splodgeyAl Posted February 9, 2012 Share Posted February 9, 2012 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. I wonder why he just straightforwardly saidbanks extend credit by creating moneythen. I'll have to have another proper read myself, it's been a while. Link to comment Share on other sites More sharing options...
Longcol Posted February 9, 2012 Share Posted February 9, 2012 It neeeds to be read in the context of the whole article and note as a "quotemine" Link to comment Share on other sites More sharing options...
Cyclone Posted February 10, 2012 Share Posted February 10, 2012 I'm not asserting that individuals are responsible for a proportion, it's a fairly standard way of describing the extent of the national debt, and I was following up a point made on that. If we were all to pay back our portion, there would be no money left in circulation You think the national debt is equal to the M3 money supply? It's not. Link to comment Share on other sites More sharing options...
Cyclone Posted February 10, 2012 Share Posted February 10, 2012 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. That's not an example of FR banking is it. Link to comment Share on other sites More sharing options...
Cyclone Posted February 10, 2012 Share Posted February 10, 2012 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. Again, this isn't FR banking. What makes you think that all the money originally came from the BoE with an interest rate attached to it. Link to comment Share on other sites More sharing options...
Cyclone Posted February 10, 2012 Share Posted February 10, 2012 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. Call it what you like, we aren't even in a recession (at the moment), the economy is slow, unemployment is high and I think QE is a mistake, but the world isn't on fire, business goes on as usual. Link to comment Share on other sites More sharing options...
Hairyloon Posted February 10, 2012 Share Posted February 10, 2012 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. That's not an example of FR banking is it. No. If I understand FR correctly, then the bank treats the IOU as an asset (reserve) which it lends further money against. I'm on a slow connection, so I haven't looked at the video, but "Money as Debt" is a good video explaining it all. Find it on Google easily enough. Link to comment Share on other sites More sharing options...
Longcol Posted February 10, 2012 Share Posted February 10, 2012 No. If I understand FR correctly, then the bank treats the IOU as an asset (reserve) which it lends further money against. I'm on a slow connection, so I haven't looked at the video, but "Money as Debt" is a good video explaining it all. Find it on Google easily enough. Banks loan out deposits - something they've done since banks started. "Money as debt" isn't a very good way of explaining it as it gives the imnpression banks can create money out of thin air - which they can't. http://en.wikipedia.org/wiki/Money_as_Debt Link to comment Share on other sites More sharing options...
Jim Graham Posted February 10, 2012 Share Posted February 10, 2012 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. As I understand it the CB only acts as a middle man between the government and the people who loan the money. The Bank of England is little more than a safe place for the Treasury to keep it's money. The government's income from taxes and stuff goes into the BoE. They then release it to government on request from the Treasury for government departments to spend. If the government wants to borrow money the BoE acts as middle man. They offer bonds to people with money and they guarantee a rate of return. And that is how the interest rate gets fixed (but not interbank rates). That's because people will only lend us money if they get a rate of interest commensurate with the risk they take. At the moment Greece has to offer lenders 28% interest on any money they borrow because they are a massive risk. I am not sure what rate the UK government is paying but I am sure it's less than 6%. We recently lent Ireland some money and charged them 6%. The people who lend the government money are the likes of the Chinese and Russian governments, the oil rich states and other central banks. Thanks to Labour's recklessness we are now in massive hock to some very dubious regimes. We can't really complain about China's record on human rights when we rely on them to lend us money to prop up our public services. You couldn't make it up really. As far as the banks go they can borrow from each other or from the BoE. The big problem that caused the banking crisis to hit was when banks stopped lending to each other because they no longer believed they would get their money back. That happened almost overnight as it became clear so many banks had debts far exceeding their ability to pay. And THAT was all down to Brown's failure to regulate properly. Link to comment Share on other sites More sharing options...
Jim Graham Posted February 10, 2012 Share Posted February 10, 2012 Banks loan out deposits - something they've done since banks started. "Money as debt" isn't a very good way of explaining it as it gives the imnpression banks can create money out of thin air - which they can't. http://en.wikipedia.org/wiki/Money_as_Debt Banks borrow money at one rate and lend it out at a higher rate. That's how they make money. Where RBS fell on it's face was in borrowing money to buy businesses, such as ABN Amro at £71bn, which was already losing money. That was the stupidity of both Fred Goodwin for doing it and Gordon Brown for letting him. Of course the people who lent them money weren't too bright. RBS still owe those people that money. That is effectively what some of the tax payer bail out money has been spent on. And that's why Goodwin is now just plain old Fred. Link to comment Share on other sites More sharing options...
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