Bring Back The Offence Of Ursury

[Smell the Fear]

I think my compatriot Adam Smith may have beaten us to it in Wealth of Nations!

I always knew as a young Scot that virtually anything useful was invented by Scots (TV, tyres, penicillin, Irn Bru, etc). It is only in recent years that I have come to realise that the entire economic order was also one of ours (and indeed the entire social order since David Hume chipped in with religious tolerance and human rights at about the same time. He and Adam S were drinking mates in Edinburgh).

<{POST_SNAPBACK}>

Thank you BTB. I have some Scots genes myself, and have always admired their achievements. They continue to this day with our fine PM and Chancellor.

[sp1]

BTB I have previously written:

This is the sad truth about money lent for profit by usury rather than investment, that partly fuels the growing inequality that hallmarks anglo saxon (debt fuelled)

economies over recent history.

Before you ask why else would anyone lend money but to profit from it by usury?

Answer: To please God. Intrest bearing loans are forbidden in all the main monotheist revealations. Historians will tell you how the corrupt church of the dark ages instead of abolishing feudalisum, allowed a triple transaction whear a promise, gift and money lent were combined to allow useary, the rest is history.

To which Develis_advocate wrote:

I think that if you look at the substance over the form, you will find that interst is afunction of the time value of money. If you look at the Islamic mortgages, for example, you will see that the value payable is higher at some time in the future. therefore there is no interest in Islamic mortgages, just a movement in principal which equates to an evalent amount of interest.

dev

and then as pritical explaination I wrote:

HI dev,

Econimically I accept the time value of money to cover the interest aspect.

Morally I don't (it's my opinion, other's will be different).

I know that if I were privilidged (mostly a function of things beyond my control like where I was born) to be able to lend money to help productivity or relieve suffering for another person it is a resposibilty and test on me to please God, not to forward self-interest.

Yes I do need to strive to better my self but not through exploitation.

As a privilaged lender I know I should go into a partnership with the seeker of money so we can both benefit, and help the community.

This profit sharing partnership would go both ways I'd be sharing the losses too and that would force me to restrict my lending when ratios are expensive and unsustainable like now, and open my lending when ratios are cheap, so I could help more people and help more prosper. Thus helping all and pleasing my Lord.

Notice both systems are stable and rise with rising wages, but this system will lack the volitility of the current system and the borowers will be free to buy the equity as and when they could afford at market rates not fixed at when they bought, so every one would have on average bought the house at a fair price. Compared to the current system where the average person is paying off debt fixed at a time when price are above fair price (this is the case because most volume of debt fixing through MEW or buying is done above mean values for most people, look at the volumes of the last few years).

It is true that I would have lost a good opportunity to increase inequality in my favour, thats why it takes conviction over and above the beleif that this life is short and I will enjoy the fruit of my deeds many fold in the eternal after life.

It is a difference of values between me and the values prevelant and growing among all people in the modern world.

Thats why when I'm driving and stop to let some one cross or give priority to another driver often people are confused and hessitate (I only do this when it doesn't cause a hazard).

"Ideas are more powerful than guns. We would not let our enemies have guns, why should we let them have ideas." - Stalin.

And for this reason the true enlightenment given by the Creator in suppressed.

Re: Islamic Mortgages. I am yet to see the details of even one that I would accept as Islamic (though I accept some may exist and hope they do). The ones I've seen details of all dump the risk of negative equity on the borrower, and fix the rate of return for the lender.

Though I dont agree with GBrown FTB help, notice that if most of the purchasing is done in the crash at low income ratios then it could be good for all. Though I dont know what the time scales for releasing the sites and bringing them to market are or other important details of the scheme that may make it good or bad for all or some parties invloved.

SP1

[Smell the Fear]

I think my compatriot Adam Smith may have beaten us to it in Wealth of Nations!

I always knew as a young Scot that virtually anything useful was invented by Scots (TV, tyres, penicillin, Irn Bru, etc). It is only in recent years that I have come to realise that the entire economic order was also one of ours (and indeed the entire social order since David Hume chipped in with religious tolerance and human rights at about the same time. He and Adam S were drinking mates in Edinburgh).

<{POST_SNAPBACK}>

So, it seems Gordon Brown has been ignoring the advice of his compatriot Adam Smith, another son of Kirkcaldy. "The Lang Town" is proud of them both, but for how long can Gordon hang in there?

