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The XYY Man

Can Someone On Here Answer Me A Question...?

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OK, here we go....

We (Britain) borrow money and owe loads out. So do all the European countries. And so do America. And so does just everyone else as far as I can find out.

So just who the fk do we all owe this money to...?

I've heard about goverment borrowing since I was a small boy, and yet at 46 I still don't know who it is who lends out all this cash.

Is there some pan-galactic Provident agent who comes knocking on the door of 10 Downing Street every Friday...?

Please can someone explain - In very, very simple terms if that's possible - 'cos I'd really like to understand....

Thanks in advance,

XYY

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OK, here we go....

We (Britain) borrow money and owe loads out. So do all the European countries. And so do America. And so does just everyone else as far as I can find out.

So just who the fk do we all owe this money to...?

I've heard about goverment borrowing since I was a small boy, and yet at 46 I still don't know who it is who lends out all this cash.

Is there some pan-galactic Provident agent who comes knocking on the door of 10 Downing Street every Friday...?

Please can someone explain - In very, very simple terms if that's possible - 'cos I'd really like to understand....

Thanks in advance,

XYY

China.

So if we all get together and b**b China then the slate is wiped clean, and we can all start again, but with money to spend.

:)

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Government bond holders, people like you and me, banks, hedge funds, other countries. Basically anyone can lend any country money by buying it's bonds.

Just to let you know, you spelt "kind person" wrong in the thread title. It doesn't start with and F and end in er.

Edited by Pent Up

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Here's my stab.

When the govt wants to borrow it creates treasuries (bonds). These are made out of thin air. However this isn't the magic bit anymore than your promise on a contract to pay back a loan made by a lender with interest. The magic bit is where the banks "buy" the bond i.e. lend money to the govt in exchange for this bond. Because treasuries are (more or less) AAA and treated by the financial system as cash equivalent, the Bank can lend into existence the full required sum to the govt and in holding the treasury on its books has a balanced book. Asset and liability matched, with no need to create unbacked or fractional bank credit.

This is why ever increasing govt borrowing is inflationary and why we have constant inflation throughout fiat history like some background hum as the govt spends this magic money into wider circulation and increasing the base money supply.

Less clear here: on top of this the bank continues to seek ways of leveraging both base money and close equivalents to create much larger amounts of what would be classed as bank credit. Every pound spent by the govt therefore magnifies out into the system as bank credit and further privately created derivatives which people treat as perfectly fungible with "real money" (whatever that is). Whilst banks and other bond holders are prevented from failing, and are allowed to misprice these assets its quite sensible to do so.

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China.

So if we all get together and b**b China then the slate is wiped clean, and we can all start again, but with money to spend.

:)

Nope its more like the boomers pension funds, rentiers and their investment funds. China's got nuclear bombs and worryingly over the past 10 years their cold war era (1970s) nuclear bunkers have been refitted and not as tourist attractions either.

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Here's my stab.

When the govt wants to borrow it creates treasuries (bonds). These are made out of thin air. However this isn't the magic bit anymore than your promise on a contract to pay back a loan made by a lender with interest. The magic bit is where the banks "buy" the bond i.e. lend money to the govt in exchange for this bond. Because treasuries are (more or less) AAA and treated by the financial system as cash equivalent, the Bank can lend into existence the full required sum to the govt and in holding the treasury on its books has a balanced book. Asset and liability matched, with no need to create unbacked or fractional bank credit.

This is why ever increasing govt borrowing is inflationary and why we have constant inflation throughout fiat history like some background hum as the govt spends this magic money into wider circulation and increasing the base money supply.

Less clear here: on top of this the bank continues to seek ways of leveraging both base money and close equivalents to create much larger amounts of what would be classed as bank credit. Every pound spent by the govt therefore magnifies out into the system as bank credit and further privately created derivatives which people treat as perfectly fungible with "real money" (whatever that is). Whilst banks and other bond holders are prevented from failing, and are allowed to misprice these assets its quite sensible to do so.

This is my take:

Wealth is an ability to buy goods or services.

Individuals or organisations lend this ability to a Govt in the present for a PROMISE to receive an ability to buy even more goods or services in the future.

