# So where have all these billions of dollars gone?



## moXJO (18 September 2008)

So where has all the billions of dollars gone from this current mess???
Who ends up with the money?


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## Garpal Gumnut (18 September 2008)

*Re: So where have all these billions of dollars gone*

mox mate, what you have to realise is that the billions never existed in the first place. Its all borrowed money, internal fiddling of the books, and smoke and mirrors. Its been a huge scam.

gg


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## brty (18 September 2008)

*Re: So where have all these billions of dollars gone*

moXJO,

Did the money even exist in the first place??

Which billions do you refer to??

brty


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## dhukka (18 September 2008)

*Re: So where have all these billions of dollars gone*

money heaven


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## nomore4s (18 September 2008)

*Re: So where have all these billions of dollars gone*



dhukka said:


> money heaven




lol, or money hell


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## moXJO (18 September 2008)

*Re: So where have all these billions of dollars gone*



Garpal Gumnut said:


> mox mate, what you have to realise is that the billions never existed in the first place. Its all borrowed money, internal fiddling of the books, and smoke and mirrors. Its been a huge scam.
> 
> gg




So the central bankers create a lot of it? I have a very vague idea of how it all works. But from where were the loans initially created?


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## nomore4s (18 September 2008)

*Re: So where have all these billions of dollars gone*



moXJO said:


> So the central bankers create a lot of it? I have a very vague idea of how it all works. But from where were the loans initially created?




moXJO, read this thread (click here) especially the posts by lakemac


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## Smurf1976 (18 September 2008)

*Re: So where have all these billions of dollars gone*



moXJO said:


> So the central bankers create a lot of it? I have a very vague idea of how it all works. But from where were the loans initially created?



Computers create the money "out of thin air". That's it. There's no physical gold, silver, zinc or even lead involved.

The closest it comes to that is coal, oil etc to generate electricity to run the computers. But that's a pretty indirect link between the coal and money creation since central bank computers are a trivial share of total electricity use.

Fiat currency is borrowed into existence. It's money backed by debt rather than metals etc. A loan is taken and the money is thus created on a spreadsheet somewhere. That's it. It came from thin air and that's where it largely goes back to in situations such as we've seen recently. 

All this is generally referred to as the "printing press" but the days of physically printing all the notes on actual paper are long gone.


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## nioka (18 September 2008)

*Re: So where have all these billions of dollars gone*

It is like the story of the king who had no clothes. Except it is a story of people borrowing and lending money that was only a figment of someone's imagination. Suddenly the boy at the back said "there is no money there" and everyone realised that people were selling shares that they didn't have for money that didn't really exist and at the same time buying McMansions, fast cars, and travel etc that did exist, using credit lent to them by the owners of the nonexisting money. 
This depressed them and so THEY have a depression which they expect us to suffer with them.
The money was never there. It is like someone making a promise that they never intended to honour. So now they will print some monopoly money so people will continue to play the game.


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## moXJO (18 September 2008)

*Re: So where have all these billions of dollars gone*



nomore4s said:


> moXJO, read this thread (click here) especially the posts by lakemac




Some fantastic posts by lakemac. He cleared up a lot of questions I had in one thread.


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## Kimosabi (19 September 2008)

*Re: So where have all these billions of dollars gone*



Smurf1976 said:


> Fiat currency is borrowed into existence. It's money backed by debt rather than metals etc. A loan is taken and the money is thus created on a spreadsheet somewhere. That's it. It came from thin air and that's where it largely goes back to in situations such as we've seen recently.



An important point that not many people realise regarding our debt based monetary system is that when you buy something with debt based money,  you don't really own it.

How can you own something when it has been purchased with a debt based monetary unit?

So when you think you own shares, property, cars, boats, etc, etc...  You don't if you purchased these things with Debt.

You think you own these things but it's all an illusion.

When we bother to go do a bit more research we discover that all of the Birth Certificates, Land Titles etc, etc, are actually used as security on the debt to the International Bankers who created the money out of thin air in the first place.


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## Happy (19 September 2008)

*Re: So where have all these billions of dollars gone*



Kimosabi said:


> How can you own something when it has been purchased with a debt based monetary unit?





Agree with the debt purchase, but what about something you bought for cash?

It looks as real ownership to me


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## nunthewiser (19 September 2008)

*Re: So where have all these billions of dollars gone*

i think cheech and chong described it perfectly....."up in smoke ...thats where the money goes................"


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## Glen48 (19 September 2008)

*Re: So where have all these billions of dollars gone*

It is all to do with greed and Human expectations. If you can't find a buyer what is it worth?


A house on a lake with 50 acres of lush green valleys sounds good  and you would think yes I would buy that but what if it was in Northern Russia  and you had to walk 100 K to get there not ph or power how much would you pay?

Some one buys an item and he seller puts the money in the Bank which is lent to the next sucker so he can buy a house.
Any one  want to buy a Buggy whip factory?