From "The Wealth of Nations":

" The man who borrows in order to spend will soon be ruined, and he who lends to him will generally have occasion to repent of his folly. To borrow or to lend for such a purpose, therefore, is in all cases, where gross usury is out of the question, contrary to the interest of both parties; and though it no doubt happens sometimes that people do both the one and the other; yet, from the regard that all men have for their own interest, we may be assured that it cannot happen so very frequently as we are sometimes apt to imagine. Ask any rich man of common prudence to which of the two sorts of people he has lent the greater part of his stock, to those who, he thinks, will employ it profitably, or to those who will spend it idly, and he will laugh at you for proposing the question. Even among borrowers, therefore, not the people in the world most famous for frugality, the number of the frugal and industrious surpasses considerably that of the prodigal and idle. "

That's a pretty scathing rebuke to Gordon's credit boom. Anti consumer credit, anti-MEW, possibly even anti-household mortgage (is housing to be regarded as a profitable use for a loan?).

[MongerOfDoom]

Clearly you are. I have never come across anyone who was so pro-banking. Any mention of the "b word" and you come galloping to the rescue! Its like Pavlov's dogs when the bell rings. Would it be fair to say you have a vested interest?

I use bank accounts and own a trivial amount of bank shares. I also quite enjoy living somewhere with an economy, which is something you seem to dislike. The suggestion that things could be better if banks were abolished is laughable. You seem to be suggesting nothing less than that.

My original question still stands. How would you stop people from lending assets to one another without dramatic consequences to all aspects of society? If you cannot then it is a lot better for 'debt' to be allowed to exist.

OK. Mr A has 100 gold coins deposited at his goldsmiths in the 16th century. The goldsmith decides to lend out these coins to others so they can buy goods.

Fine so far. There might be some risk for Mr. A but he is aware of that. It is Mr A's choice to deposit the coins and he may well be rewarded for soing so.

He charges interest to them, and makes a profit.

He takes a risk as he will have to make up any bad loans. He deserves to be rewarded for it. He only makes a profit if he has any gold left after compensating Mr. A for depositing it with him. Nothing strange here, either.

The borrowers now have gold coins to buy things that Mr A could have bought for 1 gold coin. They compete for these goods with Mr A. The price goes up, and Mr A has had the value of his coins devalued.

No. The borrowers will need to repay their loans by selling something, either goods they make or services they provide. This means there will be a higher supply of good [1] that Mr A's other gold can be used to purchase.

The goldsmith then decides to print pieces of paper which say "Mr Goldsmith owes you 10 gold coins". People trust Mr Goldsmith to deliver on his promise to give gold coins for the paper. Anytime he has been asked for coins, he delivers them! Why shouldn't they trust him? Borrowers then use these trusted pieces of paper to compete for the goods that previously only Mr A could buy. The price of goods goes up. In what way has Mr As gold coin not been devalued?

The price of goods does not go up in this case because the borrowers create addional good which then competes for the apparently 'increased' amount of money. There is more money available sooner than would be the case without Mr A. but there also are goods and services [1] that match (and likely exceed) the value of the lent gold. Mr. A benefits from the resulting economic growth in the same way that everybody around him does. He is also rewarded for lending the gold.

Obviously, if the borrowers all decide to purchase a particular asset then its price will increase in the short term, unless some of them use their loans to make more of that asset. No-one forces Mr A to also buy said asset. He is still better off than he would if he did not allow his gold to be lent out because he gets the interest. The goldsmith will be the first to bear any losses and Mr. A will only lose out if the goldsmith goes bust. The borrowers will need to convince someone to buy their goods/services to repay the loans. This means Mr. A may well be able to buy these more cheaply (or indeed, at all) than would be the case otherwise, and may well prefer this to owning the overpriced asset. The majority of the profit is made by sellers of the overpriced asset. If it turns out the asset was not overpriced after all then Mr. A will have to put that down to experience. He will not be able to blame anyone else because he would have been able to purchase that asset instead of leaving his gold on deposit. His money did not devalue. He just did not invest it in the best possible way.

Many, many enterprises in history have collapsed under the burden of debt. How can you prove that debt has actually been of net benefit to the economy of any given nation, and not a net drain taking money away from useful projects?

