<Para> Yeah and all this because of fractional reserve lending which is the real killer here.
- Referrenging to that fractional reserve lending leads to people being allowed to take loans they can't handle. To me it seems like a false accusation. I agree fractional reserve lending helps make this problem larger compared to full reserve lending. But do note that it is also possible and likely with full reserve. Also take into note that reserve ratio and open market operations (money supply) work hand in hand. If the case was full reserve lending, central banks would have to use bigger open market operations to get same effect. I believe total amount of loans would be smaller. But would it save anything? Hard to say.
<Para> It actually shows you from history that there are alternatives, but you are as many others, indoctrinated and brainwashed that this is the ONLY system that exists, because it's been (ab)used for 300 years!!
- Please, don't be so rude here. I have not watched the video, it is 3h30mins long. You are referring to a lot of it, maybe you could also share some arguments that are presented? I'm sorry for being rude but you don't give the best image of you by simply repeating a mantra you heard somewhere. Facts or opinions, but I would love some argumentation!
- Also I feel you are referring to me when saying "you are as many others, indoctrinated and brainwashed that this is the ONLY system that exists". Either you have not read my posts or you just don't care, but I have said many times I don't think this system works well. I've also been asking for alternative systems, you haven't really been open about those. You have previously written that money printing is no issue and just ignore the cases we have presented you (Japan, Germany, Sweden). Printed money has to have some basis. Simply raising amount of notes has been proven not to work. If you have $100 against 1kg of gold and you print another $100 bill and still have 1kg of gold, the gold price has inflated. Simple example but bare in mind this is losely what happens when you simply try to print money. Please give me an example where, in large scale, it has had good implications. Please explain why it would not lead to inflation. Argument your answers! I like you quoting Mr. Friedman. Here's a quote by the very same man: "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." If you do some researh, Mr. Friedman actually thought you could remove FED and, what you are missing here, "instead of government involvement at all, he was open to a 'real', non-government, gold standard where money is produced by the private market". This is both against and for your ideology. You don't like central banks but I guess you hate private banks even more. His point against central banking is that decision making power is given to so few persons. Humans as they are, they make mistakes. They have too great responsiblity. If I understand correctly, he was not against fractional reserve lending per se (don't remove the gap finns!). Rather he was against central bankind and would have no problem with private banks creating money supply based on a mathematical model. So basically no judgemental power to private banks, but instead they would follow a model.
At this point I'm actually interested in spending 3h30mins on your video. I wouldn't mind a small history recap.
<Para> Controlling the quantity of money supply is what controls inflation - and by fractional reserve lending, banks are legitimized money printing factories, Just because you don't actually PRINT them, doesn't mean you are not creating them.. electronically.
- Private banks increase money supply when there is fractional reserve lending, that's a fact. But bear in mind that they are expected to do so! Central bank makes the call on the ratio as well as initial money supply (initial deposits). Central banks control actual money printing, printing of notes. Private banks are not in control of reserve ratio or note printing. And you don't need electricity for fractional lending
I'm not against full reserve lending! My initial thought about going into full reserve lending: higher costs, more stabilized growth. Does not sound bad in the end. I have not thought this through and I would not yet give vote for either.
<Para> And you stated earlier banks were not able to print own money, but you don't think about electronic create own money (which in essence is the same thing). Isn't that a game changer?
- I guess the last answered this one too. Different concepts, but if you think of it as "increasing money supply" (as I believe you do), I agree with you.
<Para> If airline company is threaten by bankrupcy, LET THEM FAIL. If big bank going down.. LET IT GO DOWN. Means it was fucking up somewhere, so why print more money to keep letting them fuck things up?
- The airline was just a real life example on where governments actually spill tax payers money. Italia has supported it's Airline, so has Sweden and Latvia too for example. I'm sure many others too. This leads to unhealthy competition, which to me sounds bad. On the other hand I can't blame a government if they want to maintain independence in air transportation.
<Para> Good idea, don't need taxes. tax are just illegal way of stealing from people.
- Seriously? Usually people who are against 'capitalistic pigs' like taxes! I have not heard of any country where tax collecting was illegal, maybe you just mixed your words... But you can call it "stealing from people" if you like, that's exactly what robin hood did. He took from the rich and gave to the poor, taxes too are a means of 'income transfer'. I'm a bit lost with you. You say taxes are used (and I get the image you mean 'most of it goes into') for paying interests on government bonds that central banks have bought (=central bank giving a loan). I have tried to explain it many times that central banks are not owned by private investors but rather governments. European Central Bank's suprlus is divided to Euro countries. It is true that private banks have tiny stakes on FED, but they are not meaningful. Governments are not fucked by themselves (central banks they have created). What you propably are going after is this: when central bank buys government bonds, government deposits this money into private banks. Private banks pay interest to governments (hey, there's income for governments!). But the crucial point is that now private banks can give loans and ask for a higher interest. Here's where the private banks make shitloads of money! Say now they might need to pay 1,5% interest to government for the money, but they get atleast 2% on the loans they give out. And 2% is really the lowest, 7% is not far from reality either! 5% difference on say $100.000.000 is significant amount of money. And $100 millions is not a big figure. Do bear in mind banks also take risks on the loans, just as we have seen with US housing crisis. I really would not like to dig into Icesave at the moment, this answer is already way too long
But please share some facts on the deal. I believe foreigners had deposited money into one of the icelandic banks and when 'shit hit the fan', they were left without their savings. Someone suggested Icelanders would pay all depositors back their money via taxes? Please enlighten me, I'm not sure if this is the case? Quick googling revealed they have had a vote on the issue.
