100% reserve banking
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August 18, 2012 at 3:24 pm #86781AnonymousInactivejondwhite wrote:I suppose the collapse of Barings Bank and Nick Leeson might be the most famous and therefore good example of private banks inability to create credit.
Indeed, although the collapse of Barings was quite a special case where a single employee successfully managed to bankrupt his employer! However, the number of banks either acquired or bankrupted during the most recent financial crisis commencing in 2007 is quite considerable:-http://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_during_the_2007%E2%80%932012_global_financial_crisis#AcquisitionsWhilst in the US the list of just the largest bank failures, over a longer period, is equally if not more spectacular.http://en.wikipedia.org/wiki/List_of_largest_U.S._bank_failuresNovember 9, 2012 at 11:12 am #86782
Here's a refutation of the view that money to pay interest to banks can only come from further bank loans which is the basis of the currency crank view that it is banking system that is forces the economy to grow even at the expense of the environment and resources (which I've heard repeated many tims at Occupy meetings). This is to mistake the shadow for the substance as it is the drive to accumulate capital that results in such growth. Banks merely circulate money to help finance this. It is the pursuit of profits not the payment of interest (most of which comes from profits anyway) that is the problem.This refutation is all the more significant in that it comes from a supporter of "full-reserve banking", Michael Reiss, author of What Went Wrong With Economics, who was present at our debate against Positive Money. This page is from pages 18-20:Quote:But what about the interest?The question remains around the lending and repayment of money: what about the interest payments? The answer is that when a loan is paid back, the original money created by the loan disappears, but the bank is allowed to keep the interest repayments. This is how banks get their income.Some people, when presented with this information about how the banking system works, become concerned about where the supply of money for interest payments could possibly come from. They say things like: "If the total size of the money supply was fixed then there is no possible source of money for paying interest." This may be followed by: "So this proves that the money supply is forced to increase forever, otherwise borrowers could never pay the money buck." They suspect that a proportion of borrowers must on aggregate, almost by definition, be unable to repay the interest. This view is however, mistaken. Indeed Professor Steve Keen of the University of Western Sydney has recently produced computer simulations to prove it. The key thing to note is that the interest paid does not simply accumulate at the bank. The interest is shared between bank owners, employees and savers, all of whom will be spending their earned interest back into the economy. This flow of money is a source of money for the interest payments.The supposed impossibility of repaying interest is bit like the following dilemma. Imagine two people on a desert island: Mary and Sue. Sue owes Mary $20 but there are only $10 in existence and this is currently in the hands of Mary. At first glance it appears that the debt could never be repaid but this apparent impasse is easily solved. All that has to happen is for Sue to sell Mary some good or service. Say, for example, Sue spends some hours catching fish. She could sell the fish to Mary for $10. This $10 could then immediately be given back to Mary as part payment for the debt. Now simply repeat the process one more time and the debt is cleared. The total amount of money that can be paid by Person A to Person B is not limited by the total amount of money that exists in an economy.
In other words, the money to pay interest comes out of the income generated from future production (whether profits or wages). Reiss goes on:Quote:Sadly Steve Keen's proof of the repayability of interest is not widely known and it is all too common for both economists and politicians to assume that it is essential for the money supply to continuously grow in order for an economy to function.The fact that there is no in-built mathematical paradox to avoid when paying back interest does not necessarily guarantee that all loans will be paid back; far from it. If someone borrows a large a sum on the basis that they expect healthy future income to repay the interest there is always scope for things to go wrong. They may lose their job, or they may become ill; perhaps their business plan was flawed and the product they are making proves unpopular. Any of these problems may lead to a situation where the loan repayments are larger than the borrower can ever reasonably pay back. This is possible even if the loan was interest free.In conclusion we can now see that it is not essential for the money supply to grow in order for interest payments to be made on loans without default. There are a variety of problems caused by fractional reserve banking, some of them severe (as we shall see later), but inherently unpayable interest is not one of them.November 19, 2012 at 7:36 am #86783