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## Tysonboss1 (19 September 2008)

*Re: So where have all these billions of dollars gone*



moXJO said:


> So where has all the billions of dollars gone from this current mess???
> Who ends up with the money?




Money is just an idea,.... It isn't real.

Cash is real in the sense that it is a coin or a piece of paper that actually exists but the currency that it represents is just an idea in our head.

For example if you added up the value of all the Property, Shares, Coal oil gas etc ,etc. there would not be any where near enough phisical cash to back it.

If you doubled the value of both the australian Property and stock markets over the next month we would all seem very rich on paper,... but if 50% of us tried to cash out at once there would not be the money available in the system so the price crash and we would all be poor again (on Paper).

Money and value is just an idea.


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## sam76 (19 September 2008)

*Re: So where have all these billions of dollars gone*



nunthewiser said:


> i think cheech and chong described it perfectly....."up in smoke ...thats where the money goes................"




Ummm I no expert on paint (as you can tell)


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## Glen48 (19 September 2008)

*Re: So where have all these billions of dollars gone*

It is all to do with greed and Human expectations. If you can't find a buyer what is it worth?


A house on a lake with 50 acres of lush green valleys sounds good  and you would think yes I would buy that but what if it was in Northern Russia  and you had to walk 100 K to get there not ph or power how much would you pay?

Some one buys an item and he seller puts the money in the Bank which is lent to the next sucker so he can buy a house.
Any one  want to buy a Buggy whip factory?


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## moXJO (19 September 2008)

*Re: So where have all these billions of dollars gone*

If the central bank runs the show then just how far are they willing to take us into this current drop? Surely they would be shooting themselves in the foot if they allowed a total collapse of the fiat system. Maybe they will shake out any bullish sentiment.


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## fimmwolf (19 September 2008)

*Re: So where have all these billions of dollars gone*



moXJO said:


> So where has all the billions of dollars gone from this current mess???
> Who ends up with the money?




Just look for some newly retired American bankers


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## nunthewiser (19 September 2008)

*Re: So where have all these billions of dollars gone*



sam76 said:


> Ummm I no expert on paint (as you can tell)




 that just about sums it up ........ Go the leaders of our financial world .hahahahahaha


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## chops_a_must (19 September 2008)

*Re: So where have all these billions of dollars gone*



Tysonboss1 said:


> Money is just an idea,.... It isn't real.
> 
> Cash is real in the sense that it is a coin or a piece of paper that actually exists but the currency that it represents is just an idea in our head.



Cash is money. Try again.


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## lakemac (20 September 2008)

*Re: So where have all these billions of dollars gone*

chops_a_must (and others) let me give you some definitions to help explain what is going on at the moment.

cash - that is what you have either as pieces of paper or coin in your hand/wallet/purse

money - that is what you have deposited in your bank account(s). Some of it (10%) is readily convertible into cash.

credit - that is the goodwill of the particular bank you asked for credit from that they are prepared to allow you to take to some other bank and hope that bank accepts their goodwill.

currency - the sum total of cash, money and credit of a country.

In general terms the amount of money is 10 times the amount of cash and credit is 100 times the amount of money.

ie. 1 : 10 : 1000
say you have $100 in your pocket.
most people might have $1k in a bank account.
and most will have a mortgage of $100k.

The point of this exercise is to show that cash is irrelevant in relation to credit (ie. goodwill between banks).

currency is devalued every time credit is created especially when the intrinsic value of the underlying asset base has not changed.

so given credit is 1000 times more potent than cash and credit is only the goodwill of one bank hoping another bank will accept it and goodwill is only an idea then ipso facto "money" or more correctly a fiat currency is just an idea, a means of exchange - nothing more.

in history most currencies were not fiat but redeemable for precious metal - particularly European currencies (the $US was earlier in the 20th C). One exception was China during Khans rule. They had a fiat currency (but no central bank - clever man).

so when people say cash is real they are incorrect if their currency is a fiat currency. However being real or not is not the issue.

The issue really is this: is the currency (in what ever form - cash, money and/or credit) readily exchangeable for something else. If people are confident in their currency and trust it then you have a means of exchange (again just an idea).

If they don't trust the currency (think Zimbabwe currency in recent times or the peso back a few years) then you can't use it for exchange except for minor items.

Central banks are putting massive amounts of credit into the system in an attempt to maintain TRUST in their respective currencies. Ultimately this just makes matters worse, devalues the currency (and not necessarily against other currencies either - I just mean devalues it relative to the underying asset base) and since you have more worthless currency unit - guess what - inflation (which correctly defined is having to use more currency units to purchase the same underlying asset - whose intrinsic value has not really changed eg. a litre of petrol is still a litre of petrol).

So where has the "money" in a general sense gone? As someone correctly pointed out - there was never any "money" in the first place - just credit or even more correctly "GOODWILL" between banks.

You will notice that for goodwill to work you need TRUST. Yes that's right folks trust. A bank will not extend you its goodwill ie. credit as in a mortgage, if it does not TRUST you to repay the loan will they.

