100% reserve banking

December 2022 Forums General discussion 100% reserve banking

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  • #87037
    Young Master Smeet
    Participant

    OK, Varoufakis' new book is very much a primer, he steers clear of theoretical detail:[Varoufakis]Let us recall how this magical power of bankers to create money and the overall demands of a market society generate an urgent need for public debt […] that provides bankers with their 'most liquid of assetts'[/quote] He then argues that tax rates, public debt and private debt are dependent variables based on this money supply.  The public debt is there to hold things together when the bankers get carried away.As he notes, though

    Varoufakis wrote:
    In bad times, when bankers pick up the phone to the government and demand that thestate's central bank bail them out, it does so not just by creating new money […] but also by issuing more bonds and using them to borrow more money from otehr bankers, often froeign ones, to pass on to the local bankers.

    Much of his new book is about keynsian animal spirits, very little Marxism.  Ultimately, beneath his astonishment that banks 'magic money out of thin air' is the fact that the central bank exists and regulates the whole process: the state creates money.

    #87034
    Anonymous
    Inactive
    alanjjohnstone wrote:
    In all this latest discussion, what is being over-looked is the crucial point – All wealth is created by labour – The Marxist Labour Theory of Value.

    Indeed. How the GREAT MONEY TRICK is worked is what workers should be  interested in. Has dms read Chapter 21 of Robert Tressell's The Ragged Trousered Philinthropists? It is all the economics' a worker needs: Clear and concise . No obfuscation: We will leave that to capitalism's supporters. Owen:                  ‘Money IS the real cause of poverty’ Crass:                                   'Prove it!' Owen:                 'Money is the cause of poverty because it is the device by which those who are too lazy to work are enabled to       rob     the workers of the fruits of their labours.' Crass:                  'Prove it!' Owen:                 'All right,  I'll show you how the Great Money Trick is worked.' I would recommend this reading to all workers who wish to understand the economics of capitalism. Tressell knew more about economics than all the economists mentione here.He showed how all wealth is produced by the working class: Capitalist propaganda attempts to hide this.

    #87038
    alanjjohnstone
    Keymaster

    An article that may interest YMS and others on Varoufakis viewshttps://www.newvision.co.ug/new_vision/news/1460768/-promise-fiscal-money

    Quote:
    With the rise of financialization, commercial banks have become increasingly reliant on one another for short-term loans, mostly backed by government bonds, to finance their daily operations. This liquidity acquires familiar properties: used as a means of exchange and as a store of value, it becomes a form of money.And there’s the rub: as banks issue more inter-bank money, the financial system requires more government bonds to back the increase. The growing inter-bank money supply fuels demand for government debt, in a never-ending cycle that generates tides of liquidity over which central banks have little control.In this brave new financial world, central banks’ independence is becoming meaningless, because the money they create represents a shrinking share of the total money supply. With the rise of inter-bank money, backed mostly by government debt, fiscal policy has become an essential factor in determining the quantity of actual money lubricating modern capitalism.
    #87039
    ALB
    Keymaster

    The stuff from Varouflakis confirms the point that the discussion amongst bourgeois economists, conventional and unconventional, is not so much about what banks can and cannot do or should or should not be allowed to do as about which policy to pursue to try prevent bank lending getting out of hand in a boom.The theories they have developed are theories tailored to back up their preferred policy. Pretty academic really as none of them are going to work as "excessive" bank lending in a boom is neither the cause of the boom nor the reason why it will eventually end. It is, rather, a reflection of the boom. Booms and slumps are not cause by monetary movements but by movements in the real, productive economy. It is true, though, that mistaken monetary policies can make things worse. For instance, what Positive Money propose: not allowing banks to lend from customers' current accounts would restrict the flow of credit to productive industry and so hold back the accumulation of capital.

    #87040
    Young Master Smeet
    Participant

    ALB is right, it's not about empirical study, but perception. The claim that the banks whistle the money out of thin air can be countered that the capitalist who borrows the money is in fact the one doing the magic, since they are effectively handing the bank an IOU (which will be legally enforceable, and thus constitutes an asset to the bank).  The bank is then just validating and guaranteeing the IOU (so that not everyone who does business with the firm has to do due dilligence, the banks have done that for them).  This would agree with our perspective that the key economic indicator is not interest rates, but rate of profit.For Marx, interest rates have no natural rate, they are simply a subdivision of profit, and the only limit is the rate of profit itself (since if the banks take all the profit as interest, the capitalist has no incentive to play).  Obviously, banks also want to make the typical rate of profit on the capital they invest, so they need to turn it over frequently, and attract depositors to help them achieve those profit rates.  No matter how you shake it, their business depends on the difference between the interest rate they can charge borrowers and the interest they pay their lenders.Also of note is Marx' contention that Money Capital acquires a use value.  If, say, the rate of profit is 10% then £100 has a useful value of producing an income of £10 (and vice versa, say, the copyright income on a book can be sold as representing a capital sum imagined from its real income value).So, the IOU from a capitalist can be seen as a capitalisation of the repayment schedule (itself the subset of the whole income stream of the firm), the gross sum need never exist, likewise the bank doesn't have to cover the whole gross, just cover the actual payments made out by the capitalist to other firms, etc.  The bank must, though, notionally be able to cover the whole of the loan, hence its need to balance its books.TL;DR : controlling interest rats doesn't control the economy, interest is a dependent variable, like employment, of profitability, and that in turn depends upon the succesful turn-over and expansion of capital.  Banks don't create wealth, they simply charge for a service in co-ordinating transactions.

