Kam

Are We Living In One Huge Scam

42 posts in this topic

I have been trying to get my head round for whole economy thing
Public spending
Taxes
Why we borrow so much (credit cards, mortgages)
how money is created

So I have spent today reading various sites

I have been shocked by what i have been reading,
The Government creates money by borrowing it from banks (but the money doesn't actually exist, the banks just make it) and our taxes are purely to pay off some of the interest.
Trouble is its been hapening for 311 years and borrowing more each year. The compound interest on it is getting stupid (£25 billion a year)

do some searches on the subject yourself (google money creation and national debt etc)

heres one site I think sums it up rather well

[url="http://www.wwdemocracy.nildram.co.uk/democracy_today/money_debt_banks.htm"]The Great Money scam[/url]

what do you guys think?

I can't believe this is how it been happening, surely its going to fall apart eventually (we all know the effects of compound interest)

Kam (now very disillusioned with the world)

PS Thanks DrBubb for getting me thinking and waking me from my blinkered life,
I feel like I'm in The Matrix wishing I'd taken the Blue pill instead.

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Yes, it's fractional reserve banking. If I recall, a bank needs only to keep 8% on reserve. The rest is essentially thin air money.

That's why there's a fetish for rampant economic growth of any quality at any cost. That thin-air money only becomes something tangible when converted into goods and services via our labour. Otherwise, with more money chasing the same pool of goods and services inflation becomes huge problem. Housing inflation a question of supply? Immigration? I don't think so. It's this cheap easy money, and to FTBs seeing their savings wiped out by houseprice inflation, well, it's legalised theft.

It gets even more hillarious when Gordon Brown tells employers to keep a lid on 'inflationary' pay rises, while he's presiding over joke inflation figures that exclude anything that inflates and artificially low interest rates.

Eventually, in a monetarist system, the debt burden gets to high and a period of consolidation takes place to wring out the excess cash, which is equally sick as people lose their jobs and the inflation-devalued money now flows away from their grasp.

As Woody Guthrie said, 'Some will rob you with a six-gun, others with a fountain pen'.

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Very scary article. It does worry me that our current monetary system isn't really all that old and I think the jury is still out on whether it is stable. For example the last gold goins to be struck for general circulation in the UK was in 1932 - ie within living memory (just!). The Bretton Woods system ended in 1971 - not that long before I was born! I enjoyed an article on a similar theme by Jim Puplava:
[url="http://www.financialsense.com/series4/part1.html"]The Great Inflation[/url]

The solution proposed by the author in your link is pretty scary in itself. He is basically advocating that the government prints its way out the problem, which is effectively another way of partially defaulting on its debts and taxing everyones savings.

I would like to read more about economics and monetary systems. If anyone knows a good book, preferably by someone who doesn't have an 'end of the world is nigh' placard on his chest and who won't bore me to tears - please let me know.

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[quote name='Night Owl' date='Mar 13 2005, 12:27 PM']Very scary article. It does worry me that our current monetary system isn't really all that old and I think the jury is still out on whether it is stable. For example the last gold goins to be struck for general circulation in the UK was in 1932 - ie within living memory (just!). The Bretton Woods system ended in 1971 - not that long before I was born! I enjoyed an article on a similar theme by Jim Puplava:
[url="http://www.financialsense.com/series4/part1.html"]The Great Inflation[/url]

The solution proposed by the author in your link is pretty scary in itself. He is basically advocating that the government prints its way out the problem, which is effectively another way of partially defaulting on its debts and taxing everyones savings.

I would like to read more about economics and monetary systems. If anyone knows a good book, preferably by someone who doesn't have an 'end of the world is nigh' placard on his chest and who won't bore me to tears - please let me know.
[right][post="81981"]<{POST_SNAPBACK}>[/post][/right][/quote]

Well, the end of the world is nigh may already be here. With housing costs of high that a generation feels enomically sterilised by high housing costs, well, that's pretty bad.

Two thirds of money in circulation was created by mortage lending. The more banks throw out there to BTLers, or to 6x multiple sacrificial FTBs, the more the houseprice inflation hutrs and that all new money adds to inflationary pressures elsewhere.

