Do PositiveMoney have a point? Can banks create money from nothing?

[I1L2T3]

If all the debt was paid off on the planet, no money would exist. All money is based on debt. Watch the documentary, 'Money as debt'. If people truly understood how the monetary system worked there would be a revolution tomorrow morning. At the moment the revolution is underground because only a few people understand, but it is slowly gaining momentum.

 

Absolutely. It makes me chuckle when people talk about paying off the national debt for example. Because there is no plan to completely pay it off. Ever.

 

The fiat system itself is completely debt-based. The only way it can keep going is by more debt being issued continually.

[FairDooz]

Nope still don't get how banks can create money from nothing, but before troubling you for further explanations, I'll do some more reading.

 

BTW I don't have a problem with money = debt.

 

If we still bartered all our goods there would be no need for money. All exchanges would be settled immediately. Money is just a promise to settle an exchange at a future date - in other words being in debt to somebody. There's nothing wrong with that.

 

There is a problem with the government not being able to settle its (our) debts immediately (or in a reasonable timespan) and passsing on an unserviceable debt to future generations - don't you think?

 

And given that money = debt, when it comes to a bank giving somebody a loan, I get that before the money is spent, there's 2 sides to the equation. 1) The money in your current account and 2) the money you owe on the loan. At this point the two cancel each other out. The debt can be settled at any time by transferring all the money from the current account to pay off the loan. (Plus any interest/repayment ... that's how banks make their money - not by magically creating it, but by charging for a service and interest for the use of money over a period of time).

 

When we come to spend the loaned money (on a car say) that money has to be transferred to the bank of the car seller.

 

Now that bank isn't going to accept any dodgy/illusory money or IOU (promise to pay at a future date), they're going to want that payment settled immediately. The money that's transferred has to be "real" in some sense.

 

If the other bank asked our bank where they got their money (computer numbers) from and they said, we just made them up, that's what we do, we invent money out of thin air, you know that, you're in the same game .... well that's not going to wash is it?

 

Anyway, as I said I seem to be out on a limb on this, it seems to be generally accepted that this is exactly what banks do - but I don't get the chicanery. I'm not following the balls under the moving cups, so I'll read a bit more.

 

However, if that is what the banks are doing ...

 

Q. Is this creation of money the root cause of all our problems and NOT the wreckless lending of other people's "real" money? (As PositiveMoney are saying)

[I1L2T3]

Nope still don't get how banks can create money from nothing, but before troubling you for further explanations, I'll do some more reading.

 

BTW I don't have a problem with money = debt.

 

If we still bartered all our goods there would be no need for money. All exchanges would be settled immediately. Money is just a promise to settle an exchange at a future date - in other words being in debt to somebody. There's nothing wrong with that.

 

There is a problem with the government not being able to settle its (our) debts immediately (or in a reasonable timespan) and passsing on an unserviceable debt to future generations - don't you think?

 

And given that money = debt, when it comes to a bank giving somebody a loan, I get that before the money is spent, there's 2 sides to the equation. 1) The money in your current account and 2) the money you owe on the loan. At this point the two cancel each other out. The debt can be settled at any time by transferring all the money from the current account to pay off the loan. (Plus any interest/repayment ... that's how banks make their money - not by magically creating it, but by charging for a service and interest for the use of money over a period of time).

 

When we come to spend the loaned money (on a car say) that money has to be transferred to the bank of the car seller.

 

Now that bank isn't going to accept any dodgy/illusory money or IOU (promise to pay at a future date), they're going to want that payment settled immediately. The money that's transferred has to be "real" in some sense.

 

If the other bank asked our bank where they got their money (computer numbers) from and they said, we just made them up, that's what we do, we invent money out of thin air, you know that, you're in the same game .... well that's not going to wash is it?

 

Anyway, as I said I seem to be out on a limb on this, it seems to be generally accepted that this is exactly what banks do - but I don't get the chicanery. I'm not following the balls under the moving cups, so I'll read a bit more.

 

However, if that is what the banks are doing ...

 

Q. Is this creation of money the root cause of all our problems and NOT the wreckless lending of other people's "real" money? (As PositiveMoney are saying)

 

You are still trapped by your concept that the supply of money is finite and controlled. A bit more reading will help.

 

When you have that eureka moment you will realise that what we believe to be money, our fiat currency, is based on nothing. Nothing underpins it. It comes from nowhere.

 

In the traditional and desired (by policy makers) mode of operation the initial seed for the money creation is planted by the central bank. It presses that button and money is created, out of nowhere. It lends it to member banks and they multiply it by loaning many times the initial amount created, into the wider economy. It is exactly how it is supposed to work. You could perhaps argue that the private (not central) banks are multiplying something that exists because it has been lent to them by the central banks. But then you have to realise that the central bank magics the money out of nowhere in the first place.

 

It's so simple and yet so hard to believe.

 

The next stage in understanding the (perhaps) undesired creation of money is to understand how the shadow banks do it, how they unofficially expand the money supply.

