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I think education is a key to changing some of the wrongs in the world of finance often identified and much maligned here on HPC. The following is the first of a series of videos being produced by Charles Bazlinton over at The Free Lunch which aim to give a clear and concise discussion of the monetary system, and beginning to explore some of the issues surrounding it. The videos come as a series of interviews with Professor Werner of Southampton University. Whilst I'm wary of the risk of stimulating another merry go round discussion of "what is money", I thought it may be of interest to some (sorry if already posted). If you've already seen the first one, there are two new ones published in the last couple of days.

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This is an hour and seven minutes long and is an excellent video about what went wrong and what will unfold.

Presented by Marc Faber at "Austrian Economics and the Financial Markets," the Mises Circle in Manhattan on 22 May 2010 in New York, New York. Includes an introduction by Mises Institute president Douglas E. French.

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I think education is a key to changing some of the wrongs in the world of finance often identified and much maligned here on HPC. The following is the first of a series of videos being produced by Charles Bazlinton over at The Free Lunch which aim to give a clear and concise discussion of the monetary system, and beginning to explore some of the issues surrounding it. The videos come as a series of interviews with Professor Werner of Southampton University. Whilst I'm wary of the risk of stimulating another merry go round discussion of "what is money", I thought it may be of interest to some (sorry if already posted). If you've already seen the first one, there are two new ones published in the last couple of days.

LONG LIVE THE INTERNET!

It's not so long ago that this kind of information would never have been available to a non-insider. It's taking a while but a growing number of knowledgeable people are feeling the need to educate people about banks; the internet is making it possible.

Thanks for posting the link.

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Of course, more accurately, some say that money is created when a deposit is magiced up out of thin air and placed in an account. Though credit money should not be thought of as a one dimensional entity. It fulfills all the requirements for balanced books. The reason it is called 'credit' (aside from 'trust') is because it involves the splitting of nothing into two entities - a debit and a credit (just like those other 'bets' between parties, 'credit derivatives'). So net net - when they talk about 'increasing the money supply', it is really not doing anything of the sort...it is effectively pushing the real money supply from account to account conducting trade along the way and inflating both asset and liability accounts - i.e. it is increasing the velocity of base money, which otherwise would simply be hoarded by those who have no need to spend it. i.e. it is handing those with the ability/desire to spend it away from those who don't. To work properly an interest rate has to be charged that covers the risk of lending, costs etc - and that is where everything goes wrong periodically...there is something fundamentally wrong with the capitalist banking system and how it interacts with assets and determinations of value and wealth.

EDIT: Just to expand that latter point with my earlier 'trust' point. Personally I think we should question the use of property and land as the key means of managing our money supply. With its feedback loop of more money = high house prices= more equity against which the bank can lend, it is inherently 'chaotic' by nature. Falling back on security means that you are really lowering the 'trust' hurdle, or really, you are saying 'I don't trust this person' and therefore the term 'credit' may be misplaced in the way it was originally conceived. And perhaps therein lies a clue to a solution. If you were to disallow secured lending, the bank would have to be much more careful about who they lend to and for what purposes. Perhaps then they would be less disposed to lending for consumption and more for investment. Obviously asset prices would fall but rather than save up for a deposit, you would probably just save up to buy the house! Not going to happen I know because the near term effects would be perceived as catastrophic, but there may be baby steps they could take to get somewhere better.

You seem stuck to a tangible definition of money. Leaving aside coins and notes:

Money is pimarily made up of bank deposits; it is an accounting identity on the books of banks. It's an abstract entity, it can't be moved, it can't be hoarded. Within a microsecond of a deposit being 'deposited' on you account, it is 'moved' to your bank's pool of investable funds without your knowledge or consent. You can't move it or hoard it. You could 'transfer' it, but that would just be a deletion on one account and an entry on another account. It never leaves the banks' books. The concept of 'velocity', as currently described, is completely misleading.

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No I'm not. I'm explaining how credit money is really created and how credit money interacts with base money. The earlier link explains the transmission mechanism for Bank interest rate policy (higher/lower rate of lending or 'money creation'). I agree with your point that once in the bank and the bank has converted your money into a deposit, you are no longer able to hoard it...that is exactly my point...they push 'your money' around the system by making loans to those who want to transact.Thereby increasing the 'velocity' of the base money supply.