Enterprises don't fail because of debt. Just about any enterprise that goes bankrupt would have been a failure regardless of how it was funded. It would have simply lost someone else's money; the loss might be just in terms of oppurtunity cost and the risks involved differ a bit between the two options but I don't see any fundamental difference

What is the difference between a 'useful project' funded by direct investment and one funded by borrowing? Both depend on someone's money, it is just obtained by slightly different means. I for one would prefer to have a bank in the middle because it shields me from the risk much more efficiently than I could arrange on my own. The only outcome of forcing investors to invest directly would be increase everyone's costs.

We already do this. Banking is regulated. The question is what are the net affects of banking, and what is the evidence for it? On this basis we can decide whether banking should be more regulated, less regulated or abolished.

I have no personal beef with banks. I am merely questioning the accepted wisdom that it is a good thing. Where is the evidence of the benefits? I am not saying there is no evidence, I just want to know where it is.

It really is a novel idea that banking should or could be abolished. I am still puzzled about how you think it might help. I have already asked you what additional regulation you would suggest. I am open-minded about whether more regulation would be good or not. It is surely plain that regulating banks out of existence (e.g. by forbidding them from lending out deposits as you suggested elsewhere) would help no-one.

You keep asking for evidence that banks are beneficial. A strong indication of this is that individuals as well as companies choose to use their services. Banks do not do anything that could not in principle be done without them but they make the process much cheaper, faster and efficient. Is this beneficial enough for you?

The banking sector might not be perfect but straighforward lending and borrowing are nothing to worry about. The really worrying systemic risks are elsewhere in the financial sector but I do not know enough to be certain where. Their existence has unfortunately been beyond doubt for a while and certainly since LTCM had to be rescued.

That "unproductive asset" in reference to the example of the goldsmith I gave earlier is a piece of paper that did not exist before the goldsmith printed it. Is a promise an asset? If it is, it is certainly an intangible.

No. It is Mr A's gold which could be productively used to make microchips or jewellery.

My question is, again, where is the evidence that this arrangement is of benefit to an economy? Not only does work have to be performed, but additional work has to be performed to the value of the interest required.

<{POST_SNAPBACK}>

It allows much greater liquidity and thus supports growth. As an oversimplistic example, consider a worker making widgets. If he has to sell each widget before he can afford the materials for the next one then he will waste time. If he borrows to pay for the materials he can produce widgets during time he would otherwise spend waiting. This is a clear benefit.

Thanks,

MoD

[1] either that, or there is a trustworhy promise of a good in the future, the present value of which is suitably discounted to allow for the delay

[marko]

Dear debaters,

I think there is a bit of confusion over what is being argued. Originally someone said that usery (I take this to mean charging interest on a loan) should be banned - but then the argument appears to have wandered into fractional reserve and money creation territory. These are not the same thing.

I, like Smell the Fear, would like to see fractional reserve banking abolished, because it is patently unfair. I think money creation should be the sole responsibility of the government, in the interests of the people (bit utopian I know, but this doesn't make it wrong).

However, unlike Smell the Fear, I do not have a problem with lending money (PROVIDED IT EXISTS in the first place!!) and charging interest on the money lent. It is hard to imagine a world where lending (=capital allocation) did not occur - the economy would be massively handicapped.

Remember, the financial economy exists (or rather should exist) to facilitate the efficient allocation of capital in support of real production. That's it. Responsible borrowing and lending with interest are the fulcrum on which this rests. In a world of no interest, why lend money to someone when you get nothing back except the amount you lent? Where is the incentive to cover:

1. the time period over which you don't have your money, can't spend and enjoy it etc.

2. the risk that the borrower will not pay it back.

The incentive is the interest charged on the loan of course.

To abolish interest-bearing lending and borrowing would be dumb. However, the abolish money creation by private banks would be possibly the most sensible thing we ever did. Just remember that these are two Separate things.

[Smell the Fear]

However, unlike Smell the Fear, I do not have a problem with lending money (PROVIDED IT EXISTS in the first place!!) and charging interest on the money lent. It is hard to imagine a world where lending (=capital allocation) did not occur - the economy would be massively handicapped.

<{POST_SNAPBACK}>

Marko - please do not make such sweeping assumptions about my beliefs. I do not think that the practice of lending money should be banned. Please show me where I advocate this if I have.

