds in affluence.’ Private property might be God-given but was conditional upon the higher principle that the land and soil were ‘the common property of the human race’. The propertied few had a duty to help the poor, not by way of charity, but by accepting an inheritance tax that would redistribute and equalize income…echoes of Bernard Shaw’s insistence a hundred years later that ‘socialism is equal money’.

In Agrarian Justice Paine sets out his plan for a fund from which every man and woman reaching twenty-one years of age would be eligible for a compensatory one-time payment of fifteen pounds sterling, while every person reaching fifty years of age would receive an annual citizen’s pension of ten pounds[4]. Removal of one-thirtieth part of the value of an estate at death was sufficient to fund The Paine Plan.

Landed Property

It was generally accepted in the salons of the 1790s that apprentices and servants should be excluded from the right to vote on the ground that they were dependent on the will of their masters and would be afraid of disagreeing with them publicly. Paine stood this argument on its head by insisting that instead of denying the franchise to those who depended politically on the rich, the dependants should be granted monetary independence. The universal guarantee of a right to a basic citizen’s income would then require…contrary to the spirit of the new 1795 constitution…a universal franchise.

It would be wrong to see Tom Paine as a lone voice. Republican fervour was sweeping the North Atlantic world and ideas could cross from Paris to Philadelphia in a matter of days. Many English landlords, such as the Earl of Winchelsea, Lord Carrington, Lord Egremont and Lord Sheffield, were putting forward schemes for supplying labourers with cow pastures or encouraging their self-sufficiency in other ways.[5] In this they were following the recommendations of Nathaniel Kent, a land valuer and agriculturalist who was for a time bailiff to George III at Windsor.

In his Hints to Gentlemen of Landed Property (London, 1775, page 238), Kent proposed that every cottage should have half an acre of land attached to it, so that fruit and vegetables could be grown and a pig kept. More prosperous cottagers might also have three acres of pasture land on which to keep a cow for milk and to help feed their pigs. If workers could not afford to buy a cow outright, then one should be rented to them by the landlord. Cottages should be well-maintained for 'nothing can reflect greater disgrace upon a gentleman than a shattered miserable hovel at his gate, unfit for human creatures to inhabit.'[6]

During the 18th Century the English aristocracy with their habit of 'living on' and 'developing' their own land stood in sharp contrast to the way of the French aristocratic system.>[7] Indeed Montesquieu saw in the English system a model for monarchy itself...when contrasting this form of governance with republics and autocracies. Montesquieu saw that in England, the local aristocracy represented 'locality' against the centralising interests of the cities and of the monarchy itself.[8] Montesquieu's magnus opus, 'The Spirit of the Laws', was required reading, not only in the salons of 1795 Paris, but also in the coffee houses of Birmingham and Boston.

Money Wars

In The Decline and Fall of the English System of Finance Paine attacked the economic system of the English government. Paine predicted that within twenty years, the national currency of England would fail. Paine was well versed in monetary matters having published several essays on money and finance in America while editing American Crisis. He was also able to draw on the expertise of his banker friend Robert Smyth. England’s level of foreign debt was in excess of £400 million...some $ 75 billion[9] at current price levels...while the cash holdings of the Bank of England amounted to £1 million.

‘Bank notes,’ Paine wrote, ‘were not worth the paper on which they were printed’, adding for good measure that ‘…the pound sterling would become ever more overstretched.’ The reason was the ‘iron law’ that ‘the national debt was set to rise annually in continual progression.’

Paine had understood the workings of what Thomas Greco refers to as 'the growth imperative'.[10] The prediction came true the following year when the Bank of England suspended convertibility of bank notes.

On April 27, 1796, Paine presented copies of The Decline and Fall of The English System of Finance ‘to the French people’ and to both the Council of Five Hundred and the Council of Elders. A member of the Council of Elders enthusiastically proclaimed that the work should be placed under the eyes of everyone concerned with financial matters, prompting a majority of the Council to vote for its official printing and distribution. The Directory ordered one thousand copies, and took the view that Paine’s work was ‘the most combustible weapon which France could at this moment employ to overthrow and destroy the English government.’ It swiftly despatched these copies to the major financial centres of Europe with the intention of persuading investors to unload their English funds, thereby reducing England ‘to the nakedness and abandonment to which she must inevitably descend’.

A few weeks later, the Directory arranged the printing of a German-language edition to influence the financiers of Holland, Switzerland, and Germany, ‘whose interests are essentially linked to those of the Bank of London.’ The Directory sent a hundred copies of this German edition to the Ministry of Foreign Affairs to be distributed by French agents in foreign countries. Meanwhile more than a dozen editions...as well as five refutations...appeared in London, several editions came out in America, with translations into Italian and other languages, and two German authors published refutations in French. One particular writer, Mr. Joersson, himself in the pay of the English, accused the ‘writer attached to the opposition’ of plotting to reduce ‘an amiable and enlightened people’ to French ‘barbarism.’[11]

The Local Front

Two hundred years later we are stumbling onto a new political landscape. As global fascism barks and bites and the dogs of war tighten their grip, radicals will have to invent a new form of politics rooted in the place they live...village cricket rather than professional football to use one of J.B. Priestley's metaphors. Trying to decolonise national and global giantocracies will be futile. These and their big outside interests will carry on running roughshod over ordinary people just as long as local communities allow them to get away with it. Sir Halford Mackinder saw this struggle between 'locality' and 'interests' as the future of politics a hundred years ago when he wrote a short book entitled Democratic Ideals and Reality.

In the years ahead effective political action will take place on a vast number of local fronts rather than nationally or globally. ‘Only the local is real’...to quote G.K. Chesterton.

Local action will take many forms, but there will be two common threads running through the initiatives that succeed. They will embrace the principles of the open money movement and they will place at the centre of their local concerns the urgent need to reclaim the right of every family to live, work, build, coppice and farm their own few acres of land.

