Thursday, 11 March 2010

Our world balances on a sea of debt

Check out this linked article (a paragraph extract I have chosen from it is below) if you would like an overview of what the root cause of the financial malaise is, and always is, or you simply would like to understand how money is created (and destroyed), and by whom.

Likewise with the banks – lend ten times more money than you possess and when the economy grows – or at least pretends to grow – Porsches galore, but when the lack of growth is exposed it requires only 11% of the loans on your books (in value terms) to be bad and you are bust. The truth is not that these institutions have suddenly become insolvent therefore, but that they were never really solvent in the first place since the assumptions on which they were founded could not apply in the real world. Simple false-accounting has meant that by rolling over their debts they have been able to keep them on their books as ‘assets’ rather than losses and forestall the evil hour.

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