You can prove that banks create credit or goodwill out of thin air by looking at their balance sheets. Assets ie. loans/credit are larger than liabilities ie. your deposits. Credit out of thin air. It is banks that create credit/goodwill. For them to do this, 1. they have to trust the other banks, 2. they have to trust you.

Central banks operate the same except the direction of the credit is aimed at the government ie. you the taxpayer. The government on your behalf takes the credit and bails out the untrusted "sub-prime" loans. After all what does sub-prime represent - less than trustworthy. It's not rocket science.

So as one US taxpayer put it "you mean I am having to pay for my house AND they layabout's house down the street?" Got it in one.

Ok so if credit is really thin air that means the amount of currency units you hand over to buy that McMansion is artificial and entirely based on goodwill which is entirely based on trust? Yes entirely.

Once you lose the trust, you lose the goodwill, you lose the artifical price and sometimes you will lose the underlying asset if you can't pay the loan installments because the investment bank you used to work for no longer exists...

Can you see why the big money wants to pull the rug from under China? Control of the underlying asset - land. Pull the credit, you halt an economy (cf Japan 1990, USA 1930 and others).

So if banks no longer trust each other they can't extend you goodwill because they are not sure the other guy is going to accept it or conversely they just don't trust the other bank's goodwill. Credit between banks dries up.

Enter the central bank - under the (false) impression they are helping stabilise the markets what they are in fact doing (and don't forget central banks were created by private banks under the guise of government legislation) is shoring up trust.

The fall in an over valued asset has to happen - economists call it mal-investment. Central bank intervention only prolongs the fall and often makes it go deeper. Similarly regulators with their silly "no short selling" edict are only delaying the inevitable. You have to get rid of the mal-investment. Let it die. The sooner the better.

Unfortunately the average punter wants more intervention - they get scared. Security. Trouble is security comes at a price - and a high one at that: Freedom. The most secure people in the world have the least freedom to do what they will (think SuperMax at Golburn Goal). I will take freedom and suffer the slings and arrows of outrageous fortune anyday...


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## nioka (20 September 2008)

*Re: So where have all these billions of dollars gone*

I was once accepting Bartercard payments for a service. My account advised me against it as, in his words, Bartercard dollars are not real money. Actually they were real money. They offered me real services or products in exchange for my real service ( at the time, storage units). I paid my dentist, my mechanic, purchases from an antique shop, a printer, etc before, guess who, my accountant decided it worked and I paid him with bartercard. 

Now that was REAL money. By providing something tangible (storage facilities) I could get something tangible (my truck fixed). That is how money is supposed to work.

Can someone explain to me the tangible benefit of someone transfering a benefit through deliberately short selling a stock to such an extent that the primary aim is to send the price plummeting so they can profit. If that is OK then bank robbery is ok.

Short selling without owning the stock to sell is the best example of using money, to barter with, that doesn't exist. It is using credit they don't own. It is a scam that should be outlawed. 

Legitimate short or long selling can offer the benefit of insurance and as such is real. 

We have, by accepting or giving payment for something that didn't exist, created a lot of fictional dollars. This will reduce the value of the real dollars. One aussie dollar will buy, on average, less than half the goods and services that it would buy 15 years ago. The bartercard dollars have the same value now as they had then. ( three months storage = 1 dental crown.)


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## Smurf1976 (20 September 2008)

*Re: So where have all these billions of dollars gone*

Say that I had 10 cars and 70 litres of petrol.

On paper, I can quite legitimately claim that I can fill all of these cars tanks full of petrol. And indeed I can, just not all at once. I can make them all seem full if someone checks one car every half hour - I just put all the petrol in the car they're about to check then pump it out again afterwards and put it in the next one.

The financial system is very similar. A small base that is real underpinning a lot more stacked on top that _seems_ real until you try to actually use it and find it's not really there. Just like my 10 full petrol tanks when in reality I've only got enough petrol to fill one of them. It all seems fine until we try and drive the cars all at once.

A substantial part of the entire economy is now "fake" in that it involves nothing more than shuffling money around for no genuinely productive reason. In terms of actual wealth creation, it's as mad as freighting the same goods back and forth just for the sake of it - it's creating a lot of visible activity but ultimately generating no real wealth whatsoever, indeed it's consuming it.


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## Spanning Tree (20 September 2008)

Imagine you have a Van Gogh painting and everyone thought it was fantastic and someone wants to buy it for $1 million. Then all of a sudden the buyer realizes that it's a fake Van Gogh painting made by some kid. He is then only willing to pay $1 for it. The $999,999 that vanished existed only because the buyer valued the asset poorly.

I am using the painting as an analogy for the stock market.


