God's Golden Hoard

Discoveries in an Indian temple confirm that religion can be a very effective wealth creation scheme

"If you want to get rich," advised L. Ron Hubbard, "start a religion". Today's news from Kerala, that archaeologists investigating the long-neglected vaults of the Thiruvananthapuram temple have unearthed treasures worth up to £12 billion, suggests that his maxim wasn't simply a reflection of 20th century cynicism. God has long been where the money is.

The Indian temple's treasuries haven't yet been fully explored, but already they have yielded up tons of gold coins, sacks overpouring with diamonds and rubies, and spectacular individual items including a six-metre long necklace. Kerala chief secretary K Jayakumar estimated the total value at 500 billion rupees (around £7 billion); while other sources put it at more than $23 billion. No-one really knows, of course, and such figures are highly speculative. But it's certainly an awful lot.

The treasure represents the accumulation of centuries. The temple dates back to at least the 8th century and for many years was under the protection of the royal dynasty of Travancore. Its position at the hub of trade routes helped it grow rich with the offerings of passing merchants and wealthy pilgrims. Much of the wealth, though, seems to have been locked away and forgotten about until a recent decision of the Indian Supreme Court ordered the contents to be itemised and secured.

Though the quoted sums may equal the entire Indian education budget, there seems little prospect of a sell-off. This is sacred treasure, after all, not just loot. The hoard may make the temple of Thiruvananthapuram officially the country's richest, but there are several others whose wealth is known to run into billions of dollars and many more whose precise holdings remain unclear.

It has also just been revealed that the guru Sai Baba -- best known for his Afro hairstyle and for performing a conjuring trick with "sacred ash" -- left behind property worth around £5.5bn when he died in April. The world's richest Christian pastor, by contrast -- Nigeria's Bishop David Oyedepo -- has to make do with a paltry $150 million, although that is enough to keep him in four private jets as well as homes in London and the United States.

In scenes strangely similar to those in Kerala, officials at Sai Baba's ashram recently decided to investigate the guru's private chambers, previously off-limits to everyone bar himself and a single assistant who alone understood the security. They found treasures of £1.6 million in rupees and 98 kilos in gold, worth almost £3 million at today's prices. But that represented only a small part of his accumulated wealth from what Gethin Chamberlain tartly described as "a lifetime of claiming to be the incarnation of God."

But why single out India? We may be accustomed to drawing a sharp distinction between things spiritual and temporal, between filthy lucre and religious transcendence, but for long as temples have existed they have proved effective as money magnets. Some economic historians argue that organised religion began as a mechanism for collecting and redistributing resources. The gods, like middlemen everywhere, would have taken their cut.

Jesus may have told the rich young man to sell all he had and give it to the poor, but the Christian churches have rarely applied that stricture to themselves. Instead, the wealthy were encouraged to ease their passage through the eye of the needle by giving (or at least leaving) their money to God. It was an offer many kings, aristocrats and bankers felt unable to refuse. Some of the results are currently on show at the British Museum's aptly titled Treasures of Heaven exhibition. Featured are bejewelled boxes, golden crosses, gilded disembodied limbs and other striking pieces of medieval bling, all designed to contain the saintly bones and other relics that for centuries formed a vital element in popular and elite religion.

As Martina Bagnoli points out in one of the essays in the catalogue accompanying the show, the precious reliquaries were not simply containers of spiritual treasures whose value was unquantifiable, they were also ways of storing up material wealth. In Mainz, a solid gold cross weighing 600lb was made in 983. Bits of it were chopped off and melted down during various emergencies over the following two centuries. By 1161 there was nothing left.

But other sacred treasures have been better preserved, and while no-one has (so far as I know) tried to put a value on every cathedral, artwork, statue and piece of real estate owned by the various parts of the Roman Catholic Church it would surely dwarf even that of the Thiruvananthapuram temple. Or, for that matter, the estimated $30 billion assets of the Utah-based Mormon Church. An even bigger -- and probably impossible -- job would be to establish what proportion of the world's tangible wealth is held by religious organisations of every kind.

After all, it pays to invest for the long term. And you can't get much longer-term than eternity.

Belief, disbelief and beyond belief
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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?