ALB
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Interesting bit in this news item about Occupy Cardiff:
Quote:Earlier, a leaflet was handed out to shoppers calling for a new type of economy.It read: “This historic and unprecedented uprising and resistance to the inequality of our social system is nothing less than a lifeline for humanity.”We must convert this dissent into a satisfying result.”The monetary market system itself must be replaced with a resource-based economic model where everyone’s needs are provided for free.”It wasn’t us, but it could have been.
alanjjohnstone wrote:http://occupywallst.org/forum/a-question-about-fractional-reserve-lending/A useful link on fractional reserve and money creation myth for those who are suspicious if we as a political party explains itYes, Dalton’s the man there who knows how banks work. But shouldn’t this be on the thread on “reserve banking”?
admin wrote:Good to know data is still available. This series is the one that stopped in 2006, there is a slight difference in that the old series includes ‘banks operational deposits’. What theoretical problems this posses I’m not yet quite sure.Actually the weekly returns do include these as “reserve balances”, ie interest-bearing deposits by commercial banks and building societies with the Bank of England. So, M0 could be reconstituted if it was wanted, but breaking it into its two components is more useful as “reserve balances” are not part of the currency that is actually in circulation, which is the more relevant statistic.
admin wrote:Good to know data is still available. This series is the one that stopped in 2006, there is a slight difference in that the old series includes ‘banks operational deposits’. What theoretical problems this posses I’m not yet quite sure.Actually the weekly returns do include these as “reserve balances”, ie interest-bearing deposits by commercial banks and building societies with the Bank of England. So, M0 could be reconstituted if it was wanted, but breaking it into its two components is more useful as “reserve balances” are not part of the currency that is actually in circulation, which is the more relevant statistic.
Pity you couldn’t make it since it seems to have been a bit of currency cranks convention, with only one person saying anything sensible:
Quote:Question: Banks’ money is balanced because each deposit is balanced by a debt?Confirmation of why we need to be there to take part in these discussions.
The Bank of England still publishes a weekly return showing, amongst other things, the total value of notes and coins in circulation. It’s here. This week the figure is £50,007,649,295.But you’re right. It is partly a question of definition, with the definition of money changing over the years. In the past it used to be “can the banks create credit?”. Now it’s become “can the banks create money?” The answer is the same but the issue was less confusing when the claim was just about credit not money.Obviously banks can supply credit (even if not out of nothing), but they can’t create money unless this is defined as including bank loans (in which case they do so by definition). Money, in its original sense of coins and notes, can only be created by the government via the central bank. These days out of nothing.
alanjjohnstone wrote:referring to 1931 and the MacMillan report tends to make me seem very old and it is bit UK parochial to be easily accepted by Americans.Maybe but that New Economics Foundation video starts with a quote for Sir Reginald McKenna, dating from 1924, when he was chairman of Midland Bank (now HSBC) though it gives the impression that it dates from 1915-6 when he was Chancellor of the Exchequer, which is all over the internet on Monetary Reform sites including US ones. And he was a member of the 1931 Macmillan Committee.Type “I am afraid” + “Reginald McKenna” into a search engine and 93,000 results come up. A measure of how widespread currency crank and funny money ideas are.On the other hand, the quote from another banker of the time, Walter Leaf, chairman of Westminister Bank (now the NatWest, part of RBS) that:
Quote:The banks can lend no more than they can borrow – in fact not nearly so much. If anyone in the deposit banking system can be called a ‘creator of credit’ it is the depositors; for the banks are strictly limited in their lending operations by the amount which the depositors think fit to leave with them. (Banking, Home University Library edition, 1926, p. 102)can virtually only be found on our and related sites (only 95 come up).Of course, exchanging quotes settles nothing but those who support McKenna’s position ought at least to be aware of his contemporary Walter Leaf’s opposing view.