The offer of a gift of five acres and a cow to every able-bodied man on reaching his eighteenth birthday bears serious comparison to the manhood and womanhood allowance of The Paine Plan. Even a dour Scotch Chancellor of the Exchequer might regard it as cheap at the price...in comparison to the price of inventing a new industrial workplace or the annual cost of detaining a young man in idleness at His Majesty's pleasure.

It has taken us two hundred years to come full circle. Tom Paine, the radical’s radical, has hit the mark again. How soon before Agrarian Justice and Decline of the English System of Finance join Adam Smith’s Wealth of Nations in courses on political economy and geographical history? Our local fronts need a local curriculum. Let’s start with a Paine Plan in every village and parish across the land.

Background Notes

1. This was the Monroe of the 1823 Monroe Doctrine. Monroe had recently been appointed American minister in Paris and had done much to secure the release of his 'fellow American citizen', Tom Paine.

2. 1 myriagram = 10 kilograms; a lot of cheese.

3. Despite the self-interested claims of the doom-mongers, in the middle of the last century the world’s economy moved from an Age of Scarcity to an Age of Plenty (see Grunch of the Giants by Buckminster Fuller and World Game Handbooks by Medard Gabel). It is therefore timely for economists to give serious consideration to Tom Paine’s ideas of a universal entitlement. In the UK this might take the form of issuing 1946-53 style digital ration books to every family…a scheme that could be extended to include the poorest countries in the world, perhaps by some form of parish or county-based twinning between the rich and the poor families around the world bypassing governments and banking institutions.

4. In 1795 land in England could be rented for between five and seven shillings per acre per year and the rich used the exchanges of the City of London to swap one guinea of annual income for twenty golden sovereigns ...and vice versa. So the £15 of The Paine Plan would buy a married couple five acres and a cow...and leave them free and clear of any debts and encumbrances. We live from harvest to harvest... refrigeration and canning notwithstanding...so that all the rich can do with their riches is to buy future claims on 'Forward Living Capability'. This is produced from the fertility of the soil by properly farming the land. Hence the importance of the money exchanges...which provide the rich with a future income for their present capital...and the Finance Mechanism which rigs the terms of exchange between work, food and capital in favour of the rich. All investment is speculation upon the future fruits of the soil...and the power of the players intent on securing them. It is no accident that the old economists framed a society’s choices in terms of guns and butter. One of the best portrayals of this reality is in John Seymour’s recent novel...a best seller in German...Retrieved from the Future set in East Anglia after the failure of oil supplies and a bitter cold winter.

5. At the tail end of the eighteenth century, winter wages in Wiltshire were six shillings a week...the price of a wheelbarrow...and mutton could be bought at the local market for four pence a pound. A family with four or five young children under the age of eight could expect to pull in a pounds worth of wages between them from a month of harvest work...just enough to keep them in bread while they worked.

6. This reasoning is given a practical dimension in Leopold Kohr's 1964 article The Duke of Buen Consejo where he argues that the development (of beauty) should start with the rich man in his castle and would trickle down to the poor man at his gate...provided the lord (and his lady) lived in their castle.

7. This crucial connection between 'worked' and 'unworked' capital was central to R.H. Tawney's definitions of property and improperty... see Religion and The Rise of Capitalism and The Acquisitive Society.

8. Montesquieu argued that states had to remain very small and that large monarchies and republics could only be governed despotically. To Montesquieu, what we have come to call Fascism was a consequence of Giantism. Any state that became too large would become despotic.

9. Professor A.W. Skempton recommended a factor of 40 for converting prices from the mid-1700s to 1980 prices in his 1980 study at London University's Imperial College. Prices doubled between 1980 and 1992 and then increased by a further 25% in the period 1992-96. Historical price comparisons are notoriously difficult to make but the multiplier of 100 (40 x 2 x 1.25) adopted in 1996 for a short (unpublished) tract on the great eighteenth century civil engineer John Smeaton gives the right order of magnitude to the money numbers.

10. Two recent books throw light on the mechanisms behind monetary matters. Creating New Money: a monetary reform for the information age by Joseph Huber and James Robertson advocates seigniorage reforms calculated to appeal to Eurofanatics by dangling the carrot of abolishing the European Bank and issuing the euro from Brussels. Our radical Eurocrats would put the Money Power in its place and relegate private banking companies to departmental status at the European Institute for Chartered Accountants. In Money: understanding and creating alternatives to legal tender, Thomas Greco champions the cause of the open money movement... analogous to the ‘open source’ movement in the digital world. Tom believes that the monetary needs of healthy communities are best met from their own local mutual credit systems.

11. The use the French made of Paine's pamphlet condemned him as a traitor in the eyes of his fellow Englishmen. But Paine’s enemy was The Money Power. This powerful invisible force, ever fearful of too close a popular scrutiny, avoided attacking the message by conducting instead a scurrilous campaign against the messenger. Paine was portrayed as a traitor and his anti-religious diatribe The Age of Reason produced as evidence that he had moved beyond the pale of respectable society. Nearly every biographer of Tom Paine...and there have been some fifty of them...have accepted uncritically this view that The Age of Reason was Paine’s undoing. This is unlikely since Paine's views on The Old Testament and the priesthood were widely held among radicals and freethinkers. Indeed far from meeting a hostile audience, The Age of Reason was accorded much popular acclaim in taverns and salons across two continents.

