# Banking - the greatest scam on earth?



## Tyler Durden (21 October 2011)

Found this nice vid courtesy of a friend today, just wanted to see people's views on it.



Do you think this is the truth, or just a very negative outlook by someone who's been burned by banks?


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## Wysiwyg (21 October 2011)

Does this sound familiar ...

"*Stolen the money creation process*". 

You better believe it and they are :-

- brokers & bankers via misleading information, brokerage fees, transaction fees, account holding fees and interest charges.

- government via capital gains tax, PAYG tax, duties, fees, GST and land tax.


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## tothemax6 (21 October 2011)

It appears to be a crude distillation of the 'money as debt' videos, albeit a rather sour one. 

I honestly don't see what the fuss is about. _Anyone_ (although its much harder nowadays because of the regulation burden) can start a bank and 'create money out of thin air', as these videos put it. _Anyone_ can own shares in a bank.

Same as with the original 'money as debt' videos (which this video almost plagiarizes), the 'interest cannot be repaid because only the principle exists' is a very basic misunderstanding. Debt is used to fund business, the business is funded to create products, the non-debtors (those who credited the debtors, i.e. depositors via the banks) then buy the products. Interest flows in loops between debtors and creditors, there is no such thing as the aggregate 'principle' and 'unrepayable interest (unless more debt is made)' that the video speaks of. 

Other than that, it is true that central banking and paper money is a pisspoor system which does benefit the rich and the politicians. This is more or less obvious. The first real central bank, the Bank of England, was created for one purpose - to fund the war with France. Governments love the central bank because it increases their power - if they run into trouble they can simply print their debts away. The rich, as we saw in 2008, benefit because the central bank, and the government (with the help of the central bank) simply bail them out if anything goes wrong.
Had there been neither, much of the wealth they accumulated up to 2008 would have been smashed, instead they kept it, and kept awarding themselves nice bonuses at the expense of the tax payer. Almost a reverse socialism, and completely devoid of any moral justification.


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## Starcraftmazter (22 October 2011)

tothemax6 said:


> I honestly don't see what the fuss is about. _Anyone_ (although its much harder nowadays because of the regulation burden) can start a bank and 'create money out of thin air', as these videos put it. _Anyone_ can own shares in a bank.




1. It takes an immense amount of money to start a bank. Unless you happen to be a billionaire, you cannot actually start one...

2. Owning shares in a bank is doing nothing other than exposing yourself to their deceiving and risky practices. Ask the stockholders of BoA, Citi and others how they feel about losing 90% of their equity in the GFC without any sort of a rebound.

Banks systematically move the most dangerous assets onto their retail balance sheets, so as to demand government bailouts which will dilute shareholder equity in case of any trouble.




tothemax6 said:


> Same as with the original 'money as debt' videos (which this video almost plagiarizes), the 'interest cannot be repaid because only the principle exists' is a very basic misunderstanding. Debt is used to fund business, the business is funded to create products, the non-debtors (those who credited the debtors, i.e. depositors via the banks) then buy the products. Interest flows in loops between debtors and creditors, there is no such thing as the aggregate 'principle' and 'unrepayable interest (unless more debt is made)' that the video speaks of.




That is a load of rubbish. This is as simple as anything to understand. If we have a momentary supply which is fixed in size, and some of the holders of that money charge interest for lending it out, then it is inevitable that they end up with all the money.

Banks and other lenders are the only entities with the power to lend at interest. Do you charge interest? No. Think the bank pays the interest to you as a depositor? No, it's a tiny proportion of what they make from lending against your deposits.

We have an ever expanding monetary supply, the only way it can really be expanded is through the creation of credit. If new credit was not created, there would be no new money in the system - and then as I have said, all the banks would end up with all the money since they charge interest on everyone else - interest which can only be paid out of the current monetary supply.

From this, the conclusion is very simple; interest comes from new credit. If not enough credit is created to cover all the interest which must be repaid in the same time period, then the leftover interest simply cannot be paid, and those people or businesses are forced to default on their loans.

This is a very simply macroeconomic explanation.


There are no loops between creditors and debtors. This makes no sense - from what you imply, banks do not operate on a profit margin which is clearly false. On the whole, everyone is a debtor and banks are creditors. People, businesses and governments are all in debt to banks.




tothemax6 said:


> Almost a reverse socialism, and completely devoid of any moral justification.




Good to see you understand that 


Central banks, and indeed all commercial banks are vermin parasites that need to be destroyed.


One of my favourite videos:
http://www.youtube.com/watch?v=tGk5ioEXlIM&feature=related


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## Starcraftmazter (22 October 2011)

Forgot to say, most people have lived with this system their whole lives so they don't understand how perverted it is.

There was a time when you would be hanged for the notion of charging interest.


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## tothemax6 (22 October 2011)

Starcraftmazter said:


> Forgot to say, most people have lived with this system their whole lives so they don't understand how perverted it is.



Ah ha, of course there is always a chance that the error lies with you, and that the system _is_ perfectly normal . 
I was going to address your previous post, but given that your beliefs are so extreme as to believe that even _interest_ or the notion of _banks_ is evil to you, I doubt there is any point.


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## doctorj (22 October 2011)

Starcraftmazter said:


> Central banks, and indeed all commercial banks are vermin parasites that need to be destroyed.



I have to say, I admire your passion and think you'd be well suited to joining those other well intentioned folk either on Wall Street and outside St Pauls to make your voice heard.

Having said that, I'm not sure what your proposing. Is interest bad? Why is a fee to use someone else's resources unreasonable? Shouldn't they be compensated for the opportunity cost of lending to you and the risk that you might not pay it back? Why is charging interest for borrowing money different, to say, charging rent for a tenant to live in your investment property? Are both bad?

There are many outright fallacies in your post (credit is clearly not the only way to increase money supply, banks are incentivised by Basel to keep relatively less risky assets on their balance sheet and farm the rest out and retain a fee, banks don't systemically engineer their operations to ensure government bailouts - they don't want govt intervention in their business - for evidence of this you only need to review how quickly Citigroup, BoA, Goldman, JPM, AmEx and others tried to repay the govt funds that were in many cases forced on them), but the one key thing I want to challenge you on is your implication that credit is bad.

Now, I'm sorry, but if you really do believe that, you don't exist in the real world. The sad reality is that many people in many countries in the world do not have access to credit because they're disenfranchised from the banking system (often they don't trust it, they live in remote places without access to banks or they're too intimidated to go into a branch because they lack neat clothing etc) or due to the system itself being underdeveloped. The impact on their lives is astronomical - money velocity is very low meaning they have constrained working capital (e.g. to buy seeds, fertiliser etc), they can't invest in equipment to increase their productivity and they lack the means to recover from external events (e.g. natural disasters). The numbers do not lie - there is a very strong correlation between the standard of living and the level of financial intermediation in any given country.

Take Kenya for example. In 2005, GDP per capita was around USD 500 and very few people had bank accounts. Vodafone came along and helped develop a product called M-PESA that enabled people to store, pay with and receive money to and from even the most basic of mobile handsets. Money shifted from beneath people's pillows to the formal banking system - giving the banks the resources to lend more and the customers a credit history to borrow against. Today, more than 40% of economically active Kenyans have an M-PESA accounts, most of whom never previously had a bank account. In the same period, GDP per capita increased by over 40% after languishing between USD 400-500 for the previous 25 years.


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## Starcraftmazter (22 October 2011)

tothemax6 said:


> Ah ha, of course there is always a chance that the error lies with you, and that the system _is_ perfectly normal .
> I was going to address your previous post, but given that your beliefs are so extreme as to believe that even _interest_ or the notion of _banks_ is evil to you, I doubt there is any point.




How is that extreme? Interest IS evil. It IS immoral. 
http://en.wikipedia.org/wiki/Usury

It is only extreme to people who have grown up and lived in the present system without a question as to the way it works. Yet it is no measure of health to be well adjusted to a profoundly sick society.




doctorj said:


> Having said that, I'm not sure what your proposing.




Real money backed my gold and silver. Only governments should hold the power to create money.

There are many ways in which a good monetary system could work. If you have 15 spare minutes, then you can watch the last part of Money as Debt which goes over this:
http://www.youtube.com/watch?v=Dc3sKwwAaCU#t=30m30sec

If you can not, then I do not see the point of this discussion.



doctorj said:


> Is interest bad? Why is a fee to use someone else's resources unreasonable? Shouldn't they be compensated for the opportunity cost of lending to you and the risk that you might not pay it back? Why is charging interest for borrowing money different, to say, charging rent for a tenant to live in your investment property? Are both bad?




There are numerous issues here. First, if you are familiar with the matter, banks do not actually have any of the money they lend out. Broadly speaking, through corruption and deceit, banks have gotten the power to create money, which they lend to us at interest. No, it is not at all reasonable that we should pay interest on this money. In reality, it is unreasonable and unethical in general to pay interest for the use of money.

Furthermore, they do not lose any opportunity cost, they can make as much money as they want (though obviously different countries have slightly different banking systems, and US is the leader of the bad), indeed their whole purpose is to lend money.

It is different from charging rent because people who rent make use of a real physical asset which as a noteworthy utility of serving as shelter. Banks do not have money, and virtually all money that they do have is not physical.



doctorj said:


> There are many outright fallacies in your post (credit is clearly not the only way to increase money supply




Sure you can do so through printing actual physical money, but this accounts for an insignificant portion of all money in circulation.



doctorj said:


> , banks are incentivised by Basel to keep relatively less risky assets on their balance sheet and farm the rest out and retain a fee, banks don't systemically engineer their operations to ensure government bailouts




This is also false; banks periodically and systematically move the most risky assets onto their balance sheets, so as to force the governments to bail them out should anything go wrong.

Just this week:
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/20/bloomberg_articlesLTBZHS1A1I4J.DTL




doctorj said:


> - they don't want govt intervention in their business




Yes, they don't want it to bad they ask Congress for it anytime they are in trouble. They don't want it so bad, they staff the President's cabinet with former Goldman Sachs executives to tell him just how important it is to "save" to banking system by bailing out the banks.



doctorj said:


> - for evidence of this you only need to review how quickly Citigroup, BoA, Goldman, JPM, AmEx and others tried to repay the govt funds that were in many cases forced on them),





Hmmhmm. Let's look at Citi. 
http://en.wikipedia.org/wiki/Citigroup#Federal_rescue_2008
They get $321.5Bn, the government gets $27Bn of shares (which are still going nowhere in price, but this in itself is irrelevant). All while:



> According to New York Attorney General Andrew Cuomo and as reported by the Wall Street Journal, after having received its $45 billion TARP funds in late 2008, Citigroup paid hundreds of millions of dollars in bonuses to more than 1,038 of its employees. This included 738 employees each receiving $1 million in bonuses, 176 employees each receiving $2 million bonuses, 124 each receiving $3 million in bonuses, and 143 each receiving bonuses of $4 million to more than $10 million.




Yep, sounds very fair!





doctorj said:


> but the one key thing I want to challenge you on is your implication that credit is bad.
> 
> Now, I'm sorry, but if you really do believe that, you don't exist in the real world. The sad reality is that many people in many countries in the world do not have access to credit because they're disenfranchised from the banking system (often they don't trust it, they live in remote places without access to banks or they're too intimidated to go into a branch because they lack neat clothing etc) or due to the system itself being underdeveloped. The impact on their lives is astronomical - money velocity is very low meaning they have constrained working capital (e.g. to buy seeds, fertiliser etc), they can't invest in equipment to increase their productivity and they lack the means to recover from external events (e.g. natural disasters). The numbers do not lie - there is a very strong correlation between the standard of living and the level of financial intermediation in any given country.




Credit can possibly be good, if it is provided by the government at no interest, and if there is no inflation or deflation. However private institutions creating money, causing inflation - and then forcing you to pay them interest is the worst thing in the modern world. It amounts to nothing less than slavery, and there is literally nothing worse.




doctorj said:


> Take Kenya for example. In 2005, GDP per capita was around USD 500 and very few people had bank accounts. Vodafone came along and helped develop a product called M-PESA that enabled people to store, pay with and receive money to and from even the most basic of mobile handsets. Money shifted from beneath people's pillows to the formal banking system - giving the banks the resources to lend more and the customers a credit history to borrow against. Today, more than 40% of economically active Kenyans have an M-PESA accounts, most of whom never previously had a bank account. In the same period, GDP per capita increased by over 40% after languishing between USD 400-500 for the previous 25 years.




The problem with this is that you are looking at one isolated theme of a country and an economy which has had all sorts of economic problems, completely unrelated to credit. In fact the same is true for all of Africa.


The notion that banks are good is ridiculous - the world would be far better off without banks - at least banks in their present form.


The greatest periods of American growth came when it had no central bank, when it's monetary supply represented the physical assets that it had, when there was no inflation. We do not need central banking for economic success, and we cannot have it for any sustainable society.


Please do explain to me, how can you justify banks lending money to governments - money which *they do not have*, money which they create as they have *stolen the power to create money from governments*, and then forcing it's citizens to slave away paying them interest for use of their own money? This is complete and utter bull****.


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## Smurf1976 (22 October 2011)

If you wish to use my house then I'll expect you to pay me for providing you with this service. The payment is commonly known as interest.

If you wish to use my labour then I'll expect you to pay me for providing it. This payment is commonly known as wages or salary.

If you wish to use my money then I'll expect you to pay me for allowing you to borrow it. This payment is commonly known as interest.

I agree that there are fundamental issues with the banking system, but I can't see a problem with charging interest per se.


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## tothemax6 (22 October 2011)

Ahhhh, I really need to finish making that "rebuttal of the 'Money as debt'" videos. Unfortunately I lack the animation skills to make the video as viral as Paul Grignon.

Money and credit are different. A bank does not create money. A bank acts as a credit intermediary. Interest is 100% moral. Just because Islam and the like declare it 'riba' (usury) and 'haram' (forbidden), so what. Interest exists because the bearer of money has two choices: keep it, or give it so someone else to use. He is not going to choose the latter without charging a fee, any more than he would lend his car or his boat to someone without expecting something in return. Interest is rational.

Money is 'the most widely marketable good'. The good that tends to become money is: durable, divisible, fungible, logistically feasible, etc etc. This tended to be gold and silver. I will use gold for illustration.