I am merely questioning the existence of lending. I am trying to understand what it really is, what its advantages and disadvantages are. I am gathering information to inform my opinion of the practice. I am not arguing that it is in any way wrong, immoral, bad for the economy or anything else.

I am simply looking for an explanation of its nature. Its nature may appear obvious to some people. I am trying to scratch the surface and see what hard evidence there is in favour of or against it.

[MongerOfDoom]

Marko - please do not make such sweeping assumptions about my beliefs. I do not think that the practice of lending money should be banned. Please show me where I advocate this if I have.

<{POST_SNAPBACK}>

You say that interest is a 'massive drag' on the economy. Unless you want to suggest a lending system that does not charge interest (genuinely, not just apparent interest as under Islamic law) then I think Marko is right in concluding that you want to abolish banks.

Also, you advocated making it impossible for banks to lend out money deposited with them. This would have pretty much the same practical effect as abolishing banks outright.

Thanks,

MoD

PS: Marko:

To abolish interest-bearing lending and borrowing would be dumb. However, the abolish money creation by private banks would be possibly the most sensible thing we ever did. Just remember that these are two Separate things.

Private banks cannot lend out more money than they hold in deposits (except if securitisation is used). They cannot create money out of thin air. They always pay interest on more money than they charge interest on. It is not possible to abolish 'money creation' without also abolishing lending. It is possible to reduce the 'money multiplier' but only at the cost of making the system less efficient (even if more stable).

EDIT: Correctly attributed bottom quote to Marko just after posting

Edited September 14, 2005 by MongerOfDoom

[Smell the Fear]

You say that interest is a 'massive drag' on the economy. Unless you want to suggest a lending system that does not charge interest (genuinely, not just apparent interest as under Islamic law) then  I think Marko is right in concluding that you want to abolish banks.

<{POST_SNAPBACK}>

If you look back at my post, you will see that I phrased it as a question, not as a statement of fact. As I said, I am asking for evidence to help me understand the situation.

Also, you advocated making it impossible for banks to lend out money deposited with them. This would have pretty much the same practical effect as abolishing banks outright.

<{POST_SNAPBACK}>

I suggested separating the functions of deposit taking and lending for the sake of trnsparency. I did not advocate abolishing lending.

Unlike you I do not present FACTS. You present what you purport to be irrefutable FACTS. I am asking questions, making suggestions and trying to understand.

Why do you insist in turning everything into spin? You twist words to suit yourself. Please answer the following question: Which bank do you work for?

[marko]

Dear Smell,

Sorry, I got the impression you thought interest per se was wrong. I don't see why charging interest on lending some money is necessarily wrong...if I was to lend someone £10,000 over 5 years, I would want some sort of reward for saying goodbye to my money for 5 years!

However, essentially I think that we are on the same side here, and have been on other posts before. And of course, although we all have opinions, we are also here to learn as well (or should be....can't be said for all HPC posters of course!)

Monger, you state that banks cannot lend more money than they hold as deposits...this is not true I am afraid: banks literally DO create money from nothing when they lend money. Lending is the mechanism by which the money is created. Most of the money in the UK economy has been created by private banks (something like 97% of the total money supply - only 3% or so of the money in the economy was created by the government).

Incidently seeing as we are on HPC.co.uk, it is mortgage lending that is the principle mechanism by which banks introduce extra money into the economy. This has stoked the almighty bubble we all moan about. Now I (and I think SmelltheFear) simply think that this is not fair: why should banks be able to create money from nowhere? Remember that it is their money, not ours. Noone else in society can do this, why should they? They love to lend money, because until they lend it, IT DOESN'T even exist!

You also say that it would be impossible to abolish money creation without also abolishing lending - why? As I see it, I could lend you £10000 over 5 years to start a business...you could then do well, earn good money and then pay me back £11000 at the end of the term....where is the money creation there?

Of course money creation has to happen somewhere - I personally just think it should be the government who create it and circulate it into the economy through public spending.

Maybe you could look at www.zopa.co.uk. This is a p2p lending scheme to cut banks out of the picture...not necessarily wise, but does demonstrate that lending with interest is entirely possible without money creation by banks.

[Elizabeth]

Most of the money in the UK economy has been created by private banks (something like 97% of the total money supply - only 3% or so of the money in the economy was created by the government).

