John Ward – Banker Apologists: How A Murdoch Intellectual Tries To Persuade His Readership That Banking Perfidy Is A Myth – 26 March 2014

RoopbankptnetI’m indebted to a regular Slogger for pointing me at this Aussie piece by Steve Keen, writing at The Australian’s Business Spectator. Just so we’re clear about this from the off, The Australian is owned by Newscorpse, aka Rupert Murdshlock.

Keen is a former professor in economics and finance who taught at the University of Western Sydney. He considers himself a post-Keynesian, criticizing neoclassical economics as inconsistent, unscientific and empirically unsupported. As I hope to develop in this post, he too is as empirically unsupported as the now ubiquitous Wily E. Coyote in economic matters.

His latest column is about Fractional Reserve Banking, and Mr Keen uses it to salute the Bank of England for pointing out that FRB “as a money multiplier is neither fraud, nor the way things are, but a myth — and it rightly blames economic textbooks for perpetuating it”.

Hmm. Steve tells us that, under the “myth” put about by textbook authors, ‘Stage one in the money creation model is that the Fed (or the Bank of England) gives the banks additional reserves — say $100 billion worth. Then in stage two, the banks lend this to their customers, who then deposit it right back into banks, who hang on to 10 per cent of it ($10 billion) and lend the remaining $90 billion out again.’

Like Mr Keen, I don’t buy this model either…how for instance does the loan get redeposited and not spent/invested elsewhere? But he then confuses me totally in the article by writing that ‘Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.’

Read it slowly ten times and see if you can spot any difference there between what Steve Keen says is myth and reality. Then ask yourself, “What’s the difference between depositing funds lent by banks into banks, and bank lending creating deposits? Where are these funds deposited – at the recycling centre?”

Keen “explains”:

‘Rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks’.

Well, five paragraphs ago he ridiculed the idea that ‘the banks lend this to their customers, who then deposit it right back into banks’. When I was at school, that wasn’t a reverse sequence; it’s merely a two stage process rather than one stage. And as it happens, I don’t buy either of these as being how banks work in 2014. For instance, he’s light on the process as to why lending should create deposits under his definition of reality.

Let’s cut the bullsh*t and return to basics. Before FRB and deregulated bourses, this is how capitalist growth worked:

1. Entrepreneur A goes to bank/rich person/emergent bourse B and says this is my idea, and if it flies, we all get rich.

2. Either it works, and richesse ensues via discovery and/or innovation; or it fails, in which case you knew the risk, so hard luck.

Under this construct, real wealth was being created that bore no relationship to currencies printed without reference to a standard – be it silver, gold or otherwise.

Mutual Societies fine-tuned this system to be more socially productive, and created a way for those having their fingers squashed by hobnailed landlords to buy their own property. The length of term and flexibility of rates ensured that the Society was able to lend safely, make surpluses, and thus reinvest funds behind the deserving….while the property mortgagee bought a house affordably.

Then plastic cards happened, and it suddenly became possible via expanded credit lines to sell all kinds of stuff without the consumer actually having the money as such.

Then EFTPOS and smartcards happened to ensure the greatest unregulated credit boom in economic history.

Then Friedman happened, and the greedy folks used his naive cobblers about deregulation and remote shareholders to hugely expand bourse financing while decimating infrastructural social investment.

Then the directors of mutual societies got the scent of munneeee in their nostrils, and – using share-bribes to their Members – converted to bourse-listed status, meaning they no longer served any social good beyond…yes, you guessed it, remote shareholder institutions who didn’t GAF about the social betterment of those at the bottom of the pile.

And penultimately, all these wide-eyed former mutuals got corrupted, taken over, and then persuaded by Government dickheads to merge with equally unstable organisations…until the point at which the entire system collapsed, and those taxpayers who’d formally and regularly given all their savings to mutuals (who then used said savings to fund homebuyers) now found themselves bailing out banks.

Until, last but by no means least of all, those taxpayers found themselves redefined as creditors, with a magic entitlement to lose every last penny they owned to re-finance over-bonused but responsibility-immune bankers with severe tertiary cases of frontal lobe syndrome.

I could go on into a more predictive mode; but trust me Steve Keen, whether Roop-de-Doop cares to admit it or not, he and his ilk have f**ked us all up with their carefully rationalised confidence trick. They took a system that was working perfectly well to the advantage of the poorer majority, and “fixed” it (in every sense of the word) to ensure that it benefited a few at the expense of that majority.

In the Benthamite sense, Murdoch’s tribe swapped the Greatest Happiness of the Greatest Number for the Biggest Payday for a few Greedy Arses Like Us.

Now I could have made this case by joining the Australian’s Business Spectator comment thread, and then leaving a url as reference to what I’m sharing with you now. But the Great AustrAmerican neoliberal doesn’t do sharing, and so all urls that might steal even one reader are banned. You see, the Diggerliberal is in fact a Murdopolist. Something of a contradiction, but then oxymoronic drivel has never held them back before, has it?

Because of the gangster-monopolist, cop-bribing, politician-corrupting instincts of Rupert Murdoch, of all countries in the Anglosphere, Australia is the one place where I can’t get my voice heard….thanks to his shop being more closed than any Fleet street Union with whom he locked horns once upon a time. Neoliberal he might be economically ha-ha, but socio-politically Roop is a bit of a fascist, isn’t he?

Anyway, over to you Steve: let’s see if you can explain to we lesser mortals why – if banks are so vital – and remote and shareholders so important – most of them feel the need to grumble 24/7 about the lack of return they get from Newscorp’s regular share dilution raids. Could this be because The Australian’s proprietor is, um, a bit of a bandit?

As Paul Krugman puts it, ” he [Keen] asserts that putting banks in the story is essential….Now, I’m all for including the banking sector in stories where it’s relevant; but why is it so crucial to a story about debt and leverage?”

Quite. Banks as currently structured are about as essential to capitalism as The Sun is to the universal study of Latin in schools.

Wikipedia has this to say:

‘His father was a bank manager. Keen graduated with a Bachelor of Arts in 1974 and a Bachelor of Laws in 1976 both from the University of Sydney. He then completed a Diploma of Education at the Sydney Teachers College in 1977. In 1990, he completed a Master of Commerce with Honours in Economics and Economic History at the University of New South Wales. He completed his Doctor of Philosophy in Economics at the University of New South Wales in 1998.

Not a lot of commercial experience, then.

‘Some reviewers contend that Keen has not shown what he claims, that he misrepresents economic theory, and that he gets basic mathematics wrong…..Austrian economists Robert P. Murphy and Gene Callahan, criticize Keen’s 2001 book, by stating that the “work suffers from many of the very faults of which he accuses the mainstream”. They also claim that much of his work is “ideologically motivated even while criticizing neoclassical economics for being ideological”.’

Judge for yourselves.

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