This article on the 1907 banking crisis written on the eve of the establishment of the Fed Reserve, made interesting reading…definitely a feeling of deja vuhttp://www.marxists.org/archive/sanial/1913/general-bankruptcy.htm"Of course, the purchasing power of the plutocracy had not been reduced, and that class continued in its wasteful habits of luxury. Of the middle class the purchasing power had at first been somewhat affected, but with the recovery of prices its ability to consume was fully restored while its further ability to accumulate surplus profits, though less than formerly, became again an important factor. The whole burden of the crisis fell upon the wage-working class. Its purchasing power, even at its highest, is always very small as compared with the total product of the country. It had been steadily reduced by the rise of prices in the later years of capitalist prosperity. It was now further reduced by enforced idleness. ""In the natural course of capitalist development the Banking Power obtained supreme command over the activities of the nation. In that elevated position it lost all sense of economic responsibility, public duty and moral principle. For the purpose of illicit gain it diverted the immense wealth in its keeping from the beneficent channels of production into the maleficent channels of speculation…Unscrupulous in all its methods, it has corrupted the public powers and made them the instruments of its despotism. In its rough ride over the nation, it has, however, reached a point where it must fall under the weight of its iniquities. Nothing can save it from the consequences of its misdeeds. Its collapse is inevitable. Shall the people — the working people — allow themselves to be buried in the ruins of the banking structure? In their own hands lie the means of their own salvation. The last day of the Banking Power should be the last day of the Capitalist System and the first day of the Socialist Commonwealth."Sadly the system continued to stagger from one crisis to another.November 19, 2012 at 7:38 am #86784
Ooops, just noticed , it was transcribed by yourself , Adam.November 28, 2012 at 3:21 pm #86785
Shadow Banking"Let’s explain: When a bank issues a mortgage, it is required to hold a certain amount of capital against the loan in case of default. But if the bank securitizes the mortgage, that is, it chops the mortgage up into tranches, pools it with other mortgages, and sells it as a bond (mortgage backed security), then the bank is no longer required to hold capital against the asset. In other words, the bank has created money (credit) out of thin air. This is the ultimate goal of banking, to maximize profits off zilch capital.So how is this different than counterfeiting?There’s no difference at all. The banks are creating “near money” or what Marx called “fictitious capital” without sufficient resources, without supervision, and without any regard for the damage they may inflict on the real economy when their ponzi-scam blows up. What matters is profits, everything else is secondary."http://www.counterpunch.org/2012/11/28/shadow-banking/Where is he wrong?December 6, 2012 at 1:31 am #86786
Sadly another example of banks make money out of nothing , this time by Professor of Binary Economics at Trisakti University, Jakarta, Indonesia, Rodney Shakespeare is a Cambridge MA, a qualified UK Barrister, a co-founder of the Global Justice Movement and a member of the Christian Council for Monetary Justice."People think that the international banks lend existing money e.g., the bank’s capital or the deposits of customers. Yet they do not. They create out of nothing (merely by pressing computer buttons) the money they lend and then add interest as well as administration cost…" How to solve the recession.?"Governments are in ever-increasing debt because the global elite, assisted by compliant politicians, says that money (borrowed at compound interest) must always come from the commercial banks when, in reality, it could easily be borrowed, interest-free, from a national bank" http://www.presstv.ir/detail/2012/12/05/276239/tricks-of-global-financial-elite/As an aside, i had no idea what binary economics is so i looked it uphttp://en.wikipedia.org/wiki/Binary_economicsBeing a christian i see why the author is a proponent …it combines heaven and hell.December 6, 2012 at 11:07 am #86787alanjjohnstone wrote:Sadly another example of banks make money out of nothing , this time by Professor of Binary Economics at Trisakti University, Jakarta, Indonesia, Rodney Shakespeare is a Cambridge MA, a qualified UK Barrister, a co-founder of the Global Justice Movement and a member of the Christian Council for Monetary Justice.
Yes, the "Christian Council for Monetary Justice" has been spreading their ideas in the Occupy Movement, particularly through Quaker (and Labour Party member) John Courtneidge who we clashed with at one of the recent New Putney Debates. Their chairman, Cannon Peter Challen, was one of the panel at a meeting organised by the Occupy at the Bank of Ideas last January. He was one of those who refused to describe himself as anti-capitalist. Basically, they are against interest, which they denounce as "usury", but not against any other aspects of capitalism, as if capitalism could function without interest.Their President is Labour MP Austin Mitchell, one of two openly currency-crank MPs. The other is Tory Douglas Carswell.December 18, 2012 at 1:39 am #86788
Positive Money tells the Iceland government what to do.http://www.althingi.is/pdf/umsogn.php4?lthing=141&malnr=239&dbnr=855&nefnd=evPerhaps the party can send its own submission to the Icelandic government refuting Positive Money.December 19, 2012 at 6:14 pm #86789
Two more items to add to the file.First, there was an article in yesterday's London Evening Standard by Anthony Hilton entitled "Peer-to-peer lending is here to stay" which opens:Quote:Travel agents put people who want to go on holiday in touch with tour operators and airlines who will take them there. Insurance brokers take people with vehicles they have to insure and find them companies willing to take the risk. Banks gather up the savings of individuals and lend their money to people or businesses who want loans. All three are intermediaries, and they come into existence because individuals could not easily learn about or get access to the services they needed other than by going through them and paying them a commission.