Comments

The Franklin Plan

Sun, 28 Jun 2009 06:45:43 +0200

The Weimar Hyperinflation? Could it Happen Again? by Ellen Brown

Global Research, May 19, 2009
www.webofdebt.com and www.ellenbrown.com

“It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty. You could buy nothing with your paper money.” - Ralph Foster, "Fiat Paper Currency: The History and Evolution of Our Money"

Some worried commentators are predicting a massive hyperinflation of the sort suffered by Weimar Germany in 1923, when a wheelbarrow full of paper money could barely buy a loaf of bread. An April 29 editorial in the San Francisco Examiner warned: “With an unprecedented deficit that’s approaching $2 trillion, [the President’s 2010] budget proposal is a surefire prescription for hyperinflation. So every senator and representative who votes for this monster $3.6 trillion budget will be endorsing a spending spree that could very well turn America into the next Weimar Republic...”¹

In an investment newsletter called Money Morning on April 9, Martin Hutchinson pointed to disturbing parallels between current government monetary policy and Weimar Germany’s, when 50% of government spending was being funded by seigniorage - merely printing money.² However, there is something puzzling in his data. He indicates that the British government is already funding more of its budget by seigniorage than Weimar Germany did at the height of its massive hyperinflation; yet the pound is still holding its own, under circumstances said to have caused the complete destruction of the German mark. Something else must have been responsible for the mark’s collapse besides mere money-printing to meet the government’s budget, but what? And are we threatened by the same risk today? Let’s take a closer look at the data.

History Repeats Itself - or Does It?

In his well-researched article, Hutchinson notes that Weimar Germany had been suffering from inflation ever since World War I; but it was in the two year period between 1921 and 1923 that the true “Weimar hyperinflation” occurred. By the time it had ended in November 1923, the mark was worth only one-trillionth of what it had been worth back in 1914. Hutchinson goes on: “The current policy mix reflects those of Germany during the period between 1919 and 1923. The Weimar government was unwilling to raise taxes to fund post-war reconstruction and war-reparations payments, and so it ran large budget deficits. It kept interest rates far below inflation, expanding money supply rapidly and raising 50% of government spending through seigniorage (printing money and living off the profits from issuing it)...

“The really chilling parallel is that the United States, Britain and Japan have now taken to funding their budget deficits through seigniorage. In the United States, the Fed is buying $300 billion worth of U.S. Treasury bonds (T-bonds) over a six-month period, a rate of $600 billion per annum, 15% of federal spending of $4 trillion. In Britain, the Bank of England (BOE) is buying 75 billion pounds of gilts [the British equivalent of US Treasury bonds] over three months. That’s 300 billion pounds per annum, 65% of British government spending of 454 billion pounds. Thus, while the United States is approaching Weimar German policy (50% of spending) quite rapidly, Britain has already overtaken it!”

And that is where the data gets confusing. If Britain is already meeting a larger percentage of its budget deficit by seigniorage than Germany did at the height of its hyperinflation, why is the pound now worth about as much on foreign exchange markets as it was nine years ago, under circumstances said to have driven the mark to a trillionth of its former value in the same period, and most of this in only two years? Meanwhile, the US dollar has actually gotten stronger relative to other currencies since the policy was begun last year of massive “quantitative easing” (today’s euphemism for seigniorage).³ Central banks rather than governments are now doing the printing, but the effect on the money supply should be the same as in the government money-printing schemes of old. The government debt bought by the central banks is never actually paid off but is just rolled over from year to year; and once the new money is in the money supply, it stays there, diluting the value of the currency. So why haven’t our currencies already collapsed to a trillionth of their former value, as happened in Weimar Germany? Indeed, if it were a simple question of supply and demand, a government would have to print a trillion times its earlier money supply to drop its currency by a factor of a trillion; and even the German government isn’t charged with having done that. Something else must have been going on in the Weimar Republic, but what?

Schacht Lets the Cat Out of the Bag

Light is thrown on this mystery by the later writings of Hjalmar Schacht, the currency commissioner for the Weimar Republic. The facts are explored at length in The Lost Science of Money by Stephen Zarlenga, who writes that in Schacht’s 1967 book The Magic of Money, he “let the cat out of the bag, writing in German, with some truly remarkable admissions that shatter the ‘accepted wisdom’ the financial community has promulgated on the German hyperinflation.” What actually drove the wartime inflation into hyperinflation, said Schacht, was speculation by foreign investors, who would bet on the mark’s decreasing value by selling it short. Short selling is a technique used by investors to try to profit from an asset’s falling price. It involves borrowing the asset and selling it, with the understanding that the asset must later be bought back and returned to the original owner. The speculator is gambling that the price will have dropped in the meantime and he can pocket the difference. Short selling of the German mark was made possible because private banks made massive amounts of currency available for borrowing, marks that were created on demand and lent to investors, returning a profitable interest to the banks. At first, the speculation was fed by the Reichsbank (the German central bank), which had recently been privatized...But when the Reichsbank could no longer keep up with the voracious demand for marks, other private banks were allowed to create them out of nothing and lend them at interest as well.⁴

A Story with an Ironic Twist

If Schacht is to be believed, not only did the government not cause the hyperinflation but it was the government that got the situation under control. The Reichsbank was put under strict regulation, and prompt corrective measures were taken to eliminate foreign speculation by eliminating easy access to loans of bank-created money.

More interesting is a little-known sequel to this tale. What allowed Germany to get back on its feet in the 1930s was the very thing today’s commentators are blaming for bringing it down in the 1920s - money issued by seigniorage by the government. Economist Henry C. K. Liu calls this form of financing “sovereign credit.” He writes of Germany’s remarkable transformation: “The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.”⁵

While Hitler clearly deserves the opprobrium heaped on him for his later atrocities, he was enormously popular with his own people, at least for a time. This was evidently because he rescued Germany from the throes of a worldwide depression – and he did it through a plan of public works paid for with currency generated by the government itself. Projects were first earmarked for funding, including flood control, repair of public buildings and private residences, and construction of new buildings, roads, bridges, canals, and port facilities. The projected cost of the various programs was fixed at one billion units of the national currency. One billion non-inflationary bills of exchange called Labor Treasury Certificates were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with the Treasury Certificates. The workers then spent the certificates on goods and services, creating more jobs for more people. These certificates were not actually debt-free but were issued as bonds, and the government paid interest on them to the bearers. But the certificates circulated as money and were renewable indefinitely, making them a de facto currency; and they avoided the need to borrow from international lenders or to pay off international debts.⁶ The Treasury Certificates did not trade on foreign currency markets, so they were beyond the reach of the currency speculators. They could not be sold short because there was no one to sell them to, so they retained their value.

