This is a 'Dynamic' Article and to follow it download the spreadsheet on the link below and run the Scenarios and create new ones yourself. There are macros in the file but they are not protected so you can check yourself to see that the code is clean and safe to run.

Follow the links to find the spreadsheet: financial_scenarios.xls  What does the Spreadsheet show ? It shows we are in a lot of 'financial' trouble - a lot bigger than is presently thought. It shows that we are not necessarily in any sort of trouble at all in terms of production and of 'real stuff' but because we have financial system that is out of date we are heading for a really big mess.

How to Use the Financial Scenarios.xls Spreadsheet : How to use a Scenario that already exists (you can add your own) : In the Drop down in cell A10 choose a Named Scenario. Click the Load Scenario button to load it into the Green area : Row 12 and below. To run the whole Scenario through once Click the ‘Run Full Storyline' Button and observe the results. The whole point of the programme is to enable you to see various different Scenarios and how they work from year to year. The trick is to continue to click the Run Full Storyline Button so that you can see what looks like a good idea for an economy for one year will, from year to year, if repeated, cause huge problems. To understand what happens at a particular 'story line' in a scenario, click the Run storyline step on active row button. The Sheet "Quadruple_Entry" shows what rows will be effected by a particular transaction - all companies  use "Double Entry" bookkeeping - and because there are two parties to every transaction - and this programme looks at the financial effect on the whole economy - it uses Quadruple entry. (Note - Individuals don't produce their own profit and loss accounts, but I've done the Double Entry accounting here as if they did so that if an individual has a house for £10 - they will have a credit in their Long Term Credits/Wealth of -£10) Profit and Depreciation : Profit is mark up on Cost of Stock - I've got 10% in cell F13 for starters - if you lower it, it will not ‘fix' your problem but it will delay the day of Doom. In the model Stock is sold at Cost of Stock - in Column E - the mark up is added on automatically for you. Depreciation is calculated on a declining balance basis - for simplicity - rate is in G13. It is calculated if Business has any Fixed assets at the start of a full Run through. I've got 2 Banks Bank A and Bank B just to show that ‘inter bank' trading does not affect the result and the interest rate is Zero! Just to show it's not the ‘Evils of Usury' that cause the problems. I've Got One Business - Business' to represent the net sum of All Business and One Worker/Consumer - being the recipient of wages and dividends that are then spent or saved. The Problem : Proposition : There is a fundamental problem with the financial system we are using - there are not enough numbers. It is a bit like the child's game Musical Chairs - As there are more children than chairs on anyone go, no matter how hard the children run and concentrate someone will always lose - they can all run as fast Olympic athletes - they can concentrate on the music as much as a concert conductor - and from the perspective of the individual player the better the running and the better the concentration the more likely he is to win - but from an overall perspective doom is inevitable for someone. As you'll see from below the economy - thanks to the financial system - works the same.

Pre-Loaded Scenarios and their problems :

Primative_Culture - "Make Stock - Sell Stock" - Select the Primative_Culture  Scenario from Cell A10 and Click the Load Scenario button. As you can see after one iteration - as Business has paid out 100 to make the stock - and wants more back than it paid out so the workers can only afford to buy £90.91 of stock at cost (90.91 + 10% = 100) - which leaves Business with Stock nobody can afford to buy Cost Price £9.09 (+10% = £10). "OK says the Business manger - I'll try again" - Click the Run full StoryLine button a few times to see where he is headed - no matter how hard he tries - He can't sell all his stock - In a very primitive culture this won't matter if he can consume or barter the last of his stock away and hence consume it himself.

