Jump to content
House Price Crash Forum

Bill Still On The Keiser Report


Harry Sacks
 Share

Recommended Posts

Then you have the money and the bank doesn't. It's the reverse of you giving money to the bank.

It is clearly credit. Just as a loan being advanced is credit.

Cash / base money is merely the thing that conveys value between accounts, it is the medium of settlement.

Credit is 'fungible' with cash...but it is not cash. A very important distinction when the time comes.

Approximately 3% of what we use as money is cash. What exactly are you arguing here?

Link to comment
Share on other sites

  • Replies 94
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

That is no different to a loan is it or am I misunderstanding the question?

A loan is made when the bank deposits money into an account that the customer can then withdraw from as cash or 'base money'.

That account may be ephemeral if taken directly as cash and nowadays in terms of credit cards may not even exist. They cut out the middle man and take it straight out of the customer's negative 'loan account' (read credit card account).

I think his question intentionally suggested withdrawing cash. This would mean that he had the money (cash) and the bank would have a promise instead (as he would owe the bank money).

What happens behind the scenes is irrelevant here, IMO. It's all about who has the money and who has just promises of money.

Link to comment
Share on other sites

He asked if he 'withdrew cash'. He would then owe the bank money (he has made a promise to the bank), but he would have the money cash in his hand.

The point I am making is that we use credit/debt/promises, whatever you want to call it as a means of exchange - I call it money - and the vast majority of people would also call it money. The quantity of this money in circulation has a direct effect on demand and prices. The quantity is effectively controlled by private, profit making institutions.

Link to comment
Share on other sites

The point I am making is that we use credit/debt/promises, whatever you want to call it as a means of exchange - I call it money - and the vast majority of people would also call it money. The quantity of this money in circulation has a direct effect on demand and prices. The quantity is effectively controlled by private, profit making institutions.

It is irrelevant what you or anyone else 'call' money. When banks fail, no one wants their promises of money... they will want the real thing. Their promises will have become worthless and all those who thought money and promises of money were the same thing, would feel rather silly (and probably, rather broke).

Edited by Traktion
Link to comment
Share on other sites

What happens behind the scenes is irrelevant here, IMO. It's all about who has the money and who has just promises of money.

See this is where I lose you. If I take the cash or do a balance transfer from a credit card into another bank account, that bank will see it as a deposit, numbers in my account. Those number can be converted into physical cash and spent, or spent as numbers via my debit card and end up in another account and so it goes on. This is the nature of the system we use.

Link to comment
Share on other sites

See this is where I lose you. If I take the cash or do a balance transfer from a credit card into another bank account, that bank will see it as a deposit, numbers in my account. Those number can be converted into physical cash and spent, or spent as numbers via my debit card and end up in another account and so it goes on. This is the nature of the system we use.

Again, this is irrelevant. Those numbers haven't been 'converted into physical cash' at all. You have just exchanged a promise to repay money from your bank, for money.

Whether another bank has made promises to your bank (which is what happened during your 'balance transfer'), in order to allow the other to add some numbers to your account, is beside the point; that will be up to the banks to resolve between themselves.

The nature of the system is that the banks trade promises of money with both individuals and other banks. You can ask them to honour their promises at any time, by withdrawing your money.

Link to comment
Share on other sites

It is irrelevant what you or anyone else 'call' money. When banks fail, no one wants their promises of money... they will want the real thing. Their promises will have become worthless and all those who thought money and promises of money were the same thing, would feel rather silly (and probably, rather broke).

No Shit!

That's exactly the problem. That is what would have happened without the bailout, deposit guarantees and QE. Private banks are in charge of the money supply. They issued so much "credit" that we all use as everyday money, things got out of control. That's why we need reform. That's why I support the notion of permanently circulating, debt free money issued by an entity established by the people for the people's interests.

Link to comment
Share on other sites

They are the ones operating the system yes - but it is the Bank of England that forces them through monetary policy.

No. Lobbying, decades of deregulation and the resulting credit expansion has forced down yields. This goes back to my original point that credit must continually expand if the system is not to fail. When debt is at unprecedented levels more debt is needed to avert disaster. The system does not work.

Link to comment
Share on other sites

No Shit!

