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vman7

Money As Debt

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ah, finally someone else on the forum, that I'm aware of, has watched this film. Ive burnt it to disc a few times and lent it to family and it's blown a few minds. great film

The film is referenced regularly every few months or so on HPC and initiates some good threads.

It introduces viewers to arguably the most important issue of our time.

Have you also seen these websites (for example)?

http://www.positivemoney.org.uk/

http://www.bankofenglandact.co.uk/

http://prosperityuk.com/

http://www.moneyreformparty.org.uk/

http://z6.invisionfree.com/Bill_Still_Reforum/index.php?showforum=1

Also the excellent video made by Bill Still:

Good hunting.

Edited by The Spaniard

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Great videos guys. I had an idea the system was like this from I read Mike Maloneys - How to invest in Gold and Silver.

Love the quote at the end of the first video - "Only the small secrets need to be protected. The big ones are kept secret by public incredulity"

So so true!

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Its quite similar to another Google video I say a few years ago, but with more thinking on the sustainability idea. They have really hit it home that the current system is not sustainable with limited resources, but they could have mentioned the idea that fiat/usury system we use requires increasing numbers of new people coming into the system at the bottom of the pyramid.

This is part of the reason we had a credit crisis, there are not enough new people taking out mortgages and credit at a fast enough rate to create money fast enough to keep paying off existing debts. We should have had a bust in 2000 but they just kept increasing credit limits for those 'new' borrowers and existing borrowers, which increased house prices until most people where up to that level of debt, then it ran out of steam and became a bigger problem. Now we have a bigger problem, most of the money in the economy is going to the bankers to pay interest and there isn't enough to buy stuff we need like healthcare, education, defence etc.

When you add this to the lack of added value, weak business created during the boom, inefficient gov't created during the boom, lax welfare state controls, older surviving age, lower birth rates its amazing gov't have retained control atall.

The very problem with debt is that it allows prices to get out of step with values, we are borrowing from an uncertain future rather than living within the limits of today (like buying on a mortgage instead of renting). The more we borrow, from 1p onwards, the bigger the bust/boom cycles until eventually the gov't and world systems are no longer able to cope (bail out) and it all breaks down.

Edited by Ride_on

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When ever we say that banks and the government are printing money, is this true in both cases?

We know that the banks create money from debt, from loans and credit card transactions etc etc, this is done via a computer entry of some kind, so this is appox 95% of the nations money supply, right????

Now the government also create money (currency), the royal mint (UK Example), by printing bank notes and stamping coins, is this known as quantitative easing (QE)???? So this is approx 5% of the money/fiat currency in circulation, right?

I am trying to understand the process of creating money, so does the above seem accurate and would it be fair in saying that the banks and the government create the money supply, obviously with the banks creating the vast majority, on average 95%?

Please can some one confirm this or correct me if the above is incorrect.

Edited by wtw2

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When ever we say that banks and the government are printing money, is this true in both cases?

We know that the banks create money from debt, from loans and credit card transactions etc etc, this is done via a computer entry of some kind, so this is appox 95% of the nations money supply, right????

Now the government also create money (currency), the royal mint (UK Example), by printing bank notes and stamping coins, is this known as quantitative easing (QE)???? So this is approx 5% of the money/fiat currency in circulation, right?

I am trying to understand the process of creating money, so does the above seem accurate and would it be fair in saying that the banks and the government create the money supply, obviously with the banks creating the vast majority, on average 95%?

Please can some one confirm this or correct me if the above is incorrect.

Very few can answer these questions with any authority as few really know. If you view the main boards you will see more detailed debate by people with lost of more knowledge on the system than me (which wouldn't be hard), and even they cant agree. Some of the people running the country have a difficulty understanding it. Dont feel in any way silly asking the questions as 99% of the pop never even think about it.