Within two years, Germany’s unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. Germany even managed to restore foreign trade, although it was denied foreign credit and was faced with an economic boycott abroad. It did this by using a barter system: equipment and commodities were exchanged directly with other countries, circumventing the international banks. This system of direct exchange occurred without debt and without trade deficits. Although Germany’s economic experiment was short-lived, it left some lasting monuments to its success, including the famous Autobahn, the world’s first extensive superhighway.⁷

The Lessons of History: Not Always What They Seem

Germany’s scheme for escaping its crippling debt and reinvigorating a moribund economy was clever, but it was not actually original with the Germans. The notion that a government could fund itself by printing and delivering paper receipts for goods and services received was first devised by the American colonists. Benjamin Franklin credited the remarkable growth and abundance in the colonies, at a time when English workers were suffering the impoverished conditions of the Industrial Revolution, to the colonists’ unique system of government-issued money. In the nineteenth century, Senator Henry Clay called this the “American system,” distinguishing it from the “British system” of privately-issued paper banknotes. After the American Revolution, the American system was replaced in the U.S. with banker-created money; but government-issued money was revived during the Civil War, when Abraham Lincoln funded his government with U.S. Notes or “Greenbacks” issued by the Treasury...

The dramatic difference in the results of Germany’s two money-printing experiments was a direct result of the uses to which the money was put. Price inflation results when “demand” (money) increases more than “supply” (goods and services), driving prices up; and in the experiment of the 1930s, new money was created for the purpose of funding productivity, so supply and demand increased together and prices remained stable. Hitler said, “For every mark issued, we required the equivalent of a mark’s worth of work done, or goods produced.” In the hyperinflationary disaster of 1923, on the other hand, money was printed merely to pay off speculators, causing demand to shoot up while supply remained fixed. The result was not just inflation but hyperinflation, since the speculation went wild, triggering rampant tulip-bubble-style mania and panic.

This was also true in Zimbabwe, a dramatic contemporary example of runaway inflation. The crisis dated back to 2001, when Zimbabwe defaulted on its loans and the IMF refused to make the usual accommodations, including refinancing and loan forgiveness. Apparently, the IMF’s intention was to punish the country for political policies of which it disapproved, including land reform measures that involved reclaiming the lands of wealthy landowners. Zimbabwe’s credit was ruined and it could not get loans elsewhere, so the government resorted to issuing its own national currency and using the money to buy U.S. dollars on the foreign-exchange market. These dollars were then used to pay the IMF and regain the country’s credit rating.⁸ According to a statement by the Zimbabwe central bank, the hyperinflation was caused by speculators who manipulated the foreign-exchange market, charging exorbitant rates for U.S. dollars, causing a drastic devaluation of the Zimbabwe currency.

The government’s real mistake, however, may have been in playing the IMF’s game at all. Rather than using its national currency to buy foreign fiat money to pay foreign lenders, it could have followed the lead of Abraham Lincoln and the American colonists and issued its own currency to pay for the production of goods and services for its own people. Inflation would then have been avoided, because supply would have kept up with demand; and the currency would have served the local economy rather than being siphoned off by speculators.

The Real Weimar Threat and How It Can Be Avoided

Is the US, then, out of the hyperinflationary woods with its “quantitative easing” scheme? Maybe, maybe not. To the extent that the newly-created money will be used for real economic development and growth, funding by seigniorage is not likely to inflate prices, because supply and demand will rise together. Using quantitative easing to fund infrastructure and other productive projects, as in President Obama’s stimulus package, could invigorate the economy as promised, producing the sort of abundance reported by Benjamin Franklin in America’s flourishing early years...

There is, however, something else going on today that is disturbingly similar to what triggered the 1923 hyperinflation. As in Weimar Germany, money creation in the U.S. is now being undertaken by a privately-owned central bank, the Federal Reserve; and it is largely being done to settle speculative bets on the books of private banks, without producing anything of value to the economy. As gold investor James Sinclair warned nearly two years ago: “[T]he real problem is a trembling $20 trillion mountain of over the counter credit and default derivatives... Think deeply about the Weimar Republic case study because every day it looks more and more like a repeat in cause and effect …”⁹

The $12.9 billion in bailout funds funneled through AIG to pay Goldman Sachs for its highly speculative credit default swaps is just one egregious example.¹⁰ To the extent that the money generated by “quantitative easing” is being sucked into the black hole of paying off these speculative derivative bets, we could indeed be on the Weimar road and there is real cause for alarm. We have been led to believe that we must prop up a zombie Wall Street banking behemoth because without it we would have no credit system, but that is not true. There is another viable alternative, and it may prove to be our only viable alternative. We can beat Wall Street at its own game, by forming publicly-owned banks that issue the full faith and credit of the United States not for private speculative profit but as a public service, for the benefit of the United States and its people.¹¹

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen).

