Thursday, 9 October 2008

Meltdown and immigration

Interesting comment to the preceding post:



Not directly linked to this post but I've been thinking about this banking crisis and immigration. Now that we're in trouble, the idea of cheap labour to fuel the economy has become the expensive burdon on our budget in a time for counting the pennies.I think the banks need to change from national entities to international entities.



This would help stop economic migration from Africa, Islamic States etc.Banks discriminate between who they lend money to based on risk assessment. Government in recent years have tried to force banks to ignore certain requirements for high risk categories e.g. in the US where legislation aimed at banks providing finance to black citizens from a certain income level who were being discriminated against.



Risk assessment is great but I think it is flawed because the banks fail to look at their operations from a holistic view and focus on their confined national operations.Majority of immigrants to the US and Europe are migrating for economic purposes. They come to earn money in a strong, stable currency which can allow them to buy nice things & have a better life. I think the problem is that they are still economic mules but not in a legal or moral sense.



This means they do the undesirable jobs but now their presence has more of an ability to impact on society.A strong economy needs raw materials e.g. copper to grow. Most of the superpowers do not have sufficient raw materials to supply their demands. African immigrants come from countries rich in raw materials. We need to form a relationship whereby they are dependent on the US or Europe's financial system and can thus provide their raw materials quid quo pro.



THE POINT:



With investments a key principle for stability is the idea of keeping a diversified portfolio. We don't like economic migrants but they will come as long as our continent has and their continent has not. Banks should therefore loan to people outside of its country of registration - to diversify their debt portfolio.



The account and interest payments will all be based in say Ireland or UK and denominated in European currency but they get sent a credit card to give them a reliable/stable source of finance.Banks are xenophobic and won't give credit to people on other continents who are ALL classified as risky. They should form relationships with banks in Nigeria, Kenya, Uganda, Sierra Leone, Ghana, Mozambique, Malawi, South Africa, Zimbabwe, Zambia as well as certain distant Asian communities and start to discriminate between risky and non-risky borrowers on a more magnified basis.



Some members of society in those countries are incredibly low risk, hold stable jobs and lives - why ignore the potential return from them based on geography?That would prevent the need for economic migrants to come to UK, it would satisify our need for raw materials. This idea has the additional benefit of potentially preventing banking crisises because a recession in Europe doesn't mean e.g. South Africans will struggle to make thier interest payments.



It will reduce the risk of banks struggling with cash flows and liquidity in times of recession.Banks have recently been riding a wave and lending without recourse or thinking about failure nationally. As long as times are good they ignore the possibility and risk of failure - now look at us! The idea behind their excessive lending is that it is viable as long as economic activity is festering.



In simple countries, you are paid your salary and there is a relatively limited amount of areas you can spend it on and in these countries banks are not heavily leveraged. In the complex countries (esp. US) you have a huge variety of businesses e.g. cheerleading is a multi-million dollar busines, you can make millions off selling buttons. There are huge potential profits for any seemingly random business.



There are more people and more businesses for expenditure to filter through until someone's initial salary is finally completely returned to the bank. So the multiplier effect from economic activity allows many more people to make interest payments for their debt and, therefore, creating the opportunity for banks to lend LOADS of money.



People will borrow up until the point they struggle to make the interest payment, capital repayment is not in their mind. More businesses, more income - MORE LOANS. So when there is a recession and economic activity dies down you have people who cannot handle their obligations.Now providing credit to countries where immigrants come from will encourage economic activity in their countries.



It will make their currency more stable and more businesses will offer more services and goods with the aim of securing a portion of their credit money. It will provide them finance to start up their businesses. This will convince them to stay in their country of origin. The return will convince us to keep lending. Essentially creating a new form of economic mule without the disadvantage of the mule living in your house, sort of speak.I really think this idea would work best in Ireland.



I think Ireland should focus on transforming their economy into a hugely financial-orientated / exclusive financial hub type environment.Some of the banks in UK started this on a relatively small scale - basing their business on maximizing value and making loans to African/Asian individuals who held decent profiles. Surprise, surprise they have come out of this crisis less battered than the others.



What do you think? European credit for the masses or not?

5 comments:

Anonymous said...

Interesting indeed. I can't see this idea being of much benefit to immigrants though, it seems to have a scent of snide capitalism about it. I suppose it would be no different to the China's approach to Africa - strictly professional colonies without the backflow of immigrants.

Infact, by taking European deposits and sending them outside the continent: Yes, you reduce risk for economic financial distress but you are removing capital and finance for potential European entrepreneurs. The only people that would benefit from the above idea would be the bank's shareholders themselves because inevitably you could get a higher return for the loans in countries with unstable currencies. The idea might work if banks are nationalised; then it could effectively be a form of tax on foreigners. Mwaahahaa...pure evil.

Anonymous said...

Anonumous - true enough, but we gotta do some bloody thing.

Anonymous said...

