Mar 29, 2013

How does the modern financial-economic-banking system works. An effort to demystify the little understood operations.

Global financial systems follow very mysterious way of operations. I know there is something terribly wrong but have never been able to nail their lies. Not being an economist perhaps make it still difficult to comprehend what goes wrong and how. Nevertheless, whatever little I can understand I have been sharing with my readers. 

Last week I received a letter from one of my readers. Being a banker himself, S/he has a better inside grip over  how the financial systems work. S/he explained to me how the system thrives on government subsidies, and receives a 'backup' support from the policy makers to make it look for competitive and economical. To illustrate, s/he has used the example of rural cottage industries which have been systematically killed for reasons we think are linked to pure economics. 

Over the next few weeks, I would be seeking more details with examples and analysis. To begin with, certain issues that many of us have been pondering over, have been thrown up. I am pasting the letter below (and of course keeping the writer's identity anonymous) for you to think over. Perhaps it will give you some food for thought. If you have any questions, please do write and we can then deliberate.   

Here it is:      

I am following your writings for some time. I share and appreciate your concerns about the matters related to impending food crisis, the danger of GM foods, the wicked designs and propaganda of MNCs above all the state and plight of rural economics.

So I presume you must be having some interest in the matters of finance and economics particularly the economics of rural India. Sir, I have done some deep research work in the field of “Banking, Finance & Economics” and I think that it may be of interest to you and some like-minded people. The finding of my work is quite revealing and shocking in the sense as to how the so-called “Modern Financial Economic System” actually functions.  Sir, if one sensible person is to actually know as to how in reality the Modern Financial Economic System works he will get a shock of his life. In fact the modern financial-economic system is a parasite that survives by sucking the rural sector. The so-called Modern Financial Economic system sucks and destroys the rural India.

Sir, you would agree that the India (or as a matter of fact every country in the world) can emerge as a self-reliant and stronger nation only after our RURAL COTTAGE INDUSTRIES are invigorated. Once this happens we don’t have to do much to strengthen our populace. In fact looking at the impending environmental disasters like Global Warming and Ecological destruction all around the world, we need to go back to the era of rural-cottage industries. As against the modern industries that are inimical to our ecology and environment, the rural-cottage industries are in fact quite eco-friendly. So one wonders why our rural economic system got extinct. There is an argument in favour of Modern Industries is that they are cost-effective and the Modern Industries defeated the rural-cottage industries in open market competition!!! Sir this is perhaps one of the biggest propaganda in entire human history!! I will come to that a little later. 

Sir, the Modern Banking & Financial system is nothing but a pure fraudulent design. To understand the fraudulent nature of this system one needs to understand the Banking system. Without understanding the banking-financial system we cannot understand the modern economic system.  Even the Professors and other educationists too have read the fabricated propaganda in their own student life therefore they don’t have the vision the see the truth; they have been “programmed” to disseminate the propaganda that they have received as student. What they have been taught by their teachers, they simply pass-on the same to their students. It is the standard mechanism of disseminating any false propaganda.

In following paragraphs I would give you some examples of the lies/deception about the Modern financial economic system. From this you can well understand as to how vicious the propaganda is. Here I am giving only some facts without getting into any analysis (due to space constraint). For the start I would give you only three cases:-  

1.  The conventional wisdom, as per books of economics, is that the factory system (i.e. the industrial economic system) triumphed over the traditional cottage industries (particularly the textile industry) due to so-called economy of scales. In simpler words it is touted in the books of economics that factory system of producing (i.e. Mass Production System or MPS from now onwards) the textiles was/is cheaper than traditional cottage industry of textiles therefore in an open market competition MPS triumphed over traditional cottage textile industries. In reality it is one of the biggest lies disseminated in entire human history. Sir, the MPS was and it still is at least 4 to 5 times costlier that traditional cottage industries of textile making. It is a part of well documented historical facts (I can give you unquestionable references regarding this) and even at present it can be proved mathematically. How the industrialisation (MPS) succeeded is quite a saga in itself. I am not giving much details about that due to space constraint; but it is sufficient to say that industrialisation basically succeeded due to unfair and brutal suppression of the cottage industries (particularly of India) by British colonial powers. Had this unfair and brutal suppression not been given to Indian cottage industries by British colonial regime the British factories would have not even came into existence. For the present scenario it is sufficient to say that on an average per meter of cloth manufactured in MPS industries gets an approximate (but hidden) subsidy of, hold your breath, Rs.1000 per meter!!! In fact almost entire “MPS Economy”—other industries too—run on massive subsidies. In other words the so-called Modern Industries are white elephants that survive on subsidies. If this subsidy is not given to MPS industries; our rural cottage industries will wipe out the factories of mass production within no time. In other words the rural economy will surge.