Credit is the temporary transfer of ownership of money from one party to another, in exchange for a promise to pay it back at a later date. A bank is a credit intermediary - that is, instead of people lending to each other, they lend their money to the bank (deposits), which in turn lends it out. The bank sits between creditors and debtors, and is effective because it offers economy of scale. The bank earns money from the interest differential between credit in and credit out.

The fact that the credit to and credit from the bank exists at a multiple of the money that the bank holds at any time is irrelevant. Just because a deposit acts similar to 'actually having money in a pile in the bank with your name on it' doesn't matter. A deposit is not money, it is how much money the bank owes you. It is no more money than a piece of paper saying "IOU a bag of rice" is a bag of rice. It is a contract for a bag of rice, payable on demand.

The credit that the banks can facilitate via deposits is limited. It cannot simply balloon as the 'money as debt' videos claim. Whilst depositors do not withdraw much money at any time, they do make transactions. Much of these transactions are between customers from different banks. This creates debts between banks which must be settled, daily. Competing banks _do_ settle the debts _in money_. A bank that extends to much credit will find its account at the clearing house going against it a banks demand settlement of their debts, until it runs out of money and goes bankrupt. This adverse clearing risk places a limit of the multiple of deposits vs money in existence.

If what the 'money as debt' videos claim is true, prior to the end of the gold standard and the establishment of central banks, we would have had continuous inflation. This did not actually happen whatsoever. Indeed, zero inflation or mild deflation was the norm, even without reserve requirements on banks.

I can't offer the entertainment value of the 'money as debt' videos, but I can offer the facts as to why the videos are wrong.


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## Starcraftmazter (22 October 2011)

Smurf1976 said:


> If you wish to use my money then I'll expect you to pay me for allowing you to borrow it. This payment is commonly known as interest.




Again, banks *do not have money which they lend out, they create money causing inflation*. This is where all these stupid "analogies" simply fail.

Furthermore, this is but one issue - you are only considering this at a personal level. The entire concept has gone completely over your head, you do not understand the full repercussions of banks having the power to create money, and not the government.




Smurf1976 said:


> I agree that there are fundamental issues with the banking system, but I can't see a problem with charging interest per se.




Isn't it obvious? There can only be two ways a monetary system works:

1. Expanding = this will lead to a complete destruction of the environment and an exponential rape of all the planet's natural resources until none are left.

2. Stable  = In this monetary system, those who charge interest will inevitably end up with all the money.

It is simple.




tothemax6 said:


> Money and credit are different.




Money and _debt_ are the same. All money is debt.



tothemax6 said:


> A bank does not create money. A bank acts as a credit intermediary. Interest is 100% moral. Just because Islam and the like declare it 'riba' (usury) and 'haram' (forbidden), so what. Interest exists because the bearer of money has two choices: keep it, or give it so someone else to use. He is not going to choose the latter without charging a fee, any more than he would lend his car or his boat to someone without expecting something in return. Interest is rational.




One again, banks do not have the money they lend it. Interest *is* immortal, simply refer to the above. The claim that banks create money is true; that is how banks work.



tothemax6 said:


> Credit is the temporary transfer of ownership of money from one party to another, in exchange for a promise to pay it back at a later date. A bank is a credit intermediary - that is, instead of people lending to each other, they lend their money to the bank (deposits), which in turn lends it out. The bank sits between creditors and debtors, and is effective because it offers economy of scale. The bank earns money from the interest differential between credit in and credit out.




Are you serious? Are you suggesting there are enough deposits to cover all loans? Seriously? This is *not* how *any* banking system works, not even in Australia. Yet that is what your posts suggestions.

Did you even watch the 'Money as Debt' video?



tothemax6 said:


> The fact that the credit to and credit from the bank exists at a multiple of the money that the bank holds at any time is irrelevant.




How is it irrelevant? It proves what you said just previously false.



tothemax6 said:


> The credit that the banks can facilitate via deposits is limited. It cannot simply balloon as the 'money as debt' videos claim. Whilst depositors do not withdraw much money at any time, they do make transactions. Much of these transactions are between customers from different banks. This creates debts between banks which must be settled, daily. Competing banks _do_ settle the debts _in money_. A bank that extends to much credit will find its account at the clearing house going against it a banks demand settlement of their debts, until it runs out of money and goes bankrupt. This adverse clearing risk places a limit of the multiple of deposits vs money in existence.




This is a fairy tale of how the system should work. Take our banks for example. They can borrow infinity money from offshore to lend us so that we can bid each other up on overpriced houses and slave away to pay them interest. This has been occurring without any limit at all.



tothemax6 said:


> If what the 'money as debt' videos claim is true, prior to the end of the gold standard and the establishment of central banks, we would have had continuous inflation.




How? I have never seen such a claim, in fact the opposite has always been said. When economies were solid on the gold standard, there was never inflation. Inflation only happened during periods of war, when governments printed more IOUs than there was gold to back them.



tothemax6 said:


> I can't offer the entertainment value of the 'money as debt' videos, but I can offer the facts as to why the videos are wrong.




You facts are either irrelevant or wrong. We have an expanding monetary supply; there is no limit on it. Please provide any example of how credit creation has ever been limited.

And I am not referring to irrelevant factors such as banks being afraid to lend money after the GFC. Show me once instance during the credit bubble running up to the GFC where any bank said that they cannot create more money as debt to give people credit to buy houses, cars, TVs and whatnot.


Indeed you imply that banks do not create money. Then how is the monetary supply increased then in your own world? Would you care to explain?


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## Julia (22 October 2011)

Starcraftmazter, I'm interested to know the origin of your views?
Did your parents raise you with the ideas you express on this forum?
What were you taught about money - and society in general for that matter - as a child?

Has your university education added to the views you already held, or challenged them?

Can you conceive of any situation where you might agree that your views can reasonably be challenged and perhaps shown to be incorrect?


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## McLovin (23 October 2011)

And to think I was shot down when I commented about the high number of conspiracy theorists on this forum.


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## wayneL (23 October 2011)

McLovin said:


> And to think I was shot down when I commented about the high number of conspiracy theorists on this forum.




A handful out of thousands of members is not a high number. In fact IME the proportion here is probably less than the wider community.


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## young-gun (23 October 2011)

+1 with most of what craft is saying.

charging interest is fine...if you actually have the money.

what's that? you mean i can charge people for money i created? sign me up!?

the banking sector is one big legalised ponzi scheme...as soon as there isnt more people creating more debt..it collapses in on itself.


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## wayneL (23 October 2011)

I have some sympathy for concerns about the present system, ultimately it will probably fail.

But would like to know what ideas are for a better system. 

Why would anyone lend money if not for some sort of return?


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## kavla1970 (23 October 2011)

wayne, I guess I think the best systems are Federal Reserves(like USA) being Government owned and not held in private hands. That's just not good at all. And given currencies are pegged against the USA dollar you can imagine how this can affect world economies.

I also have felt that there should be a Government owned bank.  

I saw a video link the other day that shows the world debt(a very simplistic tally I add):

http://www.economist.com/content/global_debt_clock

My question is, if all the countries are in 'debt' who do they owe the money to? Quite scary.

For the record, "The Economist" is owned partially by the London Rothchilds family so I guess they have a good idea of the debt tally.

Kav


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## young-gun (23 October 2011)

wayneL said:


> I have some sympathy for concerns about the present system, ultimately it will probably fail.
> 
> But would like to know what ideas are for a better system.
> 
> Why would anyone lend money if not for some sort of return?




I don't see an issue with that. It's the receiving interest on money they don't have that is the problem. 

One thing that is certain, is that the current system obviously doesn't work. This is quite evident through the amount of HUGE financial institutions that have collapsed since 2007.

Perhaps if banks simply cut their lending by drastic amounts, and ceased in making credit so readily available, we wouldn't be in the credit bubble that we are at present? Ensure that people have a 30% deposit on a house as opposed to 0% and letting them take out mortgage insurance policies? instead of giving mums and dads credit cards with 5000$ limits give them 1500$ limits and make them save for 8 weeks for that new couch?

TBH i wouldn't have the faintest idea on where anyone would start in rectifying or repairing banking practises or systems. It's all a bit overwhelming, and too big for my little head to comprehend, which leaves me unsure on exactly what needs to change Surely you can agree that something has to change though?


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## Tyler Durden (23 October 2011)

kavla1970 said:
			
		

> My question is, if all the countries are in 'debt' who do they owe the money to? Quite scary.




I've often thought about that too, but I guess it's another topic for another thread...

Btw, great learned discussions going on here, thanks very much for all the different view points presented so far, keep it up.


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## McLovin (23 October 2011)

Nevermind...


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## tothemax6 (23 October 2011)

Julia said:


> Starcraftmazter, I'm interested to know the origin of your views?
> Did your parents raise you with the ideas you express on this forum?
> What were you taught about money - and society in general for that matter - as a child?
> 
> ...



Julia, he watched the 'money as debt' videos. That stuff is like an infectious disease.


wayneL said:


> A handful out of thousands of members is not a high number. In fact IME the proportion here is probably less than the wider community.



He's right, indeed _the internet_ has a far higher proportion of nutcases than the real world, and ASF is a slice of the internet, so....


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## Wysiwyg (23 October 2011)

young-gun said:


> Perhaps if banks simply cut their lending by drastic amounts, and ceased in making credit so readily available, we wouldn't be in the credit bubble that we are at present? Ensure that people have a 30% deposit on a house as opposed to 0% and letting them take out mortgage insurance policies?



I view the ease of credit for homes to be a strong reason for the average wage to average house cost divergence.


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## tothemax6 (23 October 2011)

Starcraftmazter said:


> Again, banks *do not have money which they lend out, they create money causing inflation*. This is where all these stupid "analogies" simply fail.



OK, this is how its going to go down.
I am going to start from first principles and we are going to build up from there. Given the fact that what you say is the polar opposite of what I say, large comprehensive posts is not going to get anywhere.

Suppose we start at the beginning. There is a bank that has just opened, owned and run by X. There are two community members called A and B (in a community of say, 1000 people). For simplicities and historical sake, we define the monetary unit as 1 gram of gold, and with the unit name "$1".
The bank offers 'demand deposits' at 5% interest. A deposits $100 (100g Au) in the bank. The bank issues him an account statement that he is in $100 credit at the bank. Do you accept that this demand deposit is a $100 debt that the bank owes A?

The bank also offers 1yr loans at 20% interest. B borrows $100 (100g Au) from the bank. The bank creates a $100 'demand deposit' for him. The bank issues him an account statement that he is in $100 credit at the bank. The bank tells him he must pay it back in 1yr.

Please explain how the bank, given that the unit of money is $1 is 1g of gold, has 'created money'.

Finally, please explain how the interest charged is immoral, without simply capitalizing the word *IS*, as though that is some kind of a rebuttal.


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## young-gun (23 October 2011)

tothemax6 said:


> OK, this is how its going to go down.
> I am going to start from first principles and we are going to build up from there. Given the fact that what you say is the polar opposite of what I say, large comprehensive posts is not going to get anywhere.
> 
> Suppose we start at the beginning. There is a bank that has just opened, owned and run by X. There are two community members called A and B (in a community of say, 1000 people). For simplicities and historical sake, we define the monetary unit as 1 gram of gold, and with the unit name "$1".
> ...




You can't be serious? lets suppose australians have 50 billion dollars in 'cash' savings right now in the bank. by your example we should all be able to go to the bank and demand gold instead of paper money?

in the US its called the fractional banking system. By law banks are only required to keep 10% of their kitty, and can loan out the other 90%. This 90% is then handed out to businesses, consumers, for home loans etc etc. catch is all the loaned money(or most of it) ends up back in a bank account. now what happens when someone purchases a house? chances are they don't own it, so lets say 20% goes into the homeowners pocket(which is then deposited into a savings account), then 80% of it is deposited back into another bank the mortgage was held through. 

you beauty, now this bank has more money in the kitty. but hang on, theyre allowed to keep only 10% of this, and send the rest out. so lets for examples sake say theyve lent out 80 billion big ones. they hold their 10% and send out 72 bill. now eventually that 72 bill winds up in peoples bank accounts. so the bank holds 7.2 bill and sends out 64.8 bill. they have just created almost 65 billion dollars out of no where! and this is whats happening! you can do this upto 9 times i think it was before theyre left with nothing.

do you see where this goes?

debt should never be allowed to outweigh gdp. this system is criminal.

EDIT: my example is poor. have a read http://www.themoneymasters.com/faqs/


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## tothemax6 (23 October 2011)

young-gun said:


> You can't be serious? lets suppose australians have 50 billion dollars in 'cash' savings right now in the bank. by your example we should all be able to go to the bank and demand gold instead of paper money?
> 
> in the US its called the fractional banking system. By law banks are only required to keep 10% of their kitty, and can loan out the other 90%.



I never said everyone can be paid back at once. That's the risk inherent in using callable credit (demand deposits), instead of fixed maturity credit, to fund long maturity loans. I'll assume this is what you were asking, since I am obviously using a simplified hypothetical example (in which the monetary base is gold, although it could as soon be government plastic tickets), and never said anything even remotely similar to 'Australians should be able to demand gold from their bank instead'. Perhaps actually *read *the post?
And its called 'fractional reserve banking' everywhere (or 'banking', to shed the redundant adjectives). And in Australia there are no reserve requirements.

Address the example directly or don't bother. The banks do not create money.


----------



## skyQuake (24 October 2011)

What a great scam. Who are the losers in this?

People who borrowed to buy a home?
People who put their savings in?
Businesses who put in their cashflow/borrow?


----------



## Starcraftmazter (24 October 2011)

Julia said:


> Starcraftmazter, I'm interested to know the origin of your views?




Research, the enqusite nature of my mind in trying to understand how the world works and why things happen as they do.



Julia said:


> Did your parents raise you with the ideas you express on this forum?
> What were you taught about money - and society in general for that matter - as a child?




Nothing; my parents are not economists or accountants. I recall you trying to bark up this tree before only to fail, so I once again tell you that your stupid assertions are incorrect.



Julia said:


> Has your university education added to the views you already held, or challenged them?




To my knowledge no university teaches how money actually works. Also I did not do any economics related degree.