Industrial_Revolution -Arrival of Machines... Fixed Assets. Select the Industrial_Revolution Scenario from Cell A10 and Click the Load Scenario button. This Scenario uses loans from two banks for no particular reason at all apart from to show that the number of banks used is irrelevant to the problem at a hand. 330 is loaned out and 300 is spent to make stock. The other 30 is paid out to make Fixed assets - Machines Buildings... This puts 330 in the pockets of the consumers which enables them to buy the stock for 300 + 10% Profit = 330.After one run through the situation is Economic Heaven - The Workers have been well paid and have been able to clear the shops of goods, Business has, for the first time in History, has been able to make a profit and sell all the goods it made. The Banks have been paid their loans and no one is in debt!  - Instead of having £30 of rotting unsold stock the business now has £30 of fixed assets with which to make more and better goods in the future. The only dark cloud is that "I'm in business to make money"... yet the business has no money! Not to worry, what a good start to the Industrial revolution! You can hear the cheers "Progress ! Science ! Finance, Industry and the Workers in Harmony !" Now Click the Run Full StoryLine Button again... Problems begin to occur at once : A little consumer debt creeps in as Mrs Jones opens an account at the Grocers instead of paying cash as due to depreciation charges from last year's fixed assets coming into this year's costs and Business maintaining its 10% Margin on Costs of Sale the price of goods has risen (i.e. the total sale price of all the goods on sale to consumers - not necessarily the price per item i.e. inflation). The £330 paid out this year will not buy all the goods in the shops like it did last year. As well as consumer debt starting to rise there is a little bit of stock left in the warehouse - but not to worry it's only small compared to the profit's made - Only 2 % as  a percentage of Fixed Assets. Click the Run Full StoryLine Button several times : After 10 years of people trying to do the same thing the unsold stock is now 25% the value of the Fixed Assets. After 20 Years it's over half. And 33 years after the golden and promising dawn (using the figures I'm using) Business has to put up with his granddad moaning "We had the same problem years ago - no matter how hard people worked there was never enough money to buy all the stock - we just threw it away most of the time - I mean how many coconuts can you eat ?". In the above I've let the ‘problem' fall on the rising ‘un-sellable' stock. But the problem could have landed elsewhere - Consumers could have gone into more personal debt to pay for the goods, the government could have gone into debt to pay for something or other : a navy, roads... What I'm showing is that what looks good for one year or two, after repeating it for several years problems occur - problems which are independent of the quality of production, the desirability of the produce, bank interest, morality, lazy workers, evil capitalists, the wrath of God, the weather, wars floods, plague, pestilence, Sun spots ... the point is ‘the numbers' just do not add up in a way that that would allow for a settled existence.

Export_Economy Scenario : - The Days of Empire... Fixed Assets - Select the Export_Economy Scenario from the drop down in Cell A10 and Click the Load Scenario button. In this Scenario : Loans of £330 are taken out and £300 is paid to workers to make some stock. The workers buy £300 of stock at full price at i.e. inc profit margin and have spent all their money. Business then has £27.27 - cost price (£30 inc margin) of that darn gone pesky previously un-sellable stock. Just as the old nightmares are about to repeat themselves The ‘Homeland' acquires an Empire and now it can be a net exporter to the captured markets. So it ‘sells' the last of its stock to Johnny Foreigner for 27.27 +10 % = 30. Business cares not a dot that Johnny Foreigner couldn't begin to pay for this as the loans that are taken out in Johnny Foreigner's name are backed by Government Export credit guarantees and the mineral wealth under Johnny's feet. For all anyone cares, the stuff could be lost at sea or left to rot in a foreign port - which it frequently did - the important point was it kept home economy with enough money. Click the button and keep clicking the button - it's Economic Heaven every day of the year every year of the millennium. The stock is all ‘sold' there are no debts to the bank (from the Englishman anyway) - Johnny F is in hock but who cares and for year after year the Homeland get richer and richer... But then something spoilt the party - the Germans ! Well, as they were using the same number counting thing - financial system as the British, and were getting quite industrialised - which means heavy depreciation charges - they needed some poor loser to dump their ‘Excess' production on - to keep things ticking over on the home front (but note the goods were not necessarily ‘Excess' at the start of the industrial revolution scenario on the first click - they only became ‘Excess' when people could not afford to buy them at home- several clicks later the ‘numbers' in peoples' pockets was deficient - not necessarily the real demand for the produce). So we had 2 World Wars which had more than is commonly stated to do with ‘fighting for foreign markets', the proposed Berlin-Baghdad railroad would have set at nought the Commercial power derived from British Navel Supremacy. And then someone thought of a new idea to generate some more ‘numbers' ... the only thing, apart from common sense, we were really lacking in :"Why don't we buy and sell our houses to each other at ever increasing prices ?..."