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## nioka (20 September 2008)

*Re: So where have all these billions of dollars gone*



Smurf1976 said:


> Say that I had 10 cars and 70 litres of petrol.
> 
> On paper, I can quite legitimately claim that I can fill all of these cars tanks full of petrol. And indeed I can, just not all at once. I can make them all seem full if someone checks one car every half hour - I just put all the petrol in the car they're about to check then pump it out again afterwards and put it in the next one.
> 
> ...




There has been a story circulating that has a ring of truth to it similar to your theory. The story is that a number of the aboriginal families collect benefits for the same child by 3 or 4 families registering the same birth. It is supposed to be one of the reasons for the high rate of non attendance at school.


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## lakemac (20 September 2008)

"The bartercard dollars have the same value now as they had then. ( three months storage = 1 dental crown.)"

And the truth shall set you free...

Exactly my point. No inflation on barter card because it is impossible to create more teeth - well sort of. You don't have a central bank turning on printing presses.


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## fimmwolf (21 September 2008)

The following quotes have been taken from the sunday morning herald article by Ross Gittins 


```
http://business.smh.com.au/business/why-governments-bail-out-banks-20080919-4k7r.html
```




> But banks tend to lend for long periods money they have borrowed for short periods, including deposits that can be withdrawn at will. So if too many people were to demand their money back from a bank at the same time, the bank wouldn't be able to pay them and would fail.
> 
> Were that to happen with one bank, other people would lose confidence in their own bank and demand their money back, too. In such a free market world, all the banks would fail and the damage and destruction to the economy would be incalculable.
> 
> ...




....







> The trouble is that ensuring the stability of the system risks creating the problem of "moral hazard" - the belief that the government will always rescue them if they get into trouble may encourage banks to take undue risks in their pursuit of profit
> 
> 
> But governments believe this is the lesser evil relative to the havoc a collapse in the banking system would wreak. Even so, they seek to minimise the moral hazard problem, first by their close "prudential supervision" of the banks and, second, by *punishing the errant bank's management and shareholders.*




...







> That explains this week's US Government "bail out" of the ginormous AIG insurance group. It's getting a two-year, $100 billion loan at an exorbitant interest rate, the purpose of which is simply to keep the show solvent while it's broken up and sold off. *The seizure of an 80 per cent shareholding is intended to punish the existing shareholders for screwing up.*





....







> But isn't this a free kick for the greedy banks? And won't it add to inflation?
> 
> No and no.
> 
> ...





I feel that this is a much more accurate assessment of what's going on, as opposed to what has been posted previously by *lakemac*


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## lakemac (21 September 2008)

fimmwolf we obviously differ on our take of what the underlying forces are.

I would ask the question of Ross Gittens to provide you with detailed references, economic models, research and other materials he might have to back up his statements.

I am open to other "models" of how the banking system might work. But those models must be based on solid research and solid data, not just opinion. To date I have yet to have anyone provide those. If you are interested in my model and references I am more than willing to back it up with dates, legislation, cross references, etc etc etc. Personally I would like to be proven wrong as what I have as a model is scary - really scary.

Even so lets analyse the quotes from Ross.

Quote 1 - long term lending short term borrowing - correct. As I have explained in greater detail each bank at the end of each day must balance its "goodwill" by borrowing real money from the market and paying it to the bank to which it owes "goodwill". The minimum rate the banks can do this at is called the intrabank rate - what we see on the news as the "interest rate".
His second statement is called a bank run. That is exactly what the Fed engineered in the 1930s to force non-member banks to collapse. However this idea that a free market banking system would collapse is not true. Before the advent of central banks, banking systems all around the world functioned perfectly well (there is one country today that does not have a central bank by the way - anyone know which country? They don't suffer the massive "business cycles" central bank economies do). What is not mentioned here is fractional reserve banking - which is why you have the current crisis. By the way I have already mentioned and highlighted the word TRUST in other posts. But it does not require a central bank to establish TRUST. Quite the opposite. Trust is destroyed by the action of central banks.
Without a central bank a bank cannot rely on a "lender of last resort" to bail it out. If it engages in imprudent lending then eventually it will crash and take its shareholders with it. So be it that is the FREE market at work. A central bank tends to distort this process by controlling the free market.

Quote 2: A central bank and/or prudential regulators cannot punish a shareholder - only the market can do that. Managers yes - but you don't need prudential regulators in a truly free market. You do need education and investors who understand the risks. The problem is politicians don't like it when the free market does what it does best. They stand up assuring the sheep all is ok. Notice of course that one piece of legislation causes another problem. Compulsory super has meant people who have no idea about the market are now shareholders. Any wonder politicians are scared.

Quote 3: A prudential slap over the wrist does not explain why the government bailed out Freddie, Fanny, AIG etc etc. They bailed them out because they are scared. Where do you think the money came from for the bailout. Government bonds issued by the US government then purchased by the Fed using thin air. Shareholders don't screw up other than to stay uneducated - see my comments above. If you really wanted to punish shareholders then let the market do its job. 401(k), super and political survival is why they bailed these guys out. Pure and simple. 