<{POST_SNAPBACK}>

If the economy is based on supply/ability to pay, and that 97% of our ability to pay is virtual rather than real, does that mean that what we own is only worth 3% of what we think it is worth?

[marko]

If the economy is based on supply/ability to pay, and that 97% of our ability to pay is virtual rather than real, does that mean that what we own is only worth 3% of what we think it is worth?

<{POST_SNAPBACK}>

Elizabeth,

This is a good question. I have only started looking at the money supply issue about a month ago so I am still learning fast, but becoming more shocked the more I look at it. The 97% of the money that has been created by the banks is 'real', or at least as real as it can be (numbers on a screen somewhere) - and price inflation over the years as more and more money has been introduced reflects that I guess.

If you (like me) regard the private creation of money by banks to be fraudulent and wrong, then yes in a very real sense you are right - the 3% of total money supply that was government issued is the only part I recognise to be valid, and therefore capable of buying the goods in the economy.

Or put it another way - let's imagine tomorrow the government decides to somehow cancel out (not sure how!) all the money that was created by the banks, leaving only the 3% they issued. All the goods and services in the economy would then be repriced to 3% of their current worth to reflect the contraction in money supply.

Back in the 20s/30s there were a lot of people proposing monetary reform and abolition of the ability of private banks to create money - they unfortunately did not succeed. Earlier in the USA, Lincoln was a staunch opponent of private banks creating money, and he was just about to get around to getting rid of it when....he was assasinated. Hmmmm. Yes, many people think the assasination was carried out to prevent him using his huge popularity after the civil war and ending slavery etc. to push through his banking reforms.

Most people are not aware of the almost laughably awful nature of the fraud that is perpetrated by banks against the rest of society: their ability to create money for themselves out of nowhere really is at the root of many of our problems. If you are interested in this there is quite a bit of material on the internet as well as a few books.

[Elizabeth]

Most people are not aware of the almost laughably awful nature of the fraud that is perpetrated by banks against the rest of society: their ability to create money for themselves out of nowhere really is at the root of many of our problems. If you are interested in this there is quite a bit of material on the internet as well as a few books.

<{POST_SNAPBACK}>

Marko,

I'm a really simple girl. I don't like to read books or nothing like that. I don't understand the idea of creating stuff out of thin air (Maybe because I don't read enough books - I might have to start with Alister Crowley). Being so simple I need your advice. Would it work if I just tell the bank that I have 12 1/2 times what I have in my account and they will pay me 60% interest?

[Smell the Fear]

Marko Said:

"Or put it another way - let's imagine tomorrow the government decides to somehow cancel out (not sure how!) all the money that was created by the banks, leaving only the 3% they issued. All the goods and services in the economy would then be repriced to 3% of their current worth to reflect the contraction in money supply."

Hi Marko. You are correct that we are coming at this some from the same angle. I am still gathering my thoughts on the issues.

The unwinding could be done by slowly decreasing the money multiplier ratio so that banks can advance fewer loans going forward. This would allow observation of the effects (after all, no-one can say for sure what the consequences would be).

Edited September 14, 2005 by Smell the Fear

[marko]

Marko,

I'm a really simple girl.  I don't like to read books or nothing like that.  I don't understand the idea of creating stuff out of thin air (Maybe because I don't read enough books - I might have to start with Alister Crowley). Being so simple I need your advice.  Would it work if I just tell the bank that I have 12 1/2 times what I have in my account and they will pay me 60% interest?

<{POST_SNAPBACK}>

uuuuummmm. No.

(of course you could ask Mr Crowley to conjure up some sort of Devil-Beast-Worm to plague and harass your bank....but alas I fear they wrote the book on Devil worship).

Banks are able to create money because they are in effect licensed to do so, using a process called fractional reserve banking: this allows them to lend more money than they actually have in deposit....i.e. they are lending money they do not have: they are creating money from nowhere.

[JustYield]

i.e. they are lending money they do not have: they are creating money from nowhere.

<{POST_SNAPBACK}>

Last time I checked, double entry book-keeping was alive and well.

JY

[MongerOfDoom]

If you look back at my post, you will see that I phrased it as a question, not as a statement of fact. As I said, I am asking for evidence to help me understand the situation.

I did. You said (my emphasis)

Surely creating more money simply devalues the money that was originally in existence? Surely interest payments are a massive drain on industry?

