Banking - the greatest scam on earth?

[tothemax6]

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?

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

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....

 

[Wysiwyg]

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.

 

[tothemax6]

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.

 

[young-gun]

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.

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/

 

[tothemax6]

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]

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]

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.

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.

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.

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.

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?

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.

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.

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...

The international banking cartel.

 

[Starcraftmazter]

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.

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.

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.

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....

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?

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]

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]

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]

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

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.

 

[Tyler Durden]

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'.

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

 

[$20shoes]

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.

 

[Calliope]

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]

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.

 

[Calliope]

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

.

 

[Wysiwyg]

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.

 

[Ageo]

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

 

[young-gun]

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.

 

[Ageo]

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!