Julia said:


> Can you conceive of any situation where you might agree that your views can reasonably be challenged and perhaps shown to be incorrect?




There are 2 things here.

One is that anyone's views can be challenged and it is possible that anyone's views about anything are incorrect.

On the other hand, there is the acceptance by people of some fundamental truths of the world. These are not views, beliefs or opinions. They are merely facts of life which some people know and others don't or choose not to believe in despite being shown them.

I try and have as few "beliefs" as possible. If I am interested in knowing something, I seek to do all relevant research and make up my mind conclusively once I have all the necessary information. Everything else I choose not to have an opinion of.

For instance...is there a secret race of mole people? Most people would say no. This is however ignorance. I say, I don't know because I have never done any extensive (or non-extensive) research on the topic, and thus I choose not to speculate.

Likewise, on things I have researched and made a conclusive decision on, I feel confident enough that I am correct. By all means you can present new information which will challenge what I know, however typically people just come out with insults and ignorance. And then there are those which seem to have the silly notion that others think what they think only because someone influenced them that way at some time in their life.


The grievances brought forth by central banks are however in my view far less of a controversial nor secretive matter. Everyone is well familiar with inflation, deflation and taxes. The trouble is, most people do not understand the broader context in which these phenomena occur, and to what extent they should not be there under a more proper monetary system.



McLovin said:


> And to think I was shot down when I commented about the high number of conspiracy theorists on this forum.




What exactly is so theoretical about anything which has been said?



wayneL said:


> But would like to know what ideas are for a better system.
> 
> Why would anyone lend money if not for some sort of return?




If you want ideas, then you would do well reading my posts...
http://www.youtube.com/watch?v=Dc3sKwwAaCU#t=30m30sec

Potentially, the government (treasury) can lend as much money as it determines necessary, and the government does not need any sort of a return.




kavla1970 said:


> wayne, I guess I think the best systems are Federal Reserves(like USA) being Government owned and not held in private hands.




This is incorrect. The "Federal" reserve is *not government owned*. It is a private bank which due to legislation passed by politicians at the hands of the central bankers has stolen the treasury's right to issue it's own currency.



kavla1970 said:


> My question is, if all the countries are in 'debt' who do they owe the money to? Quite scary.






Tyler Durden said:


> I've often thought about that too, but I guess it's another topic for another thread...




The international banking cartel.


----------



## Starcraftmazter (24 October 2011)

young-gun said:


> Perhaps if banks simply cut their lending by drastic amounts, and ceased in making credit so readily available, we wouldn't be in the credit bubble that we are at present? Ensure that people have a 30% deposit on a house as opposed to 0% and letting them take out mortgage insurance policies? instead of giving mums and dads credit cards with 5000$ limits give them 1500$ limits and make them save for 8 weeks for that new couch?




Banks should never have the right to lend money in the first place. They do not have any money to lend, they cannot. They can re-lend someone's money who chooses to lend it through the bank explicitly, but then this would involve margins and we always wind up with some form of interest.


You cannot have interest in any stable, functioning monetary system. There is simply no place for it. Nobody should have the right to make money from simply having money, it is immoral and unsustainable. It always leads to bad *macro* outcomes.



tothemax6 said:


> Please explain how the bank, given that the unit of money is $1 is 1g of gold, has 'created money'.




The example you have presented is how banking originally worked. It is not in any way, shape or form how banking works today.



tothemax6 said:


> Finally, please explain how the interest charged is immoral, without simply capitalizing the word *IS*, as though that is some kind of a rebuttal.




I have already laid it out in this very thread. I said the following:

You can have only 2 types of monetary systems.

1. Stable (it never increases). In this monetary system, the parties who charge interest will end up with all the money, assets and wealth. Clearly this is unacceptable.

2. Unstable (exponentially increasing). This monetary system is doomed to fail, because it can only work so far as there are abundant natural resources to keep it growing (which is not the case for our planet, or any other). As it comes closer to crashing, it will deprive the planet of all valuable resources and pollute it, so that future generations are unable to live or to live at any reasonable standard of living.


Presently we have interest and inflation. This means you make less money in real terms, and you have to pay banks interest on money they didn't even have to lend you, just so that you can buy a place to live. You also have to pay them interest through taxes, as pretty much every government (and now ours...) is in debt. Government debt is the greatest evil in society. How can a government be in debt? That is the most ridiculous notion conceivable.

The government should control the issue of it's own currency. It is unfathomable that the government should borrow from private banks, it's own money, at interest. It seems to me that your mind is too much ingrained in the way the system has worked for all or most of your own life, that you simply do not yet understand how perverted this is.




tothemax6 said:


> And its called 'fractional reserve banking' everywhere (or 'banking', to shed the redundant adjectives). And in Australia there are no reserve requirements.




Indeed, we don't use fractional banking at all; this however doesn't help us one bit.

Australia's mortgage debt stands at around $700Bn (nevermind personal and business debt). Do our banks have $700Bn in deposits? No.

Where does this money come from?

It comes from....



tothemax6 said:


> Address the example directly or don't bother. The banks do not create money.




Take a US bank. For $1000 they hold in reserve, they can create $9000. At least this is how it used it be, clearly now there are no limits.

Do you deny this? Where do you think the money comes from? Magic hat?





skyQuake said:


> People who borrowed to buy a home?
> People who put their savings in?
> Businesses who put in their cashflow/borrow?




Pretty much all of them. Everyone is the loser, except those with the power to create money.


----------



## skyQuake (24 October 2011)

Starcraftmazter said:


> Pretty much all of them. Everyone is the loser, except those with the power to create money.





How do they lose? I don't seem to see how they are harmed or have their rights been infringed.

So we should abolish banks? Stuff money under the mattress and buy a house with cash?


----------



## Julia (24 October 2011)

Starcraftmazter said:


> Nothing; my parents are not economists or accountants. I recall you trying to bark up this tree before only to fail, so I once again tell you that your stupid assertions are incorrect.



LOL!   I wasn't making any assertions, simply asking a question.


----------



## Starcraftmazter (24 October 2011)

skyQuake said:


> How do they lose? I don't seem to see how they are harmed or have their rights been infringed.




Inflation. Every year banks create more money out of thin air and lend it at interest... - but how is it possible to create real value out of nothing? Like this: they take *your* money and everyone else's money, take a little bit of it (called inflation - which is by the way significantly higher than the reported CPI) and put it into the new money they create - they do this by dilluting the monetary supply.

Furthermore, you, I and everyone else has to pay taxes to the banks, because they gave _our_ government, _it's own money_ at interest! And now everyone is a slave to the banks, paying them interest for perpetual government debt.

Once again, this has been already stated in the thread, please read the thread 



skyQuake said:


> So we should abolish banks? Stuff money under the mattress and buy a house with cash?




We should abolish banks _in their current form_ and especially we must abolish *central banks*. Banking could be ran as a non-profit community service - not an evil empire. They should simply facilitate the safe store of money and various monetary transactions and provide whatever other additional services a democratically elected government chooses to for the greater good, but not for the profit of the few.


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## Tyler Durden (24 October 2011)

tothemax6 said:


> Suppose we start at the beginning. There is a bank that has just opened, owned and run by X. There are two community members called A and B (in a community of say, 1000 people). For simplicities and historical sake, we define the monetary unit as 1 gram of gold, and with the unit name "$1".
> The bank offers 'demand deposits' at 5% interest. A deposits $100 (100g Au) in the bank. The bank issues him an account statement that he is in $100 credit at the bank. Do you accept that this demand deposit is a $100 debt that the bank owes A?
> 
> The bank also offers 1yr loans at 20% interest. B borrows $100 (100g Au) from the bank. The bank creates a $100 'demand deposit' for him. The bank issues him an account statement that he is in $100 credit at the bank. The bank tells him he must pay it back in 1yr.
> ...




But what happens when during B's loan, A wants his money back?


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## $20shoes (24 October 2011)

http://www.thisamericanlife.org/radio-archives/episode/375/bad-bank

Go here and press "play". It's not dry and your eyes won;t glaze over. But it is very helpful for grasping the fundamentals.


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## Calliope (24 October 2011)

Starcraftmazter said:


> Research, the *enqusite* nature of my mind in trying to understand how the world works and why things happen as they do.




*Enquisite?* Perhaps you mean exquisite.i.e. Extremely beautiful and, typically, delicate.

It's amazing that a sensitive plant like you can thrive in this forum. Who's stupid now?


----------



## jimmyizgod (24 October 2011)

Calliope said:


> *Enquisite?* Perhaps you mean exquisite.i.e. Extremely beautiful and, typically, delicate.
> 
> It's amazing that a sensitive plant like you can thrive in this forum. Who's stupid now?




Inquisitive i think would be the word. This has been a pretty interesting discussion, no need drop to the level of senseless name calling. if you want to do that go troll yahoo answers.


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## Calliope (24 October 2011)

jimmyizgod said:


> no need drop to the level of senseless name calling.




I agree. I was merely responding in kind to Starcrafty's "senseless name calling" in response to Julia's post, viz.



> so I once again tell you that your stupid assertions are incorrect



.


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## Wysiwyg (24 October 2011)

skyQuake said:


> How do they lose?



It isn't loss as such but the price one must pay to do business with them. When loan interest rates are high and the house price is comparatively high to earnings, then the house is out of reach to a greater percentage of the population. 
Those people lose time in a sense because they have to wait for house prices to come down, loan interest rates to drop or earn more money through longer working hours or increasing their skills. 
Obviously high loan interest rates suck the blood, sweat, tears and years out of all of us but that's the price we pay for a shelter.


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## Ageo (24 October 2011)

yrs ago if someone borrowed goats on loan the payment would be say 20 chicken eggs per week as payment until the goats were given back, if eggs were not available they would offer something that was available which means the free market was at work and there was never any hiccups...there was balance in the system

Today i see no balance and paying $7 for milk/bread compared to cents in the 90's you can see that


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## young-gun (24 October 2011)

tothemax6 said:


> I never said everyone can be paid back at once. That's the risk inherent in using callable credit (demand deposits), instead of fixed maturity credit, to fund long maturity loans. I'll assume this is what you were asking, since I am obviously using a simplified hypothetical example (in which the monetary base is gold, although it could as soon be government plastic tickets), and never said anything even remotely similar to 'Australians should be able to demand gold from their bank instead'. Perhaps actually *read *the post?
> And its called 'fractional reserve banking' everywhere (or 'banking', to shed the redundant adjectives). And in Australia there are no reserve requirements.
> 
> Address the example directly or don't bother. The banks do not create money.




your example was flawed as it has absolutely no relevance to modern banking.You are absolutely right, no money is created in your example.

i just back-tracked to find you state that the current system is piss poor. something i absolutely agree with. But how you obviously have an understanding of the current banking system, but can't see how they 'create' money baffles me.


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## Ageo (24 October 2011)

I forgot to add, yrs ago my grandfather could pay a house off in 3-5yrs comfortable (they own a few), today 20+ yrs and that is because our dollar buys less and less each yr and that due to increasing the money supply.

Call it what you like banks are scum and earn money from fkn nothing.. and why do you say? because tomorrow if there was a bank run they would shut the doors, they are lending money that they dont even have!


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## tothemax6 (24 October 2011)

Tyler Durden said:


> But what happens when during B's loan, A wants his money back?



The bank would be unable to pay out both B's and A's account at the same time, its true (this is a simple example aimed at starcraftmazer). Practically speaking, there are thousands of B's and A's, and in total they don't withdraw much from their accounts. For instance, how much do you suppose the average man has in his wallet vs in a bank account? A very small fraction, which on average doesn't go up or down much.


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## tothemax6 (24 October 2011)

Starcraftmazter said:


> The example you have presented is how banking originally worked. It is not in any way, shape or form how banking works today.



It certainly is, the only difference is that the monetary base is now government paper tickets. It is still fractional reserve banking. Do you disagree? 
If not address the example. 


Starcraftmazter said:


> I have already laid it out in this very thread. I said the following:
> 
> You can have only 2 types of monetary systems.
> 
> ...



1) Incorrect. In the mythical society where one dynasty simply accumulates all there income and doesn't spend it (i.e. they live like scrooge), they merely reduce the money stock, causing deflation for everyone else. The shortage of money vs deflating costs would cause a gold mining boom. In reality people spend there money so they can enjoy it, and the few hoarders make no difference to anyone - and eventually their heirs spend it. 
2) People are no less greedy with a stable monetary base. As a basic example, England used to be a forest and used to be full of coal. Whilst on metal standards they destroyed all this. No exponential monetary growth necessary.

Address the example.


Starcraftmazter said:


> Indeed, we don't use fractional banking at all; this however doesn't help us one bit.



Are you serious? Yes we do. What next, "In Australia we don't have saturdays"?

We've had your little speech about your metaphysics and epistemology, lets have some follow through. 
You are wrong about the following (mostly because in spite of your claimed rational processes, you have simply copied your beliefs straight from the money as debt videos like a parrot):
Banks create money.
Deposits and debt must grow exponentially due to P =/= P + I

Address the example, unless you don't want to be proven wrong.


----------



## Starcraftmazter (25 October 2011)

Calliope said:


> I agree. I was merely responding in kind to Starcrafty's "senseless name calling" in response to Julia's post, viz.




Last I heard, assertions can't be named. Or do you feel for them? Unless you realise the context of my comment, it is not yours to do so.



tothemax6 said:


> It certainly is, the only difference is that the monetary base is now government paper tickets. It is still fractional reserve banking. Do you disagree?




I do not quite understand what you are saying. Are you implying there is a direct 1:1 correlation between the amount of deposits and the amount of credit the bank gives? If you are saying this, you are incorrect as the banks lend significantly more than they have on deposit (this is the fundamental nature of the fractional reserve banking system).

If you then agree that there is not a 1:1 correlation (again due to fractional lending), then the direct implication is that the bank must have created the remainder of the money it lent out.

With regard to your question, what do you mean "it is still fractional reserve banking", your example was *not* about fractional reserve banking.



tothemax6 said:


> 1) Incorrect. In the mythical society where one dynasty simply accumulates all there income and doesn't spend it (i.e. they live like scrooge), they merely reduce the money stock, causing deflation for everyone else. The shortage of money vs deflating costs would cause a gold mining boom. In reality people spend there money so they can enjoy it, and the few hoarders make no difference to anyone - and eventually their heirs spend it.