Quote 4: The "loans" from the Fed correctly will not push up inflation as long as they stay as short term loans. However, history says otherwise. Freddie and Fanny history to be precise. They were set up in the depression era to solve a previous problem as is happening now. You also have to remember that the government bailout (as against extra liquidity) WILL result in inflation (eventually) if the government sells bonds to the Fed in order to pay for the bailout.

btw - thanks fimmwolf for the challenge. It keeps me on my toes and can open up new areas of research and/or thought that I may not have considered previously.


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## tech/a (21 September 2008)

I think a more important question is where has the $700 Billion *come from* to bail out these financials?

Crank up the presses!
Who and how is this paid back?
So whats on the Government books.
Extra ordinary write offs $700 Billion?


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## chops_a_must (21 September 2008)

tech/a said:


> I think a more important question is where has the $700 Billion *come from* to bail out these financials?
> 
> Crank up the presses!
> Who and how is this paid back?
> ...




EXACTLY!!!!

Hence the comment under my icon.

From what I recall, the fed had 800 billion in its account before all of this. They have paid out 814 billion or thereabouts.

The threshold (if I have all this correct) was crossed with the AIG deal. And at that point interestingly, gold went vertical.

Time for a new thread on printing money.


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## lakemac (22 September 2008)

tech/a and chops - the Fed like all central banks and other commercial banks have a privileged position. They can just create the money (more correctly credit) out of thin air. They just enter it into their computer and magically the credit appears.

The $700B is just thin air. The Fed did not have this money in the normal sense of what you or I would have to "have". We can't just conjure up money - but the banks can - by government mandated legislation no less.
It is interesting to study how the Fed (and our own RBA) were formed and more importantly how the legislation that legitimises them came into existence (The Money Masters video is a very good source of reference material for this).

By the way, don't just take my word on this - do the research for yourselves. It is an scary and fascinating story that will turn your understanding of history on its head.

(I have a hypothesis (no facts yet) that the Holocust was driven by Jewish interests in America wanting to break the power base of European Jews. Now that is a big one...)


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## Tysonboss1 (22 September 2008)

lakemac said:


> "The bartercard dollars have the same value now as they had then. ( three months storage = 1 dental crown.)"
> 
> 
> 
> Exactly my point. No inflation on barter card because it is impossible to create more teeth - well sort of. You don't have a central bank turning on printing presses.




Since one barter card $ = 1 australian $, Barter card dollars suffer from inflation exactly the same inflation as a real doller.

If you have $5000 of barter card credit in your account and don't spend it for 2 years it will not have the same buying power because the members that you wish to spend that credit with would have raised there prices over that time,..... so inflation does exist in the barter card system.

You can even argue that you barter card dollars are devalued quicker than real dollars because of the 13% transaction fee you have to pay and the $30 monthly fee,


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## Sir Osisofliver (22 September 2008)

lakemac said:


> tech/a and chops - the Fed like all central banks and other commercial banks have a privileged position. They can just create the money (more correctly credit) out of thin air. They just enter it into their computer and magically the credit appears.




Lakemac would you mind explaining what securisation is in relation to your theory? I'm not making judgements or arguing with what you say, but I think you've oversimplified somewhat. I'm genuinely interested in what you think Securitisation is and how it works towards the creation of "thin air" as you put it. 



> *snippies*
> 
> (I have a hypothesis (no facts yet) that the Holocust was driven by Jewish interests in America wanting to break the power base of European Jews. Now that is a big one...)




Lakemac - that last bit just makes you sound....um trippy? anti-semetic? racist? Paranoid schizophrenic? Kangaroo loose in the top paddock? Sorry I'm searching for a polite way of expressing myself here but don't think I'm doing a good job. How exactly do you think _American_ jews inserted their mind control waves into Adolf Hitlers brain and made him orchestrate the murder of several million people?  Should I be wearing my tinfoil hat? 

Sir O,


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## fimmwolf (22 September 2008)

some might find this informative


```
http://www.bank-banque-canada.ca/en/res/wp/2003/wp03-11.pdf
```

The banks sure go to a lot of trouble in valuating something they "create out of thin air"


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## Macquack (22 September 2008)

This is my two bob's worth.

1. Money never disapperars. Once it is created, it circulates in the economy for ever. This is a problem for banks as once loans are repaid, banks are still liable to pay interest on the corresponding deposits.
2. All money is in banks. Money that is in your pocket, under your bed or buried in your back yard is inconsequential. The banking system as a whole cannot have funding problems as they can create money. Only individual banks can have funding issues.
3. All costs are labour costs ( I work in the building industry, use a lot of timber, and have yet to see a tree receive any money).
4. If a company goes broke, the bottom line is somebody has been paid to much for their labour somewhere in the process.

I say **** the banks, let them fall together with their overpaid executives.


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## cartel31 (22 September 2008)

Money doesn't exist, it is a piece of paper that confirms debt. When you take out a loan from the bank, the bank has no actual tangible matter that backs up the money. Like no Gold or Silver in the vault. All they do is create a few digits on the computer and pass you a check. 

