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

[retep]

Debt Can Never Be Repaid (By Bankster Design)

http://www.goldstockbull.com/articles/debt-can-never-be-repaid-by-bankster-design/

[I1L2T3]

Hmmm ... you did imply that ...

 

 

 

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!

 

 

 

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.

 

Nope, I never implied that the supply is infinite. Technically it could be made so through mechanisms like rehypothecation but there are brakes in the system. One of the the brakes we have seen is the bursting of the credit bubble - sooner or later too much credit will be created.

 

Not everything a bank deals with is visible on the balance sheet. Don't get trapped by the idea that every thing is done through basic debit/credit accounting.

 

Google 'banks off balance sheet credit creation'. Read up and come back.

 

The pounds in your account mean something to you because you believe they do. Likewise the vast majority of people believe those pounds mean something to them. If the vast majority stop believing then the system is blown.

 

Look up the Latin origin of the word 'credit'. It means 'to believe'

[FairDooz]

Thanks again I1L2T3 and also to gnvqsos and retep.

 

I know that money has a lot to do with belief and trust ... and that money = debt. Money/debt is simply a promise to pay in the future for goods or services received today.

 

What I'm thinking though (rightly or wrongly) is that the banks are primarily mediators in the exchange of goods or services. They keep the tally of who owes who what. When the bank issues a loan they effectively mediate the transfer of that house or car between 2 parties.

 

The more transactions they facilitate ... the more ... (omg is this the eureka moment?) ... the more "money" there is in the economy.

 

Hang on while I get to grips with that ...

 

OK. In some sense the banks have created money. In another sense it was the tranfer of ownership of the house/car from one person to the other that created the money which the banks facilitated. The purchaser doesn't write out their own IOU to the vendor (and become a direct creator of "money"). The process of keeping tally and recovering the future payment was performed by the bank (for which they charge a fee and earn a slice of money for themselves)

 

Thinking about it just as the banks creating money (rather than the vendor/purchaser) ... is it a bad thing that the banks have done this? Should this power be taken from them? (as PositiveMoney are advocating)

 

Quote: "Positive Money believes that the root cause of many of our current social, economic and environmental problems lies in the way that we allow money to be created. We campaign for fundamental reform of a system that is fuelling debt, poverty and economic and environmental crisis." http://www.positivemoney.org.uk/

 

It seems to me that it's not banks as mediators that is the problem (retail banking) but banks trading the debts(money) they are managing on behalf of others.

 

It's [good] old casino banking we need to address, not the creation of money.

 

I conclude: PositiveMoney are barking up the wrong tree!

[I1L2T3]

Debt-based money is not necessarily a bad thing, if you accept that for the serveral decades of prosperity it allows you will eventually have a bust, that the currency will at best deflate and need to be revised or replaced, sometimes violently. The eventual built-in failure is the downside but history has shown that the failures tend to be relatively short-lived. So it's a trade-off between ensuring quick rises in living standards that last for decades against the short-lived shocks when the system is reset. We have to remember that for all the downsides there are real benefits for people too. The prosperity allows people to be lifted out of poverty, frees money to be spent on healthcare, education etc.. and if we're honest the current monetary system has only become a problem to more people as a reaction to the economic problems we have.

 

I agree that it is the casino-style element that has to be addressed if we want a more ordered functioning of the system. But remember that all casino banks have done is usurped the credit creation process, taken much of it off the balance sheets and fast-forwarded the system almost to the point of collapse, a collapse that all debt-based money systems must eventually face anyway.

[FairDooz]

Very interesting viewpoints I1L2T3, perhaps going beyond the OP, but very much the reason why I posted.

 

Debt-based money is not necessarily a bad thing ...

 

I'm coming to think that this is in fact a good thing. Without the mediators (banks) to facilitate the future settlement of a trade using money/debt, a flourishing economy (exchange of goods and services) would be impossible.

 

Debt-based money is not necessarily a bad thing, if you accept that for the serveral decades of prosperity it allows you will eventually have a bust, that the currency will at best deflate and need to be revised or replaced, sometimes violently. The eventual built-in failure is the downside but history has shown that the failures tend to be relatively short-lived. So it's a trade-off between ensuring quick rises in living standards that last for decades against the short-lived shocks when the system is reset.

[my emphasis]

 

As you already know, I'm no expert on this, but I don't see the inevitability of boom and bust just because of the existence of debt. If we only had mutual banks and building societies that provided loans with a realistic chance of being repaid in the working life of the borrower, then I don't see how boom and bust necessarily follows.

 

I agree that it is the casino-style element that has to be addressed if we want a more ordered functioning of the system. But remember that all casino banks have done is usurped the credit creation process, taken much of it off the balance sheets and fast-forwarded the system almost to the point of collapse, a collapse that all debt-based money systems must eventually face anyway.

 

For the most part I think we agree here, however in my opinion boom and bust is a function of speculation on rising asset values rather than simple debt. This is particularly the case with when dubious financial assets are used to fuel/leverage further speculation.

 

When the herd of clients (and the banks trading on their own account) all see the momentum of the market, there's a dangerous positive feedback loop where, in order to make money, all you have to do is be one step ahead of a bigger fool than yourself. When this momentum is manipulated by the market itself, and asset value falls can be exacerbated by short selling for example, you have a frenzy of financial speculation that causes the instability and inevitable bust when the majority realise that their "assets" have no underlying fundamental value.

 

All this activity sucks the lifeblood out of the real economy - as most people (myself) would understand it.