I find your example to be flawed.

1. First of all, you imply that those who loan money at interest, will spend it at least at the same rate as their interest charges. This need not be the case. Further, you assume that the money they spend will be equally distributed through the economy  - now I am not saying this is a necessarily incorrect assumption, but it certainly need not be correct. They could spend disproportionate amounts of money on luxury items produced by other rich lenders for instance.

2. Second of all, you say this would cause a gold mining boom. I never said that the underlying currency is gold. Furthermore, you have directly broke the scenario which deals with a *stable* monetary supply. If you mine more gold adding to the monetary supply, then it is no longer stable, is it?

Apart from this, gold is not infinite. Even iron is very much finite in terms of mining good quality ores and getting high concentrations of them in the soil. And iron makes up 1/3 (or so) of the crust!!!



tothemax6 said:


> 2) People are no less greedy with a stable monetary base. As a basic example, England used to be a forest and used to be full of coal. Whilst on metal standards they destroyed all this. No exponential monetary growth necessary.




There was exponential growth though, the population and hence consumption grew exponentially. Much of the UK i still covered in forests (and farmland) by the way.



tothemax6 said:


> Are you serious? Yes we do. What next, "In Australia we don't have saturdays"?




Yes I am serious, Australia does not use the fractional reserve banking system. These might be of interest to you.

http://www.macrobusiness.com.au/2011/02/macro-101-bank-operations/
http://www.macrobusiness.com.au/2011/08/macro-101-reserves-and-interest-rates/
http://www.macrobusiness.com.au/2011/01/macroeconomics-101-part-2/

On a related note;
http://en.wikipedia.org/wiki/Reserve_requirement



tothemax6 said:


> Banks create money.
> Deposits and debt must grow exponentially due to P =/= P + I
> 
> Address the example, unless you don't want to be proven wrong.




Wake up, *deposits are debt* - all money is debt. If I get a loan to buy something off you, you get this money and deposit it - is it real money? No, it's debt created out of nothing.


Also;
http://en.wikipedia.org/wiki/Criticism_of_fractional-reserve_banking#Inflation

http://en.wikipedia.org/wiki/Money_creation



> *Through fractional-reserve banking, the modern banking system expands the money supply of a country beyond the amount initially created by the central bank.* There are two types of money in a fractional-reserve banking system, currency originally issued by the central bank, and bank deposits at commercial banks:
> central bank money (all money created by the central bank regardless of its form, e.g. banknotes, coins, electronic money)
> *commercial bank money (money created in the banking system through borrowing and lending)* - sometimes referred to as checkbook money




Furthermore;
http://en.wikipedia.org/wiki/Fractional-reserve_banking#Money_creation

I do not understand why you continue to say banks do not create money. This is not a secret, not a conspiracy, this is not an isolated phenomena - this is how modern banking works. Can you please read the above links - which explain in detail how fractional reserve banking works and creates money, so that I do not have to explain it to you over and over again.

Thank you.


----------



## tothemax6 (25 October 2011)

OK, I find it hard to believe that the example I used was not simple enough, but alas. We will go all the way down to definitions.

Do you accept that a loan, debt, credit, lending, borrowing, all refer to "A promises to pay B, $X, at time condition Y"? Do you accept that this is a contract?
Do you accept that if I hold a $20 plastic AUD note, I am holding money?
Do you believe that if I write on a piece of paper "IOU $20", I have created money? If so, do you believe this should be illegal? If I simply write in an account book "IO bob, $20", or make a verbal agreement, have I created money?
Do you accept that the term 'reserves' refers to base money (such as the $20 AUD note), that it is different to 'deposit', and that a 'deposit' is a callable loan to the bank?
Do you accept that statutory reserve-to-deposit ratios do not create fractional reserve ratios, but rather increase the fraction? By what logic do you argue that Australian banks would hold more reserves (by your statement, full reserves) because they _are not required to hold any_? 
Do you accept that when banks issue loans, they simultaneously create a deposit (IOU $X) and a loan (You owe me $X in Y years)?

Let me be very clear, so I don't have to explain this to _you_ again:
I have watched the 'money as debt' videos repeatedly (I am making a rebuttal video to that garbage, fighting the tide of stupidity and all that)
I am very familiar with what is meant by 'fraction reserve banking'. 
I am very familiar with the 'its bad' viewpoint, as argued by intelligent men like Murray Rothbard, Hans Herman Hoppe etc, and also the likes of Paul Grignon.
I accept that there is a believe that 'banks create money', but only accept this is true in the most crude definition of 'money', which I do not accept, since it blurs the very obvious distinctions between credit and money.


----------



## Starcraftmazter (25 October 2011)

tothemax6 said:


> OK, I find it hard to believe that the example I used was not simple enough, but alas. We will go all the way down to definitions.




Did you read the wikipedia links I posted? I don't wish to continue talking with you until you man up and admit you were wrong.




tothemax6 said:


> I accept that there is a believe that 'banks create money', but only accept this is true in the most crude definition of 'money', which I do not accept, since it blurs the very obvious distinctions between credit and money.




This is not a belief - this is how the system works, this is how everyone perceives the system of working - people on both sides of the debate about money creation by banks, nobody denies that is how it works.

If you now admit that you were wrong in saying banks do not create money, then I have nothing further to debate with you, because this directly implies the present money supply is diluted resulting in inflation. It also directly implies the government must pay interest on the use of it's own money.


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## tothemax6 (27 October 2011)

Starcraftmazter said:


> Did you read the wikipedia links I posted? I don't wish to continue talking with you until you man up and admit you were wrong.



You've lost.

Rather than debating, you claim I should simply give up - a classic ironic giving-up statement. You didn't answer _one_ of my questions! I clearly outlined my studies of the subject, and your response was 'did you read the wikipedia links'? You refused to read what I posted, a classic 'blank out'.
I'll admit I'm wrong if you can prove it!


Starcraftmazter said:


> This is not a belief - this is how the system works, this is how everyone perceives the system of working - people on both sides of the debate about money creation by banks, nobody denies that is how it works.



There you go again, like a broken record. And yet you refuse to delve further into the matter 


Starcraftmazter said:


> If you now admit that you were wrong in saying banks do not create money, then I have nothing further to debate with you, because this directly implies the present money supply is diluted resulting in inflation. It also directly implies the government must pay interest on the use of it's own money.



So severe is your cognitive dissonance, that you have twisted what I wrote in your head to match your own narrative. Read it again. I said 'I don't accept this crude definition of money'. You believe this crude definition of money, and I don't accept it. Consult your source, wikipedia, on 'money supply'. They divide into 'narrow money', 'broad money', 'M1', 'M2' etc. Only narrow money is true money, the rest overlaps with 'credit'.

Every single thing you believe is wrong. Fortunately, few people believe it.


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## Starcraftmazter (27 October 2011)

tothemax6 said:


> Rather than debating, you claim I should simply give up - a classic ironic giving-up statement.




I will not debate whether the sun rises in the morning; I have better uses for my time.



tothemax6 said:


> You didn't answer _one_ of my questions! I clearly outlined my studies of the subject, and your response was 'did you read the wikipedia links'? You refused to read what I posted, a classic 'blank out'.




Yes, because there is no point talking to you, if your aim is to stick your head in the sand and yell "lalalalal".



tothemax6 said:


> I'll admit I'm wrong if you can prove it!




Monetary supply expands. This means money is created. There are only two ways for money to be created:
1. Mint (responsibly for very small proportion of money that exists and is created)
2. Banks

I have proved it.



tothemax6 said:


> They divide into 'narrow money', 'broad money', 'M1', 'M2' etc. Only narrow money is true money, the rest overlaps with 'credit'.




All money is money. If I take out a loan and buy a house with it, guess what that is money.


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## young-gun (28 October 2011)

tothemax6 said:


> You've lost.
> 
> Rather than debating, you claim I should simply give up - a classic ironic giving-up statement. You didn't answer _one_ of my questions! I clearly outlined my studies of the subject, and your response was 'did you read the wikipedia links'? You refused to read what I posted, a classic 'blank out'.
> I'll admit I'm wrong if you can prove it!
> ...




Please observe this simple example:

The guy X with $100 goes to the bank and deposits it. Now, bank can loan $90 out of this $100 and keep reserve as $10. Let us say, person Y takes a loan for $90 for paying something, to Z. Z has has this $90 and has to keep it somewhere and he goes into some bank and deposits this $90. Now, the overall money supply of the entire system is $100 (deposits in first bank) + $90 (deposits in second bank) = 190. Then this second bank can loan $81 (keeping $9 as a reserve) and this finally ends with a person A, and this process continues till you cannot divide up the currency anymore.

Courtesy of http://econjournal.wordpress.com/2008/11/10/how-do-banks-create-money-in-fractional-reserve-banking/

This is how 'fractional reserve banking' works correct? You're adamant that this isn't creating money, and technically i guess it isn't. It is however creating debt. The 100$ originally deposited does in fact end up as 190$ of loans on banks balance sheets, after being deposited just once more elsewhere does it not? So they have in essence 'created' 90$? 

I was of the view this was a clear cut, well known *fact*. 

edit: Nevermind - just did some back reading and stars' arguments are far more comprehensive


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## Macquack (28 October 2011)

Starcraftmazter said:


> Central banks, and indeed all commercial banks are vermin parasites that need to be destroyed.




I agree with this.



Ageo said:


> *Call it what you like banks are scum and earn money from fkn nothing.. and why do you say? because tomorrow if there was a bank run they would shut the doors, they are lending money that they dont even have*!




Perfect explaination of "the greatest scam on earth" by Ageo.


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## Mrmagoo (29 October 2011)

I really hate bank bashing. There is so much inequality in the economy and so much wrong done to so many different people that it can't all be the banks fault.


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## Tysonboss1 (29 October 2011)

Mrmagoo said:


> There is so much inequality in the economy




What do you mean by that. Where do you see inequality.


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## Mrmagoo (29 October 2011)

Tysonboss1 said:


> What do you mean by that. Where do you see inequality.




Some people are poor, some people are rich. There is your inequality. If you're poor, generally, bad things happen to you as a result of being poor. There is more inequality.


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## howmanyru (29 October 2011)

Agree Mrmagoo, banks in their original concept provide a valuable service to the economy. Yes, they have become a bit of a monstor due to many reasons, but where do you lay the blame for that? Bank bashing wont solve human greed.


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## Tysonboss1 (29 October 2011)

Mrmagoo said:


> Some people are poor, some people are rich. There is your inequality.




Thats not inequality.

Everyone in Australia has a chance to succeed and enjoy life. Just because some peoples life choices have made them poor does not at all mean that the society enforced that upon them or that they had no chance to change their own future, or that the people that did succeed and got wealthy had some intrinsic advantage.


----------



## Mrmagoo (29 October 2011)

Tysonboss1 said:


> Thats not inequality.
> 
> Everyone in Australia has a chance to succeed and enjoy life. Just because some peoples life choices have made them poor does not at all mean that the society enforced that upon them or that they had no chance to change their own future.




Sounds like you're some political high level philosophical kind of argument. For objective purposes if you earn more money than me then that is an inequality. 

I assume the anger directed at bankers is to do with that sort of inequality. Which is an inherent part of the economic system.


----------



## Julia (29 October 2011)

Tysonboss1 said:


> Thats not inequality.
> 
> Everyone in Australia has a chance to succeed and enjoy life. Just because some peoples life choices have made them poor does not at all mean that the society enforced that upon them or that they had no chance to change their own future, or that the people that did succeed and got wealthy had some intrinsic advantage.



Tyson, I understand what you're saying in terms of us all having apparent equal opportunity.

But in reality, it's not so.  We are simply not all born equal.  We do not receive equal upbringing, both as regards the wisdom of our parents, and the socio-economic circumstances we're born into.

We do not all have similar IQ levels, nor have we all absorbed social skills as we grow up.

Many of us here have had great backgrounds.  Some of us have done well because we've had the privilege of being born with a decent level of intelligence, our parents have modelled and taught us personal, social and financial skills, and we've gone to good schools then been encouraged into tertiary study.

Or some of us have not been born into such fortunate circumstances, but have taken - by force of their strong character - adverse circumstances as a child to determine that they will grow up to be absolutely different.

If  you're a creature of a multi-generational family on welfare where there is no expectation that any member of that family will ever be anything but a loser, it's pretty damn hard to break out of that mentality, especially if you have poor intellectual and physical capacity.

I'm also with Mr Magoo in being utterly sick of all the bank bashing.
Bob Brown's latest suggestion that banks don't receive the 1% tax cut that goes to all other business is yet another indication of this crap socialist propaganda.


----------



## young-gun (29 October 2011)

howmanyru said:


> Bank bashing wont solve human greed.




Nail on the head. I guess it's like blaming mcdonalds for obesity.. At the end of the day consumers choose whether to eat there or not.

However that's not to say that Maccas aren't able to help the situation just as banks could have


----------



## Tysonboss1 (29 October 2011)

Mrmagoo said:


> . For objective purposes if you earn more money than me then that is an inequality.




It would be inequality if we lived in a society that said you can't earn the same as me because you are black or because you are white or gay or jewish.

But if I earn more money that you because i spent years working towards a goal that took untold hours of study, years of above average hours of work and effort and the deployment of personal at risk capital into a business, then thats not equality.

To expect that you should earn the same as me without putting in the same personal effort, risks, sacrifices and time would be inequality.


----------



## Mrmagoo (29 October 2011)

Tysonboss1 said:


> It would be inequality if we lived in a society that said you can't earn the same as me because you are black or because you are white or gay or jewish.
> 
> But if I earn more money that you because i spent years working towards a goal that took untold hours of study, years of above average hours of work and effort and the deployment of personal at risk capital into a business, then thats not equality.
> 
> To expect that you should earn the same as me without putting in the same personal effort, risks, sacrifices and time would be inequality.




If there is a large difference in earning capacity within a population, for a similar amount of effort, we can conclude that there is inequality in that population. This has implications for the economy, and investors. 

Effort is easily definable as the number of hours worked.


----------



## Tysonboss1 (29 October 2011)

Mrmagoo said:


> Effort is easily definable as the number of hours worked.




No it's not. 