So in actual fact, what you are doing is borrowing money from the bank (money that doesn't exist), the bank holds the title over your house for providing you with something they just created out of thin air. And as if that wasn't enough the bank then charges you interest over it. Futhermoe, as if that wasn't so outragous, if you default on your loan, the bank seizes the asset coz you didn't pay back the loan of money which never physically existed. I know my dear friends, it sounds absolutely ridiculous. It's so outragous that our minds simply can't fathom it. 

One would wonder where the government is with all this, coz you would think that if anyone created money out of thin air, then hold your assets, charge you interest on something that doesn't exist. THIS IS ALL LEGAL!!!

This is why the credit crisis is happening, because the banks have created so much money, ie.debt, that there isn't enough money to pay it back, EVER! Not only does the money have to be paid back but also interest on top, which is a cause for more money to be created (debt) to cover principle and interest. So it's a exponential graph that keeps getting steeper. 

This is the problem that's just happened in the US, they owe so much money that 1 trillion or more is not enough, the system is about to explode, all they are doing is buying time for the VIP's to get out of the system in time before it blows up. Meaning purchasing assets without debt! Buying property, gold, silver after selling all their shares, bonds, money, etc without borrowing. That is the only way to protect yourself when the explosion happens and money becomes worthless. 

What the US is doing now is, take on more debt, the only way to pay it is by printing more money, which is just going to devalue the dollar even more, they couldn't put up the interest rates, because the feds knew that if they did, then they would need more debt to cover the interest and priciple of every american to pay, which will mean even more debt and more money to be printed. So they dropped the interest rates to only slow the crisis from eventually happening. They know they can't stop it. 

The government cant step in and take over the banks, coz there are a lot of very powerful people who will pull everything out and flunk the states over night. 

Not to mention the US Fed has stopped announcing M3 money supply on grounds that it is irrelevant. M3 is all types of money including all types of debt. 

Also the Fed no longer uses energy products and food products in the basket of goods to measure Inflation for a while now. This means every country in the world uses energy and food products to measure inflation yet the Feds don't.

Why wouldn't they? This is beacuse Food and Energy products are the ones that have increased the most in cost. So just about half of a avg persons earings would go on food and energy. So if they include these products in the basket of goods to measure inflation, they would have to admit to it.

If the fed admits to inflation they have to curb it by increasing the interest rates. But they can't, if they do then the credit crisis will explode sooner. Just wait till the next government comes so they deal with.

Why don't the people rebel? Because the averaged person doesn't know about it. It doesn't get taught at school. You have to be an economist to understand. They don't have it taught delibratly so the people keep sleeping. And it sound so simple that it's unbeleiveable. 

The US is hammered any way the go, they have to much debt, so does the rest of the world who bought the debt and have their own debt as well. All they are doing is buying more time. So I have already started to buy Gold, need to be secure.


Money is so easy to explain that its so simple to understand, yet the brain doesn't agree because it's absolutely outragous.


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## lakemac (23 September 2008)

"Money is so easy to explain that its so simple to understand, yet the brain doesn't agree because it's absolutely outragous."

Great quote cartel31.


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## lakemac (23 September 2008)

fimmwolf said:


> some might find this informative
> 
> 
> ```
> ...



fimmwolf I agree about fact that they go to a lot of trouble. Banks employ whole floors of very highly skilled classically trained economists an mathematicians and the churn out these kinds of white papers faster than you can read them.

But going to a lot of trouble to value something does not imply that you still can't create the credit out of thin air.

Have you ever asked yourself where money comes from? How exactly does it come into existence? Conversely can money be destroyed (the answer by the way Macquack is yes it can be destoryed and I don't mean shredded I mean removed from the economy).

We have here in Australia, as in most parts of the world, what is called a fiat currency and fractional reserve banking. That means our currency is, not, repeat not, backed by a precious metal. Yes the RBA has gold reserves listed as assets but there is another column which is labelled foreign reserves. That means we hold another countries fiat currency (ie. not fully backed by gold/silver) and classify that as an asset? That block of flats and half of tasmania is looking seriously attractive right now.

I suggest anyone interested in how modern banking works is to google fiat currency and/or fractional reserve banking. There are lots of resources that explain it very simply.

fimmwolf, may I suggest you get a copy of "Princes of the Yen" by Richard Werner. He was a BoJ analyst - yes one of those guys churning out white papers. What he realised though when he left the BoJ (sorry Bank of Japan) was that the army of analysts have no idea what was really going on behind their backs (ie. window guidance).

Whilst raw data and white papers are important, the key to understanding is to be able to form a hypothesis on the basis of the data and information before you, test it, formulate reasons why you think the hypothesis or theory fits the data then most importantly be able to the model represented by the hypothesis to predict future events.

