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barrab

Has The Music Stopped Playing ?

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I have been watching the developments taking place over the last 5 or so years and have read with great interest the excellent posts on this site. I have used the site to gather insight and gauge the mood of the members and public. Throughout this time I have been amazed that despite my gut feeling that house pricing was bubbling beyond anything that was reasonable, the prices just kept on rising. Yes there have been blips but after a month or so .. up the trend would go again.

It has to be said that I have been wondering if my feeling about the market was just plain wrong. The last few weeks have demonstrated that in fact we have been progressing through the last throws of a failing system. The collapse of Northern Rock and the developments in the last couple of days in the US with Bear Sterns are the clear indicators that we are on the brink of a major shift taking place.

I am not an economist or a financial expert and bow to the superior knowledge of many who post on this site and the insight that they provide. Today I have come across two items that have drawn me to post and to the above conclusions. They may have been posted previously but here are the links:

The first is a super video describing the reasons behind the vast growth of debt that has fuelled this bubble.

http://video.google.co.uk/videoplay?docid=...474362583451279

The other is a shorter piece that was posted in response to the Newsnight report last night, it was a brief analysis of the source of money which is expanded in the above video. It looks as if the post has now gone.. I will try to find it and send a link.

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Post on the newsnight site:

http://www.bbc.co.uk/blogs/newsnight/2007/...rket_crash.html

LEARNING ABOUT MONEY

An essential part of this financially-dominated economy is the way money is created. Despite, the central role that money plays in all our lives, there is an appalling ignorance about it.

This ignorance is caused by the mystique which has been fostered by bankers and financiers that money matters are far too difficult for ordinary people to understand. They have spread the idea, aided and abetted by economists, that understanding and controlling money should, therefore, be left to the experts.

The truth is that the essential facts about money are simple. When they are known by the general public they will start asking questions and demanding that the government should do something about reforming the injustices which bankers are allowed to perpetrate. There will be a demand for governments to right the wrongs which banker control of money is causing.

5 WAYS THE MAN-IN-THE-STREET IS BAMBOOZLED

1. HE THINKS THAT MONEY IS CREATED BY THE GOVERNMENT, THROUGH THE MINT AND THE BANK OF ENGLAND, AND IT CONSISTS LARGELY OF NOTES AND COINS.

FACT -- Only 3% of money is in the form of notes and coins created by the government.

2. HE BELIEVES THAT WHEN BANKS LEND MONEY THEN THE MONEY WHICH IS BORROWED IS THAT WHICH OTHER BANK CUSTOMERS HAVE DEPOSITED.

FACT -- The money one borrows from a bank is not depositors' money at all. It is new money created by the simple process of writing the amount of the loan on the credit side of the borrower's account. Ninety seven percent of all money in circulation originates in this way. If banks actually lent their depositors' money it would not be available when they wanted it. If someone wanted to draw out money and was told, "Sorry, we've lent it to Joe Blow," he would be justifiably annoyed.

In other words, 97% of money is not "real" money at all but credit, just figures in a bank's ledger or computer. It is created out of nothing. Yet is used and accepted as real money. To all intents and purposes it is money. Borrowers buy houses with it, pay wages and buy raw materials with it, and spend it in many ways. Yet it is just figures in a ledger transferred from one account to another. It is called various things -- credit, bank-money, number-money, cheque-money, debt-money, electronic money. Whatever it is called, it is used and trusted because people know they can obtain real money, notes and coins, if they want.

3. HE BELIEVES THAT THERE IS STRICT CONTROL AND REGULATION BY THE GOVERNMENT, OF BANKS AND BUILDING SOCIETIES.

FACT -- The belief that there are strict controls over what banks and building societies can and cannot do is also false. There are no statutory deposits which banks at one time had to lodge with the Bank of England. There are no fractional reserves of currency to be held by a bank as security for loans. All that has gone in the deregulation so beloved by financiers and, now, politicians. The only stipulation now is that banks must deposit with the Bank of England, 0.35% of their assets, which consist mainly of the loans they have made. This paltry percentage shows that borrowers have no real security, no proper regulations to protect them. The banks, however, have the property of borrowers, pledged as collateral, as security.

4. HE BELIEVES THAT THE INTEREST HE PAYS FOR THE LOAN IS A LEGITIMATE CHARGE BECAUSE IT IS OTHER PEOPLE'S MONEY HE IS BORROWING.

FACT -- Interest is considered to be a recompense for lenders giving up the use of their money, for the sacrifice they make by not spending it on satisfying immediate needs or pleasures.

This may be so for depositors but it is not so for banks which create money out of thin air when they make a loan. They are charging a tribute -- interest -- for money which did not exist before the loan was made. So they are getting money, in the form of interest, for nothing. It would be legitimate for them to charge a fee for administering the loan but that would be far smaller than the interest they charge.

5. HE IS PERSUADED THAT IF HE CANNOT PAY BACK HIS DEBT THEN IT IS RIGHT THAT THE BANK SHOULD TAKE HIS PROPERTY TO REIMBURSE ITSELF.

FACT -- The borrower owes a debt which has to be paid, in regular installments, plus the interest, or legal penalties come into force. If the borrower defaults -- cannot pay -- then his property which he put up as security for the loan is legally confiscated and used to reimburse the bank, no matter what distress and hardship is suffered by the borrower, be it the loss of a home or a business. Whatever the reason, debts must be paid, and on time.

Remember, though, this money was created out of thin air. It was debt-money.

REMEMBER -- 97% OF ALL MONEY STARTS AS DEBT

Most people, however, are in debt. The total amount owed is greater than the total money supply. Sixty per cent of debt is for mortgages. Business debt is increasing as more is borrowed to keep enterprises afloat with the intensification of competition caused by the global market.

There is a chronic shortage of ready money, which means there is not sufficient purchasing power to buy all the goods and services on offer. This endemic shortage of spending money is brought about because of the debt burden that most people have.

If they want to keep their homes and businesses they must make regular payments to service their debts.

This is the basic reason that governments are loath to raise direct taxes. It reduces still further people's spending money and the total demand for goods and services. As a result not enough government revenue is raised from taxation to meet essential services.

THE NATIONAL DEBT

The amount of the taxation shortfall is called the budget deficit and is compensated for by government borrowing from the private sector, mainly from banks.

The total of this debt is called the national debt. It has to be paid back, eventually, by the taxpayers. In practice, when the Treasury Bonds, which the government sells as a means of borrowing money from the private sector, are due to be paid, the government issues new bonds -- borrows new money -- to pay back the old ones plus interest.

Let us consider the money which the government obtains from banks buying Treasury Bonds. Where does it come from? You've guessed it. It is created out of thin air, in the same way as the money for your mortgage was. It isn't real money. It's credit, debt-money. When financial enterprises such as pension funds or insurance companies buy Treasury Bonds, also called gilts, the money used is the savings of their customers so it is money already in existence being recycled, used again.

The money banks use to buy gilts is not. It's created on the spot, out of nothing. So the government is in hock to the banks for money which did not exist until it was borrowed.

At this point you are most likely asking the same question which many people are now asking. If the banks can create money out of nothing to lend to the government as debt, with all the burdens that places on the taxpayer, why on earth doesn't the government create money for itself, at least for public services, and remove the burden of having to borrow money?

Edited by barrab

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  • 293 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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