The Political Thread

[Steven Denton]

I said I read quite a lot because you implied I didn't read your link where as I had read the link and the connected article. Yet somehow, in your head, what I actually did was accuse you of not reading then cry my eyes out because of my fragile ego.

The second sentence in the overview of that BoE issued report reads, "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money." This is why I don't believe you when you claim to have read it.

No I read it. In terms of say a personal loan, the money is still based on something. The person creating the debt is securing debt against future earnings. the bank then has the asset of that debt. although the bank has to cover the debt if asked it can also sell the debt as an asset. the asset being not only the original loan but the interest. The bank still has to verify the person can reasonably cover the loan and that it hasn't taken on more debt then can be covered by liquid assets. If the bank does not make sure of these things you get the 2008 crisis and the Icelandic bank crash.

This is one of the reasons Population growth is often linked to economic growth, new people represent new money. The is what allows people to access their future earning potential for things like Mortgages. the fact that the debt and if applicable the asset the debt is covering becomes the banks asset does not mean money is created out of nothing nor does it mean the bank can just create debt without real world repercussions/impact.

[Steven Denton]

I understand why you think what you think, and I consider you to be mistaken, just as you consider me to be mistaken. That's really the end of it. 

[The Legendary Shark]

"The person creating the debt is securing debt against future earnings. the bank then has the asset of that debt."

The future does not exist. Future earnings do not exist. All they can ever be are projections or guesses. There is nothing tangible, nothing real, to base the money creation on. That is, by definition, creating money out of nothing. You can't strike a gold coin today out of metal you expect to dig up tomorrow. You can't eat a loaf of bread today that won't be baked until tomorrow.

Money is created out of nothing by a monopolistic banking cartel. This is not intrinsically a bad thing - anyone can create money out of nothing. If I wanted to buy something from you, and you trusted me, I could write you an IOU on the back of an old envelope or a beer mat, thus creating money (a medium of exchange) out of nothing more than a bit of paper and some ink. But what if I went through life doing nothing else but write IOUs? If you came to me to cash in your IOU and I just replaced it with another one, freshly written? I'd be locked up for fraud but, when bankers do it, it's somehow not fraud but business.

The one thing we do seem to agree on is that banks cannot create money out of nothing indefinitely without causing real world repercussions. In fact, the repercussions are all around us, the most obvious being the ongoing crises which began in earnest nine years ago and show no signs of abating.

I also understand why you believe what you believe - we've all grown up thinking that the banks are honest and trustworthy. But they aren't. It baffles me how so many people can decry and rail against big corporations and monopolies and yet still believe that big banks are somehow above it all, existing only to help people and make a little modest profit out of it. If only that were true.

[Jim_Campbell]

It baffles me how so many people can decry and rail against big corporations and monopolies and yet still believe that big banks are somehow above it all, existing only to help people and make a little modest profit out of it. If only that were true.

Who has said that on this thread? Quote someone, please.

[The Legendary Shark]

It baffles me how so many people can decry and rail against big corporations and monopolies and yet still believe that big banks are somehow above it all, existing only to help people and make a little modest profit out of it. If only that were true.

Who has said that on this thread? Quote someone, please.

Sorry, I meant in general, not specifically on this thread.

[Steven Denton]

"The person creating the debt is securing debt against future earnings. the bank then has the asset of that debt."

The future does not exist. Future earnings do not exist. All they can ever be are projections or guesses. There is nothing tangible, nothing real, to base the money creation on. That is, by definition, creating money out of nothing. You can't strike a gold coin today out of metal you expect to dig up tomorrow. You can't eat a loaf of bread today that won't be baked until tomorrow.

you can however pay for a loaf of bread with work you will do tomorrow.

If you have given the loaf of bread to some one for the promise of work you can transfer that work for alternative goods or services. Trading a thing you have for a thing you need may take several steps.

A part of banking is about mitigating future risk against different kinds of assets. so not all of a banks assets are either investments, debt, or currency but a mixture.

Debt is both an asset and a risk. the quote you have interpreted ad money out of nothing I just see as double entry accounting.