That's exactly the problem. That is what would have happened without the bailout, deposit guarantees and QE. Private banks are in charge of the money supply. They issued so much "credit" that we all use as everyday money, things got out of control. That's why we need reform. That's why I support the notion of permanently circulating, debt free money issued by an entity established by the people for the people's interests.

No, you and I are in charge of the money supply, as long as the government doesn't step in. If we all* withdraw our money, the banks will fail and the farce will end. This has always been the case.

However, when you add government deposit guarantees, government bailouts, government 'regulation', government blind eyes to fraud and a lack of government education about money, bad things happen. As a result, people don't worry about banks failing and promises of money not being honoured. People don't expect the banks to be regulated badly. People don't expect banks to be doing fraudulent things. Then, the banks get to do as they please, right up to the point where the number of promises for money, dwarfs the money that is actually available on demand.

Your reform just gives the people who caused this mess (the government) more power and it completely misses the root cause of the problem - that people trusted banks with their money far, far too much, when they shouldn't have. You need people to be careful where they deposit their money in the first place, rather than trying to stop banks and people making/believing silly promises.

People need to re-learn the basic truth that money is not the same as a promise of money. It's simple.

EDIT: * Ofc, not everyone will get their money and/or there will be inflation as the money is printed up, but the failing system has painted us into a corner. When credit was only, say 50% of the of the total 'money supply' (a bad name, tbh), the damage of doing such would have been far smaller... now it's 'too big to fail', but also 'too big to continue'.

Edited by Traktion
Link to comment
Share on other sites

No, you and I are in charge of the money supply, as long as the government doesn't step in. If we all* withdraw our money, the banks will fail and the farce will end. This has always been the case.

However, when you add government deposit guarantees, government bailouts, government 'regulation', government blind eyes to fraud and a lack of government education about money, bad things happen. As a result, people don't worry about banks failing and promises of money not being honoured. People don't expect the banks to be regulated badly. People don't expect banks to be doing fraudulent things. Then, the banks get to do as they please, right up to the point where the number of promises for money, dwarfs the money that is actually available on demand.

Your reform just gives the people who caused this mess (the government) more power and it completely misses the root cause of the problem - that people trusted banks with their money far, far too much, when they shouldn't have. You need people to be careful where they deposit their money in the first place, rather than trying to stop banks and people making/believing silly promises.

People need to re-learn the basic truth that money is not the same as a promise of money. It's simple.

EDIT: * Ofc, not everyone will get their money and/or there will be inflation as the money is printed up, but the failing system has painted us into a corner. When credit was only, say 50% of the of the total 'money supply' (a bad name, tbh), the damage of doing such would have been far smaller... now it's 'too big to fail', but also 'too big to continue'.

OK, I think I know what we differ on. I don't see government as some evil entity. We need government. The reason you distrust government, and rightly so, is because we have an illusion of government and political choice. It is quite clear that our government does not work in the interests of the majority, but for the few, and those few have a firm grip on government.

Link to comment
Share on other sites

What I'm trying to say is that as interest rates tend to zero, people start to give up looking for 'stable' yields and speculate on capital values instead. And as those capital values struggle to find a stable level with yield as its guide, what we're left with is changes in the capital values themselves providing signals...leading to serial bubbles and busts as we are increasingly experiencing in many things.

Indeed.

Link to comment
Share on other sites

That is why I get the feeling that having an interest rate on money is probably an important component of a functioning capitalist system that requires trustworthy price signals in order to know where to invest. Then the physical resources are allocated along with the capital. The interest rate is essentially a hurdle rate for projects. That is why capitalism worked and we have forgotten it.

Yes, I agree. Private banks would still lend money at interest under our proposed system. The free market interest rate would level would supply much needed real world information to the body responsible for controlling the quantity of money circulating.

Link to comment
Share on other sites

OK, I think I know what we differ on. I don't see government as some evil entity. We need government. The reason you distrust government, and rightly so, is because we have an illusion of government and political choice. It is quite clear that our government does not work in the interests of the majority, but for the few, and those few have a firm grip on government.

This isn't an argument about the need for a government or not - that's a separate debate. It's an argument for whether a government can or should intervene in the banking system, without completely screwing it up.

The government's actions have only succeeded in pushing a distributed risk into a centralised one. When the risk was distributed, it allowed individuals to take responsibility for their actions and kept the banks in their box - if they acted rashly, there was a run and they then failed.

