Positive Money Forum • View topic – People here are misunderstanding modern banks #WAYBACK MACHINE ) Lazarus Post.Update)

It is incorrect to say that banks print digital money. If the bank creates any money then somebody somewhere *must* be ‘happy’ to be *owed* money. You can for example create money by writing a cheque, giving it to a friend, and that friend using it to buy something from somebody who thinks you are good for the claim against you.

The main difference between your own money creation, and the banks money creation, is that your created money is not counted as part of the official money supply.

Banks might be supervised or licenced but they do not have special money making powers any different to what you or I already possess if we network and have relationships with people who trust us. Obviously we could only operate in this manner if we were prudent, took security and had back up lines of credit. We would be just like a bank.

Therefore i get the impression that part of the mission of this board is based in something that does not exist or is impossible.

If banks were not allowed to create 100% or 120% loans for homeowners wanting mortgages where the regulators have said that home loans are less risky than other loans then this crisis would not have arisen.

Juddebar,

I think you are slightly confusing what it is that most if not all who support positive money are concerned about.

What we object to is the Fractional Reserve Banking System. Under this system Banks only have to back a proportion of the money they Lend with Capital current adjustments to their regulation put this figure at between 9 and 10 %. Most of the Money Supply 97% is now created as debt money by banks creating loans, in practice with off balance sheet derivatives the Banks actually have been operating and will in all likelihood continue to try to operate on much lower reserve ratios.

To say that we can all be a bank is not true the banks are Licensed and Banking Licenses are required to do this commercially, international agreements cover the aspects of reserves compliance etc that Banks have to comply with to be part of the system. Banking is a Government licensed monopoly on the creation of the money supply. Privatising the money supply is a particularly silly thing to do if one believes in self determination and democracy for individual nations and citizens.

Private Banks Control the money supply and and are not 100 % able to meet all of the commitments they make further the Debt they Create also is created with interest and not enough money is created to pay the interest so for interest to be discharged it is a requirement of the system that further people go into debt, this is why the Banks and Government treasuries place so much importance on the idea of GDP growth, 3% Growth ( Inflation) is considered to be the healthy overall average growth that allows the system to operate efficiently.

The System can be changed in several ways to make it fairer,, I read this excellent Article yesterday by Ellen Brown and it explains some of this in more detail along with some of the alternative systems that still allow for free market Capitalism but would end the damaging monopoly that private Banks have on the creation of the money supply.

http://www.truth-out.org/global-debt-cr … 1307386310

Another excellent site with similar aims and explainations to this organisation.

http://prosperityuk.com/the-solution/

Roger

It is not clear to me what you are objecting to. I already pointed out that banks are licenced.

It is not correct to say that fractional reserve banking creates a problem for interest payments. The bank is merely a service provider like a plumber that charges interest as a fee, where the profits are redistributed to the owners in the community. Steve Keen, has a computer model to show this is true. And you do not need that model to see that interest is simply a fee that comes from the economy and gets returned to the economy – just like any fee does.

Ellen browns web site also makes the claim the system must expand to be sustainable. This is not true. The system can expand with growth or contract with recessions or be between these two.

http://prosperityuk.com/the-solution/ Seems to be claiming that the people can QE and have debt free money. QE can only work if the government is prepared to unwind the transactions when this is necessary/ if it necessary because so much money has been created and loans have to be scaled back, taxes increased, or QE unwound.

Loan sharks operate in the community without licences and operate as banks do. Anybody can operate like a bank does. If you keep it small, amongst family and ‘friends’ nobody is going to pay any attention. In the USA for example there are no longer any laws restricting companies from creating money. However like getting a car you need a licence, but getting a car licence does not give you special powers to drive. Being a licenced bank does not also give you special powers – but it might enable you to get cheaper borrowing – if you have the necessary collateral in the BOE system and you have the turnover to justify the cost of access to that system.

I have the impression people here think that banks have some kind of special powers given to them by government whereas in fact they have restricted powers. There is therefore no magic out there for the people to possess and profit by that i can see.

The problem for banks is insufficient regulation. Allowing the people to operate the banks is not going to solve anything unless the people understand they cannot have more money when times are difficult – unless they were prepared to ‘save’ for the difficult times in advance. Which in turn means the banks saying ‘no’ more often, and being less inclined to lend on projects they cannot see working/being profitable to end their created liabilities – it means therefore austerity or poverty.

Juddebar,

I am afraid that your superficial explainations, of Political Economy and the theory of money and how money as a means of exchange should serve and not be parsasitic upon the Economy it is created to assist, are just not convincing or adequate to answer the charges laid at the door of the Banking system.

