The Interconnective Web of Global Debt

It’s very big:


Andrew Haldane:

Interconnected networks exhibit a knife-edge, or tipping point, property. Within a certain range, connections serve as a shock-absorber. The system acts as a mutual insurance device with disturbances dispersed and dissipated. But beyond a certain range, the system can tip the wrong side of the knife-edge. Interconnections serve as shock-ampli ers, not dampeners, as losses cascade.The system acts not as a mutual insurance device but as a mutual incendiary device.

A mutual incendiary device sounds about right.

55 thoughts on “The Interconnective Web of Global Debt

  1. “Interconnected networks exhibit a knife-edge, or tipping point, property. Within a certain range, connections serve as a shock-absorber. The system acts as a mutual insurance device with disturbances dispersed and dissipated.”

    This has been repeated so many time that people actually believe it. The idea of risk being disseminated [potentially] works well only when the risk is equally spread throughout the community, such as with home or auto insurance, where the value of assets being covered is more or less similar.

    This does not work where the few own all the assets [business] and the risk is spread out to everybody else, which is how it has always been. In other words, if you are attempting to insure US$100B in assets, who can really afford to insure this…nobody, but it is insured by making the entire population liable.

    They do this by increasing premiums, increasing deductibles, etc., just because. “Just because” means that you’re paying for the elite’s insurance, just like you’re paying for everything else they do/have.

    So, insurance is simply another way that the Elite get everybody else to cover their asses.

  2. Full reserve banking would do a lot to improve the shock absorbing or damping characteristics of the system. Reasons are thus.

    Under the existing system when the loans made by any bank or bank like institution (e.g. shadow banks) fall below the value of the holdings of the banks creditors (mainly depositors) then the bank is insolvent. Everyone panics: they make a dash for the exit. Indeed the crunch was very largely a mass exit from the shadow bank sector.

    In contrast, under full reserve, depositors who want their bank to lend their money on, have to carry the loss of those loans go wrong. I.e. depositors become something very near shareholders. So given a recession or similar, all that happens is that depositors’ stake loses value. That’s no different to a stock market set back, and as Mervyn King pointed out, stock market set-backs have nowhere near the same catastrophic consequences as mass bank failures.

    • Are you kidding? Mass bank failures are a blessing.

      You can create and destroy a bank a hundred times over and it means little. This is part of the ruse that these slugs have presented to people, that banks need to be saved. What exactly needs to be saved about them?

      Banking is simply counterfeiting and then charging interest for nothing but keeping the books. What a joke. When and if people ever move beyond banking, they will look back at this era and have a good laugh and wonder how they were able to pull this scam off for so many years.

      • Re “Banking is simply counterfeiting and then charging interest for nothing..”. Agreed. And I’m all for stopping private banks producing money or “counterfeiting”. That’s what full reserve does. I.e. full reserve is a system under which only central banks produce money – though private banks can carry one with most of their other activities like accepting deposits, providing cheque books, plastic cards etc.

        Any sophisticated economy needs a money system, so we can’t totally dispose of banks.

        I don’t agree that “mass bank failures are a blessing”. The result is just chaos, the 1930s all over again, mass unemployment, etc. In fact under full reserve it is virtually impossible for banks to fail. So full reserve brings the best of both worlds: it gets rid of counterfeiting plus it gets rid of mass bank failures which are only averted by plundering ordinary taxpayers on Main Street.

        • I have worked in banking. We started a Bank with a chequebook and an Excel Spreadsheet before our first deposit was recorded on a banking platform system.

          Reputation is everything! This bank struggled to attract successful people, because the parent company was in a country associated with “shady” dealings. The business people did not want their business dealing associated with a Cheque with this name association. It attracted patriotic elderly community members as depositors and borrowers who could not get loans elsewhere. Building the banking book was hard work! We had a very conservative Credit Manager, and to their credit, they lent only to good business. This is how banking used to be. You dealt with a relationship member and real people. There was no internet banking back then. Now banks are machines, call centre, computers lending criteria, with no connection to its depositor (Community) base.

          I agree with Impermanence. Banks who lend neglectfully, and take risks should not be bailed out. The capital adequacy ration is there for a reason. Stockholders bear the loss, not depositors. I read a book about the History of the National Australia Bank, and back then (1800’s) wealthy people got together raised capital and started a bank. The problem was competitors or trouble makers would start rumours and innuendo to cause a bank run. This was not good for depositors and made banking very volatile.

          So I agree with your theory, in that certain levels of depositors bear losses, much like a building society. The higher interest paid comes with risk, i.e. the non performing loan losses are spread over these deposits as a negative interest rate. This protects those who deposit at a low rate, i.e. cover inflation only, and this prevents the Government i.e. the people which includes the poor, bearing the pain, and giving the rich who had enjoyed higher rates (And Shareholders), a free ride.

          With Technology at our finger tips, we can go back to regional banking. For example an Accountants office (Loan Applications) or shopping centre (Cash deposits withdrawals) can be the branch for physical transactions, with the back office covered by internet platforms.