<{POST_SNAPBACK}>

You cannot seriously claim that this should be interpreted only as a question. Can you?

I suggested separating the functions of deposit taking and lending for the sake of trnsparency. I did not advocate abolishing lending.

In what way is my statement incorrect? I said "Also, you advocated making it impossible for banks to lend out money deposited with them." This *is* true, is it not.

Unlike you I do not present FACTS. You present what you purport to be irrefutable FACTS.

It makes it so much easier to demonstrate your superiority. Just pick the most refutable fact and refute it. You can the go on from there. That would be a lot more convincing than just claiming I am somehow wrong, if only you could put your finger on it.

Why do you insist in turning everything into spin? You twist words to suit yourself. Please answer the following question: Which bank do you work for?

<{POST_SNAPBACK}>

Spin? I'll let others on the board to judge that.

If you think that banks are afraid of you so much that they pay someone to put a spin on your posts then I am afraid you are thinking well above your station.

I do not work for a bank, BTW.

Thanks,

MoD

[MongerOfDoom]

Monger, you state that banks cannot lend more money than they hold as deposits...this is not true

Actually, I think you will find it is true after all. Just as well that, really.

I have already tried discussing this with you on another thread. By all means reply to my posts there (and PM me if the thread does not make it back to the front page) but otherwise I'd rather not repeat all the arguments. You can start at

http://www.housepricecrash.co.uk/forum/ind...ndpost&p=180060

Maybe you could look at www.zopa.co.uk. This is a p2p lending scheme to cut banks out of the picture...not necessarily wise, but does demonstrate that lending with interest is entirely possible without money creation by banks.

<{POST_SNAPBACK}>

So money creation by banks is replaced by money creation by individuals. Why is it any better or worse?

Thanks,

MoD

[Smell the Fear]

You cannot seriously claim that this should be interpreted only as a question. Can you?

<{POST_SNAPBACK}>

Yes, I can. It was a question, albeit one that expressed some degree of incredulity at the situation.

It makes it so much easier to demonstrate your superiority. Just pick the most refutable fact and refute it. You can the go on from there. That would be a lot more convincing than just claiming I am somehow wrong, if only you could put your finger on it.

<{POST_SNAPBACK}>

I am not claiming you are wrong. I do not know if you are wrong, that is why I am asking questions. Unfortunately you, the sneering self-appointed guardian of the interests of banks are the only person who replies.

You are so defensive about banking practices that I find it hard to trust your views and motives.

If you think that banks are afraid of you so much that they pay someone to put a spin on your posts then I am afraid you are thinking well above your station.

<{POST_SNAPBACK}>

You reveal your self-importance with this statement. You come across as a jumped-up trainee bank manager who thinks he's in the best business in the world and would do anything for the company.

The suggestion that you would be paid to post here is frankly ridiculous. Go back to your telling booth and serve some customers!

P.s. contrary to what you might think, I have found your posts to be quite informative.

[Elizabeth]

So money creation by banks is replaced by money creation by individuals. Why is it any better or worse?

Thanks,

MoD

<{POST_SNAPBACK}>

Well I am just wondering whether credit unions use the same multiples. Its a pain in the butt, but I just don't like the idea that 20K of my money forms the financial basis for a 250K mortgage to someone who can't neccessarily afford it. 120K I probably wouldn't have a problem with... don't ask me why .

[marko]

Actually, I think you will find it is true after all. Just as well that, really.

I have already tried discussing this with you on another thread. By all means reply to my posts there (and PM me if the thread does not make it back to the front page) but otherwise I'd rather not repeat all the arguments. You can start at

http://www.housepricecrash.co.uk/forum/ind...ndpost&p=180060

So money creation by banks is replaced by money creation by individuals. Why is it any better or worse?

Thanks,

MoD

<{POST_SNAPBACK}>

Dear Monger,

NO IT IS NOT TRUE! Banks use the 'money multiplier' effect to create money from nowhere! This is economics 101! Do not state bald lies....you stating something doesn't make it true.

zopa is NOT money creation...jesus, I can only say that you obviously don't understand the fundamental mechanism I am talking about. GO AND READ ABOUT MONEY MULTIPLIERS, and then we'll talk.