The current system needs reform Regulation is a sticking plaster already the Banks are indicating their strong propensity to first resist and then circumvent anything they find inconvenient their attitude is Its easier to seek forgiveness than it is to seek permission.

The basic objection to the system remains the same as Henry Ford and Thomas Eddisons objections at Muscle Shoals.
That the Tail is trying to wag the dog is not in any doubt in my own mind or that of many others.

You appear to be somehow supportive of the current system and feel that with some additional regulation everything would be fair. The Sovereign debt crises and depth of continuing recession is all as a result of the banks still being insolvent due to their abuse of their monopoly on creating money and the various ivory towers they built trading money and financial instruments for the sake of their own short term enrichment at the expense of the rest of society.

By all means try to defend the system as it is but please be clear about what the system actually is. It is as we describe and as we object to it and what is proposed as possible solutions are all documented and are the result of many influential and learned research and development papers in academia and commerce. There is a whole body of sharia learning and writing on money in Islamic societies, the Michael Journal and other parts of the Established church have also published critiques of and solutions to the present system that is simply un fit for purpose.

I suspect you know all of this already, why not make the case that the system as it is makes us all better off If you believe that is the case then lets hear why. The evidence of the waste to the greater good that the over pricing of the service they provide by the current private banks is there for all to see. Bank profitability represents 9% of GDP when one economist I have read suggests 3% would be more in line for the sort of service they are providing.( I think that was for Australia, internationally I am not sure what the figure is but you get the idea of where i would take that argument.)

I will not bother placing links and things in this response the various papers are all easily download able via the internet and already linked to on my Blogs and those of many others.

Web sites of several other organisations interested in this issue are also linked to my Gravatar.

http://en.gravatar.com/rogerglewis

As you will gather it is unlikely that we will ever agree that the existing system is capable of reform the fundamental issue for me is that Governments should issue their own Debt privatising that seems profligate beyond all forgiveness to me.
.

Good to be having the discussion though, I would be interested to hear why you think with Additional regulation you feel that 1. the regulation will work and what excesses and folly’s it will prevent in the future and 2. why you think the banks otherwise do a better Job at the cost they impose for providing as I see it a fairly straight forward book keeping excercise, made all the easier in the information age.

All the best
Roger

RogerGLewis wrote:Juddebar,

I am afraid that your superficial explainations, of Political Economy and the theory of money and how money as a means of exchange should serve and not be parsasitic upon the Economy it is created to assist, are just not convincing or adequate to answer the charges laid at the door of the Banking system.

The current system needs reform Regulation is a sticking plaster already the Banks are indicating their strong propensity to first resist and then circumvent anything they find inconvenient their attitude is Its easier to seek forgiveness than it is to seek permission.

The basic objection to the system remains the same as Henry Ford and Thomas Eddisons objections at Muscle Shoals.
That the Tail is trying to wag the dog is not in any doubt in my own mind or that of many others.

You appear to be somehow supportive of the current system and feel that with some additional regulation everything would be fair. The Sovereign debt crises and depth of continuing recession is all as a result of the banks still being insolvent due to their abuse of their monopoly on creating money and the various ivory towers they built trading money and financial instruments for the sake of their own short term enrichment at the expense of the rest of society.

By all means try to defend the system as it is but please be clear about what the system actually is. It is as we describe and as we object to it and what is proposed as possible solutions are all documented and are the result of many influential and learned research and development papers in academia and commerce. There is a whole body of sharia learning and writing on money in Islamic societies, the Michael Journal and other parts of the Established church have also published critiques of and solutions to the present system that is simply un fit for purpose.

I suspect you know all of this already, why not make the case that the system as it is makes us all better off If you believe that is the case then lets hear why. The evidence of the waste to the greater good that the over pricing of the service they provide by the current private banks is there for all to see. Bank profitability represents 9% of GDP when one economist I have read suggests 3% would be more in line for the sort of service they are providing.( I think that was for Australia, internationally I am not sure what the figure is but you get the idea of where i would take that argument.)

I will not bother placing links and things in this response the various papers are all easily download able via the internet and already linked to on my Blogs and those of many others.

Web sites of several other organisations interested in this issue are also linked to my Gravatar.

http://en.gravatar.com/rogerglewis

As you will gather it is unlikely that we will ever agree that the existing system is capable of reform the fundamental issue for me is that Governments should issue their own Debt privatising that seems profligate beyond all forgiveness to me.
.

Good to be having the discussion though, I would be interested to hear why you think with Additional regulation you feel that 1. the regulation will work and what excesses and folly’s it will prevent in the future and 2. why you think the banks otherwise do a better Job at the cost they impose for providing as I see it a fairly straight forward book keeping excercise, made all the easier in the information age.

