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Simple answer to the first question is that you would get a rate of inflation similar to zimbabwes.
It is pretty obvious that if a goverment could simply create "all its needs" then cash would soon have no value
Simple answer to the first question is that you would get a rate of inflation similar to zimbabwes.
It is pretty obvious that if a goverment could simply create "all its needs" then cash would soon have no value
Clive you clearly haven’t watched the videos. Go and watch The Money Masters and get educated.
When banks create money out of thin air with fractional reserve banking or by QE with the BOE they are inflating the money supply. This money plus interest has to be repaid, so why is this better than creating money at zero interest with no capital to be repaid when at the end of the day the amount of money in existence will be the same with both methods?
Im not going to watch a video from someone who clearly doesnt understand the value of money
And also doesnt understand the nature of lending or the fractional reserve. Or doesnt understand the relationship between lending and assets
This is sub GCE stuff. Really poor
Not going to debate at this level, but doesnt it ever occur to you that if these were genuine solutions, dont you think that the great minds of Keynes. Freedman, adam smith (let alone thousands of highly qualified economists) would have suggested such a simplistic notion?
I would suggest you get a griop of basic economics before swallowing all this conspiracy theorist rubbish
well done with your GCE, clivexx.
however, Hayek got a Nobel prize in economics.
for "pioneering work in the theory of money and economic fluctuations"
"A number of Nobel Laureates in economics recognize Hayek as the greatest economist of the modern period….Friedman taught his graduate class from Hayek’s papers.."
how many of them hold your views in similar esteem ?
there must be a few surely, to justify your haughty contempt and ridicule of perfectly sensible questions?
so, what’s your plan to prevent further runs on banks, Northern-Rock-style, as the UK’s finances deteriorate ?
S&P recently downgraded the whole UK banking system:
http://www.standardandpoors.com/ratings … 5205524801on the sovereign-rating front, the only buyer of gilts these days seems to be the Bank of England.
True, the coming election seems to be having an embargo effect at the moment for the UK in the markets.
But basically the UK’s problems are Greece writ very much larger, and with no obvious similar rich uncle to bail it out.
Your expectation of "cuts here and there" seems optimistic in the extreme.
Slightly off-tack, but are S&P ratings worth the paper they’re written on? Isn’t this the same mob that Triple-A rated CDO’s and CDS’s?
They weild a little bit too much power for a company shown to be at the very heart of the current financial meltdown, imo.
Who downgrade’s the graders?
Banking was conceived in iniquity and born in sin… Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of the pen, they will create enough money to buy it back again… Take this great power away from them and all the great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in… But, if you want to be the slaves of the bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.
Sir Josiah Stamp
(Governor of the Bank of England in the 1920s)
wit
even the most basic 11 plus economist would laugh out loud at the notion that cash is the only economic asset
And as for endlessly "printing money" as a solution…get a grip
Another Northern rock would be prevented quite simply by a degree of regulation. Nothing more. Banks required some reigning in. The credit agencies needed kicking (as Grass said) and off balance sheet transactions required regulation
Clive….can you please tell us what your understanding of fractional reserve banking is?
grassy,
fully agree its an ugly contest rather than a beauty contest.
and in the ugly contest the undisputed winner is not S&P (who seem belatedly to have realised that their reputation is all they can make money from sustainably).
all you really need to do is to go back and see what countries (mainly Uk and US, but also others) have been paying fees and giving favours to what firms of international bankers notorious for receiving squillions in government (ie taxpayer) funds, and for providing perpetual "advice" on the most fundamental government decisions – ie playing both sides of the game, and collecting inbetween
that’s the target of the European references to "the Anglo Saxon model"
clivexx,
nobody but you is saying that cash is the only economic asset.
nor that "printing money" is any solution.
the point on money printing is that ONCE a decision has been made to print (as in the UK with QE ), then the cheaper, sustainable WAY TO DO IT is to follow the Colonial Scrip route used by George Washington and have government do it direct.
rather than cede the power to do it to someone else (central bank and the "fractional reserve" private banks) and thereby put the taxpayer in the position of paying interest in addition to losing wealth via the inflation inherent in such exercise.
i’ll ask again, why incur the interest charge that serves only to transfer wealth from the many into the hands of the few ?
sorry, but you really do need to watch the videos and read the literature. instead of guessing what you think they might be saying, and then tilting at those figments of your own creation.
Clearly anyone advocating full reserve considers cash to be the only asset. thats basic as i have explained and am getting toired of doing so again and again
I would read the posts. endless printing money WAS advocted as a solution
If the goverment wants to lend at market rates other than through the banking system, then so be it. But are they in a position to do so? Do they have the resources and expertise to manage the indiviudal markets? Do they have the people who could lend correctly to all sexctors of the economy? will they attract the people able to do so without paying commercial bank wages?
Obviously they are not going to set that up in a hurry are they?