          This brings back community banking, Accountants know their client base (Real Cashflow!) and costs of maintaining a dedicated branch reduced resulting in better efficiency.

        • Even the highest form of banking is NOT good. Nobody should be profiting by creating zero value. Banking destroys [transfers] wealth. Nobody should be taking a cut of anybody else’s labor-value…period. This always leads to wealth consolidation, political corruption and all the rest.

  3. So on Charlie Rose now, even the moderate version of Paul Krugman – Ken Rogoff – admits that “I don’t think we can live in a world where the government does everthing it does today”

  4. I wrote such a logical reply to Frances, she had to delete it, lest she admit she’s an intellectual fraud.

    Frances Coppola22 December 2012 02:05:

    I have asked you to confine yourself to the topic of this post, and I warned you that I would not publish any more off topic comments. The comment you have just made is off topic and therefore deleted.

    In response to Frances saying

    “It is necessary for there to be a group of people whose job it is to make and enforce law. The only law that is created and enforced by individuals is the law of the jungle – or of those abandoning ship: when individualism rules, “every man for himself” is the law. That may be appropriate in an existential crisis, but as a blueprint for a social order it is destructive”

    I wrote

    “The only law that is created and enforced by individuals is the law of the jungle? What have you got against jungles!? But seriously, I doubt you can point to anytime in human history when Law was NOT “created and enforced by individuals” – or can you prove me wrong? It sounds like you think aliens are among us, Frances! And what’s worse, you seem to think that these non human animals are currently responsibly for creating and enforcing laws!”

    I went on, being polite, explaining that:

    The United Street Sellers Republic — the USSR — [would be] the second-largest economy in the world after the United States.”

    But, Frances cannot debate anybody with an ability to outsmart her. She prefers to act in a deceitful and evasive manner in order to ignore the folly of her thinking.


  5. I mentioned, also, that Law & order is a big part of this economic problem, and that corporations frequently include in their contracts provisions for non State arbitration mechanisms – which, as one might obviously expect – is a rapidly growing industry, whom I doubt would enjoy being labelled backwards or ‘not civilised’. Lawyers, in my experience, though ruthless and stubborn, do tend to be polite people.

    • I don’t really have a problem with either yours or Frances’ philosophy.

      I think that it is possible to have multiple jurisdictions, some with more individualist legal philosophies and some with more social-democratic legal philosophies. The world was once very much like that. America was the individualist frontier. Sadly, no more. I think individualist libertarians need to find new frontiers to live out their philosophy.

      • I am selling small patches of land on my Property. Libertarians can do what they want when they pay me.

        If they pay me enough, I can pay the Politicians at the UN to grant the land sovereign status.

        Worked for Kosovo. How many Kingpins greased the Politicians to get support. That place is now the biggest criminal sanctuary in the world.


    See, the Congressman raises some very valid concerns, but these important concerns to reduce violence and increase stability cannot be best be achieved in an environment that is so accepting of “public law”. For example, if suburbs were privatised, when I decided to go somewhere to rent or buy a place to live in – I could choose to live in a gun free zone or an area where guns were permitted.

    I would then sign a contract with the relevant person, or people. It would be like buying a house or apartment is now, or renting is now, however, the owner of the suburb, or the communal board that shared joint liability for the suburb in which I am choosing to live, could, and indeed would be held directly accountable for their actions (or, more precisely, their failure to live up to the details of said contract), if, for example, I had chosen to live in a gun free zone and then I or some of my property was damaged by gun fire, they, the people with whom I voluntarily contracted, would be held financially or even criminally liable for having allowed weapons into an area they assured me through contract would be weapon free. Knowing in advance that such risks exist, the owner or joint/shared liability company overseeing said suburb would, for example, implement various creative ideas to try and ensure that gun free zones are safe, as are many gun free zones at the moment. But their minds would be focused. Safety would improve.

    But, as it now stands, there is nobody accountably to anyone. It is anarchy.

    Frances, without even realising it, is an anarchist.

  7. The 16th Amendment, which established the constitutionality of the federal income tax in 1913, was proposed by a Republican, Senate Finance Committee Chairman Nelson W. Aldrich. But it was decried by another one, Sen. Henry Cabot Lodge of Massachusetts, as “confiscation of property under the guise of taxation” and “a pillage of a class.”


  8. “Any sophisticated economy needs a money system, so we can’t totally dispose of banks.”

    “Sophisticated” meaning that the few get most everything? The more complex the monetary system becomes, the further and further it diverges from the truth; and the truth of the matter is that money is simply an abstraction of labor-value, a mystification that allows theft to take place a thousand different ways.

    Money doesn’t work, not because of its inherent limitations, but instead, because human beings will find a way to get something for nothing out of it, if that way exists.

    • In response to my comment and your reply regarding banking taking labour value, how do you reconcile the compensation of people providing a service where excess labour value accumulated (savings) is compensated by on lending to others who have not accumulated a labour value surplus?