All the best
Roger

Bankers have created a mess, but so have peoples desires for more stuff that manufacturers make. Some people more so than others have then become victims of various peoples desires to make money. And as you point out we can go around in circles on the politics forever i think?

However banking is not rocket science and we ought to be able to agree on how a bank operates.

I get the impression you think a bank operates differently to the way i think it operates. And that is the part i am attempting to focus on at the moment.

For example the concept of money creation by private banks is a bit misleading if the *owed* money sitting in the loan account is treated as money that is created out of thin air. It is only *owed* money so naturally it *can* be created out of thin air.

And as i have tried to emphasise, i can create money by writing you a cheque.

But you seem to think the banks are doing more than just writing you a cheque when you get a loan?

I am not sure if we are crossed purposes or not?
3% of the money supply is Cash and Coin the rest is thin air. The Thin air is created and controlled we are taught or at least I was by issuing gilts which form the basis of the banks liquidity ratio ( This is all rough, for the real exposition get a text book). Paper Currency is created by FIAT ( law, not the large italian carmaker). THe Central Banks, BOE and FED etc. We have to pay our taxes with money created by those guys the government wont take great aunty mildreds IOU it has to be the good old fashioned Green or a Check/ or transfer from one of the big banks.

So that’s your answer in there somewhere I think.

Now how banks work and how they like us all to think they work are two different things. I am happy with this explanation at economania the Economics portal for Mensa members. They have no particular axe to grind except that they like to get things correct.

http://www.economania.co.uk/

When you get a ‘loan’ from the bank…
there’s no loan, not as you or I would know it. There’s no actual transfer of funds. The money that appears in your account as a deposit is created by the bank, literally from nowhere. This is where most of the money in the world has come from, it’s how money gets born, if you like. This money creation is usually conditional upon your prior agreement to eventually hand that new money over to the same bank that created it, together with some more money too (interest). Most people have absolutely no idea this is how banking works.
Read more ( Click URL above)

RogerGLewis wrote:I am not sure if we are crossed purposes or not?
3% of the money supply is Cash and Coin the rest is thin air. The Thin air is created and controlled we are taught or at least I was by issuing gilts which form the basis of the banks liquidity ratio ( This is all rough, for the real exposition get a text book). Paper Currency is created by FIAT ( law, not the large italian carmaker). THe Central Banks, BOE and FED etc. We have to pay our taxes with money created by those guys the government wont take great aunty mildreds IOU it has to be the good old fashioned Green or a Check/ or transfer from one of the big banks.

So that’s your answer in there somewhere I think.

Now how banks work and how they like us all to think they work are two different things. I am happy with this explanation at economania the Economics portal for Mensa members. They have no particular axe to grind except that they like to get things correct.

http://www.economania.co.uk/

When you get a ‘loan’ from the bank…
there’s no loan, not as you or I would know it. There’s no actual transfer of funds. The money that appears in your account as a deposit is created by the bank, literally from nowhere. This is where most of the money in the world has come from, it’s how money gets born, if you like. This money creation is usually conditional upon your prior agreement to eventually hand that new money over to the same bank that created it, together with some more money too (interest). Most people have absolutely no idea this is how banking works.
Read more ( Click URL above)

Roger a bank deposit that you possess ‘in a bank’ is the banks promise to you. All you have is a promise.

Naturally the bank can make as many promises as it wants to you unless it is regulated.

Until you can show me why my promise of money to you is different to the banks promise of money to you, we are going nowhere fast.

Quoting more people to tell me that the banks create promises from nothing is not going to move this forwards.

I do not follow the argument you make in fact I do not think you have made one.

The banks promise is different in the important aspect that it is only the promise from the bank that the Government will accept as my taxes, That’s the FIAT bit.

RogerGLewis wrote:I do not follow the argument you make in fact I do not think you have made one.

The banks promise is different in the important aspect that it is only the promise from the bank that the Government will accept as my taxes, That’s the FIAT bit.

As far as I know the UK inland revenue department has its own bank of england reserves account where there are only fiat transfers. From this account and others like it, the UK government pays wages and buys whatever it needs. The method of operating these accounts is that they are always in credit and only posative in credit amounts are transferred from bank to bank and bank to government.

Therefore the bank promises you fiat and pays the government fiat when it deducts your deposit money.

I can issue you with my promise to pay your taxes exactly as a bank issues you with a promise you can use a bank loan to pay taxes.

It is however probably true that i can no longer go to the UK tax office and pay your taxes for you. You would have to take my promise and i would have to ensure it was ‘operational’. And that is all the bank is doing.