Anyway, here's your book on how modern money operates - an excellent read:

[url="http://www.amazon.co.uk/exec/obidos/ASIN/1897766408/qid=1110724116/sr=8-1/ref=sr_8_xs_ap_i1_xgl/026-1901571-4229229"]http://www.amazon.co.uk/exec/obidos/ASIN/1...1901571-4229229[/url]

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[quote]It does worry me that our current monetary system isn't really all that old and I think the jury is still out on whether it is stable[/quote]

I'm not sure the jury is even out. No fiat currency in the history of the world has _ever_ been 'stable'... unless this is another of those 'new paradigm' things, ours won't be either. Give the governemnt the power to print money at will, and they will use it as much as they can get away with.

Certainly the US dollar lost over 90% of its purchasing power over the last century and the pound even more... and the only ways to regain some kind of stability in a world where the pound and dollar are ten times overpriced relative to the yuan are to devalue the currencies even further, or greatly reduce wages in the West.

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I have been inspired to write a short story about one dystopian outcome to our current situation.

It is a work in progress (grammar and all that jazz is bad) but any comments will be apprecaited.

Any body elses view of how it might all pan out would also be of interest.

:rolleyes:

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[i]The Government creates money by borrowing it from banks (but the money doesn't actually exist, the banks just make it) and our taxes are purely to pay off some of the interest.[/i]

Chill. There is a lot of hysteria around about money, basically because no one understands it. It really isn't that bad, if there was a better system we'd use it.

As for how it works, imagine this:

It is a time where there was no money and no banks. Say I open the first bank in the world. You come to me because you want a loan to buy a house, I write you a cheque. The guy who sells the house has to deposit the check - in a account owned by me. The whole world now has one deposit account with 100 pounds and one loan with 100 pounds. Money is created. It isn't a bad thing.

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[quote name='Wiseman' date='Mar 13 2005, 04:09 PM']As for how it works, imagine this:

It is a time where there was no money and no banks. Say I open the first bank in the world. You come to me because you want a loan to buy a house, I write you a cheque. The guy who sells the house has to deposit the check - in a account owned by me. The whole world now has one deposit account with 100 pounds and one loan with 100 pounds. Money is created. It isn't a bad thing.
[right][post="82045"]<{POST_SNAPBACK}>[/post][/right][/quote]
Except when the Bank's interest on the 'Loan' is £25 billion each year which could pay for 1 million police/nurses or 250,000 affordable homes. Instead it's going to the Banks Shareholders.

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[quote]Money is created. It isn't a bad thing.[/quote]

In that case money isn't created, because the only way the depositor can use their money is to demand it from the bank, who will have to demand it back from the borrower.

In the real world, though, I believe it's more like one person deposits 100 pounds and the bank are then allowed to lend 100 pounds to each of twenty or more people... huge amounts of money are just created from nowhere.

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Heres another up to date little read to give food for thought.

Bit on the expensive side. But you get what you pay for.

[url="http://www.amazon.co.uk/exec/obidos/ASIN/1897597533/qid%3D1110732378/202-0545680-0375011"]Road map for the future contraction of credit[/url]

Make me an offer and I'll sell you my copy. Its in perfect condition.

BAB

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Banks are't immune either, one event could cause a panic with people making a run on the bank. with something like 3% of money actually existing now, it wouldn't take a lot of people withdrawing their cash to destablise such a fragile system

And what about the HPC, if houses are ovrpriced 30% then surely that means that 30% more money has been created than it should have been. If it crashes back to long term price levels then theres still more money then there should be. which leads too............?

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[quote name='Kam' date='Mar 13 2005, 05:52 PM']And what about the HPC, if houses are ovrpriced 30% then surely that means that 30% more money has been created than it should have been. If it crashes back to long term price levels then theres still more money then there should be. which leads too............?
[right][post="82060"]<{POST_SNAPBACK}>[/post][/right][/quote]

No. You don't need the same amount of money that the total value of houses. Imagine a row of houses. If one house sells for 1 million dollars (was 100k), the buyer gives the seller the money. Every other house is now worth 1mill, but there wasn't any extra money generated.