The extra amount received is governed by risk of default on this promise.

In the past, when wealth is lent to a Govt, the promise was considered so secure that the extra amount received in the future was small.

So what happens when a Govt...i.e. Greece, not only breaks its promise to pay back extra wealth, but actually pays nothing on the allotted date in the future.

Also, what happens when other Govts look like they will do the same...Ireland, Portugal, or might do the same...Spain, Italy, UK.

The interest rates demanded to lend to those countries go up?

Which makes default more likely.

Which makes the risk of default higher, which makes default even more likely.

This is positive feedback, which in any closed system, generally leads to abrupt, catastrophic failure.

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OK, here we go....

We (Britain) borrow money and owe loads out. So do all the European countries. And so do America. And so does just everyone else as far as I can find out.

So just who the fk do we all owe this money to...?

I've heard about goverment borrowing since I was a small boy, and yet at 46 I still don't know who it is who lends out all this cash.

Is there some pan-galactic Provident agent who comes knocking on the door of 10 Downing Street every Friday...?

Please can someone explain - In very, very simple terms if that's possible - 'cos I'd really like to understand....

Thanks in advance,

XYY

First you need to understand the two-tier UK money system. Also that when the UK government borrows money by auctioning its IOU's (gilts) through the DMO (Debt Management Office) it borrows broad money that someone else in the past has already borrowed into existence. Debt upon debt. Here's a post I made on another thread which I hope helps:

The phrase ‘rent-a-currency’ indicates that the circulating means of exchange must be borrowed into existence before it can be used. It cannot exist without corresponding debt to those who issued it. So the ‘rent’ in ‘rent-a-currency’ refers to the unavoidable background interest charges draining back to the issuer-lenders of the debt-based currency.

Contrast this with a currency that is issued debt-free by a public body (i.e. the seigniorage accrues to the public purse) and that is spent into persistent circulation on stuff for the common good. This debt-free currency may of course, once spent into circulation, be lent and borrowed at interest among the money users. However, there is no overarching ‘rent’ on the currency as a whole, there are no special issuer-lenders. The logically and conceptually separate functions of money issuance and commercial money lending are separated also in reality. There is no good reason why these functions should be inextricably amalgamated as they are now.

There are basically three types of money-numbers in the UK system, physical cash, electronic base money and electronic bank credit-money. In addition to these types of money, there are government IOU’s (gilts) which can function as pseudo-money at certain points in the whole system (e.g. BoE OMO, QE.)

To a good first approximation we can ignore the relatively small amount of physical cash and the limited and circumscribed role of gilts. The pivotal components of the money system for analysis are the (electronic) base money, the leveraged broad money and the relationship between them, which is the focus of the reform.

The conventional and official interpretation of the two-tier money system is that the commercial banks provide us with access to the base money by extending credit. The accepted idea is that they facilitate productive investment through their ability to provide funds on demand and that they expand and contract the broad money supply to accomodate the needs of the economy.

An alternative interpretation favoured by money reformers is that the provision of our means of exchange has been privatised. The cartel of commercial banks now forms an impenetrable interface between us and the wholly inadequate stock of our publicly issued base money. Our actual day-to-day means of exchange is now almost exclusively the banks’ credit-money. The bankers have taken advantage of the electronic revolution to consolidate their control and usurp the provision of the means of exchange.

The base money is no longer our means of exchange in any meaningful sense; it is now primarily the means of inter-bank settlement. It is the medium with which the banks keep the score between themselves as they both compete and cooperate to extract wealth from the real economy. Their shared role is to lend to us at interest our essential means of exchange. The stock of electronic base money, supposedly issued by the people, for the people, to use as their means od exchange, now circulates exclusively within the banking system and we, the money users, do not have any direct access to it.

The logical structure of the two-tier electronic money system that has gradually developed is absurd. As money users, we should regard the banking and money system as a utility and ask which is the best system that we could organise for ouselves. From this simple utilitarian perspective it is obviously preferable for any cohesive trading community of money users to issue collectively (i.e. publicly for a nation state) and debt-free their own money tokens to circulate persistently within their economy. Why should any supposedly self-determined community of money users have to pay interest to a restricted class of money issuers merely for the existence of a viable means of exchange?