Compare the two

Example 1- A hippy named Rainbow works 7 days a week in his little organic vege garden and produces 100Kg of carrats each year which he sells at a local co-op.

Example 2 - A Famer called Dave works seven days a week also, He Borrowed $3,000,000 from a Bank and buys a large block of fertile ground and large pieces of comercial scale farm equipment and associated packing sheds, He works seven days a week ploughing and planting, and his large scale intensive farming operation produces 100 tonnes of carrats per year which he ships nation wide.

Obviously, the farmer Dave is going to earn more because he has produced more.

We all earn according to the value we produce, not simply hours worked.


----------



## Tysonboss1 (29 October 2011)

Julia said:


> Tyson, I understand what you're saying in terms of us all having apparent equal opportunity.
> 
> But in reality, it's not so.  We are simply not all born equal.  We do not receive equal upbringing, both as regards the wisdom of our parents, and the socio-economic circumstances we're born into.
> 
> ...




I agree Julia, but at the end of the day it all comes back to personal responsibilty, and they can always start making changes, rather than making excuses.


----------



## Julia (29 October 2011)

Tysonboss1 said:


> No it's not.
> 
> Compare the two
> 
> ...



Great summary.  Little to do with hours worked.

There are some people who are genuinely disadvantaged and whom we should be helping much more than we do now, but there are others who claim disadvantage to disguise laziness and a sense of entitlement that it's up to others to look after them.

An example of this is the adverse effect decades of passive welfare have had on some remote aboriginal communities.   Noel Pearson - in his persistent attempts to have his people weaned off this and into adopting an attitude of personal responsibility - is meeting with ignorant resistance from The Left who keep banging on that aboriginal people should be regarded as victims.  Tell someone often enough that they're a victim and they'll sure as hell accept that and behave accordingly.

On the other hand, if people are given some responsibility with the expectation that they will succeed, usually they will do so.


----------



## nomore4s (29 October 2011)

Tysonboss1 said:


> Thats not inequality.
> 
> Everyone in Australia has a chance to succeed and enjoy life. Just because some peoples life choices have made them poor does not at all mean that the society enforced that upon them or that they had no chance to change their own future, or that the people that did succeed and got wealthy had some intrinsic advantage.




There is inequality though.

A baby (baby A) born into a poor uneducated family is starting behind the eight ball when compared to a baby (baby B) born into a rich well educated family.

While there is nothing stopping baby A from becoming a successful, wealthy individual they will have to break down a lot more barriers and probably work twice as hard at it as baby B. Baby B will certainly have more doors open to them from the start and no doubt have a major head start in life over baby A, that is inequality through no fault of either baby, just the way the world works. To suggest we all start life on equal footing is a bit naive imo.

Anyone who has had anything to do with the lower end of the social ladder will understand just how hard it is to break the cycle.


----------



## Tysonboss1 (29 October 2011)

True, but their is nothing structual in our society that holds people back. The is no cast system. 

Even people with disabilities can live long quality lives, 10,000 years ago they would have been some animals lunch, or the tribe would have thrown them in the river.


----------



## Tyler Durden (29 October 2011)

Tysonboss1 said:


> It would be inequality if we lived in a society that said you can't earn the same as me because you are black or because you are white or gay or jewish.
> 
> But if I earn more money that you because i spent years working towards a goal that took untold hours of study, years of above average hours of work and effort and the deployment of personal at risk capital into a business, then thats not equality.
> 
> To expect that you should earn the same as me without putting in the same personal effort, risks, sacrifices and time would be inequality.




You seem to be equating efforts put in with rewards achieved as an output. Although in the perfect world that should be the case, it is not because we do not live in a perfect world.

A truck driver in mining is probably earning a tonne more than a truck driver for Woolies.

There is inequality in the world, as much some of us would hate to admit it. nomore4s gave the perfect example, I'm not sure what you mean by "cast system". But IMO there is something "structural" in our society holding people back. Look at the big employers and see whether they prefer someone from a private school who went to Syd U, or someone who went to Mt Druitt Public and UWS.

For women, it is even harder as their appearance dictates a lot about their earning capacity. An attractive woman can be a model OR a business woman. A not so attractive woman can be a business woman, but never a model.


----------



## cynic (29 October 2011)

Tysonboss1 said:


> True, but their is nothing structual in our society that holds people back. The is no cast system.
> 
> Even people with disabilities can live long quality lives, 10,000 years ago they would have been some animals lunch, or the tribe would have thrown them in the river.




Whilst I recognise that we do happen to live in a society that has demonstrated a more inclusive approach to the accommodation of the disabled amongst us, I have also noticed certain practices being encouraged within our society that indicate an opposite viewpoint.

One example is the practice of recommending termination of a foetus subsequent to the identification of certain genetic maladies/disorders. This could be seen as somewhat akin to the practice of throwing the diseased/disabled in the river. It seems that with technological advancement, mankind has simply become more sophisticated in the performance of age old practices.

Anyway, just to get myself back onto the topic, much as I am concerned about the ethical conduct of the finance industry (and believe significant regulatory enhancements are now long overdue), I am extremely grateful for the existence of the banks as I know that without them (and the finance they provided me) I would almost certainly be homeless and very probably deceased.


----------



## tothemax6 (30 October 2011)

Starcraftmazter said:


> All money is money. If I take out a loan and buy a house with it, guess what that is money.



If its too much effort to address all of my questions, answer just these ones then:
If I write on a piece of paper "IOU $20", and use it to pay someone, have I created money? And, if so should this be illegal? 
If not, why it is that banks should not be able to do this, but I can?
If so, by what possible moral principle?


----------



## tothemax6 (30 October 2011)

nomore4s said:


> Anyone who has had anything to do with the lower end of the social ladder will understand just how hard it is to break the cycle.



But life _is_ hard.
I know of people who come from the poor class and have worked their whole lives to move up to middle class - and they have. If its not given to him, and for most men it can't be, he has to make his own way.

It is this activity that puts pressure on society to the _upside_. We all ride on the results of the industrial revolution.
The other alternative is the 'thief' alternative - in which a group (normally the government) steals the belongings of those who have made or inherited wealth from those who made etc, and gives it to those who have not yet. This puts pressure on society to the _downside_.

As always, its either Right and upward, or Left and downward.


----------



## robusta (30 October 2011)

This will explain it all, no wonder Australian banks have been such a great investment.

http://www.youtube.com/watch?v=M_3T-Af57Pg&feature=related


----------



## tothemax6 (31 October 2011)

Starcraftmazter said:


> All money is money. If I take out a loan and buy a house with it, guess what that is money.



Still waiting, Startcraft,
If I write on a piece of paper "IOU $20", and use it to pay someone, have I created money?


----------



## Tysonboss1 (31 October 2011)

tothemax6 said:


> Still waiting, Startcraft,
> If I write on a piece of paper "IOU $20", and use it to pay someone, have I created money?




No it's not money. It may be an asset depending on your credit rating, but it's not legal tender, and it would be worth much less than $20.00.


----------



## FxTrader (31 October 2011)

tothemax6 said:


> Still waiting, Startcraft,
> If I write on a piece of paper "IOU $20", and use it to pay someone, have I created money?




LOL, the U.S. and other governments do this every day!  In the case of the U.S. your piece of paper is called a U.S. treasury bond and to pay you back they just print the $20, or to be more precise they just electronically create a deposit out of thin air to pay into your account.  

Is that creating money?  Of course it is.


----------



## Tysonboss1 (1 November 2011)

FxTrader said:


> LOL, the U.S. and other governments do this every day!  In the case of the U.S. your piece of paper is called a U.S. treasury bond and to pay you back they just print the $20, or to be more precise they just electronically create a deposit out of thin air to pay into your account.
> 
> Is that creating money?  Of course it is.




The $20 bill that they print is money, the treasury bill is not.


----------



## Mr Z (1 November 2011)

Actually the UST Bill is issued to create the new $20 bills. The US literally loans its money into existence and does not directly print currency. Treasury bills are very much a part of money in the US.


----------



## Mr Z (1 November 2011)

Tysonboss1 said:


> No it's not money. It may be an asset depending on your credit rating, but it's not legal tender, and it would be worth much less than $20.00.




Legal tender is currency, money is not always considered legal tender and legal tender does not always qualify as money. Money and legal tender are not equivalent, this is why you have trouble with the whole gold is money idea....


----------



## FxTrader (1 November 2011)

Mr Z said:


> Actually the UST Bill is issued to create the new $20 bills. The US literally loans its money into existence and does not directly print currency. Treasury bills are very much a part of money in the US.




Correct, the $20 borrowed is used to pay current expenses and the $20 + interest due on the Tbill is created out of thin air when redeemed.  This increases money supply and is quite clearly part of the money creation process.


----------



## Punta (1 November 2011)

Starcraftmazter said:


> There can only be two ways a monetary system works:
> 
> 1. Expanding = this will lead to a complete destruction of the environment and an exponential rape of all the planet's natural resources until none are left.
> 
> 2. Stable  = In this monetary system, those who charge interest will inevitably end up with all the money.




I enjoyed reading this thread.  I know nothing of economics, but to strike a more philosophical note, I would question this central tentet of Starcraft's argument.  It is not necessarily true that endless growth is impossible.  Furthermore, it is not necessarily true that a stable/static system is sustainable.

There is nothing static about the natural world - if an organism does not evolve it will be out competed and die.  Hence the reason that the vast majority of all species that have ever lived are now extinct.

It is hard to imagine how exploiting finite resources can fuel growth indefinitely, but perhaps renewable/unlimited resources can be harnessed to fuel growth, or growth can be based on increasing services?

Also the practicality of a static system seems totally untenable.  It would require that individuals and society accept a steady economic state in terms of their personal status/lot/postion, and that seems totally at odds with how humans behave.


----------



## Tysonboss1 (1 November 2011)

Mr Z said:


> Legal tender is currency, money is not always considered legal tender and legal tender does not always qualify as money. Money and legal tender are not equivalent, this is why you have trouble with the whole gold is money idea....






FxTrader said:


> Correct, the $20 borrowed is used to pay current expenses and the $20 + interest due on the Tbill is created out of thin air when redeemed.  This increases money supply and is quite clearly part of the money creation process.




The definition of money-

1.A current medium of exchange in the form of coins and banknotes; coins and banknotes collectively

In video Ben Bernake clearly stetes that Treasury Bills are not money.


----------



## Happy (1 November 2011)

I don’t have answers how to fix banking, but I think that money shuffling should not leave them that much money.

Same as Gates should not became one of the richest people alive in less than half the productive life.
Just amass so much money because somebody can, does not suit me and the gap between all sorts of hard working people.

My defence against massive charges and interests is have minimum possible loan (ZERO would be ideal)
Use banking facilities to avoid as many charges as possible.

Simple yet at times gives me great pleasure of how little I am gouged directly.


----------



## Tysonboss1 (1 November 2011)

Happy said:


> Same as Gates should not became one of the richest people alive in less than half the productive life.




IMHO That wealth has landed in a pretty good place.

Gate's and Buffet's fortunes are going to do a hell of a lot of good,

Gates is going to spend the seocond half of his productive life giving away the fortune in the most rational value for money way he can.


----------



## FxTrader (1 November 2011)

Tysonboss1 said:


> The definition of money-
> 
> 1.A current medium of exchange in the form of coins and banknotes; coins and banknotes collectively. In video Ben Bernake clearly stetes that Treasury Bills are not money.




You are missing the point again with a myopic focus on strict definition.  A Tbill is issued to pay for govt expenses (money is issued to the creditor) and creates a liability that is paid back with money that is created by the FED.  Listen carefully, I did not say a Tbill is money but it is part of the money creation/supply process.  What part don't you understand here?

You're quoting helicopter Ben here!!!  The clown that is debasing the dollar and buying trillions of US govt debt, monetizing it.  To him, money is just something that is printed or created with a keystroke on a computer at the Fed.  He's made so many gaffes, misstatements and incorrect forecasts that he is just an embarrassment and disgrace to his position.  I have no respect for anything he has to say these days. He's an incompetent economic vandal, is leading the U.S. to financial ruin and should have been sacked the minute Obama took office.


----------



## Happy (1 November 2011)

Tysonboss1 said:


> ...
> Gates is going to spend the seocond half of his productive life giving away the fortune in the most rational value for money way he can.





Great, but this is my money he is going to give away, that I shouldn't have paid for his product that is obvious to me was grossly overpriced.


----------



## Tysonboss1 (1 November 2011)

Happy said:


> Great, but this is my money he is going to give away, that I shouldn't have paid for his product that is obvious to me was grossly overpriced.




Well then don't pay it, Don't use his products.

Like any product, only spend your money on it if you think it is going to generate more value for you than holding the cash does.

I don't think their products are over priced, It would work out at a couple of cents per use if you worked out how much you use it.

If fact buying a news paper from a news agent would work out more expensive per use.


----------



## Tysonboss1 (1 November 2011)

FxTrader said:


> You are missing the point again with a myopic focus on strict definition.  A Tbill is issued to pay for govt expenses (money is issued to the creditor) and creates a liability that is paid back with money that is created by the FED.  Listen carefully, I did not say a Tbill is money but it is part of the money creation/supply process.  What part don't you understand here?
> 
> You're quoting helicopter Ben here!!!  The clown that is debasing the dollar and buying trillions of US govt debt, monetizing it.  To him, money is just something that is printed or created with a keystroke on a computer at the Fed.  He's made so many gaffes, misstatements and incorrect forecasts that he is just an embarrassment and disgrace to his position.  I have no respect for anything he has to say these days. He's an incompetent economic vandal, is leading the U.S. to financial ruin and should have been sacked the minute Obama took office.




the original question was whether a $20 IOU was money, you said yes and then used the TBill as an example.

An IOU or T Bill is not money, it can be sold or redeemed for money. But it is not money.


----------



## mazzatelli (1 November 2011)

Tysonboss1 said:


> An IOU or T Bill is not money, it can be sold or redeemed for money. But it is not money.




In financial statements what are T-bills usually classified as? Is it cash and cash equivalents?


----------



## FxTrader (1 November 2011)

Tysonboss1 said:


> the original question was whether a $20 IOU was money, you said yes and then used the TBill as an example.
> 
> An IOU or T Bill is not money, it can be sold or redeemed for money. But it is not money.