Savant....am I being TOTALLY naive,or is the root cause of our recession/depression lying within our national and our global monetary system ?

I say this,because money is being "lent" into the economy and not "spent" into the economy.

Do you disagree with the above and the following statements listed hereunder,and, if you do disagree, please would you list your thoughts as to a viable and equitable,alternative monetary system...thanks... The CapeTownCynic.

PROBLEMS WITH CONVENTIONAL MONEY.

1) It is partisan.

i.e Money as we know it is not a neutral service provided by the government. Our money supply is created by private financial institutions on a for-profit basis. This money system is designed to benefit those who provide it, not those who use it.

2) It is based on debt.

i.e Money is created when banks grant loans. Thus for every unit created there is one unit of debt.
We are encouraged to think of it as a 'thing'
Money is essentially information and has no physical existence yet banks encourage us to think of it as a 'thing' so that they can 'lend' it to us and thereby make a profit by charging interest. 'Thing' money also has to be created, distributed and controlled so that there is not too much of it. It can also be stolen, lost, bought, sold and counterfeited, with serious consequences for everyone.

3) It is permanently scarce.

i.e The money to pay the interest on debt-money is never created and thus never printed. There is therefore a permanent shortfall of money to pay back both the principal and the interest.

4) It causes cancerous growth.

i.e Banks continuously need to create more money than is required to pay back their loans so that borrowers can pay back the interest on those loans. This is the source of the growth imperative of our economics. There must be a continual expansion of bank credit or else the economy goes into recession. Systemic growth leads to the environmental problems we now all face.

5) Its value is based on its shortage.

i.e The shortfall of money keeps it valuable. There only needs to be enough of it to buy back the goods and services available. This has nothing to do with the monetary requirements of people. Those who have none are not seen by the market and so are marginalised.

6) It is expensive.

i.e Every unit of conventional money is based on a unit of debt. This debt has to be paid back with interest, and the interest on the interest is compounding. Interest is built into the prices of everything we buy, resulting in higher consumer prices.

7) It redistributes wealth from the poor to the wealthy.

i.e Usury is the tool used by the wealthy to suck wealth from the poor and middle classes to the moneyed class. Parasitism and antagonistic social classes are the product of this.

8) It promotes dishonesty and corruption.

i.e You can "get" money without delivering anything of value (e.g. speculation, interest, gambling etc.) so people concentrate on 'making money' rather than producing/delivering anything of real value. It is usually far easier to get money through dishonest means than by honest work. When you have no money you have no choice but to try and get it dishonestly.

9) It leaks away from where it is created.

i.e Conventional money knows no bounds and loyalty. It always leaks away to the 'money centres' (financial centres, big businesses, etc.)
It destroys local economies
Goods produced cheaper elsewhere replace locally produced goods. This creates a local shortage of money and reduces the market for local sellers. This also results in the irrational transportation of goods all over the world, consuming precious fossil fuels and creating pollution.
It fosters competitiveness
The shortage of money means we all have to fight for a share of an amount that is too small to go around. The need to repay interest means that we have to eat others to prevent ourselves from going under.

10) It creates poverty.

i.e While it makes some super rich, it makes most people poor. Poverty is caused by a lack of money (not by a lack of jobs). Usury and the need to keep money scarce ensure that money constantly moves to those who already have money.
It causes social and cultural degradation
The elimination of local opportunities to exchange and relate to one another focuses attention on ways of getting money outside the community. Communities fall apart as they become indebted to entities outside their communities.

Joe O'Neill said...

In my humble opinion, poverty has a multitude of causes ranging from :-
1)lack of willingness to work hard.
2)Laziness.
3)So called "need" for non necessities such as holidays,sattelite TV,cell-phones,designer clothes Etc.
4)Too many children.
5)Too high expectations
6)Population growth.
7)Crime.
8)Excessive and easy credit ( mind you without credit there would be a huge shrinkage in demand ).The live now pay later concept of hire purchase which was invented by the inventor of the Singer sewing machine certainly stimulated a huge increase in wealth and jobs.
In general it is not easy to do anything in the 21st century in isolation, because as soon as one country solves it's problems it will become a magnet for the poor from another country.Hence all of the immigration from the South to the North.Countries could form alliances to protect their differences, however because of pressure on resources this will inevitably lead to conflict therefore internation resolution of nearly all issues is required much as that sticks in my craw.One saving grace is that there will be a breakthrough and the use of natural forces to generate electricity will bring huge relief to all but the oil producing nations.

SAVANT said...

Capetwon Cynic - i think I need your advice rather than you mine!

I agree basically with your position. However, the fact is that lending money is vital for ecomomic growth. Now you can most certainly make the point that growth is not necessarily good, but without a sophisticated lending system you'll have a very 'backward' country.

Nobody likes the lenders, but still people are prepared to go to them so in effect they are creating value. The value being defined as increasing the velocity of money.

They also take a risk with theor money - although as we've seen, it's more often our money.

In all I'd say a necessary eveil.