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First you need to understand the two-tier UK money system. Also that when the UK government borrows money by auctioning its IOU's (gilts) through the DMO (Debt Management Office) it borrows broad money that someone else in the past has already borrowed into existence. Debt upon debt. Here's a post I made on another thread which I hope helps:

The phrase ‘rent-a-currency’ indicates that the circulating means of exchange must be borrowed into existence before it can be used. It cannot exist without corresponding debt to those who issued it. So the ‘rent’ in ‘rent-a-currency’ refers to the unavoidable background interest charges draining back to the issuer-lenders of the debt-based currency.

Contrast this with a currency that is issued debt-free by a public body (i.e. the seigniorage accrues to the public purse) and that is spent into persistent circulation on stuff for the common good. This debt-free currency may of course, once spent into circulation, be lent and borrowed at interest among the money users. However, there is no overarching ‘rent’ on the currency as a whole, there are no special issuer-lenders. The logically and conceptually separate functions of money issuance and commercial money lending are separated also in reality. There is no good reason why these functions should be inextricably amalgamated as they are now.

There are basically three types of money-numbers in the UK system, physical cash, electronic base money and electronic bank credit-money. In addition to these types of money, there are government IOU’s (gilts) which can function as pseudo-money at certain points in the whole system (e.g. BoE OMO, QE.)

To a good first approximation we can ignore the relatively small amount of physical cash and the limited and circumscribed role of gilts. The pivotal components of the money system for analysis are the (electronic) base money, the leveraged broad money and the relationship between them, which is the focus of the reform.

The conventional and official interpretation of the two-tier money system is that the commercial banks provide us with access to the base money by extending credit. The accepted idea is that they facilitate productive investment through their ability to provide funds on demand and that they expand and contract the broad money supply to accomodate the needs of the economy.

An alternative interpretation favoured by money reformers is that the provision of our means of exchange has been privatised. The cartel of commercial banks now forms an impenetrable interface between us and the wholly inadequate stock of our publicly issued base money. Our actual day-to-day means of exchange is now almost exclusively the banks’ credit-money. The bankers have taken advantage of the electronic revolution to consolidate their control and usurp the provision of the means of exchange.

The base money is no longer our means of exchange in any meaningful sense; it is now primarily the means of inter-bank settlement. It is the medium with which the banks keep the score between themselves as they both compete and cooperate to extract wealth from the real economy. Their shared role is to lend to us at interest our essential means of exchange. The stock of electronic base money, supposedly issued by the people, for the people, to use as their means od exchange, now circulates exclusively within the banking system and we, the money users, do not have any direct access to it.

The logical structure of the two-tier electronic money system that has gradually developed is absurd. As money users, we should regard the banking and money system as a utility and ask which is the best system that we could organise for ouselves. From this simple utilitarian perspective it is obviously preferable for any cohesive trading community of money users to issue collectively (i.e. publicly for a nation state) and debt-free their own money tokens to circulate persistently within their economy. Why should any supposedly self-determined community of money users have to pay interest to a restricted class of money issuers merely for the existence of a viable means of exchange?

You already don't have to.

Anyone who has taken out a loan is perfectly free to ask for proof of money (the real deal) changing hands and thereby getting their "loans" wiped out.

But they don't. Your question should be "Why don't they?"

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How it works is this -

The banks pretend to lend people money.

Then they line this pretence up by promising someone else with the profits from this pretence, keeping a small amount for themselves. (Small from each transaction, huge for the overall system when you add them up.)

The process looks like this -

Lie to guy x to get him to pledge his future labour

Promise the result of future liebour to guy y

When guy x fails to pony up, blame him for the whole thing, force him to provide via taxes - naming the hardship guy y will face because of guy x fecklessness

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How it works is this -

The banks pretend to lend people money.

Then they line this pretence up by promising someone else with the profits from this pretence, keeping a small amount for themselves. (Small from each transaction, huge for the overall system when you add them up.)