I'm sorry I misunderstood your post. I should have kept out of this one. :)

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Thanks for the link.

For the purposes of brevity - banks are not allowed to "create money" but only the people involved can call them on it. If you do so, the banks bluster a lot, then sod off. Banking is now and always has been fraud, but a very tiny fraction of people ever call them on this nonsense.

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the problem is the banks have convinced everyone in power that they create money and are thus producers when in fact they are really intermediaries which add overheads. The people who create the wealth are the people the banks lend money to. (well it should be but hasn't been recently which is another problem)

The government needs to stop saving the banks and start saving the industries. (real ones not financial or film etc which are just hangers on really)

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One of the reforms I hope will come in the 21st century is to return the ability to create money to the state.

The expansion of money is brought on by the growth in productivity in the nation. Which comes from the collective efforts of the populace and the global technological development. The amount of money in circulation must expand to keep up with production.

To me this is a no brainer that it should be a public dividend. For example in the mid 2000's when broad money in Britain was growing at £300 billion a year, imo it should be divided by the 60 million Brits and sent out as cheque to each Brit. So that would be £5,000 pounds for every man, woman and child. A big deal for millions of Brits.

Instead this benefit when to the private banks, the 5 or so license holders in Britain who have the license to create money. This is why the banks have by far the biggest towers, and by far the highest paid employees. Like a multiple of other sectors.

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I think education is a key to changing some of the wrongs in the world of finance often identified and much maligned here on HPC. The following is the first of a series of videos being produced by Charles Bazlinton over at The Free Lunch which aim to give a clear and concise discussion of the monetary system, and beginning to explore some of the issues surrounding it. The videos come as a series of interviews with Professor Werner of Southampton University. Whilst I'm wary of the risk of stimulating another merry go round discussion of "what is money", I thought it may be of interest to some (sorry if already posted). If you've already seen the first one, there are two new ones published in the last couple of days.

Ho hum, another year and another video of someone who looks like they know what they are talking about failing to explain banking correctly.

The big fail is when he says that when a loan is made, that no purchasing power is transferred. Of course that is wrong, because when a loan is made, base money is always transferred.

A little knowledge is a dangerous thing, especially if its easy to make a video of your knowledge and doubly so if you can rustle up a serious looking man in a beard.

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One of the reforms I hope will come in the 21st century is to return the ability to create money to the state.

You cannot be serious - that is what the state has been doing every single day of the year for decades and decades.

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A couple of weeks old now, but I doubt anyone would have seen it as it is an American site and left wing so the handful who fit the bill in the US can get a steady diet of Krugman and Chomsky and others.

http://truthout.org/cheney-was-right-about-one-thing-deficits-dont-matter/1303850419

Might just be me, but it seems there is a growing meme out there that government debt is money. Some interesting observations on Japan as well.

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A couple of weeks old now, but I doubt anyone would have seen it as it is an American site and left wing so the handful who fit the bill in the US can get a steady diet of Krugman and Chomsky and others.

http://truthout.org/cheney-was-right-about-one-thing-deficits-dont-matter/1303850419

Might just be me, but it seems there is a growing meme out there that government debt is money. Some interesting observations on Japan as well.

Wish that were true, but unfortunately Ellen Brown is not mainstream. She's been going on about public debt free money for ages, in the same vein as our very own Spaniard. She also fails to IMO demonstrate WHY government debt is equivalent to base money.

She concludes:

"But that is the system that we have. Deficits don't matter in this scheme, but the interest does. If we want to keep the interest tab very low, we need to follow the Japanese and borrow the money from ourselves through our own government-owned banks, essentially interest-free. "The full faith and credit of the United States" needs to be recognized and dispensed as a public utility."

Of course this ignores the fact that (base) interest rates are already (effectively) zero in the US and the UK, even though she intimates that we ought to be following Japan's example. Can't see the need really, since we have already achieved zero interest state created money without 20 years of whatever it is japan has been doing.