    #87041
    alanjjohnstone
    Keymaster

     "Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World"By William Mitchell and Thomas Fazi. A review in http://www.independent.co.uk/news/long_reads/actually-the-magic-money-tree-does-exist-according-to-modern-monetary-theory-a8021501.html

    Quote:
    MMT essentially proposes that money is created ex nihilo or out of nothing. Whether it is private banks, central banks or governments, money is an abstract concept of ones and zeros. Thus, when your bank lends you a mortgage, it essentially creates money by typing it up on a computer. Similarly, the government has the power to create “fiat money” – that is money established by government regulation or law as opposed to currencies with intrinsic value, such as gold… Remarkably, the elemental question – where does money come from? – does not have a settled answer amongst economists, experts and policy makers. Organisations such as Positive Money have already embarked on the process of demystifying money creation. I am reminded of the chapter “The Great Money Trick” in Robert Tressell’s The Ragged-Trousered Philanthropists in which loaves of bread are used to illustrate how the concept of money and surplus value (profit) guarantees perpetual penury for the working class and concentration of wealth for the ruling class….  if QE could be used for the banking system, then why not use it to build new homes or create climate jobs? As long as sufficient value was created then the nemesis of hyper-inflation could be avoided…It therefore appears that Theresa May’s oft-repeated refrain attacking Corbyn on the grounds that there is no such thing as a magic money tree is not exactly true. …

     But the article amazingly concludes with this definition. "public and democratic oversight of finance and money is becoming a central pillar of progressive postcapitalism alongside public control of public services, a green economy, full automation and the four-day week." 

    #87042
    alanjjohnstone
    Keymaster

    A reply to Zoe Williams on the Forbes websitehttps://www.forbes.com/sites/francescoppola/2017/10/31/how-bank-lending-really-creates-money-and-why-the-magic-money-tree-is-not-cost-free/#21c3f7263073

    Quote:
    A central bank can create money without limit, though doing so risks inflation. Commercial banks simply can’t do this.
    #87043
    Anonymous
    Inactive
    alanjjohnstone wrote:
    A reply to Zoe Williams on the Forbes websitehttps://www.forbes.com/sites/francescoppola/2017/10/31/how-bank-lending-really-creates-money-and-why-the-magic-money-tree-is-not-cost-free/#21c3f7263073

    Quote:
    A central bank can create money without limit, though doing so risks inflation. Commercial banks simply can’t do this.

    More from Frances Coppola here:http://www.coppolacomment.com/

    #87044
    ALB
    Keymaster

    Yes, she does seem to contradict herself. The argument between the two of them seems to be about whether banks create new money "from thin air" or "out of nothing".

    #87045
    dms
    Participant

    That Forbes article is great. And I think I now understand the issue you guys had with the phase “from thin air”. Ironically I think yanis varoufakis says it best with his “borrowing from future profits” considering he was the one that says “out of thin air” the most. 

    #87046
    alanjjohnstone
    Keymaster

    The Bank for International Settlements (BIS) said in its latest report that the amount of cash in circulation actually rose from 7 per cent of global GDP in 2000 to 9 per cent in 2016. “The resilience of cash as a social institution reminds us of the importance of understanding the economic functions of money, beyond just the innovations in technology,” he added.http://www.independent.co.uk/news/business/news/cash-not-dying-cryptocurrency-rise-contactless-payment-credit-cards-bank-for-international-a8252096.html

    #87047
    alanjjohnstone
    Keymaster

    I think this thread will be eternal as long as capitalism existshttps://dissidentvoice.org/2018/05/switzerland-a-once-in-a-lifetime-chance-to-spreading-positive-banking-news-to-the-world/#more-79946

    Quote:
    The people of Switzerland are called to vote on 10 June 2018 whether they want to stop the unlimited, unrestrained money-making by the Swiss private banking system, and to return to the “olden days”, when money was made and controlled only by the Central Bank…Most Swiss and probably most westerners in general don’t even know that the loan or mortgage they get from their bank is no longer backed by the bank’s capital and deposits. It’s called “Vollgeld Initiative” – in German, meaning more or less “Referendum for Sovereign Money”. What is “Sovereign Money”? It’s money produced only by the Central Bank, by the “Sovereign”, the government, represented by its central bank. Money created in accordance with the needs of the economy, as contrasted to the profit and greed motives of the banking oligarchy, what it is today; money creation at will, by private banking.
    #87048
    alanjjohnstone
    Keymaster