I started out asking questions about 8 years ago. Those questions led to me finding data, opinions, other people's hypothesis. I would test their theories against the data - often the theory had no correlation to the data at all (there is a classic chart showing Fed funds rate vs inflation that some analyst was trying to show that the funds rate affected inflation. Only trouble was the chart showed this stepwise increase in funds rate with the inflation also increasing but the analyst still kept making an obviously incorrect claim).

Most people have read thru my hypothesis in other threads and I hope independently verified some or all of what I am saying here. Maybe my model is wrong. So far everything I have found and predicted with it has shown it to be working (my friends will tell you I picked the downturn to be the end of the para-olympics back in Dec last year. I was wrong. It happened a week early  ).

If someone can give me a well reasoned theory backed by hard data then I am all ears.


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## brty (23 September 2008)

Lakemac,

I have been enjoying your posts, however one thing that escapes me, you could possibly answer.

If banks create money out of thin air to lend out, as I believe, then why is it such a big deal when those loans are not paid back??

Yes the banks would lose interest payments, but you could make that up by lending out huge sums for some other purpose.

If the money was created out of thin air, then surely when something like the subprime hits you, all the banks have to do is wipe the loans, there should be no physical loss, all they lost was 'air'.

comments??

brty


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## lakemac (23 September 2008)

two words brty "origininating lender"

not all banks are created equal.

Merchant banks are normally not "originating lenders". In other words they are not the original source of the credit/goodwill.

You may be aware that the two merchant banks left standing in New York (kind of like musical chairs really, or pass the parcel of CDO's  ), have just asked the SEC to convert themselves into "holding banks" which mean they can take deposits from the public.

They don't really want the deposits, what they want is to be a "real" bank. A bank that is an originating lender. Originating lenders are the ones that get to play the game "fractional reserve banking". To play that game you have to have a fraction (the fraction is set by the central bank) of your capital on deposit with the central bank obstensibly in case there is a "run" on your bank. The remaining fraction allows you create credit such that the ratio of your deposit with the central bank to your lending does not exceed a certain limit. Have a look at the YouTube video "Money as Debt" it explains it quite well.

The key here is these toxic loans (collaterised debt obligations - CDOs - a euphemism for dodgey borrowers) were impaired (ie less than trustworthy from the start). To spread the risk they were lumped together like a bunch of celery then the good bits sliced off. As you slice more and more off, you eventually get nothing worth having.

One of the culprits in all this is the rating agencies that gave each slice a credit rating. eg. AA+ BB- etc etc. If the whole debt is toxic slicing it up is not going to remove it toxicity. However the ratings agencies decided that the first tranche or slice must be the best quality and so down the celery stick we go. Everybody thought this was a great idea. Personally I don't trust rating agencies in the same way I don't trust politicians. No one is asking the question how come they gave these CDOs such good ratings.

Not all of Lehman et al is CDO. CDO lending is but one of many an varied instruments on which the merchant bankers hung themselves. Of course like most booms everybody (even prudent organisations such as our own banks and local councils bought into the hype). It all comes down to extreme due diligence when you invest.

Due diligence as I have mentioned elsewhere is the sorting of fact (provable, hard data) from opinion (hype, spin, marketing etc). Exactly what you guys should be doing with the info I am giving you. Don't trust what I am saying - verify it for yourselves. Get educated. Get responsible. (Sorry the soap box got in the way  )

I don't have all the answers.
What I do have is 8 years of my own research and an economic model of the world (stretching back 400 years I might humbly add  ) that seems to explain a lot of world history and the events that we think are just disconnected happenings.
I am not an economist (although I think I could give a classical economist a run for their money - or is that credit???).
What I do have is a thirst for knowledge.
And an insatiable desire to ask questions and question/verify the veracity of the answers I get back.

Maybe this will rub off on you guys. There is still a lot to learn out there.
To paraphrase SBS TV:
"The internet is an amazing place"


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## brty (23 September 2008)

Hi lakemac,

I didn't mention merchant/investment banks, I know they are toast.

It is the 'originating banks' that I am asking about. There share price has been plummeting due to supposed exposure to the toxic debt. Even if they did lend it to the merchant banks, then why is there such an issue, why can't the debt disappear back into thin air?? 

brty


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## lakemac (23 September 2008)

It will. Just give it time...

Originating banks get hammered because of market sentiment and/or they bought into (as NAB did) the mess in the first place. NAB used their real assets to buy in. Hence the hammering they got.

You also have to remember why people buy any share - profits. In a bank profits = interest + fees. If you can't get the interest on your thin air/goodwill then your profit drops, therefore your perceived share price drops.

You also have to remember most people (even so called sophisticated) don't have the time to delve into the depths of the banking field. They will just lump all banks together and call them toxic.

Looks like a duck, waddles like a duck, smells like a pig. I say its a duck...


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## Macquack (23 September 2008)

brty said:


> Hi lakemac,
> 
> I didn't mention merchant/investment banks, I know they are toast.
> 
> ...




