How close are we to the Systemic collapse of the Global Financial System?

MeltdownHow close are we to the Systemic collapse of the global financial system?

Oil is the fuel on which the Global

Economy runs and credit is the grease

Exponential growth of World population and economy coincided with the Start of the use of fossil fuels and fractional reserve banking

The hydra with five heads

Debt Mountain

Peak oil

Population growth

Climate change

Pension time bomb

The hydra with five heads

Head IGlobal Debt

Mountain

The Debt Mountain

Someday soon all this will be yours

Post War Economies Government debt high Government benefits paid out comparatively small 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

US

WE DON’T SPANK THEM

ANYMORE. WE JUST TELL THEM HOW MUCH THEY OWE TO THE

NATIONAL DEBT

Bottom Line….Who has caused the National debt mountains

Promises made by politicians over the past century pledging unsustainable future benefits to be paid by later generations.

The willing cooperation of the Banking Sector to fund these promises, using Fractional Reserve Banking and electronic fiat currency, incentivised by short term bonus structure

What causes financial crisesSome inter-related oft-quoted systemic

causes…… Easy credit, causing credit bubble Low interest rates Asset bubbles Weak and fraudulent underwriting Predatory lending Deregulation And…………..

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……

What causes financial crisesSome 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

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

The importance of money

Money is the foundation of the economy and society

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

Napoleon Bonaparte

Quotes about Bankers and BanksHenry 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." -

Who creates Money

Coins and Bank notes are produced by the Central Banks

These account for 3% of the total money supply . Where is the rest of the 97%?

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

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”

Fractional Reserve Banking

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.

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 or written off, money is destroyed

Interest must be paid with more $’s, ie more debt

Fiat Money is Debt

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

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)

Quotes about Bankers and BanksSir 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.”

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

Derivatives are Weapons of Mass Destruction

Trans-national play of derivatives is US$ 1.4 Quadrillion

Global size of the derivatives bubble is US$ 206k per person-on-planet.

The relative scale of the world's financial engine

1. The entire GDP of the US is about USD 14 trillion and falling.

2. The entire US money supply is also about USD 14 trillion with rising Quantitative Easing in trillions.

3. The GDP of the entire world is USD 45 trillion and falling. USD 1,4 trillion is 31 times world GDP.

4. The real estate of the entire world is valued at about USD 65 trillion.

5. The world stock and bond markets are valued at about USD 70 trillion.

6. The trans-national universal model financial institutions own about USD 150 trillion in derivatives.

7. The population of the whole planet is 6.8 billion people. So the derivatives market represents about USD 206,000 per person on the planet.

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

The hydra with five heads

Head 2Population growth

In 1950, the World

population was 2 billion

There are now 6.5 billion

(6,500,000,000) people in the World, all becoming more and more addicted

to oil

World PopulationEvery second, 7 babies are born, 4 people

die, 3 extra humans in the WorldEvery day, there are 250,000 extra humans in the WorldThat’s the population of New York every month

70 million every year

The hydra with five heads

Head 3Pension time bomb

Growing population of baby boomers, born between 1946 and 1964

Over 23% of Florida’s Population is over 60

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.

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

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

Kenneth Boulding, economist 

The hydra with five heads

Peak oil

Climate change

Heads 4 & 5

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

World population growth

China's oil consumption is expected to grow by 7.5% per year for the next 20 years

Climate change

4 fold

Is the Financial Crisis over?

Why will the 2 epicentres of collapse probably be USA or Eurozone

US economy represents 25% of global economyEuropean Union also represents 25%

Baltic dry index

This index indicates that global shipping is now one sixth of what it was in 2008

Ongoing US Financial crises

1. The mortgage debt crisis2. The sovereign debt crisis3. The bank failure crisis4. The city and state debt crisis5. Dependency on foreign oil imports

Much of Old World infrastructure predates the invention of the internal combustion

engine. Communities were connected by walking and riding horses. Here is a typical

English village as it is today

Playing field

Most of New World infrastructure has been built after the invention of the internal

combustion engine with cheap oil

You can’t go anywhere in the States, or Canada, or Australia, or New Zealand without a car

The US Housing MarketThe world’s largest single asset class in value is in deep trouble

The price of crude oil

What is a Financial Crisis?

Levels of severity of financial crises

Bursting of asset bubbles such as property, stock markets, commodity prices

Collapse of large financial institutionsCollapse of shadow banking system (investment

banks and hedge funds)Sovereign debt defaultsCurrency crisesCredit crunchMajor Bank bankruptcy

Series of minor Bank runs

All of the above, cause loss of paper wealth but real economy may continue. The next crisis is potentially catastrophic

Systemic collapse of Global financial system

Some things that may happen in a Financial Systemic collapse of a stable State

to a failed State Internet outages Schools and universities closed Suspension of full banking activity for days Nationalisation of banks No or limited withdrawals from cash machines Credit/debit cards won’t work Petrol stations running out of fuel Mass disorder, panic, riots Martial law imposed, curfews Rise in popularity of extreme political parties Total collapse of old order followed by a command

economy and loss of personal freedom Near-total unravelling of the socio-political order. Local Resource wars Generational conflict

We have to learn to do 4 things fast Learn to live without fossil fuels Adapt to the end of economic growth as

we have known it Support 7 billion human beings and

stabilize the population at a sustainable level

Deal with our legacy of environmental destruction

Is this going to happen?

How can we prevent another crisis in the future?

Abolish fractional reserve banking

or something completely different….

The State and corporate cartels have every incentive to maintain the status quo at all costs , so change will probably come from unconventional innovations

Unless the global banking system is radically changed, then the global crises we are

all facing will never be overcome

The End