<blAze> I'm not against taxes, but it would be interesting to hear what are the alleged benefits of fractional reserve lending to the society, if there are any.
- I have not read any paper on this issue. I imagine it will improve growth. And just like with bikes, if you go faster, it hurts more when you fall. It seems to work two ways, just like Finnish government used to handle fiscal policy. When government had lots of income, every party was demanding different projects to spend the money. Even to the extent where loans were needed. Nothing was put aside for the bad day. Works two ways and it really destabilizes economy. If you strengthen oscillation, the bottoms will be lower too.
<Para> A central PRIVATE bank, lends money (printed out of paper) to the government AT INTEREST. The security the government puts up, to pay this loan back, is by claiming tax from the people. Same thing in the states, huge part of taxes goes to foreign banks on interest on loans or to the FED
- Please prove FED is a private bank, that the president of US or senate is not the ones naming representatives. Please prove ECB is private in the same sense. Please note this is not personal, I have nothing depending on these issues. I have quoted one, not so trusty source in this case, the FED website. Please show me the light!
- If you think money printing is fine and there is no such thing as inflation, I guess government taking loans doesn't make much sense. I believe what has happened in Germany or Japan or some other money printers. Or more recently, please Para, study what happened to Zimbabwe. I myself have held a Zimbabwe note worth $100.000.000. And that was not the biggest note there was! They had the great idea of printing money, initially $20,5 trillion in order to buy some foreign currencies. Later 'another' $60 trillion. Increased soldier and police salaries 300%, other civil cervants 200% (source Wikipedia, kill me for this). I don't believe it works, but please show me how it could. To me it makes governments take loans, just like you and me. If we can't afford something now AND at the same time we have certainty there will be future income (and then some) to cover the payments, loan is ok. "Huge part of us taxes goes to foreign banks". Facts? I don't have trustworthy sources available, have to google for figures and these come from Wikipedia. Please correct me. US tax expenditure 2010:
1. 23% health care (Medicare & Medicaid, I assume means health care)
2. 20% social security
3. 20% defense
4. 19% discretionary
5. 12% other
6. 6% interest
Is this data wrong? 6 % interest, so roughly 3% to foreigners. Yes, vast amount of money, but "huge part"? I'm assuming half the loans are from foreigners.
<Para> Hey, what if they printed own money, debt free... would make a difference?
- Zimbabwe, Japan, Germany...
<blAze> Is something forcing government to borrow money from private banks though?
- Not sure about this, but I would imagine FED also has some limits and does not want to go Zimbabwe...
<Para> no it's not?? Why should ANY country EVER borrow from a bank? Makes no sense. At least not at interest.
- Again, Zimbabwe agreed with you. Makes sense if you are in need of money now, believe you can pay back and at the same time believe in inflation and try to avoid it.
<Para> But if a bank could be held accountable for giving out bad loans etc. maybe they would think twice about doing that?
- Nice to hear this, I totally agree with you. Well, indeed if bankes would fear they will get treated the same way as Lehman Brothers. Seems Europe is playing pussy here, too afraid to let banks go down. I'm not taking stands here though, it's too hard for me to weight all the consequences. But it might be refreshing
Yes we have seen big banks go down and it has not been the end of the world although there has been very serious consequences. Depends on your angle, you might not even notice a thing or if you had the right derivatives you might be a millionaire!
<Para> So is it better for taxpayers if country print own money, and pay back at no interest, than to pay back to private banks with huge interest?? You seem really slow on this subject yet it's so simple.
- Come on Para, don't insult others like this. Please show how printing own money would be a reasonable solution, why it didn't work for Zimbabwe? Countries paying huge interests? Do you know why Italy pays twice the interest as Finland? They took more loan than they can handle! Why Greece pays ten fold what Finland pays? They fucked it up. What (until otherwise proven) a healthy country pays as interest is not HUGE. Risk-free rate in Europe is 1,5% so Finland pays roughly 1% risk margin on the loan. Not too much considering the world we live in at the moment.
<Para> Country can print own money to do some project, when tax payers pay regular tax, they simply take this money they loaned out of circulation, then u got no inflation, no debt and progress. And no big banks taking all money and dictating politics.. sounds too good to be true? At least for the banks and people in power now - they don't want this change for sure
- I don't follow your logic here. Regular tax? Do you mean a 'normal amount'? "They simply take this money they loaned out of circulation" <- what do you mean by this? What money was taken out of circulation? And by printing a significant amount of money, how can you avoid inflation? Would you simply mean you would save for all your purchases beforehand and never loan money? I agree this is very safe and sound! That's how I was raised, yet I have walked over my upbringing and taken some loans. I prefer taking a mortgage to living on rent, but that's just a personal matter. As long as it's something I can pay back, I'm fine with this loan. This way I can create some wealth for the next generation. If I just paid rent, I'd feel I'd be making rich people richer.
