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A presentation by Dr Mike Haywood mike@mikehaywoodart.co.uk

Meltdown How close are we to Systemic collapse of the global financial system?. A presentation by Dr Mike Haywood mike@mikehaywoodart.co.uk. Oil is the fuel on which the Global Economy runs and credit is the grease. Start of the use of fossil fuels and fractional reserve banking.

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A presentation by Dr Mike Haywood mike@mikehaywoodart.co.uk

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  1. Meltdown How close are we to Systemic collapse of the global financial system? A presentation by Dr Mike Haywood mike@mikehaywoodart.co.uk

  2. Oil is the fuel on which the Global Economy runs and credit is the grease

  3. Start of the use of fossil fuels • and fractional reserve banking

  4. Thehydra with five heads Debt Mountain Population growth Pension time bomb Peak oil Climate change

  5. Thehydra with five heads Head I Global Debt Mountain

  6. The Debt Mountain Someday soon all this will be yours

  7. UK Post War • Government debt high • State benefits paid out comparatively small • No NHS, introduced in 1948 • Relatively simple financial system • Business Profits funded expansion • High personal Income, spending out of income, saving high • Personal debt extremely low Then, over decades • Personal debt grew, saving fell • Computerisation of Banking system • Delusion that creation of debt = the creation of wealth • Public sector mushroomed • Less prudent banking practices evolved

  8. UK National Government debt is over £3 trillion or£3,000,000,000,000 If you include unfunded state pension liabilities, public sector pensions , private finance initiatives Every day, UK National debt increases by £345,800,000. As the government draws its income from much of the population, government debt is an indirect debt on future UK taxpayers

  9. UK National Debt The green segments are linked to inflation, so cannot be eroded away by a bout of higher prices. Prices are in £bn - estimates from experts used for off-balance sheet items (the Government has in past only rarely provided official figures) Unfunded Pensions for:- Police Armed services M.O.D Teachers Civil servants MP’s Taxmen NHS workers Doctors Dentists Social Workers Quango employees

  10. US

  11. WE DON’T SPANK THEM ANYMORE. WE JUST TELL THEM HOW MUCH THEY OWE TO THE NATIONAL DEBT

  12. Individual personal Debt • Total UK personal debt…. £1,452 bn • Total secured lending……. £1,236 bn • Average household debt is £8556 excluding mortgages • Average household debt is £57,624 including mortgages

  13. Bottom Line….Who has caused the the UK National debt mountain • Promises made by politicians over the past century pledging unsustainable future benefits to be paid by later generations. These benefits include • the State Pension, introduced in 1908, • the NHS, in 1948, • unfunded public sector pensions • Burgeoning Social security benefit costs • The willing cooperation of the Banking Sector to fund these promises, using FRB and electronic fiat currency, incentivised by short term bonus structure

  14. What causes financial crises Some inter-related oft-quoted systemic causes…… • Easy credit, causing credit bubble • Low interest rates • Asset bubbles • Weak and fraudulent underwriting • Predatory lending • Deregulation • And…………..

  15. What causes financial crises • ……Increased individual debt burden • Financial innovation and complexity • Incorrect pricing of risk and poor risk models • Failure of economic models • Managers' capitalism • Failure of rating agencies • Creative accounting procedures, mark to market, extend and pretend • And……

  16. What causes financial crises Some human and non systemic causes • Greed, lust for power, lying, fraud, lack of accountability, the complete disregard for the rule of law and subsequent exposure • Change of public perceptions • Changes in social attitudes • Transparency… financial state of Bank becomes public knowledge • Insider whistle blowing and leaks • Loss of confidence

  17. But fundamentally what is really causing this financial crisis The real systemic causes that are rarely discussed … • Fractional reserve banking system • The rising price of oil during economic growth • Financial innovation and complexity • Investors (e.g. pension funds) who want high yields to pay benefits to a burgeoning baby boomer population • Payment of interest on debt requires economic growth, which requires more energy • Future income insufficient to pay interest on debt and leave enough to pay retired baby boomers • Financial illiteracy of general public • Changes in social attitudes about debt • The interconnection of Global Financial risks • Powerful vested interests wanting to maintain the status quo Nothing has been done to address these issues

  18. The importance of money Money is the foundation of the economy and society

  19. 'Money has no motherland; financiers are without patriotism and without decency; their sole object is gain‘ Napoleon Bonaparte

  20. Quotes about Bankers and Banks Henry Ford……“It is well enough that the people of this nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -

  21. Who creates Money Coins………….Royal Mint Bank notes…Bank of England, the UK Central Bank These account for 3% of the total money supply . Where is the rest of the 97%?

