Jump to content
House Price Crash Forum
Sign in to follow this  
Guest

Ukip's Godfrey Bloom Blasts Fractional Reserve Lending As Fraud; Says Central Bankers Should Be Tried For Financial Crimes

Recommended Posts

I've followed UKIP since the Alan Sked days. Yes, they do have a lot of tweedy old Tories and golf club tossers as supporters but I was perplexed by the hatchet job the media did in the run up to the elections. Essentially, they are a sort of more extreme/purist laissez faire outfit. You may not may not like that. But far-right they ain't.

At times ignorant viewers watching the coverage must have walked away thinking UKIP was a sort of BNP party. Indeed idealistic young people on social networks seemed to think they were fighting the Nazis by posting anti-UKIP statements.

Of course, if they are coming out with anti-FRB statements, well you can see why the media was trying to hard to shoot them down. Same thing happened when the Greens were the most mainstream monetary reform party... that was slowly turned into bog-standard social democratic economics. Nowadays you see the reality of FRB openly admitted in the FT or Guardian with a frequency unheard of a few years ago.. Some powerful interests will want this crazy talk nipped in the bud.

Edited by CrashedOutAndBurned

Share this post


Link to post
Share on other sites

About time some highly placed political figure said it - but proof of why UKIP will never get anywhere near power.

Now that they are looking like a serious threat and a viable party structure is coalescing, expect all sorts of 'scandal' to emerge about their more independent-minded leading figures. The rest will be bought off, same as the other politicians. It's how the system works.

Share this post


Link to post
Share on other sites

Saw this guy on Andrew Neil's show on Sunday. Handled himself well. Knows his onions, re banking it needs saying, complete opposite of our ruling politicians who toe the line and make excuses for them (at our expense).

The system is broken, break it.

Share this post


Link to post
Share on other sites

Yes I'd much rather my bank deposits were stored in a box somewhere rather than being lent out to someone who might be able to do something useful with it, and pay interest on it.

With sensible monetary reform, you could do both, at your own discretion.

http://www.positivemoney.org/wp-content/uploads/2013/04/The-Positive-Money-Proposal-2nd-April-2013.pdf

Share this post


Link to post
Share on other sites

Yes I'd much rather my bank deposits were stored in a box somewhere rather than being lent out to someone who might be able to do something useful with it, and pay interest on it.

Interest (which for most of us is going to attract income tax of up to 40%) is completely risible right now and doesn't come anywhere near even the fiddled CPI inflation metric.

In return for next to nothing, you've got counter-party risk and even though your money is supposedly 'guaranteed' by the FSCS I wouldn't like to see what the result of a major bank going belly up would be.

Personally, I'd be quite happy to see my current bank balance stored as physical cash in a safe location as, if I had wanted to invest that money, I'd have done so myself.

Share this post


Link to post
Share on other sites

Can't fault the sentiment, central banks are clearly as implicated in the global debt Ponzi as the commercial lenders. But fractional reserve banking is a myth. Banks don't need deposits to make loans, the loan and the deposit are created simultaneously on opposite sides of the balance sheet.

Steve Keen:

www.businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

The standard story about how banks create money, and how reserves work, is the "Money Multiplier Model". Money creation starts with the government injecting "fiat money" into the economy – say by giving a welfare recipient $100 in cash. That recipient then deposits the cash in a bank, which hangs on to a government-mandated fraction of it (the "Reserve Requirement") – say 10 per cent or $10 – and lends out the rest to a borrower. The borrower then deposits that $90 in another bank, which does the same thing – hangs onto 10 per cent of the $90 or $9, and lends out another $81 to another borrower. The process repeats ad infinitum, and in the end a total of $1,000 is brought into existence: the original $100 in cash, plus $900 in credit money created by the private banking sector (matched, of course, by $900 in debt).

This alleged system, known as Fractional Reserve Banking, is seen as "fraud" by Austrian economists, and by many in the public. To inflationists, because Bernanke has hit the printing presses, dramatically increasing Base Money, and therefore money in circulation will soon explode, leading to hyperinflation.

To Neoclassical economists, it's just the way banking works: bank lending is controlled by the Fed because, "even if banks hold no reserves", Fed control over the currency means that private banks must do what the Fed wants.

And to anyone who's done empirical research, it's a myth.

The most recent proof of this is in an excellent discussion paper from Federal Reserve economists Carpenter and Demiralp, entitled "Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?". The first clue that it doesn't exist is given by their abstract, which notes that, "before the financial crisis, reserve balances were roughly $20 billion". If the textbook model were correct, the total stock of money in the USA would be $200 billion, versus the multi-trillion dollar level of even a narrow definition of the money stock. As the authors note, this makes a mockery of the textbook "Money Multiplier" model:

M2 averaged about $7.25 trillion in 2007 … bank loans for 2007 were about $6.25 trillion... if we consider the fact that reserve balances held at the Federal Reserve were about $15 billion and required reserves were about $43 billion, the tight link drawn in the textbook transmission mechanism from reserves to money and bank lending seems all the more tenuous.