[green]

 

When you have that eureka moment you will realise that what we believe to be money, our fiat currency, is based on nothing. Nothing underpins it. It comes from nowhere.

 

You actually explain it so much better than i do. Are you sure your not a school teacher or lecturer per chance???

[green]

I won't go into it in detail but look up 'rehypothecation shadow banks'.

 

Rehypothecation is what will bring the crash down rapidly. Theres no excuse for the regulators or Central banks to have allowed it to flourish.

[sanchos]

Also when you fully understand that the monetary system is as bent as a nine bob note you will open up a Pandora's box to the inner workings of everything in society and beyond. Then it depends how far you want to go down the rabbit hole

[FairDooz]

You are still trapped by your concept that the supply of money is finite and controlled. A bit more reading will help.

 

When you have that eureka moment you will realise that what we believe to be money, our fiat currency, is based on nothing. Nothing underpins it. It comes from nowhere.

 

I'm still reading, but the terminology is self-referencing so it's difficult to break into understanding any of this.

 

I'm still at the point where I do believe (wrongly???) that our problems derive from the fact that money is indeed limited.

 

It's exactly because "real" money is finite that we can't continue to "feed the pyramid". People have invested their (real and borrowed) money in strange financial "instruments" which up to a point have continued to grow in "value". Now that we've run out of money to fuel the growth of the pyramid, the group-thinking herd is in retreat.

 

We've run out of "greater fools".

 

The winners are those who sell at the peak (and exchange their profit for something tangible, like property) and the losers are those who hold on to any asset that is no longer in fashion.

[I1L2T3]

I'm still reading, but the terminology is self-referencing so it's difficult to break into understanding any of this.

 

I'm still at the point where I do believe (wrongly???) that our problems derive from the fact that money is indeed limited.

 

It's exactly because "real" money is finite that we can't continue to "feed the pyramid". People have invested their (real and borrowed) money in strange financial "instruments" which up to a point have continued to grow in "value". Now that we've run out of money to fuel the growth of the pyramid, the group-thinking herd is in retreat.

 

We've run out of "greater fools".

 

The winners are those who sell at the peak (and exchange their profit for something tangible, like property) and the losers are those who hold on to any asset that is no longer in fashion.

 

The supply of money is not unlimited. Nobody is saying that. Money is subject to laws of supply and demand. Make too much of it and it will become worth less (the kind of effect that QE has) and inflation will rise. Surprisingly the main tool the Bank of England has for controlling this is interest rates.

 

Now imagine that housing costs had not been removed from inflation indexes by Gordon Brown (MrSmith on here will tell you all about this), what our real rate of inflation would have been from 2003-2008. Imagine where all the credit came from to buy those houses at ever increasing prices. In an environment where the Bank of England kept interest rates fairly low was the Bank of England seeding the economy with new money to create the credit to fuel the boom or was the credit somehow being created elsewhere? Whichever answer you coome to (and hopefully you'll realise both were happening) you'll see that the money came from nowhere.

[FairDooz]

The supply of money is not unlimited. Nobody is saying that.

 

Hmmm ... you did imply that ...

 

You are still trapped by your concept that the supply of money is finite and controlled ... ... what we believe to be money, our fiat currency, is based on nothing. Nothing underpins it. It comes from nowhere.

 

If money is not finite, then it must be infinite or unlimited ...

 

... but I don't mean to be picky, I appreciate the attempt to educate me!

 

Imagine where all the credit came from ...

 

was the Bank of England seeding the economy with new money to create the credit to fuel the boom

 

or

 

was the credit somehow being created elsewhere?

 

Whichever answer you coome to (and hopefully you'll realise both were happening)

 

you'll see that the money came from nowhere.

 

OK ... so let me think about this ... money comes from nowhere.

 

If I was to give you a loan, you wouldn't accept anything other than cash or something that was recognised of real value even if that was just a trusted intermediary (a bank) transferring some numbers from my account to your account.

 

The bank didn't make those numbers up. Those pounds in my account mean something (I worked for them) even if they never take the form of notes and coins.

 

So let's think about a bank loan. Can the bank just make the numbers up themselves? Can they just invent the numbers without having to take them out of another account?

 

Hopefully this is a useful question to you. I don't mean to harangue you over this, I'm trying to work towards a common understanding, because I'm still in 2 minds about joining the PositiveMoney campaign/protest group. I know they care about the problems in the economy, I'm just not sure they've identified the problem.

[gnvqsos]

In the video, do you see more than $100 at any time?

 

I can see post-it notes with amounts on them, but these are promises to repay money, not actual money. It's a decent explanation of fractional reserve banking, but in what sense did the bank "create" money?

 

Notionally Mr Shoe still has $100 and Mr Hat has $90, but in truth, there's only $90 in circulation from an original $100. No money is "created from nothing" which is what PositiveMoney and others are telling us.

 

If Mr Shoe wants to withdraw anything more than $10 then the bank could only give him a post-it note ... or did I miss something in this 3 cups magic trick?

 

You do not grasp what money is-money is anything that can be used to exchange goods so post it notes ,IOUs are money: a bank note is an IOU in fancy form.