Like I said, don't worry too much. Find out how the money system works, it really isn't that bad. Once you know what you are talking about you wont be worried any more.

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[quote name='Wiseman' date='Mar 13 2005, 05:03 PM']No. You don't need the same amount of money that the total value of houses. Imagine a row of houses. If one house sells for 1 million dollars (was 100k), the buyer gives the seller the money. Every other house is now worth 1mill, but there wasn't any extra money generated.

Like I said, don't worry too much. Find out how the money system works, it really isn't that bad. Once you know what you are talking about you wont be worried any more.
[right][post="82063"]<{POST_SNAPBACK}>[/post][/right][/quote]


Ok so say Fred had 2 house he bought for 100k and sells for 1million each, he now has 2million in his account, He doesn't like the UK anymore and wants to leave so he goes to bank to withdraw his money, but bank says he can't because it does really exist

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[quote name='Kam' date='Mar 13 2005, 06:15 PM']Ok so say Fred had 2 house he bought for 100k and sells for 1million each, he now has 2million in his account, He doesn't like the UK anymore and wants to leave so he goes to bank to withdraw his money, but bank says he can't because it does really exist
[right][post="82067"]<{POST_SNAPBACK}>[/post][/right][/quote]

He wont withdraw it, he would exchange it for USD, EUR, AUD whatever. For a foreign 'exchange' you swap your pounds for the other currency. That means there has to be someone on the other side who wants the GBP.

Perhaps there is a Russian who wants to buy the house or an American who wants to buy a new Jaguar, or a Japanese investor that wants to buy Gilts paying 5% interest.

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Hey Dr Bubb we must think alike. Take a look at post#12 above.

Have you read the book?

I am looking to sell my copy second hand after I have finished reading it to defray the cost.

Want to make an offer?

BAB

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[quote name='Wiseman' date='Mar 13 2005, 05:03 PM']No. You don't need the same amount of money that the total value of houses. Imagine a row of houses. If one house sells for 1 million dollars (was 100k), the buyer gives the seller the money. Every other house is now worth 1mill, but there wasn't any extra money generated.

Like I said, don't worry too much. Find out how the money system works, it really isn't that bad. Once you know what you are talking about you wont be worried any more.
[right][post="82063"]<{POST_SNAPBACK}>[/post][/right][/quote]

But if someone wanted to pay 1 million for one of the other houses and the bank was willing to lend, new money would come into circulation. It's the supply of continual credit that we've seen increase dramatically over the past few years that are forcing up prices. In Japan, where prices in some areas increased ten-fold during the eighties, special intergenerational mortgages were created to keep the bubble ballooning along. We know what happened then.

As so much money sloshing around at the moment was created out of huge mortgages, without the continual willingness for people to take on evermore debt and the banks to lend it, the money would dry up dramtically. In fact, it's happening already - car sales plunging, retail figures nosediving, jobs being slashed.

Do you have a good resource we could read to show how money doesn't actually work in this way, Wiseman? Then we needn't get too worried about the credit crunch.

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[quote]Fred had 2 house he bought for 100k and sells for 1million each, he now has 2million in his account, He doesn't like the UK anymore and wants to leave so he goes to bank to withdraw his money, but bank says he can't because it doesn't really exist[/quote]

The bank would say "Yes, sir, why certainly. Would you like your £2 million in £5 or £10 notes?".


The bank would simply borrow the amount on the short-term money markets to satisfy his demand.

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[quote name='CrashedOutAndBurned' date='Mar 13 2005, 06:23 PM']But if someone wanted to pay 1 million for one of the other houses and the bank was willing to lend, new money would come into circulation. It's the supply of continual credit that we've seen increase dramatically over the past few years that are forcing up prices. In Japan, where prices in some areas increased ten-fold during the eighties, special intergenerational mortgages were created to keep the bubble ballooning along. We know what happened then.

As so much money sloshing around at the moment was created out of huge mortgages, without the continual willingness for people to take on evermore debt and the banks to lend it, the money would dry up dramtically. In fact, it's happening already - car sales plunging, retail figures nosediving, jobs being slashed.

