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Financial myths and Socionomics

Often we hear on the news how the big institutions like the European Central Bank, Federal Reserve and so on are making reforms and changing the market so the economy could get healthier and boost its growth. According to the world’s conspiracy theories, the world’s biggest families like the Rothschild, Rockefeller and Morgan or Illuminati groups such as the Bilderbergs are “stealing” from the lower and middle class by controlling the banks, the media and almost everything. They decide to push the world into economic depression or war just for the profit of it. People still believe these fairy-tales, so this article has its mission to clear up some financial myths. We are going to take a short journey and examine some examples from the past to defend our hypothesis.
If banks control the world why do they fail? Since the crash of 2008 many of the biggest investment and commercial banks have defaulted and some of them were bailed out by the taxpayers.

Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth-largest investment bank in the US (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch), doing business in investment banking, equity and fixed-income sales and trading (especially U.S. Treasury securities), research, investment management, private equity, and private banking.
Yes, you can say they failed, because they had known they will be bailed out, but that is not the case. Worldwide banks had failed and very few of them were bailed out not all of them. This is a very short-minded plan. Bankruptcies were worldwide and produced a domino effect. No one is big enough to control the market and the world respectively, not any family, not any financial or political institution.
Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. Freddie Mac was created in 1970. They are government-sponsored enterprises (GSE). They buy mortgages on the secondary market, pool them, and sell them as a mortgage-backed security to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases.
In July 2008 the US Treasury Department and the Federal Reserve took steps to boost confidence in the corporations, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSE’s stock. Despite these efforts, by August 2008, shares of both Fannie Mae and Freddie Mac had tumbled more than 90% from their one-year prior levels – clear evidence that institutions can not manipulate interest rates. They can only follow the market, when making their financial decisions. Check the link above to see how the FED responds and changes its rate in relation to the bond market.

Recommended reading: Is the FED controlling interest rates?

In the past few years many documentaries claim the credit rate, which banks charge us, can not be repaid, because it does not exist and that is why firms, ordinary families and countries fail. This is half-way true. If we take a look back to the 18th century, we will find a theory called physiocracy, developed by a french group of economists. They state, that soil is the only asset, which gives added value and any activity not using it is unproductive. So in terms of money lending, banks should lend to corporations involved in production. The expansion of credit to everything else can be classified as bad credit (tuition loans, mortgage loans, cell phone loans, loans for buying a second-hand product and so on). It is not right to spend money you do not have on something, you can not afford. People today are borrowing their future, which brings us to our next point – inflation. This money borrowing leads credit inflation and inflation is often called the hidden tax for taxpayers. Again, that is half truth, because inflation is a better path than deflation. Many of the worst crisis are deflationary (e.g. The Great Depression). What causes inflation and deflation? Social mood.

Social mood is what drives the financial markets and in an uptrend move inflation is inevitable, because inflation does not definitely mean higher prices, but definitely means increasing the money supply in relation to the amount of goods and services. Uptrend means progress in the economic life of a country and inflation goes hand by hand with it.

Last but not least the gold standard. Today there are no countries, using gold to back up their currency. Most people will tell you that since the standard is down, inflation has been taking over and it is been the hidden tax, robbing the ordinary person. Partially yes, but no one has been giving a thought about the standard’s disadvantages. It is absolutely normal to see higher prices of goods and services in a productive economy. There is no way the volume of goods and services will grow without a rising money supply. This has happened through history and the result is deflation. And as we said, deflation is more devastating than inflation. How about countries, which cannot expand their money supply through gold mining? If you live in a country, which imports goods and services, the gold reserves will slowly melt down and deflation will reign. The gold standard has many disadvantages, but in return it offers only price stability and low inflation and inflation is needed if we want economic growth and prosperity, there must be a balance between the money supply and the volume of goods and services. The biggest gold fields are in Australia, Russia, China, US and South Africa. This somehow limits the economic growth of other countries, which are stuck with no net progress, unless they increase their gold supply by taking credit from the gold exporting countries. Let’s not forget that during the gold standard, the yellow metal had its price fixed. Now gold is not a currency, it is a commodity.
As we mentioned above social mood is behind market trends and not only. Socionomics is the only science, which explains how different actions are taken through different types of mass psychology.

Actions taken by politicians, countries and institutions depend on the overall social mood. If social mood is negative the possibility of a negative conflict like war, protests, epidemics and other is very real. Socionomics has forecasting value and it shows us what kind of actions are taken relative to the combined social mood, which is reflected in the financial markets.
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If you want to know more about Socionomics, how trends are formed in fashion, music, movies, sports, check our Socionomics category.



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