However, to stick with Ellen's view, the problem with it is that she doesn't realise, or won't come out and say, that 0% interest on whatever the money item is, must equate on the flip side to peak debt.

Thats the irony about the 0% state money crowd, they think they are abolishing debt (or at least placing it second stage) but in fact what it achieves is peak debt.

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Ho hum, another year and another video of someone who looks like they know what they are talking about failing to explain banking correctly.

The big fail is when he says that when a loan is made, that no purchasing power is transferred. Of course that is wrong, because when a loan is made, base money is always transferred.

A little knowledge is a dangerous thing, especially if its easy to make a video of your knowledge and doubly so if you can rustle up a serious looking man in a beard.

Base money isn't notes and coins though, right?

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The big fail is when he says that when a loan is made, that no purchasing power is transferred. Of course that is wrong, because when a loan is made, base money is always transferred.

Please could you explain what you mean with an example? Why is base money always transferred?

Ho hum, another year and another video of someone who looks like they know what they are talking about failing to explain banking correctly.

...

A little knowledge is a dangerous thing, especially if its easy to make a video of your knowledge and doubly so if you can rustle up a serious looking man in a beard.

I quite agree. Here is a list of his publications. I haven't read them all I admit and I am no expert like you must be to be able to shoot him down, but given the undeniable strength of his CV relative to the limited information in the video, what is it that makes you so strongly state his view is in no way credible? I didn't just base my interest in this video on the size of his beard.

The reason I posted the link and am looking for material like those videos, is I want to see how far it is possible to take the subject and simplify it enough to be expressed in an extremely short space, with a view to raising awareness in people who are simply not generally interested in money at all.

As the perfect example of what I mean by inaccessible, the link to the BoE site higher in this thread is all well and good, and even short, but just the diagram at the top instantly makes it inaccessible if you're dealing with a very short attention span.

Whether or not you think there is a problem with the monetary system, the whole topic is usually not discussed (at least by normal people :)) which is not healthy.

Edited by Fraccy

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Base money isn't notes and coins though, right?

Err, yes it is. Notes and coins will be produced according to demand to convert bank deposits into physical currency, subject in theory to a limit which is the total.

In fact in the UK, base money is purely the electronic bank reserves held at the BoE by banks. Notes and coins in circulation by contrast, are counted as part of M4, which is the most relaxed measure of broad money. Notes and coins not in circulation are netted against electronic base money.

So lets say by way of example:

* base money is 100

* there are 15 notes and coins, of which 10 are in circulation (e.g. held by the public)

* electronic base money is now 95, and physical currency base money is 5. The 5 here is held in some bank vault.

* broad money is 10, plus whatever bank debt exists.

At least that is my understanding. If Alan B'Stard were still around, he could probably confirm.

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Err, yes it is. Notes and coins will be produced according to demand to convert bank deposits into physical currency, subject in theory to a limit which is the total.

In fact in the UK, base money is purely the electronic bank reserves held at the BoE by banks. Notes and coins in circulation by contrast, are counted as part of M4, which is the most relaxed measure of broad money. Notes and coins not in circulation are netted against electronic base money.

So lets say by way of example:

* base money is 100

* there are 15 notes and coins, of which 10 are in circulation (e.g. held by the public)

* electronic base money is now 95, and physical currency base money is 5. The 5 here is held in some bank vault.

* broad money is 10, plus whatever bank debt exists.

At least that is my understanding. If Alan B'Stard were still around, he could probably confirm.

So you are saying when anyone takes a loan out, paper cash and coins are moved in a little trolley around the UK?

or not?

Edited by Injin

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Please could you explain what you mean with an example? Why is base money always transferred?

Please see the link on my blog titled 'Basics of Fiat Money and Credit'. You can find it in the top right. The link to the blog is my sig.

The reason I posted the link and am looking for material like those videos, is I want to see how far it is possible to take the subject and simplify it enough to be expressed in an extremely short space, with a view to raising awareness in people who are simply not generally interested in money at all.

IMO it is very easily expressed in a short space, if you want to focus on the facts. The process is quite simple. Read the link suggested and then come back and see if you agree.