If you inflated your earning, or the worth or your collateral to obtain a loan that would also currently be fraud. If you defaulted on loans you're credit rating would be such as to make future loans unlikely as you would be too high risk to lend to. You would find it tricky to pass off IOU's for ever as would a bank company or nation.

I'm not sire any one thinks banks exist only to help people and make a little modest profit out of it, I'm pretty sure bakers have never been popular.

[Jim_Campbell]

You would find it tricky to pass off IOU's for ever as would a bank company or nation.

Notable exception: the US dollar. As the default currency for trading oil, the US has been able to print many billions of dollars for many decades, secure in the knowledge that those dollars will simply circulate round the international oil markets and never come within a thousand miles of a US bank. There's a quite persuasive argument that America's determination to crush Saddam Hussain was as much about his decision to trade Iraqi oil in Euros rather than dollars as anything else.

(It's interesting note the US's haste to endorse an abortive coup against Hugo Chavez a few years ago, given his decision to trade Venezuelan oil in Euros.)

[Modern Panther]

It baffles me how so many people can decry and rail against big corporations and monopolies and yet still believe that big banks are somehow above it all, existing only to help people and make a little modest profit out of it. If only that were true.

Sorry, I meant in general, not specifically on this thread.

Not an opinion I've heard anyone express, ever.

[Steven Denton]

You would find it tricky to pass off IOU's for ever as would a bank company or nation.

Notable exception: the US dollar. As the default currency for trading oil, the US has been able to print many billions of dollars for many decades, secure in the knowledge that those dollars will simply circulate round the international oil markets and never come within a thousand miles of a US bank. There's a quite persuasive argument that America's determination to crush Saddam Hussain was as much about his decision to trade Iraqi oil in Euros rather than dollars as anything else.

(It's interesting note the US's haste to endorse an abortive coup against Hugo Chavez a few years ago, given his decision to trade Venezuelan oil in Euros.)

yeah, it's tricky but not impossible and it could still bight America on the ass. The money is still created by the oil trade rather than thin air but there is a very real risk that the dollar could loose that trade thus loose value.  I suppose America would be shielded by the fact very little of that money makes it back into their system and they could channel it to international American banks (that would collapse if the stream evaporated)

I think it's hard to overstate how important regulation of the banking especially trading/investments sector is. The global economy is still relatively young and as such far more open to abuse then it will be in 50 or a hundred years time. (If we don't send the world back to the dark ages in the mean time)

banks/countries could build a pyramid scheme but they tend to collapse, and they are illegal.

[The Legendary Shark]

You can pay for a loaf of bread with anything the baker will accept. My point was not about loaves of bread and how to purchase them but about what is real and what is not.

You've been using IOUs as money for as long as you can remember. On every bank note it clearly states, "I promise to pay the bearer, on demand, the sum of X pounds." You take that note to a bank and try to cash it in and all you'll get is a replacement IOU.

Double-entry bookkeeping (considered fraud if anyone else does it) is the mechanism through which money is created out of nothing.

If debt were an asset, then banks should be falling over themselves to open accounts for people who already owe money - the more the better. Can you imagine going to a bank for a loan and trying to offer a million pound debt as security? You'd get laughed out of the building - but this is how banks do it. They are the only business entities which regularly claim debts as assets. It's like saying, "hey, we've extracted all the gold from this mine, leaving us with a big, empty hole in the ground, and now it's worth more than it was before we began mining." It's like saying an empty shop is worth more than a fully stocked one. Only in the smoke-and-mirrors world of banking does this kind of madness pass as sanity.

In many ways money has to be created out of nothing as it is not a naturally occurring substance (though naturally occurring substances can have values assigned to them and be used as money).

[Jim_Campbell]

Sorry, I meant in general, not specifically on this thread.

So... given your general antipathy towards governments and the regulation of business, how do you propose to restrict the unethical behaviours of the banking establishment? Your base position seems to be: let everyone get on with it with as little regulation as possible and the the market will sort it out. Are you of the opinion that less regulation of the financial sector would lead to better outcomes?

[Steven Denton]

of X pounds." You take that note to a bank and try to cash it in and all you'll get is a replacement IOU.