Weve had state run banks before (in frnace in particular) and the straightforward reason that they were denationlised is the same as everywhere elese. they were ineffcient and uncompetitite, which is bad for both the banks and the users
like a ponzi scheme, fractional reserve banking and the charging of interest work only so long as the music is
Oh really, like the last god knows how many years then?
You are claiming that you dont consider cash to be the only asset but at the same time belive it is the only asset which can be counted into the credit cycle. Ridiculous
Frational reserve was NEVER the problem with the current banking crisis. FR is based on the balance sheet. The stupid neglect of off balance sheet transactions was the downfall. Before this crisis how many major banks had got themselves into trouble with FR in the preceeding decades?
Charging of interest has been going on for…well…centuries …. The idea that banks could only lend from their deposits disappered god knows when (i think 15th century maybe)
Again you dont understand the relationship between interest charges and growth and inflation.
the only circumstances in which no interest could be charged is (almost like at present time) there is a zero growth economy (which is not desired by anyone for obvious reasons). Otherwise you would simply get ever increasing inflation. posibly like zimbabwes
Hayek and Friedman never said cash was the only asset – that’s your statement.
They wanted money to be a neutral medium of exchange for real goods and services, to be a reflection of value, to be linked to a tangible asset like gold.
Not, as now, to be debt obligations conjured out of thin air by private banks and divorced from underlying reality, all the focus being on getting as many debt obligations as possible on the books without regard to the underlying asset or ability to repay, on the basis of shifting that toxic debt onto someone else before the music stops.
The instability you claim as exceptional and recent is inherent in that system.
You don’t think there’s anything weird in the fact that while being debt-free is a desired status for an individual, under a “money is debt” system it is a disaster for banks ?
Banks are parasites on society – they create no food, shelter, warmth, means of transport, etc. They don’t build roads, bridges etc – that comes out of government money – ie taxes. It doesn’t need banks. There are monetary systems in history that have shown that.
Thing is banks don’t want money to be a neutral medium between producers and consumers. Banks depend on fiddling with the exchange medium – and on being rescued by others when they get their sums wrong.
"Give me the power to create and issue the currency of a state and I care not who makes the laws".
The last link of money to value – gold – was broken in the 1970s, when in 1971 Nixon broke USD away from Bretton Woods.
In that short period there has been a litany of booms, busts, inflation, deflation, over-consumption, widening gap between rich and poor, both parents now having to work to be in the same place they were in with one parent working before, etc . You count that as success. I count it as escalating unsustainability that is now inevitably topping out.
There’s a race to the bottom going on now on currency values, which will be resolved according to who holds most real, tangible, useful resources when the music stops. Not who holds most debt-based paper.
You ask how many banks failed before the present derivatives / debt-collateralised-against-debt obligations present crisis.
Look at just the last 30 / 40 years since the final link to gold was cut.
For the UK, for the 1970s, do you not remember the secondary banking crisis and the “Lifeboat” ? The problems at Natwest and Barclays? The Keyser Ullmans and Slater Walkers ? Try the chronology at the foot of this link :
http://www.hindsight-books.com/secondar … crisis.php
Then for the 1980s, 1990s and early 2000s, take a look at this from the Bank for international Settlements (itself a product of the debt-based system):
http://www.bis.org/publ/bcbs_wp13.pdf
Stability is not the word.
What you tout as virtues – money-as-debt, interest-charging, fractional reserves – are at the root of poverty and misery, overconsumption and unsustainability, and ultimately wars.
Not the only cause of course – life is too complicated for that. But they have played a very big part. And at the instance of a small number of unaccountable private individuals, rather than governments.
The current derivatives crisis is a simple extension of the debt-as-money notion – hey, lets start signing any bozo up for anything, then getting their promises to repay insured and selling them on. Keep sending it around in circles between us, creating trillions in liabilities (sorry, “assets”) just like fractional-reserve.
And just as with fractional-reserve, we’ll get bailed out if anything goes wrong, particularly if we get away from Glass-Steagall and turn everything into one big jumble. Governments can’t afford the social disorder of a disruption to the boring side of banking, so lets force then to underwrite the betting side.
Fractional-reserve banking by non-government banks is inherently speculative and parasitic. If then central banks provide bailouts by being lenders of last resort to such private banks, the result is an erosion of the economic rights and stability of most in society for the sake of wealth transfer to the few playing the monetary system.
What you tout as virtues – money-as-debt, interest-charging, fractional reserves – are at the root of poverty and misery, overconsumption and unsustainability, and ultimately wars.