Do you have a good resource we could read to show how money doesn't actually work in this way, Wiseman? Then we needn't get too worried about the credit crunch.
[right][post="82071"]<{POST_SNAPBACK}>[/post][/right][/quote]

The bubble in Japan was much much bigger than here. The banks actually owned property and stocks themselves. They lent their money to themselves and then rigged the markets to make profits. Their reserves were much lower than today, it was the Basel agreement that required higher reserves that really kicked off the Japan depression.

As for the UK, yes there has been a bubble, yes it is a problem and there is a very big risk of a recession and mini credit crunch. However UK rates haven't been nearly as low as US, Europe or Japan.

Money isn't 'drying up'. It is growing at a slower rate than it was which is a good. thing.

The main point I was trying to make is that modern fractional banking is not fundamentally unstable, it is not the cause of the current property bubble and is not the evil incarnation of a elite group of bankers who manipulate the world's workers (as you hear so many conspiracy theories).

BTW 100 year mortgages aren't a big deal as they sound. They are effectively interest only mortgages.

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[quote name='DrBubb' date='Mar 13 2005, 06:37 PM']If your Pds.1 million home collapses in value, so will all the other homes valued at silly levels.

If the easy credit is no longer available to feed the house price inflation, prices will collapse.  Unfortunately, the big debts will still be around... until theya re written off.
[right][post="82076"]<{POST_SNAPBACK}>[/post][/right][/quote]

Yep the house price is an estimate, the debt is real.

Which is why the fractional banking system is safer than bricks and mortar.

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Mmmm

Wonder what would happen if people started moving their money in to Sharia complaint banks, who have slightly better morals about overstretching people and debt.

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[quote name='DrBubb' date='Mar 13 2005, 07:40 PM']Better yet, you can "bank" in Gold:

[url="http://www.goldMoney.com"]http://www.goldMoney.com[/url]

Turk's Dollar chart:
[img]http://www.goldmoney.com/en/images/commentary-images/commentary-charts/alert_2005-03-13b.gif[/img]
[right][post="82089"]<{POST_SNAPBACK}>[/post][/right][/quote]
Do you think they actually have the amount of gold in their vault that everybody has purchased?
Or do you think maybe they work on the 8% retained to amount sold and if everybody wanted to cash in they would go bust? :o
I personally am a bit sceptical of that one, rather be able to lay my hands on it!!

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[quote name='Kam' date='Mar 13 2005, 01:33 AM']The Government creates money by borrowing it from banks (but the money doesn't actually exist, the banks just make it) and our taxes are purely to pay off some of the interest.
Trouble is its been hapening for 311 years and borrowing more each year. The compound interest on it is getting stupid (£25 billion a year)[/quote]


In the UK 27 Million are currently employed and pay income tax, because of Government borrowing therefore we each pay on average £925 a year to the banks to service the loans they've borrowed through taxation, this amounts to 4.5p of every pound we earn. mm makes you think.

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[quote name='Dicky' date='Mar 13 2005, 08:49 PM']In the UK 27 Million are currently employed and pay income tax,  because of Government borrowing therefore we each pay on average £925 a year to the banks to service the loans they've borrowed through taxation, this amounts to 4.5p of every pound we earn. mm makes you think.
[right][post="82100"]<{POST_SNAPBACK}>[/post][/right][/quote]

Sorry govt debt is in the form of gilts (bonds), the govt does not borrow money from banks.

And someone owns all the gilts (and bonds and debt). For every person/company/govt paying interest there is someone on the other side receiving interest. Quite likely some STR with their money in ING. :-)

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[quote name='FenceDancer' date='Mar 13 2005, 02:54 PM']I have been inspired to write a short story about one dystopian outcome to our current situation.

It is a work in progress (grammar and all that jazz is bad) but any comments will be apprecaited.

Any body elses view of how it might all pan out would also be of interest.

:rolleyes:
[right][post="82019"]<{POST_SNAPBACK}>[/post][/right][/quote]

21 downloads and not one comment was it really that bad?

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