I'll stop there on trashing the conventional model – save to quote Carpenter and Demiralp's conclusion that "the textbook treatment of money in the transmission mechanism can be rejected" – and get to the real issue: if the Money Multiplier model doesn't really describe how money is created, and how reserves figure in this, what does?

The short answer is "endogenous money": bank lending creates deposits, so the decisions of banks to provide loans determine the level of money, and reserves are largely irrelevant.

Edited by zugzwang

Share this post


Link to post
Share on other sites

About time some highly placed political figure said it - but proof of why UKIP will never get anywhere near power.

Now that they are looking like a serious threat and a viable party structure is coalescing, expect all sorts of 'scandal' to emerge about their more independent-minded leading figures. The rest will be bought off, same as the other politicians. It's how the system works.

Very true, frankly I would rather have politicians that have the fortitude to stand by their opinions and do the right thing by them and put up with a little bit of scandal than the self serving "liblabcon" single party political class that we currently have infesting Westminster. Sure, some will take the easy way out and be bought off or corrupted, but let's hope that they will be the minority and quickly discarded so that those with the real courage to make the changes this country desperately needs can do what needs to be done.

History is in favour of the real reformers, and we so desperately need them now. :)

Share this post


Link to post
Share on other sites

the loan and the deposit are created simultaneously on opposite sides of the balance sheet.

Steve Keen:

Does it really matter how the bank creates the money - its still theft via interest on created money.

Share this post


Link to post
Share on other sites

Bloom is at odds with Farage , then. Farage is an advocate of solving the debt problem with money printing. UKIP is a ragtag bunch of opportunists. But then all parties are :

http://www.newstatesman.com/economics-blog/2013/03/nigel-farage-monetary-dove

:D Can't say I'm surprised if that's the case. They all say one thing when in opposition, and often quite a different tune is played if they get behind the wheel. Isn't that right, George?

Share this post


Link to post
Share on other sites

Banks don't need deposits to make loans, the loan and the deposit are created simultaneously on opposite sides of the balance sheet.

Steve Keen:

Indeed.

See from about 7 minutes into this:

Share this post


Link to post
Share on other sites

Interest (which for most of us is going to attract income tax of up to 40%) is completely risible right now and doesn't come anywhere near even the fiddled CPI inflation metric.

In return for next to nothing, you've got counter-party risk and even though your money is supposedly 'guaranteed' by the FSCS I wouldn't like to see what the result of a major bank going belly up would be.

Personally, I'd be quite happy to see my current bank balance stored as physical cash in a safe location as, if I had wanted to invest that money, I'd have done so myself.

Wouldn't storing your money as physical cash in a safe location be deflationary? Therefore leading to even lower interest rates? OK your cash might end up increasing in value in real terms because of deflation, but I don't think it's very good for the economy as a whole.

The principle of fractional reserve banking is fine, the implementation is not.

Share this post


Link to post
Share on other sites

Im sorry, but FRB has little to do with the failure in 2008.

THAT was due to off balance sheet circle jerks that recapitalised a bank with the loan it just made, meaning they could lend almost forever.

The regulators missed it, the Politicians bathed in it, the Bankers blew it.

Yet, even though the rules were in spirit broken, no bankers have been prosecuted, because they did nothing wrong at all.

Today, That debt is still out there, with someone claiming it as a valuable asset, with no-one with the cash to pay up....liquidity crisis they call it...

Share this post


Link to post
Share on other sites

Wouldn't storing your money as physical cash in a safe location be deflationary? Therefore leading to even lower interest rates? OK your cash might end up increasing in value in real terms because of deflation, but I don't think it's very good for the economy as a whole.

The principle of fractional reserve banking is fine, the implementation is not.

I don't care whether it's deflationary or not - if I have money in 'cash' it's because I want liquidity or safety (or both) for my own wealth. I'd much prefer to be able to store my money as actual hard cash in a secure repository type institution rather than swap it for bank credit in a corrupt system that nearly went belly-up a few years ago and that instead of being reformed as a result, has got even more dodgy since then.

It's the fact that holding and using anything more than a trivial amount of money as physical cash is so difficult - that has resulted in bank credit being a defacto replacement for cash - which in turn has made banks so complacent, dangerous and of course powerful.

Share this post


Link to post
Share on other sites

The principle of fractional reserve banking is fine, the implementation is not.