Absolute rubbish. Hysterical nonsense
Not, as now, to be debt obligations conjured out of thin air by private banks
No they arent. banks lend against security. Property most obviously. That is an asset every bit as valuable as cash
I dont think any of this has any place in realistic economic discussion because it is simply not going to happen. The shock to the economic system would be too much to bear of course. And even your extreme right wing Hayek conceded the requirement for FR (havent chcked MF)
All this does seem to have a bit of an obsession with bankers about it. Not the current excesses, but bankers in general.
will leave it at that now
Not, as now, to be debt obligations conjured out of thin air by private banks
No they arent. banks lend against security. Property most obviously. That is an asset every bit as valuable as cash
no, what bankers lend against is a promise by the borrower to repay. there is secured and unsecured lending – presence or absence of security is not what constitutes lending.
and what the bank actually lends – making a book entry in its ledger in favour of the borrower – is nothing other than the bank’s promise that it owes a debt to the borrower.
its the bank’s acknowledgement of that debt which the borrower goes out and uses to buy things from a third party.
if called upon by enough third parties or even by its own depositors, as with a run on a bank, the bank can’t cover all of its acknowledgements of debt from its vault. it doesn’t have real assets to cover its promises.
thus banks conjure credit out of thin air. "credit" comes from the Latin to believe – and it works only so long as people believe the bank has the means to back up its promises with real assets. in other words, the system depends an awful lot on most people not thinking it through.
that is the essence of fractional reserve banking – the bank hasn’t got anything like full reserves to back up its promises. if a private individual attempted the exact same "fractional reserve" activities, it would rightly be called fraud.
absolutely it would be a huge shock to the system for the present situation to change. but there may now be no choice. and its not impossible – you just ramp up the fractional reserve requirement by steps from the existing 10 per cent or whatever until it reaches 100 per cent.
i suggest change is coming and that’s its a question of how fast and how least-painfully the multi-trillions of "air" are taken out of the "bubble" and with what social and political fallout.
and it doesn’t help for UK and US governments still to be inflating the bubble, hoping for something to turn up. unfortunately, maybe a war.
happy to leave it there while we each make our preparations for the coming fallout.
and what the bank actually lends – making a book entry in its ledger in favour of the borrower – is nothing other than the bank’s promise that it owes a debt to the borrower.
What?
The only debts that the bank owe are to its depositers. Thats the banks liabilities. You are getting this totally confused
The credit is (once again) not out of "thin air".
Again, it is lent against security, usually in the form of property. it might be also lent against future expectations and so on. But, again, the credit issued is only a problem if the debts cannot be repaid.
Again, this has not affected the fractional resrve rerquirement in any way
It is possible to argue that a bank could lend without any reserves at all. Many finance houses probably do so.
So long as they had the cpaital to back the loan in the first place, with no despositers and the loan being repaid as required, why would they need any reserve?
The only debts that the bank owe are to its depositers. Thats the banks liabilities.
That’s the whole point. When a loan is granted and the bank credits the sum loaned to the borrower’s account with the bank, all that the borrower has "deposited" with the bank is his promise to repay.
And all that the bank has done by crediting the loan amount to the borrower is acknowledging to the borrower that it is indebted to the borrower in the sum loaned. ie he is a pretend depositor with the bank who can withdraw his account balance.
The borrower then uses that debt owed to him by the bank to buy the house / car / whatever he wanted the loan for.
So what’s happened – the bank has conjured 100k say out of thin air for the borrower to transfer on to the seller of his desired house/ car/ whatever, against a promise from the borrower to pay back that principal amount plus interest on it.
the credit issued is only a problem if the debts cannot be repaid.
…which will not happen with every borrower. in market bubbles fuelled by easy credit, it will not happen with a lot of borrowers. they need their borrowers to be able to make good on their promises to repay principal and pay interest, they take a chance that’s what will happen, and they run off to the central bank for bailout when it doesn’t happen. the central bank then looks to government and taxpayer if it can’t persuade another bank to make the bailout.
Again, this has not affected the fractional resrve rerquirement in any way
It is possible to argue that a bank could lend without any reserves at all. Many finance houses probably do so.
So long as they had the cpaital to back the loan in the first place, with no despositers and the loan being repaid as required, why would they need any reserve?
bingo – by definition they don’t actually have the capital if they work to fractional reserve rather than full reserve. so where does the money they lend come from ?
you ask why they need reserves – for the same reason you or i first need to have 20 million quid before we can lend 20 million quid.
…which will not happen with every borrower. in market bubbles fuelled by easy credit, it will not happen with a lot of borrowers. they need their borrowers to be able to make good on their promises to repay principal and pay interest, they take a chance that’s what will happen, and they run off to the central bank for bailout when it doesn’t happen. the central bank then looks to government and taxpayer if it can’t persuade another bank to make the bailout.
So why did fractional reserve work perfectly well whe there were tighter credit controls (pre thatcher say) and "easy credit" was not available?
Fractional reserve has been operating since the 18th century.
it does not continually cause "market bubbles"
Lending is largely for investment which makes the economy grow. The risk is if a huge proportion of the lending goes bad. simply doesnt happen
this credit "from thin air" is simply nonsense when the lending is (as is often the case) against properly valued assets
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