Saturday, December 1, 2007

Where has all our money gone?

Rock borrowing - the facts

Robert Prestons blog which is factually based for a change, and contains links to some interesting info I have not seen before, but someone should be asking where taxpayers money is being spent and how much we're earning for it and what the real quality of the security is?

Posted by enuii @ 10:46 AM (591 views)
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3 thoughts on “Where has all our money gone?

  • The posts are better than Prestons article, I can get my head quite easily around number 15, but number 16 is mind mindbogglingly interesting but way above my comprehension, can anyone simplify?

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  • One thing I’ve learnt from doing accounts is that the category called “other” should have the largest number in the balance sheet and should not be approaching half of the entire assets of the bank.

    Loans to Northern Rock are clearly the biggest category of asset on the balance sheet whichever figure you listen to, so they should get their own line.

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  • Banknotes are just that – notes from the bank which have value of the amount stated on the note. Everyone uses them but only one institution can make them – The Bank of England. If you read what it says on the note “I promise to pay the bearer the sum of … ” you realise that it is a note of trust – if you use it, and the seller of goods accept it, you are both accepting the credit authority of the BofE.

    You could use Scottish notes instead – which are not legal tender (in other words they can be legitimately refused) but are accepted, because the Royal Bank of Scotland is also a pretty creditworthy institution.

    Q. Now, if you lord over the creation and disposal of all of these promissory notes, and they are all held and redeemed in your name, what’s stopping you from just churning out more of them as you see fit?

    A. Absolutely nothing. Apart from the fact that However when you do this, you are pumping a massive amount of extra cash into the economy from nowhere, which potentially could devalue all the other notes you have in circulation.

    Worrying? Yes – it should be. Have a look at comment 25:

    “The BoE has to finance it’s money creation, otherwise the public will just have to pay for any NR losses via inflation, rather than directly!

    Same reason the government doesn’t just finance spending on schools / hospitals etc. via the printing of new money.”

    The last time the printing presses were cranked up to solve problems, before anyone knew it they had this:

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