Notes

1. “Examiner Editorial: Get Ready for Obama’s Coming Hyperinflation,” San Francisco Examiner, April 29, 2009.
2. Martin Hutchinson, “Is It 1932 – or 1923?”, Money Morning (April 9, 2009).
3. See Monthly Average Graphs, x-rate.com.
4. Stephen Zarlenga, The Lost Science of Money (Valatie, New York: American Monetary Institute, 2002), pages 590-600; S. Zarlenga, “Germany’s 1923 Hyperinflation: A ‘Private’ Affair,” Barnes Review (July-August 1999).
5. Henry C. K. Liu, “Nazism and the German Economic Miracle,” Asia Times (May 24, 2005).
6. S. Zarlenga, op. cit.
7. Matt Koehl, “The Good Society?”, Rense (January 13, 2005).
8. “Bags of Bricks: Zimbabweans Get New Money – for What It’s Worth,” The Economist (August 24, 2006); Thomas Homes, “IMF Contributes to Zimbabwe’s Hyperinflation,” www.newzimbabwe.com (March 5, 2006).
9. Jim Sinclair, “Fed Actions a Bandaid on a Gaping Economic Wound,” reprinted in Go for Gold, September 18, 2007.
10. Eliot Spitzer, “The Real AIG Scandal, Continued! The Transfer of $12.9 Billion from AIG to Goldman Looks Fishier and Fishier,” Slate (March 22, 2009).
11. See Ellen Brown, “Cash Starved States Need to Play the Banking Game,” webofdebt.com/articles (March 2, 2009).

Comments

The Oldest Profession

Tue, 23 Jun 2009 18:21:21 +0200

It is August on the shores of the Black Sea. It is raining and the little town looks totally deserted. Times are hard. Everyone's in debt...living on credit.

One day a stranger comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs.

Now hold onto your hats. Here's where it gets interesting.

1. The Hotel Proprietor takes the 100 Euro note and runs to pay his debt to the butcher.
2. The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.
3. The Pig Grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.
4. The Feed & Fuel Supplier takes the 100 Euro note and runs to pay his debt to the town's prostitute who has been giving her services on credit.
5. The Hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
6. The Hotel Proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the stranger comes down after inspecting the rooms. He takes back his 100 Euro note, regrets that the rooms are not to his liking, wishes the hotel proprietor a good day, leaves him a 10 Euro note for his trouble and leaves.

No one earned anything. But the whole town is now free of debt.

That evening the hotel proprietor puts the 10 Euro note in the till and gives free drinks to the hooker, the feed & fuel supplier, the pig grower, the butcher...and himself.

This is not rocket science.

We, the little people, need Mints. They, the rich and powerful do not want us to have them. Instead they insist that we use their Exchanges...the ones they have turned into casinos. In casinos the house always wins.

Comments

The Dead Parrot

Sat, 25 Apr 2009 14:57:27 +0200

Bob Stuart moved to Texas and bought a parrot for $10.00 from a pet shop in San Antonio owned by Lard Heep who agreed to deliver the parrot the next day.

The next day Mr Heep drove out to Mr Stuart's ranch and said, 'Real sorry Mr Stuart, but I have some bad news. Your parrot died.' 'Stuff happens,' replied Mr Stuart. 'Just give me my money back.' 'Fraid no can do, Mr Stuart. I went and gone and spent it.' said Mr Heep.

'No worries,' said Mr Stuart, 'Just bring me the dead parrot.''What ya gonna do with it? asked Mr. Heep. 'I'm going to raffle him off.' said Mr Stuart. 'You can't raffle off a dead parrot!' said Mr Heep. 'Sure I can - I just won't tell anybody he's dead.' said Mr Stuart.

A month later, Mr Heep met up with Mr Stuart. 'What happened with the dead parrot?' asked Mr Heep. 'I sold 500 raffle tickets at a dollar apiece. Most of 'em to poor Mexicans. And made a profit of $490,' Mr Stuart replied. 'Didn't anyone complain?' asked Mr Heep. 'Just the guy who won the raffle,' said Mr Stuart. 'So I gave him his dollar back and bought him a drink.'

Mr Stuart now works as an investment banker with Goldman Sachs. The parrot was a Norwegian Blue with lovely plumage and is no more.

Comments

On Expert Financial Advisors

Sun, 11 Jan 2009 15:11:11 +0100

"Each year, in my last Economic View before Christmas, I try to shed some light on economic events of the previous 12 months by comparing what has actually happened with expectations published here in early January. This year, even more than usual, reading back through January's predictions has been a shock. Almost all have turned out to be wrong."

Anatole Kaletsky, The Times, 18th December 2006

"My last article of every year looks back on the predictions I made in early January to shed some light on the events of the previous 12 months. This is nearly always a humbling experience, and this year it is even more so than usual."

Anatole Kaletsky, The Times, 31st December 2007

"In the last Economic View every year, I look back at what I predicted here in early January, to try to shed light on the events of the previous 12 months. This is nearly always a humbling experience...This year, however, the routinely humbling experience has turned into a ritual humiliation. How else can I describe the public confession that I am now compelled to make: I hereby confess that on or about 14 January 2008, acting of my own free will, not under the influence of any drug and aware of the consequences of my actions, I wrote the following statement in the Times: 'The global credit crisis, far from taking a turn for the worse, is now almost over' and 'There will be no US recession' and 'Stock markets around the world will rise in 2008'...I must apologise to anyone misled by my analysis."

Anatole Kaletsky, The Times, 29th December 2008

I predicted just three weeks ago that we were in for "a prolonged period of glorious sunshine". I based this prediction on a concentrated expert reading of a similar three-week period last summer. On reflection, I suppose I should have made myself clearer by readjusting my initial prediction to make it clear that what I meant was that we were in for "a prolonged period of snow, sleet and ice". I was right in theory, though not, strictly speaking, in practice. But it is not the job of the theorist to get tangled up in the details. Rather, it is his job to look at the broader picture, and, quite frankly, I would be most surprised if, looking further ahead, we did not enjoy a bit of sunshine before the year is over.

attributed to Anatole Kaletsky by Craig Brown in
Private Eye, 21st February 2009

We regret that in the present economic downturn we must let André go.

Anatole Kaletesky's prediction for 2009...or not

Comments

The Great 2009 Depression

Thu, 01 Jan 2009 17:17:46 +0100

‘Nothing would persuade the English people to abolish the Bank of England; and if some calamity swept it away, generations must elapse before at all the same trust would be placed in any other equivalent.’ That was the verdict of the Victorian political economist Walter Bagehot in Lombard Street, his famous book on banking published in 1873.

