Banking - the greatest scam on earth?

[kavla1970]

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]

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]

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]

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]

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]

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 Wörgl 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, Wörgl’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. Wörgl’s workers were thrown out of work again.

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

 

[Mr Z]

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

 

[tothemax6]

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?

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

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]

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]

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]

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.

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.

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.

It is not necessarily true that endless growth is impossible.

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

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.

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.

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.

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?

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]

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.

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.

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]

Incorrect

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

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]

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.

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]

Incorrect that it was nonsensical.

It was; it did not have enough information.

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.

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.

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]

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]

Modern Banking

 

[tothemax6]

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.

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]

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]

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.

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.