You still don't get it, let me repeat once again for the last time.  A Tbill is not money (never claimed it was if you read carefully), it can however create money when the means to pay it back doesn't exist other than to create money out of thin air, and hence increases money supply when issued for reasons already explained.  I can't be any clearer than this so please don't bore me by misrepresenting what I've said here and restating the obvious.


----------



## Tysonboss1 (1 November 2011)

mazzatelli said:


> In financial statements what are T-bills usually classified as? Is it cash and cash equivalents?




They would make up the "cash equivalent" component of the "cash and cash equivalent line" because they can be redeemed for cash very easily.

But that does not mean it is cash, 

Just like when an oil company reports production as "Oil and oil equivalents" the natural gas, condensate and LPG that make up the equivalents are not actual oil.

But the original question was, Is an IOU from forum member "tothemax" Money, I would suggest his IOU would find it's way to the " other financel asset " line of the balance sheet.

I personally have never seen any body enter a shop and try and spend a Tbill, or gold for that matter,


----------



## McLovin (1 November 2011)

mazzatelli said:


> In financial statements what are T-bills usually classified as? Is it cash and cash equivalents?




Not the best yardstick to use. Preferred stock can be classfied as cash and cash equivalents if it redeems within three months.


----------



## McLovin (1 November 2011)

FxTrader said:


> You are missing the point again with a myopic focus on strict definition.  A Tbill is issued to pay for govt expenses (money is issued to the creditor) and creates a liability that is paid back with money that is created by the FED.




That's not necessarily true.


----------



## FxTrader (1 November 2011)

McLovin said:


> That's not necessarily true.




Not always but it certainly is at the moment.  The fed is the biggest purchasor of US govt debt (well over a trillion dollars from memory), where do you think all that money comes from, the member banks?  No, it's created by the Fed.

Check out this vid called Fiat Empire...

http://video.google.com/videoplay?docid=5232639329002339531&q=fiat+empire+site%3Avideo.google.com&total=23&start=0&num=10&so=0&type=search&plindex=0


----------



## Mr Z (1 November 2011)

Tysonboss1 said:


> The definition of money-
> 
> 1.A current medium of exchange in the form of coins and banknotes; coins and banknotes collectively




LOL yeah right... the revised modern dickshunary definition of money... look up inflation, those definitions are about as accurate. I'm sorry but dictionary collators tend to totally lose the subtleties in economic definitions! That is one potential form of money and is by no means an exclusive or exhaustive definition. Try again...


----------



## McLovin (1 November 2011)

FxTrader said:


> Check out this vid called Fiat Empire...
> 
> http://video.google.com/videoplay?docid=5232639329002339531&q=fiat+empire+site%3Avideo.google.com&total=23&start=0&num=10&so=0&type=search&plindex=0




No thanks.


----------



## wayneL (1 November 2011)

OK lets suppose the monetary system collapses and I dig up my Krugs because I need to go to the shop to by a loaf of bread, a bottle of woobla and a 30-30 to guard my gold with  now that the cat is out of the bag that I have a cache; the Krug I smuggly flip out of my pocket is now worth $37k but the items add up to only $3000 (30-30s now selling at a huge premium : )

How does that work?


----------



## FxTrader (1 November 2011)

McLovin said:


> No thanks.




No worries, you have refuted nothing I've said then or mounted a credible argument in support of your brief statement.  Thanks for your thoughtful contribution to the debate here.


----------



## Mr Z (1 November 2011)

Tysonboss1 said:


> I personally have never seen any body enter a shop and
> try and spend a Tbill, or gold for that matter,




and that defines money how? You are still rattling on about currency and calling it money and yet you have known nothing but FIAT currency... a government decreed currency but not a natural money, it is a currency by decree and force of law.

Central banks hold gold because it is a natural money, its value starts where the government decrees run out and it is dependent on no man or law for its value. The key difference between currency and money... money just is, it is defined by human nature and its physical properties not by some political body. Ultimately the best money is the most negotiable good on the planet, that is gold, it has value anywhere and everywhere unlike our beloved paper currency's and bills.

You really need to get your head around that... central banks don't collect it for fun.

As for T'bills and US notes... they are in effect the same thing in the US system. One does not exist with out the other and the are both negotiable enough to serve as cash for most practical purposes in the financial system. They are both government paper back by the same full faith and credit of the US gov! Flight to safety and flight to cash IS a flight to US gov paper in that system and in most circumstances TBills rate over 'green backs' for practical purposes when parking significant funds. Anything more than you can fit in a suit case is safer in US gov paper than any US currency account ---> so really cash depends on how much you have to move and park, over 250K in the US and cash is TBills as they are the most liquid, secure and negative instrument you can hold.

You are thinking like a guy with a 100K not a guy with a few billion!


----------



## FxTrader (1 November 2011)

wayneL said:


> OK lets suppose the monetary system collapses and I dig up my Krugs because I need to go to the shop to by a loaf of bread, a bottle of woobla and a 30-30 to guard my gold with  now that the cat is out of the bag that I have a cache; the Krug I smuggly flip out of my pocket is now worth $37k but the items add up to only $3000 (30-30s now selling at a huge premium : ) How does that work?




Good question, I suppose that you would progressively redeem your Krugs as necessary into a currency that has some purchasing power where you reside to purchase the goods you require.


----------



## Mr Z (1 November 2011)

wayneL said:


> OK lets suppose the monetary system collapses and I dig up my Krugs because I need to go to the shop to by a loaf of bread, a bottle of woobla and a 30-30 to guard my gold with  now that the cat is out of the bag that I have a cache; the Krug I smuggly flip out of my pocket is now worth $37k but the items add up to only $3000 (30-30s now selling at a huge premium : )
> 
> How does that work?




Melt it and pour it into water.... pick up the grain and measure it out and give it to the man! Swap it for silver and pay in silver... crikey of all the problems you could have in that scenario that would be the least of your concerns!


----------



## wayneL (1 November 2011)

So silver is money too?

How about my copper plumbing... the huge pile of aluminium beer cans I have out the back... the two tonnes of used horseshoes (steel)?

Is that money too?


----------



## Mr Z (1 November 2011)

Wayne... it all depends on what is available. Gold is the best form of natural money we have found but that does not make it exclusively money.

An ideal money meets certain criteria naturally and perfectly, in the absence of an ideal money the next best fit fills the role. That as been a number of things in human history and silver is one of the prominent choices.

In short money is what ever a society chooses it to be, and absent force (governmental decree) the best choice is made according to merit. It has been silver, gold, salt and even eight foot round stones BUT while and where we have gold we tend to choose it.

Yes copper could conceivably serve as money as it has many of the properties required and is only really lacking in the economic scarcity department.


----------



## RandR (1 November 2011)

wayneL said:


> So silver is money too?
> 
> How about my copper plumbing... the huge pile of aluminium beer cans I have out the back... the two tonnes of used horseshoes (steel)?
> 
> Is that money too?




meh, people can hoard gold if they want, or silver or whatever the hell picks there fancy if they think it will honestly save them in some financial/societal collapse. Because Im trained in weaponry and im bad enough to use it to get anything i'll ever need


----------



## Mr Z (1 November 2011)

RandR said:


> meh, people can hoard gold if they want, or silver or whatever the hell picks there fancy if they think it will honestly save them in some financial/societal collapse. Because Im trained in weaponry and im bad enough to use it to get anything i'll ever need




Yeah.... but I can hire a bigger A hole


----------



## wayneL (1 November 2011)

RandR said:


> meh, people can hoard gold if they want, or silver or whatever the hell picks there fancy if they think it will honestly save them in some financial/societal collapse. Because Im trained in weaponry and im bad enough to use it to get anything i'll ever need




So Kalashnikovs are money? ::


----------



## Mr Z (1 November 2011)

wayneL said:


> So Kalashnikovs are money? ::




They have some limitations  but hey cigarettes served as money in war time prison camps so given the right circumstance ya never know!


----------



## tothemax6 (1 November 2011)

Tysonboss1 said:


> No it's not money. It may be an asset depending on your credit rating, but it's not legal tender, and it would be worth much less than $20.00.



Yeah I know that, and I know you know that, but starcraft doesn't accept this. By his own claims, he believes that a debt instrument is money, as opposed to a debt of money, and thus banks 'create money', and since 'creating money is evil', banks are evil.

You still there Starcraft? Have you realized the error of your ways, or are you going to answer my IOU $20 question?


----------



## FxTrader (1 November 2011)

tothemax6 said:


> ... and thus banks 'create money', and since 'creating money is evil', banks are evil.




Central banks do in fact "create money" to pay debt.  Such money creation in turn creates inflation and erodes the purchasing power of the 99% while progressing us further down the road to serfdom.  Is it evil, well not to those who benefit from this folly and that would include banks and other institutions who have successfully socialized their losses but retained their profits and executive bonuses.


----------



## Tysonboss1 (1 November 2011)

wayneL said:


> OK lets suppose the monetary system collapses and I dig up my Krugs because I need to go to the shop to by a loaf of bread, a bottle of woobla and a 30-30 to guard my gold with  now that the cat is out of the bag that I have a cache; the Krug I smuggly flip out of my pocket is now worth $37k but the items add up to only $3000 (30-30s now selling at a huge premium : )
> 
> How does that work?




The shop keeper will write you an IOU for the difference. It's money isn't it.


----------



## tothemax6 (1 November 2011)

FxTrader said:


> Central banks do in fact "create money" to pay debt.



Central banks are an entirely different animal. Banks and central banks are very different. I prefer to think of central banks as 'ridiculous' than evil, they simply shouldn't exist. The bailouts, on the other hand, were outright evil, I agree. I am of the opinion that there should be a general hearing of all politicians and businessmen who were involved (including Fed officials), conducted by the US supreme court, and most should end up in jail for a long time. Alas, justice is a faint dream.


----------



## Aussiejeff (2 November 2011)

tothemax6 said:


> Central banks are an entirely different animal. Banks and central banks are very different. I prefer to think of central banks as 'ridiculous' than evil, they simply shouldn't exist. The bailouts, on the other hand, were outright evil, I agree. I am of the opinion that there should be a general hearing of all politicians and businessmen who were involved (including Fed officials), conducted by the US supreme court, and most should end up in jail for a long time. Alas, justice is a faint dream.




Until the raping of Billion$ of hard-earned lucre by FatCats self-declared "above the law" - from millions of lowly "serfs" - is declared a crime deserving the same sort of penalty a physical rapist now receives, "justice" shall never prevail.

I recall the French Revolution was one such rare period when the rarified "haves" were finally called to account by the hordes of "have nots". Twas all a bit messy though in the end....

Anyway, we know for sure that humankind NEVER learns from previous mistakes, so anything is possible. Even some sort of "justice". Just don't hold your breath for it....


----------



## kavla1970 (2 November 2011)

Aussiejeff said:


> Anyway, we know for sure that humankind NEVER learns from previous mistakes, so anything is possible. Even some sort of "justice". Just don't hold your breath for it....




What has happened is a crime that should be punished. The whole world is being held to ransom by a few elite bankers.

I knew that the US Federal Reserve was privately owned but when I found out that our Reserve Bank was also privately owned I nearly died.


----------



## doctorj (2 November 2011)

kavla1970 said:


> What has happened is a crime that should be punished. The whole world is being held to ransom by a few elite bankers.



Who exactly?


----------



## Mr Z (2 November 2011)

Tysonboss1 said:


> The shop keeper will write you an IOU for the difference. It's money isn't it.




To the extent that it is trusted. 

People decide what money is in the end. Zimbabwe is a classic example of how the currency of the realm was shunned in preference for sounder monies, that place largely functioned on the trade of anything that was not the currency, despite the governments decrees. 

Money is not defined by government, it is defined by communities --> that is the bottom line.


----------



## Mr Z (2 November 2011)

*RBA Private --> WTF?*

No!



> 1. What is the Reserve Bank of Australia and who owns it?
> 
> The Reserve Bank of Australia is Australia's central bank. Its role is set out in the Reserve Bank Act 1959. The Bank conducts the nation's monetary policy and issues its currency. It seeks to foster financial system stability and promotes the safety and efficiency of the  payments system. It also offers banking services to government. *The Bank is wholly owned by the Australian Government, but is not a government department.* For more information see about the RBA.




Source...


----------



## Tysonboss1 (2 November 2011)

*Re: RBA Private --> WTF?*



Mr Z said:


> No!
> 
> 
> 
> Source...




What are you trying to say,


----------



## Mr Z (2 November 2011)

Tysonboss1 said:


> What are you trying to say,




If you are reading the thread it should be quite obvious which comment I am referring to. --->



kavla1970 said:


> What has happened is a crime that should be punished. The whole world is being held to ransom by a few elite bankers.
> 
> I knew that the US Federal Reserve was privately owned but when I found out that our Reserve Bank was also privately owned I nearly died.




As it turns out there is no need to endanger your life on this front, the RBA is indeed a government owned institution!


----------



## kavla1970 (2 November 2011)

Mr Z said:


> If you are reading the thread it should be quite obvious which comment I am referring to. --->
> 
> 
> 
> As it turns out there is no need to endanger your life on this front, the RBA is indeed a government owned institution!




Promise I won't jump.....I saw an article stating that the Reserve Bank is actually and "ADI" or foreign controlled company. I hope I am wrong...

http://www.youtube.com/watch?v=l8zyy9IlxGw


----------



## kavla1970 (2 November 2011)

doctorj said:


> Who exactly?




Goldman Sachs, JP Morgan, IMF...The money trail in alot of these struggling economies lead to these guys it would seem.


----------



## McLovin (2 November 2011)

kavla1970 said:


> Promise I won't jump.....I saw an article stating that the Reserve Bank is actually and "ADI" or foreign controlled company. I hope I am wrong...
> 
> http://www.youtube.com/watch?v=l8zyy9IlxGw




An ADI is an "Authorised Deposit taking Institution". It has nothing to do with ownership. The RBA is not an ADI but is authorised seperately under the Reserve Bank Act to carry on a banking business.