  22. 97% is electronic money that exists as entries in Bank Computer records

  23. Fractional Reserve Banking • In a speech on October 25th, the Governor of the Bank of England, Mervyn King said “of all the many ways of organising banking, the worst is the one we have today. “To work, this financial alchemy requires the implicit support of the tax payer.” He said that possible remedies included not just breaking up banks, but also “eliminating fractional reserve banking”

  24. Fractional Reserve Banking

  25. Fractional Reserve Banking • Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of digital money is created • Only a fraction (8% or less) of a bank's demand deposits (cash and other highly liquid assets) are kept as reserves available for withdrawal • Due to the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank.

  26. Fractional Reserve Banking When a bank makes a loan, it increases the amount of money in the hands of the public, by increasing total amount of electronic bank deposits….. And vice versa, when a loan is repaid, money is destroyed Interest must be paid with more £’s, ie more debt

  27. Fractional Reserve Banking • Why does the Government support this “alchemy”? Because the Government needs far more money than that raised by taxes, so they borrow it • Consequences…… new £’s dilute value of old £’s in the economy, prices go up…….inflation • Who are the gainers?… the Government and the Bankers. Government can tax without people understanding they are being taxed. Bankers collect perpetual interest on nothing…. A river of unearned wealth • Who are the losers?… the citizens and future generations of taxpayers

  28. Quotes about Bankers and Banks “Give me the right to issue and control a Nation’s money and I care not who governs the Country” Meyer Rothschild, International banker(1774 -1812)

  29. Quotes about Bankers and Banks Sir Josiah Stamp, Director, Bank of England, 1940….. “Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again... If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit. Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit.”

  30. Financial innovationAsset backed securities • Mortgage loans, home equity release loans, home equity lines of credit(Before the crisis, Moody’s Rating agency, had given AAA ratings to 42,625 mortgage-backed securities, the same seal of approval U.S. Treasury bonds get. Of those rated in 2006, 83 percent have been downgraded) • Student loans(In US, student loan debt has now surpassed all outstanding credit card debt ) • Credit cards debt • Car loans • Aircraft leases • Royalty payments

  31. As reported in The Times on September 15, 2008, the "Worldwide credit derivatives market was valued at $62 trillion”

  32. Growth for the sake of growth is the ideology of the cancer cell. - Edward Abbey

  33. Thehydra with five heads Head 2 Population growth

  34. In 1950, the World population was 2 billion

  35. There are now 6.5 billion (6,500,000,000) people in the World, all becoming more and more addicted to oil

  36. World Population Every second, 7 babies are born, 4 people die, 3 extra humans in the World Every day, there are 250,000 extra humans in the World That’s the population of Cornwall every 2 days 70 million every year

  37. Thehydra with five heads Head 3 Pension time bomb

  38. Growing population of baby boomers, born between 1946 and 1964 Over 25% of Devon’s Population is retired

  39. Global Pensions 01 Dec 2010 The pension plans of the world’s largest multinationals have fallen further into deficit despite record company contributions, new research shows. The European Pensions Briefing 2010 report by consulting actuary LCP, found the aggregate accounting deficit stood at €160bn ($209bn) at the end of September 2010, up from €150bn at the end of last year.

  40. Universities to change their deficit-hit pension fund Reuters July, 2010 British universities have won a key battle in efforts to restructure the 30 billion pound pension scheme for academics after an executive committee backed their plan to tackle a £17 billion deficit as of March.

  41. Bottom Line • Anyone who does not work will not survive unless they are supported by someone who does work. This has always been what happens. People who don’t work include • Retired, receiving occupational, private and state pensions • Children • Sick • Those at school and university • Unemployed • Very wealthy who have sufficient investment income

  42. “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. Kenneth Boulding, economist 

  43. Thehydra with five heads Heads 4 & 5 Peak oil Climate change

  44. So what is ‘Peak Oil’? • Consumers are only interested in delivery flows • Many commentators talk of reserves and forget flows • Reserves are only useful as flows Peak oil is the point when worldwide production of conventional crude oil peaks

  45. World population growth Climate change • China's oil consumption is expected to grow by 7.5% per year for the next 20 years 4 fold

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