[Elizabeth]

How do I become a bank? (I figure I could find the 10K, write the rest out of thin air, and then pay it back to myself at 5% interest)

[Smell the Fear]

Dear Monger,

NO IT IS NOT TRUE! Banks use the 'money multiplier' effect to create money from nowhere! This is economics 101! Do not state bald lies....you stating something doesn't make it true.

zopa is NOT money creation...jesus, I can only say that you obviously don't understand the fundamental mechanism I am talking about. GO AND READ ABOUT MONEY MULTIPLIERS, and then we'll talk.

<{POST_SNAPBACK}>

Monger can't see a problem because when they create the loan, they put it in someone's account as a deposit. The person can then draw on this money to spend in the economy.

Think about it. When you borrow money from a bank, they enter a debit on the loan account, and a credit to your current account. You can then withdraw the cash from your current account to spend.

Because they make both accounting entries simultaneously, he sees the loan and deposit balancing each other, so doesn't see a problem. Hence his constant rant of "deposits are always greater than loans". What he says is true, but EXTREMELY misleading.

[BoredTrainBuilder]

My dear HPCers

I have to take some of the responsibility for nudging this thread off piste (entertaining though it has been) and I must therefore at least to attempt to drag it back into the real world inhabited by people and physical things.

Let's try a mind experiment and imagine two identical groups of humanity, geographically separated, with exactly the same meagre resources to begin with. In group A lending with interest (by whomsoever) is allowed and in group B it is not on pain of death.

Fast forward 300 generations. Will it be group A or group B that has created the more desirable and comfortable way of life?

Hope this helps to resolve the debate.

Edited September 14, 2005 by BoredTrainBuilder

[Smell the Fear]

My dear HPCers

I have to take some of the responsibility for nudging this thread off piste (entertaining though it has been) and I must therefore at least to attempt to drag it back into the real world inhabited by people and physical things.

Let's try a mind experiment and imagine two identical groups of humanity, geographically separated, with exactly the same meagre resources to begin with. In group A lending with interest (by whomsoever) is allowed and in group B it is not on pain of death.

Fast forward 300 generations. Will it be group A or group B that has created the more desirable and comfortable way of life?

Hope this helps to resolve the debate.

<{POST_SNAPBACK}>

Do you really think that is a contribution to the debate? I am asking for the evidence that it actually is beneficial. Evidence. Proof.

Personally, I believe it is beneficial. It just seems intuitive, but I am also aware that occasionally the correct answer is not intuitive. Hence I seek evidence.

There is a separate debate here as well. I think we all accept that lending is beneficial (but as I have said many times, where is the evidence?).

However, is it the case that fractional reserve banking is beneficial? If so, WHERE IS THE EVIDENCE?

FOR THE LOVE OF GOD, there are many here who puport to be economists. Show me the EVIDENCE!

[JustYield]

Actually, I think you will find it is true after all. Just as well that, really.

I have already tried discussing this with you on another thread. By all means reply to my posts there (and PM me if the thread does not make it back to the front page) but otherwise I'd rather not repeat all the arguments. You can start at

http://www.housepricecrash.co.uk/forum/ind...ndpost&p=180060

So money creation by banks is replaced by money creation by individuals. Why is it any better or worse?

Thanks,

MoD

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For what it's worth, on this topic MongerOfDoom is absolutely correct. Enough with all this "money out of thin air" conspiracy nonsense already!

Money supply increases step-wise with economic activity. Banks decide who to lend to based on the likelihood of the loan being repaid (they decide the credit risk - whether they have been too lax w.r.t. secured loans based on the UK's housing bubble is a valid question). When the money lent is invested or spent it returns to the banking system as somebody else's deposit. In the meantime, the original loan is being serviced by hopefully porifitable economic activity, which covers the interest and principal repayments. What's wrong with that? Where is the consiracy?

I think I was about 6 when my sister told me that there were such things as "runs on banks" - a situation where the bank could not cope if all its depositors turned up to demand their money back. I think the topic might have come up when we were laughing at Paddington Bear (the fictional character and not a HPC poster) who walked into the bank and demanded to see his bank notes (the exact notes he had deposited earlier).

It was later that I learnt that this situation is possible basically because they borrow short term to lend long term (so they take on some term risk). So you can query if your deposits are safe if they cannot repay you on demand. But STF/marko please stop with the conspiracy / thin-air stuff (on this and the other thread MoD linked), it just exposes your ignorance.

JY