----------



## Mr Z (2 November 2011)

​


----------



## skyQuake (2 November 2011)

Mr Z said:


> http://www.youtube.com/watch?v=KSUJIlQ5EiE​




Haha beautiful! He hosts talking about your Generation now


----------



## Mr Z (2 November 2011)

kavla1970 said:


> Promise I won't jump.....I saw an article stating that the Reserve Bank is actually and "ADI" or foreign controlled company. I hope I am wrong...
> 
> http://www.youtube.com/watch?v=l8zyy9IlxGw





That dude is on drugs!


----------



## kavla1970 (2 November 2011)

McLovin said:


> An ADI is an "Authorised Deposit taking Institution". It has nothing to do with ownership. The RBA is not an ADI but is authorised seperately under the Reserve Bank Act to carry on a banking business.




I could be completely wrong and I probably am. When I read the article stating that the RB was a private company I nearly died.


----------



## doctorj (3 November 2011)

kavla1970 said:


> Goldman Sachs, JP Morgan, IMF...The money trail in alot of these struggling economies lead to these guys it would seem.




What do you mean by money trail? How is Goldman, JPM and the IMF (?!) holding the world to ransom? More importantly, why would someone like the IMF hold the world to ransom?


----------



## explod (3 November 2011)

doctorj said:


> What do you mean by money trail? How is Goldman, JPM and the IMF (?!) holding the world to ransom? More importantly, why would someone like the IMF hold the world to ransom?




Because the IMF is run by the US.

They hold from memory 16% of the voting seats and it requires an 85% vote to make changes.


----------



## Tysonboss1 (3 November 2011)

explod said:


> Because the IMF is run by the US.
> 
> They hold from memory 16% of the voting seats and it requires an 85% vote to make changes.




i wouldn't really call that running the show.


----------



## explod (3 November 2011)

Tysonboss1 said:


> i wouldn't really call that running the show.




There is a very astute economist who puts out a news letter called "The Privateer".  I think you can log in and be given a number of his newsletters free.  Jack Bukler is his name and he was a trader and broker in Chicargo in his earlier years and is now retired at Noosa Qld.  I have no association with him other than I subscribed to his newsletter from about 2006 and it was a great eye opener for me.

All of his sources are from official Government figures and he deals only in facts to which he in turn references.

Lets know what your take is on his take.


----------



## basilio (4 November 2011)

Is banking the greatest scam ?  I think in a number of cases it is.

But if we don't have banks how can we create money that will enable people to buy and sell things? 
I just came across a interesting article which explored  the issue of local currencies in a number of countries during the 20's and 30"s.  Sounded as if they worked very well.

Perhaps we just have the wrong type of currency? 


> The Austrian town of WÃ¶rgl also tried out Gesell’s idea, in 1932. Like most communities in Europe at the time, it suffered from mass unemployment and a shortage of money for public works. Instead of spending the town’s meagre funds on new works, the mayor put them on deposit as a guarantee for the stamp scrip he issued. By paying workers in the new currency, he paved the streets, restored the water system and built a bridge, new houses and a ski jump.
> 
> Because they would soon lose their value, WÃ¶rgl’s own schillings circulated much faster than the official money, with the result that each unit of currency generated 12 to 14 times more employment. Scores of other towns sought to copy the scheme, at which point – in 1933 – the central bank stamped it out. WÃ¶rgl’s workers were thrown out of work again.



http://www.monbiot.com/2009/01/20/a-better-way-to-make-money/


----------



## Mr Z (4 November 2011)

Proof positive that reckless inflation works! I wonder what went wrong in Zimbabwe?


----------



## tothemax6 (4 November 2011)

basilio said:


> But if we don't have banks how can we create money that will enable people to buy and sell things?
> I just came across a interesting article which explored  the issue of local currencies in a number of countries during the 20's and 30"s.  Sounded as if they worked very well.
> 
> Perhaps we just have the wrong type of currency?
> ...



1) Banks do not create money. 2) People use the most marketable good as money. This was gold and silver prior, so long as the government was not socialist or authoritarian. 

People have managed to carry out trade since the dawn of mankind, banks or no banks, government or no government. Banks are a benefit, not a necessity. 

The example you described is most likely from a highly biased source. Spending new money into circulation does not affect the quantity of capital goods, labour, land, or energy sources present in an economy, hence it cannot cause economic growth. It can only reallocate ownership of property (in this case, from citizens to the worgl council). It can only provide an illusion of economic growth, as the politicians point at the ski jump and say 'look, we did that with this new money!', whilst ignoring private projects in the background which were shelved due the drain on construction materials.


----------



## basilio (4 November 2011)

It is probably worth having at a look at the story and perhaps at the source Tothe Max. I don't know enough to have an informed opinion.

It  seems it was quite a clever system and appeared to work exceptionally well at helping parts of  Germany out of the 1923 hyper inflation disaster and the 30's depression. Before the issue of the local currency there was almost no economic activity in the town at all so its unlikely that other  projects were being "crowded out"

I think what is being pointed out is that the governments poured trillions into the  banking system to get credit moving again after 2008. However  it doesn't seem to have worked in any significant way. This was just another option that was tried and  appeared to be successful and perhaps is worth revisiting.


----------



## Mr Z (5 November 2011)

Money 101 --> Fractional reserve banking can and does expand the money supply, under less than ideal circumstances it also contracts it.

I'd prefer to call it the currency supply.


----------



## Starcraftmazter (6 November 2011)

Tysonboss1 said:


> Everyone in Australia has a chance to succeed and enjoy life.




That's deceptive, because there must be a lot who fail, to allow some to succeed.




tothemax6 said:


> If its too much effort to address all of my questions, answer just these ones then:
> If I write on a piece of paper "IOU $20", and use it to pay someone, have I created money? And, if so should this be illegal?




Your question is nonsensical because it depends on whether your paper constitutes as legal tender.



tothemax6 said:


> If not, why it is that banks should not be able to do this, but I can?
> If so, by what possible moral principle?




I don't know what you are saying here, but an earlier poster posted his;
http://econjournal.wordpress.com/2008/11/10/how-do-banks-create-money-in-fractional-reserve-banking/

Maybe you should have a look at it. At this stage you have virtually no credibility.



Punta said:


> It is not necessarily true that endless growth is impossible.




Yes it is; we live in a finite world, we cannot have infinite growth.



Punta said:


> Furthermore, it is not necessarily true that a stable/static system is sustainable.




It isn't; but it's the only chance to have an opportunity to build a sustainable system.



Punta said:


> It is hard to imagine how exploiting finite resources can fuel growth indefinitely, but perhaps renewable/unlimited resources can be harnessed to fuel growth, or growth can be based on increasing services?




Even if you are super optimistic and think we will invent some sort of free or otherwise abundant clean energy which can be used everywhere (which will never be allowed due to corporate and government corruption), there is a limited amount of the two most important resources; fertile topsoil and fresh water. All minerals are also rapidly running out.



Punta said:


> Also the practicality of a static system seems totally untenable.  It would require that individuals and society accept a steady economic state in terms of their personal status/lot/postion, and that seems totally at odds with how humans behave.




They will do it, or they will [ all ] die.



Tysonboss1 said:


> In video Ben Bernake clearly stetes that Treasury Bills are not money.




Ben Bernanke is a moron, why are you even linking to something he said as proof of anything?



Mr Z said:


> As it turns out there is no need to endanger your life on this front, the RBA is indeed a government owned institution!




Like every central bank, the RBA is brought into existence by a corrupt government's legislation. That is not to say it is there to serve the government; it is there to serve private interest and enslave people through interest and inflation.


----------



## tothemax6 (7 November 2011)

Starcraftmazter said:


> Your question is nonsensical because it depends on whether your paper constitutes as legal tender.



Incorrect, bank issued banknotes and bank deposits are not legal tender. Only central bank issued notes are legal tender. My IOU is no more legal tender than a banking corporations IOU is. Given this, address the question again. 


Starcraftmazter said:


> I don't know what you are saying here, but an earlier poster posted his;
> http://econjournal.wordpress.com/2008/11/10/how-do-banks-create-money-in-fractional-reserve-banking/



Yes, that is a link on fractional reserve banking. For the 100th time. As I told you (and of course you ignore what you don't want to accept), I am well familiar with how banking works. All modern banking is fractional reserve banking.


Starcraftmazter said:


> Maybe you should have a look at it. At this stage you have virtually no credibility.



Not really concerned whether or not you consider me 'credible', just whether you can prove me wrong or vice versa.


----------



## Starcraftmazter (7 November 2011)

tothemax6 said:


> Incorrect




How is it that I am incorrect if I did not even answer your question? Pipe down.



tothemax6 said:


> Yes, that is a link on fractional reserve banking. For the 100th time. As I told you (and of course you ignore what you don't want to accept), I am well familiar with how banking works.




If that was true, we would not be having this argument.


----------



## tothemax6 (7 November 2011)

Starcraftmazter said:


> How is it that I am incorrect if I did not even answer your question? Pipe down.



Incorrect that it was nonsensical. Of course an IOU I write is not legal tender. Answer the very basic question. If I write an IOU, or simply write in a IOUs outstanding account book, am I not creating money according to your logic? If not, then do you agree banks do not create money either?
Finally, enlighten us as to how your magical no-interest, no-banking, no debt creation society would work, without resorting in your typical manner to hyperlinks.


Starcraftmazter said:


> If that was true, we would not be having this argument.



We're not having an argument. I rebut the 'wrongness' you mutter, then ask you questions to try and understand how you could reach such bizarre conclusions, and you ignore the questions and simply repeat statements I have already rebutted. Its like the following conversation:
"Today is Wednesday"
"No, its Friday"
"Today is Wednesday"
"No, yesterday was Thursday, therefore today is Friday"
"Today is Wednesday"
"OK, lay out the days of the week in order"
"Today is Wednesday"

The offer of medicine is still on the table:
http://en.wikipedia.org/wiki/Cognitive_dissonance


----------



## Starcraftmazter (8 November 2011)

tothemax6 said:


> Incorrect that it was nonsensical.




It was; it did not have enough information.



tothemax6 said:


> Answer the very basic question. If I write an IOU, or simply write in a IOUs outstanding account book, am I not creating money according to your logic? If not, then do you agree banks do not create money either?




If banks do not create money, how can you buy a house with the money the bank gives you? The money the banks create is in fact legal tender.



tothemax6 said:


> Finally, enlighten us as to how your magical no-interest, no-banking, no debt creation society would work, without resorting in your typical manner to hyperlinks.




I never said no banking; but banks have to be responsible retail banks (no investment arm), operating without a central bank.

Why can't I use hyperlinks? Whether I explain it or someone else explains it, what difference does it make? It is also far easier to explain something with the use of visual ques. Seems to me like you are simply uninterested in learning.



tothemax6 said:


> I rebut the 'wrongness' you mutter, then ask you questions to try and understand how you could reach such bizarre conclusions, and you ignore the questions and simply repeat statements I have already rebutted. Its like the following conversation:




Banks create money which they lend as debt to expand monetary supply. This is indeed how fractional reserve banking works. Everyone in economics knows and understands it in this way.

I have nothing further to say to you which I have not said already.


----------



## Mr Z (8 November 2011)

Money is not always legal tender now is it, max is being a smart A and you are both talking at cross purposes which is getting us no where but bored.


----------



## Mr Z (8 November 2011)

*Modern Banking*


----------



## tothemax6 (8 November 2011)

Starcraftmazter said:


> If banks do not create money, how can you buy a house with the money the bank gives you? The money the banks create is in fact legal tender.



OK, so by your logic, my IOU is legal tender? So, suppose I contract with a man for 1 suit in exchange for $100, and when he asks to settle the debt, I present an IOU, and he refuses it, will a court of law declare that I legally tendered and he refused? No, the court will not accept my IOU as legal tender in the settlement of a debt. Perhaps look up the meaning of legal tender. 
The IOU is not legal tender, not money, and neither is a bank deposit.


Starcraftmazter said:


> Banks create money which they lend as debt to expand monetary supply. This is indeed how fractional reserve banking works. Everyone in economics knows and understands it in this way.



Banks issue _debt_, in the same manner as my IOU. They hold _money _in reserve for settlements of those debts when they come due. Money is not debt, any more than a Colour TV is a myer gift card.
Secondly, even if you define 'money supply' to include aggregate credit and monetary base (which I do not accept, since it blurs together 'money stock' and 'aggregate credit'), the actions of banks do not necessarily expand the money supply.
Banks are subject to restrains on the extent to which they can extend credit, namely, the necessity of being able to settle debts daily with other banks, which stem from inter-bank customer transactions. Banks compete, just like every other industry.
If it were the case that banks could expand the credit supply indefinately, which the 'money as debt' videos imply, then under a gold standard we would have had just as much inflation. We did not. With a fairly constant money stock (gold), fractional reserve banking does not by its nature expand the 'money supply'. With a flexible fiat money stock, it permits expansion of the 'money supply' only due to the expansion of the money stock. 
At no point did Paul Grignon indicate the restrictive effects of interbank clearing on credit expansion in his videos. This is because he knows very little about what he is talking about, and substitutes instead with funky music and cool animations.


----------



## Mr Z (8 November 2011)

Money in a modern economy is defined in categories, several of those count credit created by banks etc.

M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.

*MB:* is referred to as the monetary base or total currency.This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.

*M1:* Bank reserves are not included in M1.

*M2:* Represents money and "close substitutes" for money. M2 is a broader classification of money than M1. Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation.

*M3:* M2 plus large and long-term deposits. Since 2006, M3 is no longer tracked by the US central bank. However, there are still estimates produced by various private institutions.

*MZM:* Money with zero maturity. It measures the supply of financial assets redeemable at par on demand.

You are splitting hairs trying to extract bank credit from the money supply. It is widely understood and accepted that banking and indeed the shadow banking system of credit has a meaningful impact of the total money supply. Effectively all money is debt in a modern economy, the USA cannot issue new money without first raising the debt to back it. That is hard wired into the system, you are wrong when you say money is not debt, basically that is all it is now... it is just a matter of who's debt. The amount of new money that the banking system can create is only limited by the capital reserve ratios they need to, or are required to hold. There is no reserve requirement in Australia, China is about 21% ---> and we worry about their system! Effectively we maintain around 2% or so (last time I checked) which gives the traditional banking system the scope to create $49 credit for every $1 on deposit. That credit circulates as money on par with every other dollar in the system.