Peer-to-peer lending is not lords lending to each other. It's people with savings lending directly to people or businesses who want money without going through the intermediary of a bank. Note the way Hilton automatically assumes that banks are intermediaries that lend other people's savings.Second, is a report in today's Metro on a study by the New Economics Foundation which claims that the lower interest rates at which the Big Four banks can borrow money because they are considered as too big to fail (and so will be bailed out by the government) amounts to a subsidy of £34bn from "taxpayers". Actually, this is not really a subsidy but a notional figure based on what these banks would have to pay in higher interest on what they borrow if they were not considered too big to fail. Coming from the NEF (which has published a booklet Where Does Money Come From? which endorses the view thar banks can create credit out of nothing by a mere keyboard stroke), one of the criticisms they make of this is curious as well as revealing. Metro reported:Quote:Lylia Prieg, a researcher for the Foundation, said the figures hughlighted the 'privileged position' of the big banks. 'There is no good economic rationale for allowing over-sized banks to benefit from subsidised borrowing costs, as this encourages reliance of short-term and more risky funding instead of funding their activities with customer deposit,' she said.
So, when it comes down to it, the NEF accept that banks do need to borrow the money they lend, whether short-term from the more risky money market or from customer deposits. They can't have it both ways: arguing that banks can create money to lend from nothing and arguing that they have a privileged access to the funding they need for their loans.January 7, 2013 at 1:10 am #86790
BasleThe banks keep the rules lax and can it really take 7 years to implement, having already had over 2 years to prepare already.http://www.bbc.co.uk/news/business-20928354Peston makes a comment that mortgage-backed securities were wholly illiquid and unsellable in the summer of 2007.January 9, 2013 at 6:03 am #86791
Another banks create money article. "In fact most money is created by private banks, through the process of offering loans"http://www.countercurrents.org/alexander060113.htmBut pushes LETS, Brixton and Bristol £ and Time Banks.Although we have responded to many of those directly perhaps it is time to have a dedicated online pamphlet quickly disseminated to counter such articles.January 16, 2013 at 10:01 am #86792
Chinese state banking – too much cash !!The Postal Savings Bank was founded in 2007 when the government split off the savings accounts from the country’s 36,000 postal outlets. It is the nation’s fifth-biggest bank by deposits with $724bn.But it has lent out only a fraction of that cash. Its loan-to-deposit ratio stands at less than 20 per cent, compared with a Chinese industry-wide average closer to 70 per cent.Sitting on so much underused cash, some bank managers are alleged to have provided loans at rates well below the prevailing cost of money in the open market in return for kickbacks. Bound by tight restrictions, it was expected that the Postal Savings Bank would have many more deposits than loans on its books for years to come.China Development Bank, a state-owned bank with a mandate to fund infrastructure construction, is the sole provider of acquisition financing to CP Group. CDB does not take deposits and its main source of funding is to sell bonds to other banks. As a government-backed, gold-plated borrower, debt is cheap for CDB and it is sitting on a pile of unused cash.Non-bank sources of credit, including bonds, exceeded bank loans in the second half of 2012, an important step towards a diversified financial system. But there is a catch. Economists at Citigroup estimate that about 70 per cent of all non-bank financing in China is in fact only the off-balance-sheet activities of traditional banks.http://www.ft.com/intl/cms/s/0/c4466c7a-5f02-11e2-8250-00144feab49a.html#axzz2I87H7c6GJanuary 27, 2013 at 9:47 am #86793
With talk of the trillion dollar coin being produced in the US to deal with their deficit i came across this bit of trivia. The existence of £1 million pound and £100 million notes.http://www.bbc.co.uk/news/magazine-21145103Apparently they are to provide backing to the Scottish and Northern Irish bank-notes. For every pound an authorised Scottish or Northern Irish bank wants to print in the form of its own notes, it has to deposit the equivalent amount in sterling with the Bank of England. If one of the banks failed as they nearly did a few years ago, the Scots notes would still hold its value.The high value notes are kept for accountancy purposes which seems to me indicates that even the Bank of England does not rely on strokes of a key-board or entries in a written ledger when it comes to the creation of money !!January 27, 2013 at 12:37 pm #86794HollyHeadParticipant
Mark Twain wrote a short story in 1893 "The Million Pound Bank Note". The story takes place in Victorian London, where two very rich, eccentric brothers, Oliver and Roderick Montpelier, give an American visitor a one million pound bank note.The catch is he would also not be able to spend it since no ordinary person would be able to change it.One brother believes that the mere possession of this symbol of wealth will enable anyone to have anything he wants, without actually cashing the note. The second brother on the other hand, is sure that this prohibition against exchanging the note for cash will render it totally useless.The story was filmed in the 1950s starring Gregory Peck.February 26, 2013 at 5:30 pm #86795
What next? They're thinking of introducing "negative interest rates":http://www.bbc.co.uk/news/business-21589128This was tried in Japan but didn't work. They seem be running around like headless chickens clucking at straws.
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