The money that a bank "creates out of thin air" has a corresponding "deposit" which that bank is liable to pay interest on. The debt cannot "disappear back into thin" because the deposit on the other side of the ledger will not disappear.


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## lakemac (23 September 2008)

oh don't we all wish Macquack.

In a strict accounting sense left and right must always balance.
However under fractional banking left and right will still balance but balance against what.

You have to remember that banks don't actually need deposits except for what the central bank requires of them (their fraction) to be kept with the central bank. Additional deposits act as a lever in a fractional banking system allowing the bank to extend it goodwill/credit multiple times the deposits on hand.

The best explaination for this is the "Money as debt" video on YouTube.

Most people refuse to believe this is what is going on. But it is exactly what happens in fractional reserve banking systems.


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## Macquack (23 September 2008)

lakemac said:


> Conversely can money be destroyed (the answer by the way Macquack is yes it can be destoryed and I don't mean shredded I mean removed from the economy).




Lakemac, can you give a good example of how money can disappear?


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## mayk (23 September 2008)

Macquack said:


> Lakemac, can you give a good example of how money can disappear?




Government collect the money ( old notes) and burn them .... Ashes to ashes dust to dust, air to air...


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## Macquack (23 September 2008)

mayk said:


> Government collect the money ( old notes) and burn them .... Ashes to ashes dust to dust, air to air...




Yes, and they replace them with new ones.


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## brty (23 September 2008)

Hi lakemac,



> NAB used their real assets to buy in.



 Why??

If they can create money from thin air, then why use 'real' assets??

And also, why not just shuffle paper from 'thin air money creation' to any dodgy loans/purchases?? Realistically, why would they use real assets when they don't have to??

I thought I had a handle on this until the losses issue. Basically I can't see how they would lose anything if they can create money from thin air, therefore I must be missing part of the picture, or there really are some type of conspirictorial games going on to fleece the small shareholders.

brty


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## Sir Osisofliver (24 September 2008)

Sir Osisofliver said:


> Lakemac would you mind explaining what securisation is in relation to your theory? I'm not making judgements or arguing with what you say, but I think you've oversimplified somewhat. I'm genuinely interested in what you think Securitisation is and how it works towards the creation of "thin air" as you put it.
> 
> 
> 
> ...




Lakemac,

Was there are reason you ignored my post?

Sir O


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## Buddy (24 September 2008)

lakemac said:


> fimmwolf we obviously differ on our take of what the underlying forces are.
> 
> Before the advent of central banks, banking systems all around the world functioned perfectly well (there is one country today that does not have a central bank by the way - anyone know which country? They don't suffer the massive "business cycles" central bank economies do).




Is it Panama?
Do I win a prize?  Money! Money! Money! or Cash! Cash Cash!
A very interesting and informative thread.


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## Macquack (24 September 2008)

Buddy said:


> Is it Panama?
> Do I win a prize?  Money! Money! Money! or Cash! Cash Cash!
> A very interesting and informative thread.




Better than a prize.

Congratulations Buddy, your are awarded a 007 Banking License. 

A license to print your own money.


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## Macquack (30 September 2008)

Where are you Lakemac?

There are a few people waiting for your answers.


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## Julia (30 September 2008)

The following is a fairly succinct explanation of events from Crikey.com.


> --------------------------------------------------------------------------------
> 
> 21 . Even if the bailout got through, $700bn is not enough. Here's why
> By Adam Carr, senior economist with ICAP Australia:
> ...


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## lakemac (1 October 2008)

Egads I do have some life outside of these forums guys 

Thanks for the prod (I think).

As you can imagine things have been rather hectic.
My puts are rather pregnant right now and clients also demand some time slices too 

I am writing this at 1am just to let you know I have not forgotten you.
My wife I think, has forgotten what I look like - either that or thinks my laptop has merged with me in some borg kind of way. "Resistance is futile" 

Detailed replies are going to have to wait for a bit.
Found an email I sent to my trading mentor back on 12th Dec last year (when I moved my super out of shares). In that I referred to an article in the SMH about China reducing credit. RED FLAG!!! RED FLAG!!!
http://business.smh.com.au/lending-dries-up-as-china-slams---brakes-on-banks/20071211-1gg0.html#

I notice another article about chinese steel demand going south.
http://business.smh.com.au/business/steel-industry-in-china-crumples-20080929-4qct.html 
Get ready for the recession.
China is going down.


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## lakemac (1 October 2008)

A quick one on the American Jews theory.
I know it sounds out there - really out there.
Stranger things have happened.

Right now it is only a theory.
My starting point was the Warburg family (jewish).
Second entry point is the history behind Hitlers rise to power, particularly when references to Warberg et al start turning up.

There is no particular racial issue in this (I have a Jewish great grandmother - maybe thats where my money sense comes from - only wish I had more sense sometimes  - oh its late and my mind is getting stupid).
I just asked the question (as I always do), what was behind Hitlers Jewish pogrom? As always I follow the money...


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