Written by Davian Views

 

[…continued from Part 1 published here yesterday]

 

Economic Transitions

Enterprise is the first phase, and as an example, lets us pretend that you have just invented an artificial leg. Useful if you lose one in an accident. So you start a company that makes prosthetic legs, they prove popular and your company starts to grow.

Benterprise. As you start making money, you attract all sorts of people who want to help you make your business grow, they know how to do this, because you are not a businessman. They say that businesses sell solutions to problems.  Create more problems, you sell more solutions. Acting on their advice you buy “Hoppit and Limp Company“, purveyors of landmines to the gentry since 1912 and connected to all the right ordinance buyers. The business grows rapidly getting cash for landmines and prosthetic legs.

Kinkerprise.Flush with their fees and your success, these helpful people explain that for stable long term growth you need a third revenue stream. They have been busy doing “Blue Sky thinking” and think that a landmine clearance venture will be profitable giving  PR boost to your image. “First Step plc” promotes itself as being the vanguard of re-establishing productive farmland in war zones. The masterstroke is the setting up of the charity “Step Up” which raises the funds, by donations and government grants to pay “First Step plc” to clear the mines and fund the training of one legged mine clearers, so that they can once again be productive members of their society.

Cruncherprise.You are now in a position, to afford a peerage, thanks to your lifelong devotion to the Legless. Then some bright spark works out that there are now more legless people than there would have been, had you not done what you did. You are now the Emperor with no clothes!

Back to Square One

The occurrence of Cruncherprise creates space, owing to the implosion of the enterprise or economy, for Enterprise to start again. The trick to creating sustainable enterprise is to create the conditions that favour Enterprise rather than the three following stages of Benterprise, Kinkerprise and Cruncherprise. 

History shows that whatever kind of currency is used, the secret of sustainable enterprise is an open, fair and trusted structure that has the understanding and support of the majority of participants. However, as soon as making money is perceived as more desirable than creating wealth, Enterprise gives up the reins and Benterprise takes over and the cycle begins again.

It is worth making this point again in a slightly different way. Trust is the essential ingredient of Low Finance and confidence is the essential ingredient of High Finance. Low finance is characterised by simple transactions, such as buying some pork chops from the butcher. You can see him and the meat, he can see you and the money. High Finance is characterised by more complex transactions, such as you deposit some money in a bank, the bank lends your money to someone you don’t know. This requires you to have confidence that the bank won’t lend your money to someone who can’t pay it back. The difference between Trust and Confidence is basically Distance. 

Penny wise pound foolish

Now we know, because actions speak louder than words, that when faced with the choice of lower interest rates to protect the vested interest of a few banks who made some silly mistakes, the entire wealth of the West will be sacrificed on an inflationary pyre. Because that single move set us rolling along a downhill slope with no brakes or steering. Western currencies will now come under sustained pressure, because they will now be perceived as poor stores of value. Rather than take the medicine of higher interest rates, we have chosen the Cocaine of lower interest rates. No turning back now, the die has been cast, and the old adage once bitten twice shy comes into force, now that trust has been irrevocably broken.

We in the West have not had a currency collapse within the living memory of most people. The pound has fluctuated between parity and 2.80 USDollar, and there has been the occasional Sterling crisis, but nothing close to a currency collapse. The first indication that Mugabenomics was the new religion of the banking fraternity came in July when Bear Sterns had problems with its hedge funds. A little time later the banks decided that they could not trust each other and liquidity dried up. This prompted the central banks to step in and start lending your money to the banks that would not do what banks are supposed to do, i.e. lend money!

[Continued in tomorrow’s final Part 3]

 

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