QE is often referred to as the printing press as that is the easiest way to visualise it. However, in the current climate it is all digital. The banks borrow their money on the wholesale market. They issue bonds which they guarantee to pay back at a set rate at a set time. In Germany this is about 2.5% and in Ireland it is about 8%. The banks however, never really pay these bonds back they just issue more bonds to repay the last. You may think this is wierd but it works a little like your mortgage. The mortgage might be calculated over 20 years but every 3 or 5 years, depending on your terms you affectively sell your bond (your promise to repay, backed by your title deeds) and affectively a new loan is drawn down to repay the old one. You may actually switch bond holder. The money markets worked in a similar way. However, the banks, for the last few years have difficulty obtaining new bonds and thus repaying the old ones. The central bank steps in and buys these bonds which is affectively QE. Where they get the money from is another question. Some they borrow (sell their own bonds)and some they effectively make up by various means which end up deflating the currency.

I watched these videos a few years ago and they do enlighten but can be a little too simple. The central bank can perform the rabbit out of the hat trick, but there are consequence's (inflation). However the other banks cannot. Your mortgage advance is not created. The bank borrowed it, part from deposits and part from bondholders and must be paid back to them. In the past the banks were able to sell on your mortgage to pension co's etc. But this has largely stopped.

However, you are right in saying the banks create money by lending. What they are doing is increasing the circulation of money in the economy. The more times it turns over the more times it is effectively counted. You will hear them referring to this as M3 or M4. The real money in the economy. If you spent £150k on your house - you spent it and it is counted. It doesn't matter if you paid for it in notes from under your mattress or with a 100% (remember them) bank loan. The builder, land owner was paid. The money rotates and the wheels of commerce turned one notch. The fact that you may not have owned a penny of it matters not one bit to those who received the money. So yes in one way the banks have created money by issuing debt. Another way of looking at this is instead of counting the money over the 20 years of your repayment the use of credit allows them to count it now. The whole transaction could take place, in the event of a 100% loan, without the transfer of funds. Yes the builder credited his account and the balances changed but this all happened on your promise to pay-your signature. Credit means "in trust" (greek).

I am no expert and only grasp a tenth of how this works (as I'm sure someone will point out)

here's a wee joke/story doing the rounds

Irish Bailout Package

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel

and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer

takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that, Ladies and Gentlemen, is how the bailout package works

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Very few can answer these questions with any authority as few really know. If you view the main boards you will see more detailed debate by people with lost of more knowledge on the system than me (which wouldn't be hard), and even they cant agree. Some of the people running the country have a difficulty understanding it. Dont feel in any way silly asking the questions as 99% of the pop never even think about it.

QE is often referred to as the printing press as that is the easiest way to visualise it. However, in the current climate it is all digital. The banks borrow their money on the wholesale market. They issue bonds which they guarantee to pay back at a set rate at a set time. In Germany this is about 2.5% and in Ireland it is about 8%. The banks however, never really pay these bonds back they just issue more bonds to repay the last. You may think this is wierd but it works a little like your mortgage. The mortgage might be calculated over 20 years but every 3 or 5 years, depending on your terms you affectively sell your bond (your promise to repay, backed by your title deeds) and affectively a new loan is drawn down to repay the old one. You may actually switch bond holder. The money markets worked in a similar way. However, the banks, for the last few years have difficulty obtaining new bonds and thus repaying the old ones. The central bank steps in and buys these bonds which is affectively QE. Where they get the money from is another question. Some they borrow (sell their own bonds)and some they effectively make up by various means which end up deflating the currency.

I watched these videos a few years ago and they do enlighten but can be a little too simple. The central bank can perform the rabbit out of the hat trick, but there are consequence's (inflation). However the other banks cannot. Your mortgage advance is not created. The bank borrowed it, part from deposits and part from bondholders and must be paid back to them. In the past the banks were able to sell on your mortgage to pension co's etc. But this has largely stopped.