The process looks like this -

Lie to guy x to get him to pledge his future labour

Promise the result of future liebour to guy y

When guy x fails to pony up, blame him for the whole thing, force him to provide via taxes - naming the hardship guy y will face because of guy x fecklessness

So where does the armed cabal come into this?

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So where does the armed cabal come into this?

Oh, all contracts require a strong court system don'tcha know, it's one of the main functions of state - if peopel didn't face sanction when they broke their word we'd have anarchy etc etc

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We (Britain) borrow money and owe loads out. So do all the European countries. And so do America. And so does just everyone else as far as I can find out.

So just who the fk do we all owe this money to...?

I've heard about goverment borrowing since I was a small boy, and yet at 46 I still don't know who it is who lends out all this cash.

Is there some pan-galactic Provident agent who comes knocking on the door of 10 Downing Street every Friday...?

Please can someone explain - In very, very simple terms if that's possible - 'cos I'd really like to understand....

Well I'm no f'ker but here's your answer since the question is a very good one. The 1996 documentary "The Money Masters" reveals all - 300 years of European and American history condensed into a truly fascinating 3 and a half hours.

Watch this and it will all become abundantly clear... as will the reasons why you never knew the answers before. I'm afraid you're not going to like what you learn.

http://www.youtube.com/watch?v=JXt1cayx0hs

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OK, here we go....

We (Britain) borrow money and owe loads out. So do all the European countries. And so do America. And so does just everyone else as far as I can find out.

So just who the fk do we all owe this money to...?

I've heard about goverment borrowing since I was a small boy, and yet at 46 I still don't know who it is who lends out all this cash.

Is there some pan-galactic Provident agent who comes knocking on the door of 10 Downing Street every Friday...?

Please can someone explain - In very, very simple terms if that's possible - 'cos I'd really like to understand....

Thanks in advance,

XYY

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If it goes on about there being more debts in the world than money because of interest like his other stuff did, then he's wrong and people need to ignore it.

perpetual debt is good. it keeps people working, keeps the wheel of progress going and is a lot less messy and time consuming than threats and violence.

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Mechanics

The simple answer is that governments and companies (some of which are banks) create bonds (a promise to repay, usually with interest). They then sell them to a buyer, who holds the bond until maturity (which may be on demand) or can trade it with others.

Who holds the bonds? Investors of all stripes, from pension funds, to foreign governments, to individuals.

Bank deposits are essentially bonds* too. You give them the money, in exchange for a promise to redeem it on demand (ie. on the presenting of your bearer bond, which these days is a bank card). However, few people demand it, so they only keep a fraction of it, with the rest loaned out.

As loaned money may end up in another account in the same bank, the bank can loan as much as they like, as long as they can return the money on demand.

How about if the receiver is using a different bank? Banks have come to trust one another's bonds to be nearly as good as money itself and as good/bad as their own loans. Therefore, the banks have accepted one another's bonds, in lue of money. As a result, much like a loan from one account to another in the same bank, they can lend as much as they like, as long as they can return the money on demand.

The swapping of money for a bond*, is where the idea that the bank is 'printing money from thin air' comes from. They're not. It's just that the depositor is swapping their money for a promise to repay it (ie. like a bearer bond). When you deposit money in a bank, it ceases to be yours. You only own the promise of repayment.

Fraud

* Do people know they are swapping money for a promise though? Arguably, no. They think they are giving the bank their money for safe keeping. This is one reason why people say that banking is fraudulent. The contract is not explicit and arguably, people think the money in the bank is still theirs (it isn't).

There is also the problem that loans aren't really loans. Money isn't moving about, just the promises/bonds between the bank accounts. However, the receiver can always withdraw the cash and not deposit it, thus calling the banks' bluff.

Trust

But why do people trust the banks' promises? Why do banks trust each others' promises? Good questions.

People may trust the banks' promises, as they think that banks never fail, due to regulation, government guarantees etc. They also likely think that they don't swap their money for a promise, as the bank doesn't make this clear (it's arguably a fraudulent contract). Either way, the risk of not being repaid by the bank is always there, even if some people have forgotten about it.