House_Price Scenario : Select the House_Price Scenario :from the drop down in Cell A10 and Click the Load Scenario button. The two things needed to use House prices to ‘get the economy ticking' - i.e. ‘make some numbers' were a) "Allowing women into the workplace" b) The Empire Wind Rush and mass immigration. The thinking went like this a) "If we can pretty much double the ‘earning workforce' (a workforce that, with the aid of modern machines, while Hitler's bombs were dropping on it every night, and with ‘the men' - the skilled experienced workers - in foreign parts being shot at, produced enough for everyone plus enough to fight a war as well - i.e. in real production requirement terms - less workers are needed in peace time rather than more now the war was over) then there will be two wages chasing each house - which should double the price of the houses which should help for a few years with the ‘numbers problem'. b) if we can get a whole new bunch of people to come to this over-crowded Island then they will need somewhere to live and they can push up the house prices and then the total mortgages will go up which will produce some more numbers to solve our ‘number problem' for a little longer. Keep Clicking the Run Full StoryLine button - Everyone is a winner except for the newcomer in the housing market as the total salary / total private debt ratio gets lower and lower. If the ‘housing market collapses'  i.e. if we are all packed into little boxes that cost a fortune and we can't buy a new one at a higher price which means that the housing debt can't increase at the same rate every year then ‘the economy will go into down turn' i.e. we'll run out of numbers.

Consumer_Debt Scenario : This follows the same pattern - as long as the banks are prepared to hand out debt on a continual basis everyone will be happy - as long as the ‘never never' is never ever, things will be OK.

American_Economy Scenario : This caricature of the American Economy has it that it - all they do now is borrow Domestic Currency from the Banks who then buy Foreign currency with it which enables the foreign suppliers to be paid - While the Line of Credit is open things are OK for the Americans. Meanwhile the Foreigners doing the Exports are happy as they live in a continual Export Economy. But when the line of Credit runs out... The thing about Net Exports or Net Imports is that despite the individual consumer thinking that he has paid for the goods - taken as a whole - the goods have only been borrowed from the net exporter.

A Solution - NEFS (Net Export Financial Simulation) : The Spanish in days of yore did funny things to fix the problem - they went to South America, did a genocide against the locals in order gain control over digging a rock out of the ground to bring it home - gold. Having the gold or not did nothing to increase their productive capacity yet because of the funny system of counting they had they felt richer for having this rock. We might laugh at them but the daft things we do in the modern age to ‘get some numbers' is as bad or worse. To pay for the same house our parents lived in that was built over a hundred years ago and which a single wage as a postman could pay for 50 years ago both parents now work all the hours that God sends in top management jobs to keep their head below the water line. If an accidental pregnancy turns up... well there are 600 abortions a day in the UK and the vast majority of the mothers killing their kids are not school girls - the National Statistics Office shows that the 24-28 year olds are by far the largest group i.e. not being able to pay a mortgage/save for a mortgage... a shortage of numbers is a big factor- this numbers pressure is not just a factor in the genocide of South American Indians 300 years ago it's a huge factor in an even larger genocide against the unborn today. There may be problems with Evil capitalists, God's Wrath, lazy workers and/or Sun spots that will affect life on Earth. These will require other solutions but as far as the ‘missing numbers' - which is our main problem - is concerned I hereby suggest a solution : I've called it "NEFS" - Net Export Financial Simulation - you call it Bob if you like. The idea is that if the UK can produce a big pile of stuff and send it to foreign ports to rot - just so we in England get some numbers to live with... ditto Germany, China, Japan... Continual net exporting countries that do quite well and never wish to be net importers - i.e. they'll never spend all the foreign currency they'd earned - then why can't we create the same sort of numbers without all the trouble of producing and exporting a pile of STLs (Straight To Landfill) or Weapons or other Stuff ? This way we'll produce when we want to consume and export when we want to Import. Businesses will go bust when they are no good not because ‘the music has stopped and there just aren't enough chairs'. That's it - that's my suggested solution. If you think I'm wrong about the problem then don't throw a Thesaurus of verbal abuse at me - model it and show where I'm wrong. If you think you have a better solution - don't talk - model it with quadruple entry bookkeeping - demo it with numbers. I've left the spreadsheet unprotected so you can adapt it and further develop it if your demo requires something else. (There a few notes on how to develop the Spreadsheet yourself below). Now select the Industrial_Revolution_With_NEFS from the drop down in Cell A10 and Click the Load Scenario button. In this Scenario - Business does business, workers do work and a ‘National Bank' produces some numbers to make up for the missing numbers inherent in the traditional system. They give the excess numbers - I'm open to ways of working out just how much - to all individuals in the country. QED - as simple as that. Year after year the 'balancing number in the bank's books will get bigger and bigger - but so what - it's better than another World War to 'get the economy moving' it's better that the Chinese Communist Government holding pretty much the same number as a liability to be paid by the West with interest for the next how many years. The answer to the obvious question "Won't this just cause inflation ?" is in two parts - The empirical part (what happens in the real world) - is that there are plenty of continually net exporting countries that don't suffer inflation - so why should a country that uses NEFS necessarily suffer inflation ? The second a priori (theoretical) part needs to prove that either the famous equation : MV=PT is either incorrect or meaningless - and find an alternative to it. This is done in the other article on this Website :

