The Problem with the Banking System: How Money is Made / Created

[splodgeyAl]

It's your assertion.... you prove it.

 

Ok, the Central Bank loans £1 to the government, at a very generous 1% interest. The government put it in circulation. Nobody pays that principle back to the CB for a year.

 

The CB is now owed £1.01 but there is still only £1 in the economy.

[splodgeyAl]

So not only are claiming that we all personally owe for our portion of the countries debt, you're claiming that even if we can personally afford to cover our portion, we then become liable for the interest on other peoples portions.

 

You're off in lala land as far as I can tell.

 

The country owes that money, and it's to be paid for with future revenue, it's not a personal debt, no individual can be held liable for it, but if we were to apportion it out as you suggest, then I would pay off my portion and I wouldn't then be liable for the interest generated on the amounts that other people couldn't pay off.

If we were to do that though I'd be expecting a vastly reduced tax bill in the future as there would no longer be any need for tax revenue to pay off the debt.

I think you're right. But sadly that's the world of international finance

[Longcol]

If the idea that banks creating money is a fallacy, why does it say, on page 105 of the PDF linked-to below, from the Bank of England's website, that

 

Here's the original PDF:

 

http://www.bankofengland.co.uk/publications/quarterlybulletin/qb0801.pdf

 

I can't see anything on page 105 of the PDF you link to that says;

 

"Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer’s current account, which can be paid away to wherever the borrower wants by the bank ‘writing a cheque on itself’. That is, banks extend credit by creating money. "

 

as per you post #82.

 

Are you sure you're not quoting from a commentary misinterpreting what was a speech reported in the BofE bulletin?

[Longcol]

Would you have been able to if the loan had been 97% of all the money you've ever had, including the loan principle?

 

That would obviously depend on how many ££ the 3% remaining in my paws represented. If that was millions - then quite comfortably thankyou.

[splodgeyAl]

That would obviously depend on how many ££ the 3% remaining in my paws represented. If that was millions - then quite comfortably thankyou.

It would actually depend on the interest rate, and the speed you pay the principle off

[splodgeyAl]

I can't see anything on page 105 of the PDF you link to that says;

 

"Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer’s current account, which can be paid away to wherever the borrower wants by the bank ‘writing a cheque on itself’. That is, banks extend credit by creating money. "

 

as per you post #82.

 

Are you sure you're not quoting from a commentary misinterpreting what was a speech reported in the BofE bulletin?

The page number printed on the page of the PDF is 103. My PDF viewer says it is page 105. It is in paragraph 3, under the heading "Money, or bank intermediation".

 

No, I copy pasted from the PDF on that link

[epiphany]

So not only are claiming that we all personally owe for our portion of the countries debt, you're claiming that even if we can personally afford to cover our portion, we then become liable for the interest on other peoples portions.

 

Let's leave to one side who owes what because frankly it's irrelevant - we are in a sinking ship and even Mervyn King admits we have organised our banking system in the worst possible way. Does sustainability not mean anything? Or would you prefer we just keep bailing out failed institutions and propping up this parasitic form of state-capitalism?

 

Take the total amount of fiat debt in our economy. All that debt was created, at some point, through commercial bank loans, otherwise it would not exist. Therefore, it must also have interest attached. No matter who pays off what of their own share of debt, please explain how it is mathematically possible for the total principal + interest of the economy to be repaid if only the principal is loaned into existence, remembering that any further new money created will also have interest attached.

 

Michael Rowbotham used this example: If 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. This implies that debt must grow exponentially in order for the monetary system to remain solvent.

[Anna B]

I love Cyclone's assessment of 'a little hicup in the economy....'

 

Whole Countries are teetering on the brink of financial ruin.

 

We are pumping another 40 billion of quantative easing into the economy today causing yet more devaluation.

 

Some hicup.

[Longcol]

The page number printed on the page of the PDF is 103. My PDF viewer says it is page 105. It is in paragraph 3, under the heading "Money, or bank intermediation".

 

No, I copy pasted from the PDF on that link

 

Thanks for that.

 

Looking at that section in the context of the (long detailed) speech all he is referring to is banks using deposits to create loans - something we've known for years.

 

He is not claiming banks create money from nothing.

[Hairyloon]

It would actually depend on the interest rate, and the speed you pay the principle off

 

We're paying about 3.5% on the national debt. The interest comes to about £15 per person* per week.

 

{* that's everybody in the UK}