Banks trust one another, up until they don't and then a credit crunch occurs. However, the government knows they will look bad if they do nothing, so they start guaranteeing stuff, bailing out the banks and so for. The banks also hold government bonds**, so in the event of bank failure, the government bonds would also be defaulted on. Therefore, the banks know they have an implicit government guarantee, as government default isn't an option they would like to consider. Additionally, failing banks mean other banks failing, which means bank runs, ATMs running out etc, which the government also wouldn't like. So the banks get away with behaving as they like, ramping up the risk for profit, and then expecting a bailout.

People should never have trusted the banks and the government should never have encouraged it. Until this changes, the banks are going to keeping sucking up money and speculating with it. Maybe (probably) it will eventually collapse either in a blaze of defaults or a flurry printed money. We seem to be in the calm before the post-bailout storm.

** You can't physically hold a government bond - it must be held at a bank. I'm not sure why, but it certainly gives the government/banking duopoly an incentive to keep things as they are.

Edited by Traktion

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Oh dear, I still don't understand.... maybe I'm a bit thick, but specifically WHO do we owe the money to.

One helpful f'ker said China - that could be correct for all I know, but I thought they were all peasants and we were supposedly the rich countries.

Surely if one country is lending all the others money and charges them all interest, then that country should be dead rich compared to all the rest of us. I always thought America was the richest country, but people on here talk of them defaulting leading to me getting even more confused.

Is my confusion perhaps due to the fact that I'm thinking in terms of "countries"...???

Or is it that we all borrow and lend to and from each other, and thus the country at the top is fluid as individual countries rise and fall due to their performance - kind of like the league table over a football season?

Oh, and thanks for all the answers, and apologies if my cheeky title offended - it was meant to grab attention, hopefully so the best and brightest would contribute... :)

XYY

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Oh dear, I still don't understand.... maybe I'm a bit thick, but specifically WHO do we owe the money to.

One helpful f'ker said China - that could be correct for all I know, but I thought they were all peasants and we were supposedly the rich countries.

Surely if one country is lending all the others money and charges them all interest, then that country should be dead rich compared to all the rest of us. I always thought America was the richest country, but people on here talk of them defaulting leading to me getting even more confused.

Is my confusion perhaps due to the fact that I'm thinking in terms of "countries"...???

Or is it that we all borrow and lend to and from each other, and thus the country at the top is fluid as individual countries rise and fall due to their performance - kind of like the league table over a football season?

Oh, and thanks for all the answers, and apologies if my cheeky title offended - it was meant to grab attention, hopefully so the best and brightest would contribute... :)

XYY

We owe the money to investors. For the UK, most of these are pension funds or the BoE (after all the QE).

China also has to park its surplus money somewhere, which is often in foreign bonds. China has a surplus because it exports more than it imports. They have tight controls over money exchanges, which the government run central bank maintains. AFAIK, this means that the government holds lots foreign bonds, while paying their population with money worth far less. This is probably the mechanics of how their dollar peg works.

By China et al recycling their surplus into our bonds, they have encouraged us to borrow and spend more. Therefore, we buy their goods and the cycle continues. By forcing their labour force to work for a dollar pegged value, they get them to work for peanuts. In turn, it means that we can't compete and our industry shuts down. It's a tightening circle which has disaster at the end. We are still on this circle, as nothing much has changed yet, but it's inescapable.

How do you define if a country is rich? IMO, it should be wealth per capita or some such. However, we governments define it as gross GDP, which borrowing boosts. Clearly, the daft situation described above will boost this, even if it is completely unsustainable.

Edited by Traktion

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Oh, man, you've just made my day. I've wanted to know this too, for years. The question that everybody wandered about, but nobody was brave enough to ask. Haha.

Same here.

I can never really quite understand the "who" and "how" in news stories about the economic crisis, government debt, credit crunch, banks & countries lending money to themselves and each other etc.

It all sounds like a giant international pyramid scheme, except that in pyramid schemes, there's "real" money involved.

If countries have to borrow money (because they don't have it in the first place), how are they supposed to repay the debt + interests? :wacko:

Every time I try to read about it, my brain says "does not compute" and switches to something else.

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  • 311 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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