It can never work (not long term). You would need totally incorruptible people in charge and people prepared to let the market do the work (i.e. letting banks fail).

Share this post


Link to post
Share on other sites

The principle of fractional reserve banking is fine, the implementation is not.

The real problem with fractional reserve banking(FRB) is that the current incarnation is being underwritten by the taxpayer aka the Central Bank. And if FRB

is NOT underwritten by the taxpayer/Central Bank, then it collapses as sure as night follows day when 1 more £ of deposits than there are reserves is withdrawn by depositors who are promised that they ALWAYS have ALL their money available to be withdrawn at any time, even though 90% of it has been loaned out.

IOW. FRB can never exist for long without society standing surety. FRB is a scam that could not survive for long in a truly free market.

Edited by evetsm

Share this post


Link to post
Share on other sites

It can never work (not long term). You would need totally incorruptible people in charge and people prepared to let the market do the work (i.e. letting banks fail).

Bringing back capital punishment for banking crimes might be a start.

Share this post


Link to post
Share on other sites

Yes I'd much rather my bank deposits were stored in a box somewhere rather than being lent out to someone who might be able to do something useful with it, and pay interest on it.

I think I've spotted the flaw in that argument. In a world where the interest paid transparently reflects the risk being taken, I would completely agree with your sentiment, back in the real world of zero or near zero interest rates and zombie banks, I'm not so sure.

Share this post


Link to post
Share on other sites

I don't care whether it's deflationary or not - if I have money in 'cash' it's because I want liquidity or safety (or both) for my own wealth. I'd much prefer to be able to store my money as actual hard cash in a secure repository type institution rather than swap it for bank credit in a corrupt system that nearly went belly-up a few years ago and that instead of being reformed as a result, has got even more dodgy since then.

You can do that if you like, the choice is yours, but you shouldn't be encouraged by the government to do it. It is bad for the economy, and therefore ultimately bad for you. The government has no more duty to protect the long term value of cash than it does my share portfolio, or house prices (the fact that it has done that is another matter). We live in a fiat economy and that means the government should ensure cash provides liquidity but nothing more. It should maintain its value for a sufficient length of time to carry out most transactions, and so the public is confident that it can be used as a means of payment.

You may also decide that cash is a good investment on top of that, and sometimes it is, but you should not be protected from the risk that sometimes it isn't. If everybody expected cash to carry lower risks than investing in industry, while at the same time giving reasonable returns then there would simply be no investment in industry. Which is not far off the situation the UK has been under - with banks hoarding cash and keeping it out of circulation. The fact that they can collectively behave like that is the problem with FR banking - they can both inflate the money supply to create booms, and now they can collectively deflate the money supply to increase the value of their cash holdings. Either way, the interest of the bank lies with the bank and not with the wider economy.

It's the fact that holding and using anything more than a trivial amount of money as physical cash is so difficult - that has resulted in bank credit being a defacto replacement for cash - which in turn has made banks so complacent, dangerous and of course powerful.

Yes - that's the other problem. It is very hard for people to get out of cash without being ripped off by brokers, fund managers, etc. That's why houses are so popular as well. The problem is that those working in the finance industry have a vested interest in keeping it opaque and complicated - it gives them a moat. The whole thing really needs to be broken open while at the same time being properly regulated.

Share this post


Link to post
Share on other sites

I think I've spotted the flaw in that argument. In a world where the interest paid transparently reflects the risk being taken, I would completely agree with your sentiment, back in the real world of zero or near zero interest rates and zombie banks, I'm not so sure.

Agreed but that's because the system is broken. In fact if the banks were carrying out fractional reserve banking right now and lending out all the QE money then things would start to improve, and interest rates would go up. The problem right now is that it simply isn't happening. Long term the FR system needs to be modified or scrapped for something else, but we simply can't go back to a system that encourages money hoarding over money lending.

Share this post


Link to post
Share on other sites

Yes I'd much rather my bank deposits were stored in a box somewhere rather than being lent out to someone who might be able to do something useful with it, and pay interest on it.

If you refrain from consuming, the real resources you would have consumed are left in the economy for somebody else to use whether you lend them the money to buy them or not. Locking money in a box creates deflation, making previously uneconomic projects economic by lowering the cost of buying real capital.

Share this post


Link to post
Share on other sites

If you refrain from consuming, the real resources you would have consumed are left in the economy for somebody else to use whether you lend them the money to buy them or not. Locking money in a box creates deflation, making previously uneconomic projects economic by lowering the cost of buying real capital.

Why would you want to buy real capital in a deflationary environment? Why would you want to buy anything apart from the essentials? It's not just me who would refrain from consuming, everybody else would as well. The real capital might be cheaper but who is going to buy your product?

Share this post


Link to post
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...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 238 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%



×
×
  • 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.