Create your own Scenarios : If you think you know better... then you can create your own scenarios to test things for yourself. Click the drop downs in the green area Row 13 and down on the Main_Page Sheet to select a 'who' 'does what' 'to whom' and click the run storyline button to see the resultant balance sheets to test it. To save a Scenario enter a name (that has no spaces or ‘funny characters') in cell D11 then click the Save Current Scenario. Should you need to you can add more actions on the Quadruple_entry Sheet - just fill in another row. Should you need to, you can add more 'who' and 'whoms' if you'll think it'll make any real difference - Government, 'The Rich', the Army, The Health Service, OPEC... copy a column from row 1 to row 7 - say G1 to G7 on the Main page and paste it in the first free column to the right - Say H1 to H7. Click Run Full StoryLine to reset the ranges so the new 'Whom' appears in the drop downs in the green area row 13 and downwards. Don't insert any rows in the model. Remember we live in a quadruple entry world - Don't just 'talk' about Investments = Savings and 'desired investments' and 'desired savings' and only 'talk' about 3 out of the 4 entries and pass your missing entry off with hand waving or quotes from a dead economist - put you numbers where you mouth is - all 4 numbers - Quadruple Entry - and then click the button to see what happens next year and the next in your world and watch it go to pot ! (the formula "S = I" (Savings = Investments) is merely a tautology, as you'll see from doing the quadruple entry, - Savings are the bottom half of a balance sheet and Investments are the top half and so as "balance sheets balance" then Savings = Investments. All S = I then means is that "balance sheets balance". You can't follow that definitional tautology with a 'so the way you increase Investments is to increase Savings' because if you increase Investments you will increase Savings as well - £10 of unsold stock is a £10 of investment on a business balance sheet and it's also £10 of 'Savings' - inadvertent savings maybe - but savings - the 'S' - in the tautological formula - nevertheless of the shareholders.

Now that the ‘Credit Crunch' has started to bite, the ‘blame game' in the financial press and various recent books - by experts - has it that it's the fault of ‘irresponsible lenders', Alan Greenspan, Ronald Reagan, Gordon Brown... for letting the Asset price bubble in house prices and shares since the 1980's grow too much. None of these experts has pointed out that without these bubbles the money to fund them would not have been created (outside of a NEFS system) and instead of spending the last 25 years having some fun with that money - we'd have been flat broke and miserable. We are now flat broke and now also 25 years worth of high spending in debt and our credit card has reached its maximum spending limit, our mines are flooded and our universities are full of near useless psychology and media students - we are in a mess. My thinking is - and the Quadruple Entry bookkeeping shows it - that we should have been using NEFS for over a hundred years, failing that we should have been using it in the last 25 years, failing that we should be using it now.