However, you are right in saying the banks create money by lending. What they are doing is increasing the circulation of money in the economy. The more times it turns over the more times it is effectively counted. You will hear them referring to this as M3 or M4. The real money in the economy. If you spent £150k on your house - you spent it and it is counted. It doesn't matter if you paid for it in notes from under your mattress or with a 100% (remember them) bank loan. The builder, land owner was paid. The money rotates and the wheels of commerce turned one notch. The fact that you may not have owned a penny of it matters not one bit to those who received the money. So yes in one way the banks have created money by issuing debt. Another way of looking at this is instead of counting the money over the 20 years of your repayment the use of credit allows them to count it now. The whole transaction could take place, in the event of a 100% loan, without the transfer of funds. Yes the builder credited his account and the balances changed but this all happened on your promise to pay-your signature. Credit means "in trust" (greek).

I am no expert and only grasp a tenth of how this works (as I'm sure someone will point out)

here's a wee joke/story doing the rounds

Unfortunately the joke glosses over that the hotel owner is funding the whole thing albeit on borrowed money that is paid back eventually. So he goes bust but the rest of the town is okay. Now if he had dun a runner before the German returned and asked for his money back it would been like real life.

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Unfortunately the joke glosses over that the hotel owner is funding the whole thing albeit on borrowed money that is paid back eventually. So he goes bust but the rest of the town is okay. Now if he had dun a runner before the German returned and asked for his money back it would been like real life.

now we wre debating the joke.

Why does he go bust? Who does he owe money to?

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now we wre debating the joke.

Why does he go bust? Who does he owe money to?

The hotel keeper was legitimately owed the money by the hooker and having received it he handed it over to the German. Perhaps he could afford it but I was applying it typically, ie something he generally did in his business, clearly unsustainable behaviour and and as a consequence ruin occurs.

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I'm also no expert, but here is what I have learned (hopefully correctly) since being on HPC;

Printing money does not literally mean 'printing'. They can make as much cash as they like but to get it into the economy, someone has to ask for it at a bank and the bank will reduce their bank account for said amount, so making cash does not increase the 'money' in the system like taking out a loan.

BVI is of course correct in saying the banks have to borrow money but this is only once they have lent out their allotted amount based on their capital reserves. The main problem in the past has been that as the system begins to collapse, as prices outstrip values, the loans cannot be maintained and there are not enough new people coming in to support it they just decrease the % of the capital reserve. This is shown in the video but its not gone into in great detail. The biggest change recently was in 2000, we should have had another crash then but Mr Brown and Mr Bush allowed the leading western economies to let their banks 'deregulate'. The main effect this had was to massively increase the lending power of the banks, they suddenly had lots of imaginary money they could create and fell over themselves trying to give it away (hence the irresponsible lending). The fraction reserve requirement has gone from 10x to 30x actual deposits. The more money they give away/create the more money they make while all this additional credit is taken up. The big shocker is once the banks are back up to their limit, everything (especially house prices) are very costly and no-one can afford anything any more and can't borrow to buy it, prices crash and so on. Lending more is a great way to 'improve' an economy in the short term and damage it in the long term. Lots of people refer to it as a party that then has to have a hangover once it stops.

Gov't print money by creating Bonds out of thin air which are then sold. These are just a promise to pay out a yearly amount to the holder, so the bonds have 'value' and can be traded. These are supposed to suck money bank into the system from hoarders, but mostly they are just bought from borrowed money or money held on stock market accounts. All these things are just ways Gov't have of inventing money, without doing anything useful. In this way it does not add value to the economy, much like many others thing that take more money from the system than their value. House sales, bankers, Marketing etc etc. Such non-value add things de-value the economy and thus the currency so your money buys less stuff.

Debt based money is great for those writing the rules, and say charging interest, unfortunately its not sustainable.

Edited by Ride_on

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Unfortunately the joke glosses over that the hotel owner is funding the whole thing albeit on borrowed money that is paid back eventually. So he goes bust but the rest of the town is okay. Now if he had dun a runner before the German returned and asked for his money back it would been like real life.

Actually I think the joke is a damned good example of how a non-interest paying borrowing system is sustainable (perhaps). The point is (and also a point of the video) most peoples debt is to banks who charge interest, this requires more repayers at each stage of the borrowing cycle than the previous cycle. These traders are not charging each other interest and so the debt does not get bigger, a single €100 note can do the rounds and settle everyone. In the joke the net owings are zero, the system is just lacking the cash to do the processing because the traders cannot net off in a >2 way owings. In the real world the money would be borrowed from a bank and interest would still be outstanding.

