Banking - the greatest scam on earth?

[Macquack]

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]

Thanks Mr Z for that well presented and informative post.

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

 

[tothemax6]

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.

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]

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]

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

 

[Mr Z]

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!

 

[Mr Z]

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!

 

[Macquack]

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.?

 

[wayneL]

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.

 

[Starcraftmazter]

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

 

[ParleVouFrancois]

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

Seriously?

 

[algis]

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.

 

[algis]

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.

 

[young-gun]

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.

 

[lurker123]

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.