Whether or not you think there is a problem with the monetary system, the whole topic is usually not discussed (at least by normal people :)) which is not healthy.

The reason for that is that bank deposits are insured by the state, which means people don't have to think about it.

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So you are saying when anyone takes a loan out, paper cash and coins are moved in a little trolley around the UK?

that depends on the reserves of physical currency a bank has. If it doesn't have enough it can get some of its deposit of electronic reserves at the BoE swapped for cash/coins.

If I take a loan out, the reason is probably because I want to spend it. If I decide to take the loan balance out of the ATM, then I have drained the loaning bansk base money reserves by the same amount, have I not? And that is the problem with the video.

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that depends on the reserves of physical currency a bank has. If it doesn't have enough it can get some of its deposit of electronic reserves at the BoE swapped for cash/coins.

If I take a loan out, the reason is probably because I want to spend it. If I decide to take the loan balance out of the ATM, then I have drained the loaning bansk base money reserves by the same amount, have I not? And that is the problem with the video.

See, I find this interesting - because no bank I know of will provide proof of notes and coins changing hands when a loan is made.

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This one?

Yes, that one, thankyou :D

If I take a loan out, the reason is probably because I want to spend it. If I decide to take the loan balance out of the ATM, then I have drained the loaning bansk base money reserves by the same amount, have I not? And that is the problem with the video.

But this money will most often be transferred directly into another account, sometimes even at the same bank, so no ATM here? Are you describing an exception, or are you saying the whole concept is flawed?

I suspect your issue with the video is that there is missing information, but that isn't really surprising given its length and intended audience, and not a basis for dismissing it.

I have just glanced at your link but its not what I'm after. You are using heavy terminology and its very wordy, which may be a necessity for any in depth discussion, but is of no use to transmit the concepts outside of the domain as it severely limits the audience. The wordiness and terminology disguises the concepts and concretes them within the domain. In my experience, people often hide behind terminology to avoid being challenged.

The video is intended to avoid domain terms where possible, making it more useful in expressing the concept. This is often done successfully in other domains, but I've yet to see it done with the monetary system (or I haven't found it yet).

BTW, do you still think Professor Werner is just a serious looking idiot with a beard? You have made me recheck his credentials, but I think you're too hasty to dismiss him.

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See, I find this interesting - because no bank I know of will provide proof of notes and coins changing hands when a loan is made.

The BoE has all the proof. Its in their computers.

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The BoE has all the proof. Its in their computers.

Hard to have proof of somethign that doesn't occur, Sceppy.

But ofc, the BoE doesn't need ot be consulted - a cash hand over will involves signatures, real life flesh and blood peopel as witnesses.

oddly, though no bank I know of can provide such people either.

Why do you think this is?

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But this money will most often be transferred directly into another account, sometimes even at the same bank, so no ATM here?

If that is the case, which it is, then what do the two banks transfer amongst themselves to record the movement of the money?

Obviously, the answer is 'money'.

I suspect your issue with the video is that there is missing information, but that isn't really surprising given its length and intended audience, and not a basis for dismissing it.

no, the issue is that it makes a factually incorrect statement.

I have just glanced at your link but its not what I'm after. You are using heavy terminology and its very wordy, which may be a necessity for any in depth discussion, but is of no use to transmit the concepts outside of the domain as it severely limits the audience. The wordiness and terminology disguises the concepts and concretes them within the domain. In my experience, people often hide behind terminology to avoid being challenged.

You have mistaken my goal. My goal was for you to understand how banking and credit work. Then you would be positioned to decide how to make the actual facts digestible by people who have deposit insurance and don't care, or to angry people who don't understand what is happening and who want to lash out against a false strawman. Otherwise its a case of the blind leading the blind, which is my definition of populism.

Before you seek to educate others you should ensure you have educated yourself. Sorry if that sounds patronising, but really you should acknowledge your responsibities in the goal you have set yourself.

The video is intended to avoid domain terms where possible, making it more useful in expressing the concept.

This is an entirely do-able thing, but this video is not it.

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  • 298 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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