I know it’s boring but I think we do have to deal with the various arguments and misunderstandings about banking and money as they are so widespread these days amongst critics of society.The first point to be clear on is the definition of “money”. Up to WW2 there was more or less agreement that money was “currency” (notes and coins). Since then “bank loans” have been regarded as money. This is ok as long as the same definition is kept to throughout the analysis. But it should be noted that, even today, conventional economics has felt the need to distinguish between M0 (mostly currency) and M1 (which is M0 + bank loans) (M2, M3 and M4 are M1 plus various other types of loan).So, when as in the New Economics Foundation video and in all economics textbooks, people say “banks create money” this is true (by definition) if money is defined as M1. But it wouldn’t mean that banks create all money, as M0 is created by governments and/or central banks. Having said this, it is true that only 3% of M1 is currency and 97% bank loans.The case against regarding both bank loans and currency as money is that they come into being and behave differently. Currency circulates. Bank loans don’t. In fact, although M0 is only only about 3% of M1 it can be used to make payments, etc (including bank deposits and bank loans) of many times its face value.But even accepting that bank loans are money, banks do not create it out of thin air (as is often claimed, though not in economics textbooks). No bank can lend more than it has, either as deposits or what it has itself borrowed. In fact, because they have to keep some of what they have as cash, they can only lend less than they have. In the past, in Britain, they had to keep about 8% of their assets as cash. Now it’s down to about 3%. This is the “fraction” of assets they have to keep as a “reserve” against withdrawals. Hence the “fractional reserve banking” that currency cranks make such a fuss about. But all lending institutions do this (building societies, savings clubs and credit unions too). If they didn’t, all they would be would safe deposits. It’s what lending other people’s money involves.The first mistake that currency cranks make about this is that they assume that, with a fractional reserve of 10%, if someone deposits £100 in a bank this means that the bank can then lend out a sum of which this is 10% (less a £100), ie £900. In fact, it means only that the bank can lend out £90 as it has to keep 10% (£10) as cash.It is true that economics textbooks do teach that the banking system as a whole (but not a single bank on its own) can, with an initial deposit of £100, eventually make loans totalling £900. The assumption is that the first bank makes a loan of £90, which is then deposited in a second bank which can then lend 90% of this (£81), which is then deposited in a third bank which can then lend out 90% of £81, until eventually total loans of £900 will have been made.There is nothing wrong with this theoretical model as such, only with the claims that are made about it. Even the textbooks claim that the £900 has been created by the banks together, but in fact it depends on the money from loans being repeatedly re-deposited in the system. So, it could just as logically be claimed that it was the depositors that created the loans as they provided the banks with the money to lend. In fact this refutes the second mistake that currency cranks make: saying that all money (bank loans) comes into being as “debt”. They don’t. They come into being as previous deposits. What is happening is that money is circulating throughout the banking system, but there’s nothing mysterious about that as circulating is what money does.The currency cranks mistake what the economics textbooks say about the whole banking system as applying to an individual bank. Hence their mistaken conclusion that, if someone deposits £100 in a bank, that bank can then immediately lend out £900.There is one bank that can create money out of thin air and that is the government-owned or controlled central bank. It does so by mere decision, by creating more “fiat” (“let it be”) money and introduces it into circulation by using it to buy government bonds off commercial banks (“quantitative easing” is a variety of this).Ironically, one of the solutions proposed in the New Economics Foundation video, that the government itself should issue money, already happens, even if indirectly. It could do it directly of course as the video says it did during WW1 and as the US government did during the Civil War (as “greenbacks”) … or as the government of Zimbabwe has been doing.What we need to ask is why people today tend to blame banks rather than capitalism as a whole. In his 1935 pamphlet Economics for Beginners (which has an interesting section on the currency crank theories of his day, some of which have been revived today) John Keracher attributes funny money theories to indebted small farmers, shopkeepers and businessmen who want to monkey about with the currency to reduce the value of their debts. I don’t think this applies today. It seems to be rather that because money so dominates people’s lives and that they associate money with banks that people’s resentment at their money problems is aimed at banks.Of course no banking or monetary reform is going to stop money dominating people’s lives. This is where we come in.
And here’s eccentric Tory MP Douglas Carswell trying to explain how to abolish “fractional reserve banking”, ie to turn banks into safe deposits. Well, actually, he’s just proposing allowing people who deposit money in a bank to choose not to receive interest on it (coming out of the bank lending it) but to instead pay the bank for storing it for them. As if many would.
Brian wrote:the “Mission Statement” issued by Peter Joseph without any consultation with the chapters.Peter Joseph may have issued this statement but it is difficult to believe that he actually wrote since he is normally more articulate than that while the statement is very badly written.In one part it states:
Quote:The Movement also recognizes the need for transitional Reform techniques, along with direct Community Support. For instance, while “Monetary Reform” itself is not an end solution proposed by The Movement, the merit of such legislative approaches are still considered valid in the context of transition and temporal integrity.So they support some kind of “Monetary Reform” (without specifying which) but does anybody know what “temporal integrity” means?
