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Dr Doom

Money As Debt

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Quite. So everyone will eventually realise what a load rubbish that cartoon is. It has been discussed on here before.

without resolution I would add

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without resolution I would add

There is enough information in the discussion for those who can tell rubbish when they see it. Those who believe anything will probably continue to do so. No surprises here.

I guess the first half (or so) might not seem obviously wrong to someone who does not know how FRB works. Having said that, it does not require much knowledge to notice that the description of the money multiplier is wrong. In particular, the cartoon implies that a bank can create an infinite amount of money simply by lending to itself. That is clearly wrong as Northern Rock know only too well.

However, everyone should be able to see thorough the second half. It advocates that the government print as much money as they need rather than borrow it. The main supposed advantage is that there could never be be a budget deficit that way :-) It does not say that it is exactly what they do in Zimbabwe and what a roaring success that is turning out to be. It also does not say that everyone could keep their money in a well managed foreign currency, so the plan would not work even if a sane government somehow ended up implementing it.

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There is enough information in the discussion for those who can tell rubbish when they see it. Those who believe anything will probably continue to do so. No surprises here.

I guess the first half (or so) might not seem obviously wrong to someone who does not know how FRB works. Having said that, it does not require much knowledge to notice that the description of the money multiplier is wrong. In particular, the cartoon implies that a bank can create an infinite amount of money simply by lending to itself. That is clearly wrong as Northern Rock know only too well.

However, everyone should be able to see thorough the second half. It advocates that the government print as much money as they need rather than borrow it. The main supposed advantage is that there could never be be a budget deficit that way :-) It does not say that it is exactly what they do in Zimbabwe and what a roaring success that is turning out to be. It also does not say that everyone could keep their money in a well managed foreign currency, so the plan would not work even if a sane government somehow ended up implementing it.

The cartoon does not say the bank can create money by lending to itself- it says it can lend based on a deposit of a real asset.

The cartoon does say an Unscrupulous, criminal bank can create money by lending to itself.

The second half of the film is just one proposal for a replacement of the current system.

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There is enough information in the discussion for those who can tell rubbish when they see it. Those who believe anything will probably continue to do so. No surprises here.

I guess the first half (or so) might not seem obviously wrong to someone who does not know how FRB works. Having said that, it does not require much knowledge to notice that the description of the money multiplier is wrong. In particular, the cartoon implies that a bank can create an infinite amount of money simply by lending to itself. That is clearly wrong as Northern Rock know only too well.

However, everyone should be able to see thorough the second half. It advocates that the government print as much money as they need rather than borrow it. The main supposed advantage is that there could never be be a budget deficit that way :-) It does not say that it is exactly what they do in Zimbabwe and what a roaring success that is turning out to be. It also does not say that everyone could keep their money in a well managed foreign currency, so the plan would not work even if a sane government somehow ended up implementing it.

Seconded. However, some people are so easily brainwashed by pretty propaganda that no amount of rational argument is going to get them to see the cartoon for the garbage that it is. I would say to anyone who sees it and is tempted to take it at face value to, firstly, take a look at the web site of the organisation that created it (www.lifeboatnews.com) and, secondly, buy any standard text book on economic and take some time to read the really boring section on money supply.

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Seconded. However, some people are so easily brainwashed by pretty propaganda that no amount of rational argument is going to get them to see the cartoon for the garbage that it is. I would say to anyone who sees it and is tempted to take it at face value to, firstly, take a look at the web site of the organisation that created it (www.lifeboatnews.com) and, secondly, buy any standard text book on economic and take some time to read the really boring section on money supply.

Can't add much to that. Except to add that, as a newcomer to this group, I was surprised by how many people did take this cartoon seriously. Disappointing that people go through our whole education system, through university even, and yet learn not even the basics of finance. As a result, they fall for this stuff hook, line and sinker. Very sad.

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just out of interest what kind of IT job have you secured?

ie development, perm, what sector-

apologies if it's too personal

Development, perm, in a perl/mysql environment.

Can't really go into any further detail without revealing

where I actually work.

How about yourself, what area do you work in,

how are you finding the market?

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Can't add much to that. Except to add that, as a newcomer to this group, I was surprised by how many people did take this cartoon seriously. Disappointing that people go through our whole education system, through university even, and yet learn not even the basics of finance. As a result, they fall for this stuff hook, line and sinker. Very sad.

so what is wrong with it- The fiver in my pocket says it is a promise to pay- a promisary note- Why was it created- DO tell

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the system that he was wanting to switch to has already been implemented before. The continental greenbacks issued in America to finance the civil war.

he was NOT advocating just printing all the money you want. He was advocating money based on ASSETS, not DEBT. there is a huge difference.

the way it is now, our money supply is increased when a bank issues a mortgage say. but if you actually tried to collect that money, it isn't there. it hasn't been earned by the homeowner yet.

in theory the house is the collateral for the money created, but since the banks lend out the same money created by it several times, you end up with money that isn't backed by anything.

that's the whole problem with the credit crunch now. they were geared so heavily, that as soon as a few people started defaulting, the little bit of equity they had in the system was eaten up. as we get more and more defaults, the entire system just falls apart because there is more debt than there is real equity.

its a lot like forex trading. you can control 100 dollars of currency for every dollar you put in on margin, but it only takes a very small move against you to wipe you completely out.