Edited by Ride_on

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I always thought that QE was the dispersing of government (royal mint) printed money via the banks out into circulation. Hence creating inflation with the abundance of this newly created fiat currency.

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I always thought that QE was the dispersing of government (royal mint) printed money via the banks out into circulation. Hence creating inflation with the abundance of this newly created fiat currency.

Notes and coins form a very small percentage of " money " in the modern banking system. Most is just numbers in a computer sever.

QE is the governments way of manipulating the bond markets by buying their own and commercial bonds which keeps interest rates low.

The whole thing stinks imho and will result in big trouble sooner rather than later.

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I always thought that QE was the dispersing of government (royal mint) printed money via the banks out into circulation. Hence creating inflation with the abundance of this newly created fiat currency.

I think they are just trying to prevent deflation at the moment. But the financial whole is too big - that is why we are going to get QE2. America is already talking about QE3.

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I always thought that QE was the dispersing of government (royal mint) printed money via the banks out into circulation. Hence creating inflation with the abundance of this newly created fiat currency.

QE has been used from 2000 in Japan to counteract deflation and to stimulate growth, and since money supply increases have not negatively caused issues to its economy (over many years) then it is very hard to gauge its effect on global markets now. With no backfires and with Japans problems matching that exactly of the West, that is the crux. We (the West) are in a massive negative downward vortex of an economic slowdown caused by a balance sheet recession (caused initially through a continued retraction of bank credit due to them holding too many non-performing assets) - therefore this needs to be aggressively counteracted and QE seems the only game in town.

From a theoretical point of view it is hard to know if QE will cause inflation or not, but IMO everything within the economy is cause and effect related, with every action having an equal reaction. Economics 101 show’s the West are up to their necks in debt and globalisation allowed the Far East to expand aggressively with cheap manufacturing (changing see below) in exchange for T-bills. T-Bills balanced the West’s balance of payments deficits (which again the government can ill afford and rollover). Therefore the only positive outcome for the West will be to create inflation, to counteract debt and screw over the Far East for a second time through inflation (this time). IMO expect a strong bout of inflation so buy into debt based assets to protect wealth. If credit is not an option then buy gold.

Why gold? If the US dollar softens, it will take more dollars to buy gold. So you get more money for the same gold you purchased a while ago.

Btw I am just back from China and their economy is overheating with inflation (caused through many reasons) and the Chinese response is to restrict the electricity to foreign owned companies along the eastern seaboard (capacities cut by 50% and a major problem to me). A novel approach to economics?

Finally one mistake the Japanese made in the 1940's was to under estimate America; again never underestimate America. It is still the power house and will survive well.

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Gov't print money by creating Bonds out of thin air which are then sold. These are just a promise to pay out a yearly amount to the holder, so the bonds have 'value' and can be traded. These are supposed to suck money bank into the system from hoarders, but mostly they are just bought from borrowed money or money held on stock market accounts. All these things are just ways Gov't have of inventing money, without doing anything useful. In this way it does not add value to the economy, much like many others thing that take more money from the system than their value. House sales, bankers, Marketing etc etc. Such non-value add things de-value the economy and thus the currency so your money buys less stuff.

I thought the reason Gov't bonds were regarded as valuable was that the money to repay the bonds could be obtained by taxing the citizens of the country. Therefore whatever happened a country would always have the ability to repay its debts.

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QE has been used from 2000 in Japan to counteract deflation and to stimulate growth, and since money supply increases have not negatively caused issues to its economy (over many years) then it is very hard to gauge its effect on global markets now. With no backfires and with Japans problems matching that exactly of the West, that is the crux. We (the West) are in a massive negative downward vortex of an economic slowdown caused by a balance sheet recession (caused initially through a continued retraction of bank credit due to them holding too many non-performing assets) - therefore this needs to be aggressively counteracted and QE seems the only game in town.