<Para> ... why should they earn money on loaning to governments? What purpose does that serve public interest? Explain that to me please.
- If I understand you correctly, the logic is: central bank buys government bonds, government deposits this money into banks and then sells bonds to these same private banks. This does sound stupid, agreed
I'm not sure how much this happens, but I guess government would not pay any more interest than it is getting from the bank. What does happen though is interest funds buy government bonds so private investors can get into government bonds. Translation: you and me are able to lend money to governments via investment funds. We would not ofcourse be thinking we are lending money for US to go into war, for us it would be a means to diversify our portfolio.
<Para> But in ANY case, it's better sollution than current to give power to banks. Government is ALL you have.
- Please expand. Better solution would be going Zimbabwe style? "Give power to banks", could you open this too? Central banks, private banks, who? Power to do what? Central banks' power to influence economy or private banks' power to do something?
- Government is all you have? What do you mean?
<Para> Its the choice, banks or government, who do you want to run your world?
- What if we didn't help the banks in trouble this time? Would that not be government running the world? Or if government decides to support the banks, is that not yet again government decision? Sure I see some point here, the fact our financial system works through private banks makes governments very cautious on letting banks fall. What if we had tighter regulation, would we be able to prevent banks getting into trouble? Do you have an alternative system we could use instead?
<Para> And it really is simple, but instead of doing the run around all the time, can you adress my points specific? Why should banks earn interest from taxpayers to bring money in circulation
- "The seven members of the Board of Governors are nominated by the President of the United States and confirmed by the U.S. Senate." (c) dedi a few days earlier. And todays post requests you to bring up some facts that FED or ECB is indeed a private bank. I gave you quote from FED website which I agree is far from credible against your accusation, but please prove me wrong. I do believe though you can find proof for my quote from Federal Reserve Act. I'm sure you can find this from another government website too, but FED's link here: http://www.federalreserve.gov/aboutthefed/section%2010.htm. It also openly presents that each member will be reseiving an annual salary of $15,000. (together with actual necessary traveling expenses, notice these represantatives do not receive bonuses which is contrary to dare I say ALL private bankers)
<Para> You think banks are better suited and more trustworthy to be in charge of the most important thing in our society?
- No I don't think private banks are trustworthy at all for this task. Central banks act as representatives of their governments. If they fail to do their job (not based on your judgement, but rather by the government who entited the central bank.
<Para> Like I'm saying the main problems are those things, and he's talking about insurrance stuff.
- I have not talked about insurances at all. I have used the term insurance when I explained how credit default swaps work. It is not relevant to discussion on fractional reserve lending or central banking, it was me giving my sight on what happened in US (answering blAze). Either I didn't write it clearly enough or you missed a part there. And I have before and in this post explained how I see central banks work and am asking you for any proof this is not correct. I've also quoted some websites to confirm my beliefs. I don't think I'm getting it all and I'm not (again) saying this system works well. Or that this is the best one there is.
<kkkk> Year 2008, subprime mortgages and CDS's beg to differ. (referring to me saying "A good customer is a customer who owes the bank an amount that does not bankrupt him, a bad customer is one who has too much loan and will never be able to pay it back."
Anyways money makers documentary was extremely interesting because of the historical references.
- Oh the contrary, the customers who couldn't pay back their loans ran banks into problems. The customers defaulting on their mortgages, collaterals losing value on declining market, it is by no means a good combination to banks. Good business was selling CDO's, bad business was financing them with subprime loans.
- Sounds really interesting! Maybe I'll find 3h30mins!
<kkkk> Banking, financial sector and politics in the us are completely fucked up, how anyone could argue otherwise is beyond me.
- Pretty much agreed here. As a whole it did completely fuck up, big time.
<Hooraytio> You cant just print more money without something, like gold, to back up its value. The current system may suck but you cant solve it by printing money all over the world.
<Para> If a bank gets 1000 kroner, it can lend out 10.000
- Facts please. 1:10 ratio here means they can lend 909 kroner, leaving 90,9 in the bank. Thats 90,9:909 = 1:10. In full-reserve system you could just fine lend 1000 kroner! But the trick with full-reserve is that the guy who deposited that 1000kr in the first place can not withdraw his money until the loan is paid back. Basically in full-reserve banking system depositor would not make a deposit but instead loan the money to the bank and the bank would simply put this through to a customer who want's to loan money. Again, correct me if I got it wrong. I'm no specialist despite writing on these issues. But you can get to the 10000kr with fractional calculus. You now have to deposit that 909kr, then take a new loan on that etc. This does not explode as would happen if bank could lend out ten fold the deposit, it expands the money supply to the ratio 1:10. And as I earlier posted the M-figures, their ratio is 1:10 and not 1:indefinite. The problem is when everybody wants to withdraw deposits at once and nobody pays their loans.
Ps. You could also ask why government has to spend more than it can collect in taxes. That's like asking why should you spend more than you earn.
ps2. added fractional calculus notes...