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Just secured a job in IT and it turns out several of the interviewers have

already seen this film:

http://video.google.com/videoplay?docid=-9050474362583451279

So uplifting!

The truth can not be suppressed.

Just handed the video link round the office I am in this week in Sweden, got to educate a few folk. Now i need to get prepared for their shock tomorrow :D

The one thing that made me a little fearful was that most of them insisted that if the UK drops the EU economy is screwed (of course it is b0ll0cks but they seem to think we are the bellweather of the euro economy).

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The one thing that made me a little fearful was that most of them insisted that if the UK drops the EU economy is screwed (of course it is b0ll0cks but they seem to think we are the bellweather of the euro economy).

Someone has to buy all this Mercs and BMWs. Mostly they got bought from money MEWed in the UK or the US, I suppose? Oh dear.

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so what is wrong with it- The fiver in my pocket says it is a promise to pay- a promisary note- Why was it created- DO tell

As I already explained a few times, a mortager is like swapping IOU's. The borrower gives a note to the bank, saying 'I promise to pay £100,000' or whatever. The bank gives an IOU to the borrower, saying 'I promise to pay £100,000' or whatever. What's the difference? The builder won't accept the customer's IOU. But it will accept the bank's. End of story.

The cartoon implies that the bank creates money that it then lends, earning interest on the loan, without a corresponding liability. This is false. For every pound that the bank lends, it owes a pound. It earns interest on the money it lends. It pays interest on the money it owes. Usually the rate it lends is greater than the rate it borrows. In the case of some banks, and this is the problem at the moment, the interest on the funding side is greater than on the lending side. That is one of the risks a bank runs.

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The cartoon implies that the bank creates money that it then lends, earning interest on the loan, without a corresponding liability. This is false. For every pound that the bank lends, it owes a pound. It earns interest on the money it lends. It pays interest on the money it owes. Usually the rate it lends is greater than the rate it borrows. In the case of some banks, and this is the problem at the moment, the interest on the funding side is greater than on the lending side. That is one of the risks a bank runs.

If this is the case, you would think that lending would be constrained by the amount of

savings in the bank/banking system.

Which it obviously isn't.

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Looks an interesting Topic for HPC Members -

I think you are missing the point -

Aren't Sterling / US Dollars FIAT CURRENCIES - i.e. not backed by a Physical Commodity such as Gold ?

Hence, what is the intrinsic value of Sterling (or any FIAT Currency) Anyway ??

Additionally, PETRODOLLAR Recycling means that US Comsumers can finance hydrocarbon purchases / consumer lifestyles by Banks simply printing more 'FIAT' Money to pay oil producers for their commodity - hence US Dollars are 'electronically 'created' on a computer screen & sent into the economy so they are borrowed by consumers - in this case to buy oil from say Arabs.

So, the US Economy gets the energy stored in the oil (economic potential) in exchange for creating electronic US Dollars of no tangible value - the Arabs then purchase US goods, bonds, etc., and the money will again eventually end up in the USA again !

Hence it is possible to create 'Money' (out of air) to purchase Physical assets such as oil or houses or oil rigs !

All you need is for 'people' to have confidence or belief in that particular 'currency' - mainly it will be a reliable store of wealth in the future - note how people lack total confidence in Zimbabwe Dollars yet strive to aquire Euros ??

Methinks FIAT Currencies & their 'Artificial', bloated consumer economies are doomed to fail once hydrocarbons are depleted - as 20th century prosperity has been built on the energy contained in oil !

So really the 'Money Is Debt' video misses essential point that money has no tangible value anyway - in cannot maintain our consumer society - energy does -

So in fact, society will eventually regress in terms of economic activity, population sizes, etc., as energy consumption falls - as there is a correlation between oil usage and population growth over the 20th century -

Edited by Clueless_Academic

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Yes I'm inclined to agree with that.

Money basically represents the ability to do work,

with less energy availability money will become increasingly worthless.

The worst-case scenario of course is a run on the dollar and global hyperinflation.

If confidence in the dollar evaporates, there's no reason to think that lost

confidence will transfer to the euro or whatever, all paper currencies will suffer

from diminished public confidence as a store of value.

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