Double-entry bookkeeping (considered fraud if anyone else does it) is the mechanism through which money is created out of nothing.

The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase.

It's not fraud and you won't go to prison for it, whether you are a bank or an individual. it's a method of tracking outgoings and assets.

I think you are wrong in your understanding of how banking and wealth creation works in principle and I believe every subsequent point or argument you make is based on this mistake, thus inherently flawed. We are talking in circles because we cannot agree on our initial definition.

[Modern Panther]

how do you propose to restrict the unethical behaviours of the banking establishment?

Jim, Jim, Jim... you clearly think like a statist.  It's not your faults. You've been brainwashed by the government.  The banks only act immorally because the government allows them to act immorrally.  If the government wasn't there to let them, they wouldn't. And if they did, market forces something something. 

New banks, running at less profit would appear or be kickstarted or something, funded by ordinary working people and providing a lower level of service, using cash the workers won't have because we've done away with legislated workers rights, because we don't need them because if people didn't want to be paid shit wages they would quit their jobs and set up their own companies something something invisible hand.

[The Legendary Shark]

So... given your general antipathy towards governments and the regulation of business, how do you propose to restrict the unethical behaviours of the banking establishment? Your base position seems to be: let everyone get on with it with as little regulation as possible and the the market will sort it out. Are you of the opinion that less regulation of the financial sector would lead to better outcomes?

Let me turn that appeal to consequences argument around.

Given your general belief in governments and the regulation of business, how do you propose to restrict the ongoing unethical behaviours of the banking establishment? Your base position seems to be: let everyone do as they're told and the bankers and politicians will sort it out in an unbiased and widely beneficial way. Are you of the opinion that more in-house regulation of the financial sector and meddling by self-serving politicians will lead to better outcomes?

of X pounds." You take that note to a bank and try to cash it in and all you'll get is a replacement IOU.

Double-entry bookkeeping (considered fraud if anyone else does it) is the mechanism through which money is created out of nothing.

The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase.

It's not fraud and you won't go to prison for it, whether you are a bank or an individual. it's a method of tracking outgoings and assets.

I think you are wrong in your understanding of how banking and wealth creation works in principle and I believe every subsequent point or argument you make is based on this mistake, thus inherently flawed. We are talking in circles because we cannot agree on our initial definition.

The way double-entry bookkeeping works in everyday business is simple. Say I own a shop and sell you a bottle of pop for a quid. The entry in my stock ledger will decrease by one bottle and the entry in my cash ledger will increase by £1. This is the proper way to do it.

The way banks do it is different. Their cash ledger would go up by £1 and their stock ledger go down by one bottle. Then, in a second set of books, the empty space where the bottle was will be counted as an asset because there's room there for another bottle. It counts the space, the nothingness, as being something.

If one person puts £1,000 into a bank* and another person borrows £1,000, that bank's actual balance sheet is £0. However, the bank will claim to have £2,000 on its books. It will claim the £1,000 invested as an asset and also claim the £1,000 owed as an asset. Not only is the bank claiming assets it hasn't got but, thanks to the application of fractional reserve lending, it can lend out even more money based on that fraudulent £2,000. Money created from nothing.

I think the fact that you refer to wealth creation when we are talking about money creation is rather telling. Money is a medium of exchange, wealth is property and assets above and beyond the levels required for basic survival. Money is a part of wealth but wealth is not just money. This is fundamental stuff and if you don't know the difference between the two, or consider them fungible, then I suppose you're right when you say we're talking in circles.

*Imagining a vastly simplified bank with only two customers for clarity.

[Jim_Campbell]

Are you of the opinion that more in-house regulation of the financial sector and meddling by self-serving politicians will lead to better outcomes?

No, my position is that we need better politicians, ones who are not slavishly dedicated to the neoliberal economic agenda of the last thirty years that's got us into this mess in the first place. I'm of the opinion that the investment banks need to be decoupled from the retail ones, so that the financial institutions can't use the general public and small businesses as a human shield against the repercussions of their investment arms' ruthless gaming of the financial system.