When Bagehot wrote his book, the Bank had been in existence for almost two centuries, and had become the pillar of the British financial system. As he put it, ‘on the wisdom of the directors of that one joint stock company, it depends whether England shall be solvent or insolvent’. Today(1), more than a century later, the Bank is no longer a privately owned joint-stock company, but a publicly owned arm of government(2). Its influence is, if anything, greater and more pervasive than it was a century ago.

Yet the bank is one of the least-known institutions in Britain and has taken great pains to remain so. The attitude was well summed up by a member of the Bank’s inner cabinet, the Committee of Treasury, who wrote to the Governor of the Bank in 1894 that it was ‘wholly beneath the dignity of the Court that any of its members should be influenced by the ignorant comments of the Press. It would scarcely be more indecorous if they themselves were to influence such comments.’ It was not until 1941 that the Bank appointed, with extreme reluctance, an ‘Advisor’ on dealing with the Press(3). Montagu Norman(4), loathed the Press, and took immense pains to avoid journalists. His view of the Bank’s operations, as he put it to his colleagues, was ‘never explain, never excuse’.

For many years the Bank has been accustomed to being master in its own house; doing what it felt was needed in the economic life of the nation untrammelled by legal limitations or statutory restrictions. It has always preferred to operate in a quiet and informal way, and such methods of working require freedom from the spotlight of public interest. So the Bank has fought off assaults on its operational and practical independence - some from the Treasury, its nominal master, but mainly from Parliament (5), which has struggled in vain to make this least-public of publicly owned institutions more accountable to its proprietors. And while almost every other institution in British life - even, to some extent, the monarchy - has opened itself to the all-pervasive eye of the television camera over the last few years, the Bank has resisted such intrusions(6).

For most people, the Bank is just the place where they make banknotes and intervene to protect sterling against speculation. Although these are two of the Bank’s most publicly visible jobs, the range of its work is much wider . At the heart of its job is the management of the money and foreign-exchange markets. This involves influencing interest rates and the foreign-exchange rate. In addition the Bank is the legally appointed guardian of the banking system: it supervises and licenses anyone wishing to set up in business as a bank in the United Kingdom.

The Bank is also a key part of the process of economic policy formulation in Britain; it advises the Treasury on economic matters and executes key aspects of policy. This arises out of one of its traditional functions, as banker to the Government. It keeps the Government’s bank accounts and manages both the funding and the administration of the national debt. And there are other jobs the Bank undertakes, none of which has anything to do with its statutory duties or its role as the Government’s banker: it exercises informal supervision over the City of London and the financial sector as a whole, and does not hesitate to intervene in the affairs of the City when it feels that intervention is required.

On top of that, it has also taken on a role in managing the rescue of ailing industrial companies. It was also the Bank that pushed the [London] Stock Exchange into accepting that deregulation was necessary; it is the Bank that has quietly orchestrated the upheavals in the structure of the City that have followed. In so doing the Bank has taken an enormous risk: it has made a heavy investment of its prestige and authority in the hope that Big Bang will be good for Britain. If the City fails to meet that challenge the Bank will carry the blame for encouraging it in the first place.

Footnotes:
1. Text copyright © 1987 Philip Geddes; from the introduction to Inside the Bank of England (Boxtree Ltd, London, 1987, ISBN 1 85283 203 7) in association with the production of a Television South television documentary.
2. This was the situation in 1986. The 1987-2009 Blair-Brown New Labour Governments meddled extensively with a number of constitutional arrangements during its terms of office. Where the Bank of England was concerned the several restructurings took place with minimal parliamentary scrutiny and outside the Labour Party’s own policy formulation procedures.
3. Robin Leigh-Pemberton was the first Bank Governor to give on-the-record interviews to the media: 1983-1993.
4. Montagu Norman was the Bank’s longest-serving Governor: 1920-1944.
5. For further details go to William Shepherd's Bank of England blog.
6. Philip Geddes remarked that the mood inside the Bank began to change in 1986. ‘In the autumn of 1986, after lengthy negotiations, the Bank invited a film crew from Television South to make a film inside the Bank on its work. An extraordinary degree of access was given, and Bank officials opened the doors on the whole range of the Bank’s activities…Perhaps its most important job in recent years, and one which may be the reason for the new policy of much more openness, is the part the Bank has played in the process of Big Bang: the deregulation of the City’s financial markets which has opened them to world competition.’

Comments

Political Cows

Wed, 26 Mar 2008 17:39:56 +0100

SOCIALISM You have two cows. You give one to your neighbour.
COMMUNISM You have two cows. The State takes both and gives you some milk.
FASCISM You have two cows. The State takes both and sells you some milk.
CAPITALISM You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

AMERICAN CORPORATION You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow has dropped dead.
CHINESE CORPORATION You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity. You arrest the newsman who reported the real situation.
SWISS CORPORATION You have 5000 cows. None of them belong to you. You charge the owners for storing them.
BRITISH CORPORATION You have two cows. A hedge fund holds title to both the cows and the field but you have a Credit Default Swap Certificate with J.P.Morgan Chase.
FRENCH CORPORATION You have two cows. You go on strike, organize a riot, and block the roads, because you want three cows.
JAPANESE CORPORATION You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called 'Cowkimon' and market it worldwide.
GERMAN CORPORATION You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.
ITALIAN CORPORATION You have two cows, but you don't know where they are. You decide to have lunch.
RUSSIAN CORPORATION You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows and open another bottle of vodka.
NEW ZEALAND CORPORATION You have two cows. The one on the left looks very attractive.
AUSTRALIAN CORPORATION You have two cows. Business seems pretty good. You close the office and go for a few beers to celebrate.
INDIAN CORPORATION You have two cows. You worship them.