2.  Even bigger “game” is the way in which the so-called modern economy (i.e. the Modern Industries) is “artificially sustained”!! You will shocked to know that despite getting huge subsidies the modern industries cannot sustain even for a moment if a “rear guard” action is not taken by Governments to “artificially boost” their sales. In other words the sales of the so-called modern industries are “artificially sustained” through a combination of government actions and banking system. Remember, that this is IN ADDITION to the hidden-subsidies provided to modern industries. For rural cottage industrial system there is NO NEED for artificially boosting the sales!! But our text books of economics don’t even mention this fact!! In fact the authors of those text books themselves are ignorant of this fact!! Now we should also know something about the pivot of modern industrial system—the Banking system.

3.   The banking system is yet another example of outright lying and heavy distortion of the facts. In fact to understand the Modern economics you ought to understand the Banking system without knowing the banking you cannot understand even an iota of Modern economics. Banking is the AXIS of evil in the context of Modern economic system. Banking, as we are told in the text books, is the CHANNEL between the savers and investors or lender and debtors. In other word it is touted that first money is “deposited” in the bank by the “depositors” and then it is given as “loans to debtors”. It can safely be said that this lie too is one of greatest “successful” bluffs of human history. Nothing can be farther from the truth. If the banking were to be really a CHANNEL there would have been nothing fraudulent about this!! But banking in its essence is a purely fraudulent exercise. If you are interested I will explain you later. But for the present I would explain only briefly. In reality banks are just “money creation machines”. In other words the loan that Banks give to the debtors is NOT the money that has been deposited in the bank by the depositors; rather the loan are made “out of thin air” i.e. by “creating money out of nothing” and once the money is brought into the existence by way of making the loan it is only then that it ends up as deposit in the banking system!! There is one more buffoonery also taught in text books of banking system:-The so-called “credit multiplier”. This too is a big propaganda that needs to be busted. Following comment on the banking system can be considered as final verdict on the Banking system.

Contrary to general belief—that it the depositors’ money that is given as loans to debtors—it is the money that is loaned into existence by BANKS ends up as deposit in the banks! First, the money is “created by making loans” and later this money ends up as deposit in the banks!!

Now just think as to what is the need (or rational) for offering interest for attracting the deposits by the commercial banks!! Sir, I have just stated some of the facts about modern financial-economic system but WITHOUT offering any analytical justification for the same. The reason is that these analyses cannot be covered in a short letter. 

Sir, I am writing these matters to you (1) to show as to how big a propaganda is taught in the name of economics where the teachers/professors themselves are utterly ignorant of the reality and (2) to indicate that Modern Industrial economic system is a fraudulent one and once this fraudulent support is withdrawn the so-called modern industrial economic system will collapse and rural cottage economic system will automatically emerge. The general public is fooled about the cost-competitiveness of modern industries. # 


Gaurav Sharma said...

Same is applied in Agri Sector.
So called Chemical farming is heavily subsidized by government & propagated by Agri Universities as far cost effective in production then natural farming. Just remove the subsidies you will see the modern system getting collapsed in seconds.
Was just calculating cost of Wheat production in Chemical Vs Natural Farming, I was surprised to find Net profit in Natural farming were super siding over input intensive Chemical farming practices.
Need not to mention about quality of produce & sustainability is fully addressed under natural farming.
We are fooling ourselves!!

Vikas Reddy said...

This banker had said that s/he had not provided any empirical facts because of space constraints. It'd be more convincing, believable and meaningful if the banker cared to substantiate his/her accusations.

Sumit Singh said...

while point3 is quite clear in the current situation where money is printed to pay off the debt, however it would be interesting to understand how was loan created bofore deposits in the bretton woods era.

The 1st and 2nd point need some more factual presentation of data to support the arguement. It would be interesting to hear from you on the first 2 points.

If true, then they are real eye openers. rgds

Anonymous said...

Dear sir,
Were there any follow-ups on this?

Anonymous said...

after reading this piece, it reminds me the famous quote of Mayer Amschel Rothschild: "Give me control of a nation's money and I care not who makes her laws"

Suran said...

Mr Sharma, posting this mail does not augur well for your blog! while i would consider myself naive to Economics and eco theories, the gentle man's argument about banking is appalling. It may be worthwhile to get such scribbling from your blog.

Suran said...

Mr Sharma, posting this mail does not augur well for your blog! while i would consider myself naive to Economics and eco theories, the gentle man's argument about banking is appalling. It may be worthwhile to get such scribbling from your blog.

Prashant Singh said...

Thanx to everybody who has made a comment on this issue regardless of the fact whether you agree or disagree with me. In fact it was me who send this paper to Shri Devinder Sharmaji. In a short letter--I couldn't have provided all the details about the functioning the modern industrial economy and banking system. I request interested people to read my blog or can contact me at my twitter handle @prassingh. Lastely Mr. Suran I would love to discuss banking with you. Seems you are a banker. so am I. A discussion on banking will be healthy.