Like yours my christian neighbours are a bit woolly but less radical than yours. They don’t agree with
Quote:a world where the profit incentive is not only void, it is taboo.They have nothing against profit as such, but only object to capitalist firms making too much profit, which they regard as unethical. For them, it’s not Profit, but the Love of Profit, that is the Root of All Evil (or something like that). They think ethical profits are ok.
After the EC Meeting on Saturday two of us went to St Pauls to see how the general assemblies there work. While waiting we got into a discussion with a couple of supporters of Henry George’s plan for a single tax on land values. Immediately a few other people gathered round to listen. It’s like that there.There were about 300 or so people seated on the steps of St Pauls. The meeting was opened by a “facilitator” who explained the hand signals involved in “consensus decision-making” and introduced someone to report on the attempted march on parliament (which didn’t seem to have been all that satisfactory). He then called on someone to introduce the topic for discussion, which turned out to be the not all that interesting one of how to welcome visitors to the camp. The participants then formed into groups of 20 or so to discuss the topic and make suggestions (the two of us had to sit on the ground to take part/follow the discussion). After 20 minutes the spokespersons for the groups reported from the podium, addressing those present as “Fellow Occupiers”. No conclusion was drawn so no decision was made on this occasion. Reports from various working groups (environment, future vision, cleaning, etc) follow. Then anybody who wanted to could speak for a minute and a dozen or so did announcing various events.The whole thing was run democratically, though I’m still not sure what happens in the event of a consensus not been able to reached, as must happen, surely? In any event, a temporary forum for democratic debate has been opened up in the centre of London and seems to have been the conscious aim of some of the original organisers.The embarrassing “What Would Jesus Do?” banner has been taken down and replaced by “Real Democracy Now”. There were a few SWPers there who had been on the march to parliament still carrying their placards saying “He [Cameron] Has To Go”. Pathetic for people who see themselves as a “vanguard”. Actually they’re more a rearguard. Most, maybe all, the “occupiers” are way ahead of them realising that a change of prime minister would make no difference whatsoever. In fact, is there anyone who thinks it would?
Picked up a London Zeitgeist leaflet at the camp at St Pauls yesterday evening and was surprised to find that it criticised Monetary Reform which some of them are into (and which many at the camp certainly are). This is what it said:
Quote:PRIMARY GLOBAL CHANGES NEEDEDThe Global Monetary SystemEven if reformed, the Monetary System is incapable of becoming the tool to build the kind of egalitarian emancipated societies we need in order to thrive. Why? Because going back to the gold standard, outlawing interest, letting governments distribute money debt free and such like, have logical merits, but the Monetary System, in whatever form, still maintains resource and equality imbalances and holds back our progress, while creating by its fundamental design, poverty and scarcity of basic needs. This is the underlying problem that needs to be served.Self InterestThe accepted motive of seeking competitive gain at the expense of others remains even in a reformed Monetary System. There may be less pressure if interest didn’t exist, but the scarcity of money would still exist. A Monetary System and scarcity of money are inseparable. This money scarcity, so prevalent today is the basis of corruption and would continue to be a gangrenous reality of business as usual. This is why it’s extremely difficult to “take the money out of politics” . We need to take monetary relations out of everything.Cyclical ConsumptionThis flawed economic doctrine would be present even in a reformed Monetary System. The raison d’etre of each corporation or commercial enterprise is PROFIT at all cost. Since repeat sales for so-called “growth” and profit is required for survival, the monetary system’s own logic demands increased consumption, spiralling debt and, worst of all, massive waste and inefficient use of resources as goods are made as cheaply as possible and discarded year upon year in favour of the marketing hyped “latest model”. This also re-enforces the belief of non-sustainability as an unavoidable “normality”.Technological UnemploymentThe lost jobs that are never coming back. When employers implement new productivity enhancing technology it often displaces labour, which can no longer be absorbed elsewhere. This mechanism will continue in a reformed Monetary System, with growing unemployment increasing the severity of the world socio/economic crisis. War and poverty are inevitable consequences of the Monetary/Market System economy profit at all costs doctrine, reformed or otherwise.Ok, there are still limitations in their economic analysis from our point of view, but this is a great advance on some of the ideas some of them used to express on their now defunct global forum.Maybe there’s hope for them yet !