NAZISM You have two cows. The State takes both and shoots you.
BUREAUCRATISM You have two cows. The State takes both, shoots one, milks the other, and then throws the milk away...
SURREALISM You have two giraffes. The government requires you to take harmonica lessons

Comments

Strategy 2008

Thu, 27 Dec 2007 21:09:30 +0100

The Swedish and German economies are in good shape but England is a disaster waiting to be disclosed. Its currency is held aloft by spin and dodgy dossiers cobbled together by its money laundering and killingry businesses that so pollute the wells of global commerce...and in the 21st century the polluter is going to have to pay. France is in no better state.

Meanwhile the debts of America's funny money diseased economy are in the grubby hands of the governing classes in China and Japan...with the spivs of Washington and Wall Street in cahoots with the Fundamentalists of Texas and Tel Aviv to keep the world that way...see Bill Bonner's Empire of Debt for further details.

In 2008 I'll be keeping clear of the American dollar because of the strange rumblings about replacing it...and the Canadian dollar and the Mexican Peso...with the Amero. Instead I'll be betting on the collapse of the pound and the strength of German industry. For several years the gun-running, money-laundering and bullshit economy of the Brits has been going from strength to strength sending the Britpound soaring to a ten-year high with markets pricing it at more than twice the dollar. Value of course is something else again. And the euro has been keeping pace with the madness of the overpriced pound...to such an extent that by the end of 2007 the Britpound was at its lowest ever against the euro.

And so to 2008 where it may be that once I am familiar with the intricacies of the technical side of online spread-betting my friends will be given the chance to hazard their own family's money by sharing in my Swedish and German speculations. If I go this route then we will do it the old way...by commenda...about which there will be further details in some forthcoming posting. Here are my Swedish and German betting strategies.

Sweden: The exchange rate between the Swedish kronor and the English pound has bobbed up and down between 6 and 16 over the past 30 years...that's one hell of a range...both currencies are outside the euro...at the end of 2006 I got 14 for my pound and by the end of 2007 I still got 13. But it won't last. On purchasing parity it should be below 10...and the bullshit is varnishing fast. So the prediction is 8-9.

Germany: The euro has helped Germany assimilate her eastern provinces following the fall of the Berlin Wall...enlargement has moved the goal posts...the euro is much too broad a church to hazard money on...it could go anywhere as it muscles in on America's fading oil dollar hegemony.

So the strategy is to keep clear of the German currency and back the German economy...by building a list of the top European multinationals and ranking them in terms of their exposure to the German, British, American economies etc. Spread bets will then be placed on a portfolio of half a dozen companies...half a dozen is enough...there is a law of diminishing returns on portfolio risk spreading after this.

During the first quarter I'll be getting the hang of charting and stop-loss strategies and honing my timing skills...come the second quarter I'll start gambling heavily on my own account...by the third quarter I'll be ready to take a leaf out of the Fitzdares book...more on Jimmy Goldsmith's millions in future web logs...by inviting my friends to bet with me...and then (before setting off for four months in Arizona on Guy Fawkes Day 2008) I'll unwind my positions and move my well-gotten gains into Devon woodlands and Gotland cottages...A Good Year's Pay for a Good Year's Work.

Comments

William Franklin

Thu, 27 Dec 2007 21:05:03 +0100

Contents of the William Franklin Blog

Prologue

Tragedy

Usury Free Banking
Public Purse
Sound Money
Great Depression of 2009
Old Lady of Threadneedle Street
Usury Act of 1571
Cabal of Dutch Bankers
King of Buen Consejo
Tilting at Windmills

Comedy

Oldest Profession
Dead Parrot
Political Cows
Egg Heads

Strategy

Strategy 2008
Strategy 2006

Comments

Wind Farm Politics

Thu, 12 Jan 2006 10:12:01 +0100

About the Author

William Shepherd lives and works in Rye. His paper Energy - a long wave perspective was presented at the annual convention of the Association of Eastern Economists in Philadelphia in 1981. The article Energy Wars was published in Fourth World Review in 2002. The Politics of Wind Farming was published in the December 2005 issue of Rye’s Own . Below are edited extracts from the Rye’s Own article.

RWE

RWE is an enormous power and utilities conglomerate with an annual turnover of five billion pounds. RWE has devised a series of cunning plans to exploit the gaping holes in New Labour's regulatory regimes of the energy and water sectors and does so most efficiently for the benefit of German shareholders and to the considerable detriment of the long-suffering residents and tax-payers of the English Home Counties.

Half of RWE's operations are in Germany and a fifth in the United Kingdom where it trades under such brand names as Thames Water, Yorkshire Electricity and Npower. In an article in the Daily Mail on Friday 28th October 2005, the columnist Andrew Alexander recommended that those who feel strongly about the beauty of our waning countryside should avoid buying their water, electricity or gas through or from RWE.

RWE's Annual Report comes out on 23rd February 2006. Order your copy from www.rwe.com or talk to RWE's spin doctors on +49 1801 451280.

But why not buy a few shares in the company? It's a small price to pay for saving paradise. Invite yourself to the company's annual general meeting in Essen on 13th April 2006.

And while you have your broker on the line, instruct her to buy shares in Doughty Hanson, the turbine blade manufacturer. Rumour has it that Nigel Doughty is a major contributor to New Labour's party funds. Now there's a surprise.

Energy Politics

How much energy do we really need? Well the answer is: 'Not a lot!' Lie in the sun for half an hour and you will find out. You might not have got all the energy you need for a year, but your planet has. The sun showers the earth with all the energy our species generates in the course of one year in just half an hour.

Have you ever got up early in the morning to watch the earth go down as the sun smacks night time clean out of the sky? That's power. How puny are our human needs in comparison. But what actually are these needs? They come in three easy to understand forms: to heat up space, to rush ourselves and our stuff around and to wind things up.