Limiting your view of money to the physical money stock is to limit yourself to the narrowest and smallest element in the monetary system. Studying that number basically tells you nothing about the state of the system, it is a meaningless number that has no real impact on anything. What impact it once did have is also diminishing as we increasingly use less cash.

To argue that the folding stuff is the only money in our system is to misunderstand our system totally.

98% of those dollars you put into your pocket today are as a result of the money someone borrowed yesterday.... 2% and actually paid for... well potentially, you would have to ask the RBA what the real split is.


----------



## Starcraftmazter (8 November 2011)

tothemax6 said:


> OK, so by your logic, my IOU is legal tender?




I am not talking about IOUs; banks create real money, not personal IOUs, they have legal power to create this money, which can then be used in our financial system. You do not.




tothemax6 said:


> Banks issue _debt_, in the same manner as my IOU.




That is false.

Once again, there is no value to be added to this debate.


----------



## Macquack (8 November 2011)

Thanks Mr Z for that well presented and informative post.

Tothemax is a pain in the **** because he is continually trying to outsmart Starcraftmazter, when he is basically agreeing with him in principle.


----------



## basilio (8 November 2011)

> Thanks Mr Z for that well presented and informative post.




Ditto ! Great to see some well thought through, dispassionate explanations of factual situations.


----------



## tothemax6 (9 November 2011)

Starcraftmazter said:


> I am not talking about IOUs; banks create real money, not personal IOUs, they have legal power to create this money, which can then be used in our financial system. You do not.



Incorrect. The origin of banking originates precisely from individuals (merchants) issuing debt and taking current accounts. Your logic, awefull as always, is that if I issue debt, it is 'not money', whereas if I incorporate myself as 'a bank', which is merely a word change from 'individual' to 'bank', it 'is money'. 
This is complete lunacy. 
Any man or group of men have the legal right to issue debt contracts. You are saying that if they simply refer to themselves as 'a bank' (or I assume, foreign language equivalents? or is it only English 'Bank'?), their debt magically becomes money, but if say, they referred to themselves as 'grocers', their debt is magically no longer money?
Why don't you just say 2+2=5, FFS. Everything you say is completely wrong, as usual.


Starcraftmazter said:


> That is false.



An IOU is a debt contract, a bank deposit is a debt contract. It is true. You are wrong.

Indeed I will attack your position further. Not only is there nothing wrong with banking, it is completely right. Banking is the center of financial organization. It has provided the inter-mediation of credit necessary to allow economies to develop to the state they are today. Banking is as integral to the functioning of a citizens life as transport or communication. It is not just beneficial, in todays advanced economy, it is _necessary_. Interest is not only moral, but highly beneficial and necessary for a functioning economy. It acts as a reward to those who save and invest and a brake on those who frivolously spend their way into debt. Interest rates signal which projects should and should not start. It signals who is more or less risky to lend to. It is _good_. Fraction reserve banking (aka, 'banking') is normal, not immoral, and a natural economic outcome of peoples financial needs. It violates no laws, it is not fraudulent, and it does not cause inflation. There is no proof whatsoever that it causes inflation, nor that it causes ever escalating debt burdens. The proof is there for anyone to dig up, if they actually care. Under the gold standard, zero or mildly negative inflation was the norm, regardless of the presence of fractional reserve banking. This is impossible under ballooning credit expansion. There is zero proof that anything you say is correct.

Indeed, were you to be put into power to exercise your ideas, that is, to illegalize fractional reserve banking and interest, practiced for centuries and integral to the economic growth which brought us here, and ubiquitous to todays economy, you would cause a massive economic implosion and collapse. 
Your ideas are outright malicious.


----------



## tothemax6 (9 November 2011)

Macquack said:


> Tothemax is a pain in the **** because he is continually trying to outsmart Starcraftmazter, when he is basically agreeing with him in principle.



No sir, I disagree with everything he says, in principle or otherwise. I might say I agree with him on 'central banking is bad', but given that he probably doesn't know the difference, or even what it is, probably not. Really, I'm not trying to outsmart him (I think everyone here is smarter than him), this is more an exercise - he is a classic (and perhaps one of the best) '2+2=5' debater, he will budge on nothing, no matter how false or basically incorrect it is. Whenever answering a question would lead to a disagreeable conclusion, he ignores the question, or answers it with a non-answer. He makes up his own facts out of thin air as he sees would fit his argument. Cognitive dissonance in the extreme. He could as soon believe that 'Australia is made of cheese', and one million hours of explanation, debating, proof or otherwise would do absolutely nothing to make him believe otherwise.

To be fair though, actually, Macquack, you have made me think. I guess the real reason I have been doing this is that I believe that deep down, all humans have the capacity to see through their petty pride and emotions, and come to the correct conclusions for the good of the general intellect. I know this isn't true, and that many people are just mindless animals, but I can't stomach to accept it.


----------



## tothemax6 (9 November 2011)

So to that end:
*I GIVE UP, 2+2=5*


----------



## Mr Z (9 November 2011)

tothemax6 said:


> No sir, I disagree with everything he says, in principle or otherwise. I might say I agree with him on 'central banking is bad', but given that he probably doesn't know the difference, or even what it is, probably not. Really, I'm not trying to outsmart him (I think everyone here is smarter than him), this is more an exercise - he is a classic (and perhaps one of the best) '2+2=5' debater, he will budge on nothing, no matter how false or basically incorrect it is. Whenever answering a question would lead to a disagreeable conclusion, he ignores the question, or answers it with a non-answer. He makes up his own facts out of thin air as he sees would fit his argument. Cognitive dissonance in the extreme. He could as soon believe that 'Australia is made of cheese', and one million hours of explanation, debating, proof or otherwise would do absolutely nothing to make him believe otherwise.
> 
> To be fair though, actually, Macquack, you have made me think. I guess the real reason I have been doing this is that I believe that deep down, all humans have the capacity to see through their petty pride and emotions, and come to the correct conclusions for the good of the general intellect. I know this isn't true, and that many people are just mindless animals, but I can't stomach to accept it.




This is a funny post. You beat up on the guy, basically saying he is stupid because he doesn't see it your way. Then you have a go at many of the tactics you actually use in your debating style. Then you finish with a remarkably arrogant flush that implies you own the truth. Personally I find many of your ideas very simplistic and naive especially with regard to trading futures, something I'd say you have never actually done, you simply don't seem to grasp the dynamics of that market. Does that give me the right to call you stupid? No... chuckle occasionally maybe but then again I am a forum thug because I underline and bold things to draw attention to them yet *ironically* you seem to be the one that launches direct attacks when a debate frustrates you.

[soap box]Anywhooooo ---> Is banking a scam? No, but it needs to be seen for what it really is and the risk we are taking when we leave money on deposit needs to be taken seriously. Deposit guarantees etc just create more government sponsored "moral hazard" and moral hazard is a concept that IMO should be taught at school, that way maybe we stand a chance of slowing the rate at which government creates them, laying traps within our system.[/soap box]



Chill.... we are all wrong    to some degree!


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## Mr Z (9 November 2011)

tothemax6 said:


> So to that end:
> *I GIVE UP, 2+2=5*




Oh yeah... LOL ---> derivatives can make it so! 

Actually in Greece's case they made it 1-0.5=0!!!! Heads the system wins tails you lose! I wonder how many legal suits will be launched off the back of that? It had to PO all the CDS holders!


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## Macquack (9 November 2011)

tothemax6 said:


> Fraction reserve banking (aka, 'banking') is normal, not immoral, and a natural economic outcome of peoples financial needs. It violates no laws, it is not fraudulent, and it *does not cause inflation*. There is no proof whatsoever that it causes inflation, nor that it causes ever escalating debt burdens.




Of course it does cause inflation.

Banks increase the money supply, increased money supply leads to inflation, end of story.

In your opinion, if fractional reserve banking does not cause inflation, what the **** does.?


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## wayneL (9 November 2011)

Macquack said:


> Of course it does cause inflation.
> 
> Banks increase the money supply, increased money supply leads to inflation, end of story.
> 
> In your opinion, if fractional reserve banking does not cause inflation, what the **** does.?




Labor policies.


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## Starcraftmazter (10 November 2011)

Mr Z said:


> moral hazard is a concept that IMO should be taught at school, that way maybe we stand a chance of slowing the rate at which government creates them, laying traps within our system




Too bad government decides what is taught at school. Otherwise they'd also add economics to that list


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## ParleVouFrancois (10 November 2011)

Fractional reserve banking doesn't cause inflation, changes in the money supply do.

Seriously?


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## algis (27 December 2011)

tothemax6 said:


> Banks issue _debt_, in the same manner as my IOU. They hold _money _in reserve for settlements of those debts when they come due. Money is not debt, any more than a Colour TV is a myer gift card.
> Secondly, even if you define 'money supply' to include aggregate credit and monetary base (which I do not accept, since it blurs together 'money stock' and 'aggregate credit'), the actions of banks do not necessarily expand the money supply.
> Banks are subject to restrains on the extent to which they can extend credit, namely, the necessity of being able to settle debts daily with other banks, which stem from inter-bank customer transactions. Banks compete, just like every other industry.
> If it were the case that banks could expand the credit supply indefinately, which the 'money as debt' videos imply, then under a gold standard we would have had just as much inflation. We did not. With a fairly constant money stock (gold), fractional reserve banking does not by its nature expand the 'money supply'. With a flexible fiat money stock, it permits expansion of the 'money supply' only due to the expansion of the money stock.
> At no point did Paul Grignon indicate the restrictive effects of interbank clearing on credit expansion in his videos. This is because he knows very little about what he is talking about, and substitutes instead with funky music and cool animations.




Hi ToTheMax,

In lieu of puting together a rebuttal on YouTube of the Paul Grignon videos, perhaps you can explain in clear and concise language the failings of the videos?  I am quite curious.


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## algis (27 December 2011)

algis said:


> Hi ToTheMax,
> 
> In lieu of puting together a rebuttal on YouTube of the Paul Grignon videos, perhaps you can explain in clear and concise language the failings of the videos?  I am quite curious.




The following is what I get out of the video (bracketed comments are mine):
The vast majority of money in supply (M3) is produced by banks, which is created from a borrower's promise to repay - that is the vast majority of money is debt money.  This is as opposed to the common belief of government mints printing 100% of the money that is in circulation.  (This may be closer to the truth for M0.)

Banks operate under a fractional reserve system, which allows them to create money in proportion to their reserves.  

In the past, the reserves were gold and the American dollar was backed by gold.  However, this has since changed to a pure fiat system (1971 Bretton Woods).  

Fractional reserve requirements now are based on a ratio of new debt money to existing money held by the bank.  The reserves consist of three things:
* the amount of govt issued cash
* the amount of credit issued by a Central Bank
* the amount of deposits

International banking accords require banks to have equity ownership and saleable assets equal to 8% of credit created.

Debt cycle begins as follows:
1. New debtor account is issued with say $10,000, which is created by the bank out of thin air
2. That $10,000 is eventually circulated back to the bank and fractional reserve lending of 9:1 sees a possible $9000 to be re-loaned out (whilst interest is being earned on the original $10k).
3. The $9,000 of reloaned money is eventually circulated back to the bank and another $8,100 is possible to be re-loaned (whilst interest is being earned on $19,000).
etc.

Repayment of bank debt will see the removal of that money from the money supply entirely.  Just as it was brought into existence.

The video then goes onto describe the impossibility of repaying both the principal and interest when only the principle was created.  Ie. if $1T is lent to the economy from thin air and 10% interest is due, where is the other $100B going to come from?  The only thing stopping the system from collapsing is the delay between when that repayment is due and when new debt money is born into existence.  The theory is that if all debt money is repaid at once, we have no money supply left.  And therefore, the system can only survive if there is constant creation of money and an increase in total money supply.  Which can only happen if there is constant creation in business and use of resources.

That's my take.

Now the question of there being enough money supply to repay both principal and interest demanded by banks is a bit of an odd one that is not clearly explained by the video.

Interest earned by a bank is surely re-invested into the economy (via payment of salaries, building of new bank infrastructure and other investments) and is free for re-use.

Same goes for non-Bank lenders and their income.

It is said that when a loan is repaid to a Bank, then that debt money is extinguished.  A loan repaid to a non-Bank lender, however, is not?  A non-Bank lender, however, cannot create money into existence.  

No doubt, hoarding is an issue that will see a reduction in the _available_ money supply (but M3 remains unchanged), but I have yet to be convinced that the system or recycling interest earnings is almost 100% efficient.  

I do, however, see an issue if the interest on all the debt-backed money in existence is greater than any residual govt-issued money.  In such a case their isn't enough money to repay all principal and newly required interest without the creation of new money.  And hoarding by some will see a squeeze onto others.

Nevertheless, I feel the videos are quite enlightening.  The main question asked by the video is why should governments borrow from a central bank at interest?  At the end of the day, it is not what backs a currency, but how the quantity of the currency is controlled that determines its value (so long as it is enforced by a government as legal tender).  Too much of it in relation to the GDP or similar measure and we have inflation, too little and we have deflation.

On an aside, don't you find it curious that pretty much every single country is in debt?  According to the US Debt Clock, the US Govt debt is $15T, the total US debt is $56T and the US debt held by foreign nations is only $5T.  (Am I reading this right?)  So who owns the remaining $51T of debt?  Where does all the wealth go in a closed system during a recession?  Does the money somehow get destroyed?  I don't think so.  Money only gets destroyed if a bank loan is repaid.  The money supply otherwise remains unaffected outside of loan cycles (unless there is a deliberate action by some regulating power).   It's quite funny given that during recessions, no tangible assets/resources are necessarily destroyed.


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## young-gun (27 December 2011)

Macquack said:


> Of course it does cause inflation.
> 
> Banks increase the money supply, increased money supply leads to inflation, end of story.
> 
> In your opinion, if fractional reserve banking does not cause inflation, what the **** does.?




banks 'allow' inflation, consumers that spend beyond there means create inflation banks are simply supplying a demand...

that doesnt make it right.


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## lurker123 (25 March 2012)

http://topdocumentaryfilms.com/the-money-masters/

Video basically details some of the conspiracy theories surrounding banking. Very interesting video, talks about the assassination of presidents, and gives conspiratory reasons as to why wars were fought e.t.c.


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