From a theoretical point of view it is hard to know if QE will cause inflation or not, but IMO everything within the economy is cause and effect related, with every action having an equal reaction. Economics 101 show’s the West are up to their necks in debt and globalisation allowed the Far East to expand aggressively with cheap manufacturing (changing see below) in exchange for T-bills. T-Bills balanced the West’s balance of payments deficits (which again the government can ill afford and rollover). Therefore the only positive outcome for the West will be to create inflation, to counteract debt and screw over the Far East for a second time through inflation (this time). IMO expect a strong bout of inflation so buy into debt based assets to protect wealth. If credit is not an option then buy gold.

Why gold? If the US dollar softens, it will take more dollars to buy gold. So you get more money for the same gold you purchased a while ago.

Btw I am just back from China and their economy is overheating with inflation (caused through many reasons) and the Chinese response is to restrict the electricity to foreign owned companies along the eastern seaboard (capacities cut by 50% and a major problem to me). A novel approach to economics?

Finally one mistake the Japanese made in the 1940's was to under estimate America; again never underestimate America. It is still the power house and will survive well.

jim rickards on kwn is always good value. for those unfamiliar with the name, jim is quite a heavyweight commentator (regular on cnbc. newsnight etc.) and is md of omnis, he also advises the US on national security.

Jim talks here about the $usd becoming gold backed again.

I think the paper dollar is on its way to collapse but that doesn’t mean the end of the United States or the United States power. What’s really, really interesting to me is that the United States is an awesome gold power. You know we never talk about it because nobody ever wants to talk about gold, I mean no one in an official capacity. But if you think of the world in terms of oil reserves, and people have done that a lot over the last thirty years. You know and the role of OPEC and so forth. You know you divide the world into those that produce oil, those who consume oil. An awful lot of concern has gone into the oil industry and the movement of oil around the world. Well, think of gold the same way. And very few people have ever done this. But when you start to think of the world in gold space instead of oil space, you very quickly realize that the United States is the Saudi Arabia of gold. We have over 8,000 tons. And that’s more than any other country. The euro system has 10,000 tons. These are metric tons, by the way. The euro system has 10,000 metric tons. But that’s a consortium of 16 members, 16 central banks, so it’s Spain and Italy and Germany and the Netherlands and a number of other countries. It’s not all on the books of the European Central Bank. In fact, relatively little is on the books of the ECB, most of it is in the national treasuries of those countries. But, collectively, if they wanted to act as a unit, under the one currency banner, the euro, they’ve got 10,000 tons, so they’re a gold power. Russia is desperately short of gold. China is short of gold. India, Brazil are kind of pathetic. Japan and the UK are kind of pathetic. None of these countries have anywhere near the gold that they need to support their money supply. So the US as we’re a military superpower, we’re also a gold superpower, we’re also one of the ten largest producing countries in the world, producing approximately 200 tons a year out of a total global output of a little over 2000 tons. So we’re producing almost 10% of the world’s output. So we’re a major producer, we’re a major hoarder of gold.

And, in addition to that, there is over 6000 tons of foreign official gold that is stored in the United States that we could always convert if we wanted to. If that gold is at the Federal Reserve Bank of New York, the United States could just secure it. We could send in a military convoy and move it to West Point or some secure US location and then just give the Europeans a receipt. So we could actually up our gold supply to over 14,000 tonnes very, very quickly. So we are a gold superpower.

In a way, the Fed could afford to trash the paper dollar, or at least experiment and risk trashing the paper dollar because if the paper dollar collapses, we could just go back to gold pretty easily. But the rest of the world can’t, especially if we take their gold.

his latest interview is also worth a listen:

"The US has 72.8% of its reserves in gold...China has 1.6% of its reserves in gold...What does that tell you about what the United States thinks is money."

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I always thought that QE was the dispersing of government (royal mint) printed money via the banks out into circulation. Hence creating inflation with the abundance of this newly created fiat currency.

You can't just give it away (unlike loans :lol: ), how do you think they 'disperse it'? Physical currency is irrelevant it just represents/replaces what people have in the bank.

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  • 244 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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