      We need the facilitation, but we need to make the system more efficient. We can do it today with our technology. High paid bankers are a thing of the past now.

      • If you accumulate excess labor-value, bully for you. Why are you assuming that people need to start-out by going into debt? This is not such a great way to start-out. How about saving first, then investing your savings in [whatever].

        As soon as you begin the cycle of debt, the Devil shows-up, makes His deals with the creditors, and Hell on Earth ensues.

        • Is that why Marx was an alcoholic who had a patron Her Engels I believe. I bet if he worked and saved he would have had a different outlook. I am against the 1 percent of wealth just as much as I am against the 1 percent of loafers free loaders and parasites.

          Sometimes you have to pay an interest penalty if you want the goodies now.

        • Although I have no knowledge as to why Marx was an alcoholic, I am not sure what this has to do with this topic.

      • Money is not an extraction of labor value. That doesn’t even make sense. Even to Marx, money was a commodity that can be exchanged for all other commodities. Thus, because of its simplicity it became money. Money is not sophisticated. It is simplifying human transactions. So he has no clue what this surplus labor value is…

        The concept of labor value isn’t even universally accepted. Marx himself never used the term labor value. He defined value according to use and exchange. It was really Ricardo who was gunho about labor value and even admitted there were “exceptions” that do not adhere to it. No one really follows the idea of labor value, except the misinformed.

        For example, if i found a one of a kind super energy supply in my back yard, the labor of extracting it would be 0, but its value would be astronomical.

        A little knowledge is a dangerous thing

        • I do recall that Marx stated in Das Capital that all commodities value are a function of labour value with money in terms of gold being a universal store of labour value. Since Mises lead a more virtuous life and did not use convuluted theories that can only come from the mind of an alcoholic I don’t consider Marx’s ideas worthy of further study. Today’s pain and suffering is because politicians have followed the ideas of a diseased mind.

          Material wealth i.e GDP only happens if people get off their backside. Taxing and redistributing is insanity.

        • He refers to labor time in Das Kapital. Nothing about labor value. And gold is never mentioned as a universal store of value.

        • You may be thinking of profit or surplus value that he believes results in the exploitation of labor by capitalist. But that is rather complicated and quite different from his theory of money and value.

        • “Money is not an extraction of labor value.”

          You are correct, 3b, money is an ABstraction of labor-value.

          “That doesn’t even make sense. Even to Marx, money was a commodity that can be exchanged for all other commodities. Thus, because of its simplicity it became money. Money is not sophisticated. It is simplifying human transactions. So he has no clue what this surplus labor value is…”

          Even Marx? 🙂 Money, like all things can be defined differently depending on the context used. I used the term, “sophisticated,” to indicate that it represented an abstracted value, that is, it has moved beyond its original meaning.

          “The concept of labor value isn’t even universally accepted. Marx himself never used the term labor value. He defined value according to use and exchange. It was really Ricardo who was gunho about labor value and even admitted there were “exceptions” that do not adhere to it. No one really follows the idea of labor value, except the misinformed.”

          I am using it in its common reference, to represent the money-value of labor contained per unit time.

          “For example, if i found a one of a kind super energy supply in my back yard, the labor of extracting it would be 0, but its value would be astronomical.”

          And that’s exactly what it is, all all matter is energy. The value of EXtracting this energy is only relative to your energy needs at a particular time/spacial reference.

          “A little knowledge is a dangerous thing.”

          It’s not that knowledge is dangerous, what causes the difficulty is in the mis-understanding of its relative nature.

        • Whilst the English translation was very poor in the sense it was literal I do get the impression that what was being promoted that all value is a manifestation of the value of labour going into the production of commodities. By underpaying labour you can extract profit. We all found our own food, made our own clothes and shelter once, then made spears and other possessions. Eventually others found a way to trick others out of their labour value. Everything can be explained by going back to basics.

  9. The German Ron Paul… “people are betting on the bailout model”

    Meanwhile, the Dirndl industry is booming…Merry Christmas Az & All! Happy NY

    • The German Ron Paul was an excellent video. Thanks. I shake my head when I hear an interview with such a lucid and calm response to the crisis. The biggest think I take from this is the Politicians who incurred the national debt, should be jailed, as it was clearly a breach of EU law. Greece had a specific responsibility to balance the Budget and cooking the books to gain membership is criminality. I don’t know how the German working class puts up with it. They must be brainwashed by their media too.

      The whole situation in the EU is so laughable I think I am going to cry.

      The bailouts of these lenders and politicians who facilitated the racking up of debt, is criminality and the biggest transfer of wealth from the Germans in history.

      • Perhaps if nothing else comes out of this crisis [the last 100 years], it will be people seeing the law for what it really is, another lofty ideal that can never be lived up to.

        The Elite use the law to tie strip-mine the rest, using their connections, exemptions, permutations, and salutations to wiggle, squirm, and blast through the impervious barriers that laws actualize for the masses.

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