We are celebrating Pamela's birthday today. She baked some delicious date muffins which we enjoyed with coffee while listening to Melvyn Bragg and his guests discussing Francis Bacon. As they described how Isaac Newton had been influenced by 'Baconian' approaches to science, Pamela commented on the muffin recipe that she had used and how the sweetness came from the dates rather than sugar. As my brain flip-flopped between Newton and the sugar content of dates, I realised that, although seperated by a few feet, at that moment our inner worlds were miles apart.
A little earlier I had heard the economist, Jeffrey Sachs interviewed on the Today programme. When asked if he sympathised with the angry protesters on the streets of London, he replied: "Yes! When you beg and beg to try and raise one billon dollars of aid for the starving poor and then you read that Merrill Lynch used tax-payers money to pay it's staff $4 billion in Christmas bonuses, how can you not be enraged?". Clearly the Merrill executives inhabit a different world from the rest of us.
Today, the leaders of the free (and not so free) world are gathered together in London, resolved to save the global financial system. Behind the stage-managed theatricals (will Sarko walk out?, will the Anglo-Saxons condemn casino capitalism?) it is clear that they want to pump billions into the international system. It won't be billions of pounds (or dollars) of our money because it does not yet exist - but it soon will exist. On both sides of the Atlantic the throttle pedal is pressed hard to the metal for 'quantitative easing'. Thus while it is not our money at the moment, it will certainly be our debt.
Unfortunately our politicians are not on the same planet as their financial advisers. The financiers are not looking at billions of dollars, or trillions of dollars but at over one quadrillion of dollars worth of derivatives. According to this report, based upon data from the Bank of International Settlement, the amount of derivatives in play is approximately $1.4 quadrillion - that's £1,400 trillion or $1,400,000 billion or $1,400,000,000 million!
That puts the Obama/Geithner plan to pump $1 trillion into the US economy in context and renders it unlikely to be effective. Most people have no idea of how much of this debt is toxic because it is completely unregulated. Like the gullible audience of a stage magician, politicians have been looking in the wrong direction. While they have been worrying about monetary inflation, the real Weimar Republic-style hyper-inflation (that's what a bubble is) has already happened in the derivatives markets - and it is all off-balance sheet.
These derivative markets have voraciously fed off the real wealth created by ordinary working people around the world. Without regulation they have ballooned into obesity consuming more and more resources until they have become unsustainable. They are now too big to be supported by the available human resources and are collapsing under their own weight. Tax-payer money pumped into the banking system has simply disappeared into this enormous black hole.
This unsustainable financial illusion has underpinned the political delusion of our so-called leaders. As the detached world of politicians collides with this real world, politicians, like Fred the Shred before them, will find life to be less comfortable.
Posted by Nicholas Moore 6:48:11 pm