Now the risk is centralised, it has allowed the banks to grow massively, along with the risks of them doing so. At first, the politicians thought it was great - the economy was booming, credit was flowing etc. Now, we are seeing the disastrous consequences of naive policy by the central planners. The problem is, there is no easy way to go back, other than the financial system collapsing or ever more distorting policy, which mangles price signals, adds moral hazard and puts the banks control above that of the government.

This is why I have sympathy for your cause... the system is f**ked). However, I find your solution unsuitable at best, but at worst, extremely dangerous.

Nassim Nicholas Taleb knows the dangers of pushing risk from the frequent, but low impact, out to the occasional, but extreme collapse, as outlined in his Black Swan theory. I think he is exactly right too.

Link to comment
Share on other sites

This isn't an argument about the need for a government or not - that's a separate debate. It's an argument for whether a government can or should intervene in the banking system, without completely screwing it up.

Well that's pretty obvious. The electorate will vote for the government that promises the most gifts from the treasury. That's why an independent body is required to manage monetary policy.

Link to comment
Share on other sites

That is why I get the feeling that having an interest rate on money is probably an important component of a functioning capitalist system

On the contrary. Interest , regardless of the loan, is the cancer causes banks to lend without due diligence. That is usury. If banks only got a return on their loan if the loan performed, they would be more careful lenders. In other words if the banks had a share in profits, if there are profits, then that form of interest rate would exactly match the growth in the economy. That is after all what the interest rate is supposed to be. Lending for interest on every loan, regardless if the loan grows the economy leads banks to prefer mortgage lending to as many as possible, without regard for their long term ability to repay, and then sell on the loan in a derivative package, and that contributes almost zero to the growth of the economy.

Link to comment
Share on other sites

Yes, I agree. Private banks would still lend money at interest under our proposed system. The free market interest rate would level would supply much needed real world information to the body responsible for controlling the quantity of money circulating.

The problem is, you're dictating that credit should play no part in the monetary system. Whether you're right or wrong, that shouldn't be a decision for central planners to make... if their theories are wrong, it could have disastrous consequences. Individuals need to decide their risk and the best thing the government can do, is spend the money on education about money, rather than regulation, guarantees etc. TBH, it would cost far less too - it's a simple lesson: money is not the same as promises of money.

We can argue whether fraud is the only reason that people give credit to banks (ie. swap their money for promises of money), but I would expect that speculation is a big driver too. I think many people probably know how the banks work, but still want the (relatively) low risk return. We can only discover this, by educating people about how money works though, then letting them make their own decisions.

The problem for the government now, is that they can't educate people on how the banking system works, while removing all deposit guarantees etc, as the whole thing would collapse in a heap. They also can't fix it either, as the banker's are their bosses in the current system. This is why we have this endless can kicking and soothing words. The truth is that the system has already failed, but they are just buying time. For how long? It can't be long now.

Link to comment
Share on other sites

No money has changed hands.

It's really easy - and so easy that the mind rebels at it, as others have famously have said.

Looks, try it with some item you dn't jhave this hypnotic reaction to.

You ask Dave to give Jim a mop and bucket for you. Dave says "ok sure", and writes it down that he has. That's all he does. He doesn't even have a mop and bucket.

Knowing this, what would your response be if Dave now asked you for a mop and bucket to "repay" your "debt"?

Mine is, and has been "do ****** off."

That's fine but your tendentious examples always involve people betraying trust or defaulting, which in the main people don't do. In the above scenario I of course say "Jim tells me he received nothing from you so I owe you nothing" Anyone making goods in the UK and selling them, e.g. in the US, uses the banking system to transfer credit back to the manufacturer. The last thing you think (incompetence aside) is that the transaction will not work. I just don't get what your problem is with this system. Of course I realise no money is actually changing hands physically, but credits are through the intermediary of the bank. Unless you go for a totally locally-based or barter economy, trust in this system has to be unquestioned surely?

Link to comment
Share on other sites

Well that's pretty obvious. The electorate will vote for the government that promises the most gifts from the treasury. That's why an independent body is required to manage monetary policy.

I don't believe that you are that naive, to think that can work.

EDIT: To add, see my post about the dangers of dictating the monetary system from a central plan too.

Edited by Traktion
Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.




×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.