    http://www.dw.com/en/vollgeld-switzerlands-sovereign-money-initiative/a-44132924

    Quote:
    What is the "Vollgeld" (sovereign money) proposal voted on in Switzerland on June 10? It is commercial banks, in fact, that create money and bank debt in equal measure, through double-entry bookkeeping operations, whenever they make loans to borrowers. Currently, more than 90 percent of all money in circulation worldwide is created as electronic "book money" recorded in commercial bank spreadsheets as a consequence of the banks' making loans. This "book money" is not created by the central bank, and it is not central bank money. You probably think that banks only make loans to borrowers after first taking in money as "deposits" from "savers," to whom the banks pay a modest interest rate for entrusting them with their savings. In this model, banks subsequently "lend out" those saved deposits at a somewhat higher interest rate to "borrowers." This is actually what the proponents of the Swiss "Vollgeld Initiative" want. They say only the government, through the publicly-owned Swiss central bank (SNB), should be able to create money and put it into circulation.Money is created by commercial banks whenever someone signs a mortgage loan agreement, runs up a credit-card debt, or borrows to buy a new car. New loans create new deposits by means of double-entry bookkeeping entries in the banks' ledgers…the banking system is part of the state apparatus — but its core function of making loans, including the privilege and responsibility of deciding for what purposes, and to whom, to make loans, has been left in the hands of private-sector bankers. Deposits are what you and I think of as "money in the bank." The more loans the commercial banks make on a net basis each year (i.e. the difference between new loans made and old loans repaid), the more deposits they create in exactly equal measure. That's how the money supply grows.The "Vollgeld Initiative," want to end commercial banks' privilege of creating new money because, they say, this privilege is often abused, with banks lending far too much money into existence for non-productive purposes, leading to enormous debt bubbles and consequent financial crises — which result in taxpayers' having to bail out irresponsible banks.Instead, the Vollgeld Initiative says, commercial banks should only be allowed to lend out money that is already in existence. That money would be created by the central bank, and then deposited by savers in savings accounts, or lent to commercial banks by the central bank for on-lending to borrowers.  Since the Vollgeld proponents want all money to be created exclusively by the publicly owned Swiss National Bank, there would be some scope for the SNB to create some money to fund government projects, or for distribution to citizens, whenever the SNB deems that the money supply needs to be expanded to enable economic growth. The money supply would no longer expand due to commercial bank lending.Under the existing banking system, banks are especially prone to mortgage over-lending, because houses are seen as "safe" collateral for loans. This leads to bidding wars between people looking to buy houses, with steep rises in house prices, or "housing bubbles." Eventually, over-indebtedness gets too extreme. Real estate prices to stall and then fall. The bubble pops. When that happens, many borrowers go "underwater," as they owe more in mortgage debt than what they can get by selling their house. Construction of new houses goes down, unemployment goes up, and many people stop being able to keep up with credit card payments or other debt. Since the loan-books of most banks in most countries are freighted very heavily with mortgage loans, a downturn in housing prices can threaten the solvency of the entire banking system. That's the essence of what happened on the eve of the 2008-2009 financial crisis, and it could happen again.The Vollgeld Initiative proponents believe that if commercial banks were no longer be allowed to create money, or lend money into existence, as they do now, then they would not be in a position to fuel housing bubbles or other such inflationary phenomena. Moreover, insolvent banks could safely be allowed to go bust, rather than have to be rescued with taxpayers' money. Spanish banking giant Bankia had to be bailed out with billions of euros of taxpayers' money after the country's property market bubble bust in 2012. The Sovereign Money proponents argue this could have been prevented and the struggling lender could have been allowed to go bust safely, rather than be rescued.

    Any comments from our more astute banking system experts?

    #87049
    ALB
    Keymaster

    Isn't it the same as what Positive Money propose?  As such, something that is not necessary as already banks cannot lend more than they have (or can get quickly) and only "create money" as this is how granting a loan is defined; and bank lending depends on the state of the economy not on what banks might want to lend.It could be implemented (it's not pure currency crankism) but would make day-to-day living more troublesome (you'd have to pay for every transaction on your current account since banks won't be able to lend money from such accounts to bring in some interest to run them, and if you put anything into an interest-bearing savings account it won't be protected if the bank folds). I doubt if Swiss voters will vote to shoot themselves in the foot (or, rather, graze their foot) in this way.

    #87050
    alanjjohnstone
    Keymaster

    76 percent rejected the Sovereign Money Initiative which would have put the Swiss National Bank in charge of all money creation and radically altered the banking system, Swiss broadcaster SRF reported after the polls closed. The Swiss government and the SNB opposed the initiative.Potential risks to the Swiss economy by introducing a "Vollgeld" system convinced voters to reject the proposal, leaving private banks with the right to create money."We are pleased, this would have been an extremely damaging initiative," said Heinz Karrer, president of business lobby Economiesuisse.http://www.dw.com/en/swiss-referenda-approve-betting-regulation-reject-monetary-system-reform-and-olympics/a-44148196

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