We hardly ever need to be warmer than our own body temperatures so boiling a nuclear kettle to the sort of silly numbers best kept ninety three million miles away in the centre of the sun is about as loopy as it gets. Insulation is the name of the space heating game. Once you have it, don't lose it.

Most of our rushing around is unnecessary and counterproductive. Food miles are a case in point. Who needs them? Slow is beautiful and the future is still.

As for winding things up. We're doing more and more with less and less. Wind-up laptops will soon be all the rage following fast on the heels of wind-up torches and wind-up radios. Electricity use will go down not up over the next few decades. So much for the demand side of the equation.

What about supply? This sceptered isle is surrounded by sea. Free energy on tap and ours for the harvesting. Tide mills and wave power should be the English way to energy self-sufficiency.

Romney Marsh

Romney Marsh on the Kent-Sussex border is one of the most beautiful lowland areas in Britain with a magic all of its own. On the coast, it is bordered by the exquisite ancient towns of Rye and Winchelsea. Outside the towns, the roads and lanes, flanked by rich hedgerows, wind through charming villages and hamlets and fine farmland often heavy with grazing sheep.

Beautiful small and even tiny churches, sited on spots now largely deserted, have inspired travel writers by their neat, simple interiors. The area is a home to many rare birds and a vital migratory route in the spring and autumn attracting bird watchers from all over the world.

Wind Farming

Slicing up flocks of Canadian geese as they wing their way across Romney Marsh is one way to keep bird flu at bay. But this underestimates avian intelligence. Migrating birds only fly along the English shipping lanes because the French peasants are gunning for them on the other side of the channel. Birds are quick learners which is more than can be said for the human species.

Take this silly idea of farming the wind. For those who go down to the sea in a sailboat the first lesson is how to put up your sail. Next you get taught the fine nautical art of spilling wind. Your problem is too much wind not too little.

But if you insist on farming the wind then let me give you a hint. If you are old enough you may remember the cluster of cooling towers at Ferrybridge. They collapsed. There was a Commission of Inquiry. 'It was the wind wot did it. Honest m'lud!'

But not just the wind. It was the lay-out of the cooling towers that was the root cause of the collapse. Unwittingly the designers had exceeded their brief and created a wind factory. Meanwhile the younger ones among my readers might like to reflect on why the skyscraper city of Chicago is called the windy city. Bernoulli is the correct answer. He discovered that fluids flow and that the shape of the containing vessel is what really matters. Our little local worlds can be shaped to suit the needs of our turbines. There is no need to put them hundreds of feet in the air at the end of long poles. Bring wind to your turbines instead of taking your turbines to the wind.

Little Cheyne Court Wind Farm

Let me introduce you to a group of gentlemen with names like Roels, Fischer, Schneider, Bonekamp, Maichel and Sturany who inhabit the supervisory board of RWE, an enormous power and utilities conglomerate with an annual turnover of five billion pounds.

The Little Cheyne Court Wind Farm these barbarians plan to build on Romney Marsh is not about wind power or renewable energy or even economic efficiency but about the black hole in the accounts of the RWE Aktiengesellschaft , a company which stealthily hides the de-commissioning costs of its nuclear power plants from public gaze by the sleight of hand of ‘net present value’ mis-accounting.

Mssrs. Roels & Co believe their salvation is in offloading their loss-making German landfill sites and seeking shareholder nirvana in the Garden Of England far away from the shrewd German regulatory regime for energy providers.

In Germany it is impossible for scorched earth operators like RWE to do what the ignorant pillars of the British Establishment encourage. Welcome to Romney Marsh all ye carbon polluters. No need for your shares to go into freefall. Erect a forest of monstrous towers each twice as tall as Nelson's Column. Collect your free carbon credits each time you pass GO.

Indeed let us pay your construction costs out of the public purse. Our English house-owners expect to be taxed until the pips squeak. They have become used to it. Trade your way out of financial disaster. Why do it unprofitably in your own backyard when you can destroy beauty profitably far far away on the other side of the English Channel?

more from Shepherd on Climate

Comments

Strategy 2006

Thu, 12 Jan 2006 09:08:52 +0100

In 2006 William Franklin will be seeking profitable opportunities to speculate in the share price movements of European power companies...eg. the Essen-based RWE and the Swedish-based Vattenfall. The financial pages of The Independent made the following remarks on Wednesday 11th January 2006.

The future of Scottish & Southern Energy was a major talking point in City dealing rooms yesterday. Shares in the power group jumped 7.5p to 1017p on speculation of a bid for the company from Vattenfall, the Swedish state-owned utility. Vattenfall already has operations abroad - mainly in Germany, Poland and Finland - and is said to be keen to expand in the UK.

Citigroup argued that Scottish & Southern represents an excellent strategic asset for anyone looking to make a major move into the UK utility sector. But it warned that the Swedish group will have to pay top dollar if it is to win the company. The US broker said: ‘Scottish & Southern is highly regarded by its shareholders and is fiercely independent. Therefore, any acquirer would likely have to pay a significant control premium.’

Citigroup pointed out that RWE bought Innogy on a rating of 11 times earnings in 2002. Should Vattenfall decide to pay a similar valuation for Scottish & Southern, it would ahve to spend 1397p a share for control of the group - a 38 percent premium to the stock’s current level. of course, Vattenfall could also target Scottish Power, up 4.5p to 540.5p, which recently rebuffed a 570p share bid from Germany’s E.ON.

Comments

ABB Shares

Mon, 09 Jan 2006 10:17:58 +0100

Shares in ABB (Asea-Brown-Boveri) the Swedish-Swiss multinational went into freefall in 2001 and 2002 but recovered steadily during 2003. The shares were trading at 85 kronor on Monday 6th January 2006...half of their 2001 peak price of 190 SEK but well above their lowest price in the last quarter of 2002.

Comments