The credit crunch explained

1694

The Government (back in 1694) wanted to spend more than it had raised in tax revenue, instead of minting new money it borrowed from the newly formed Bank of England with the intention of repaing the loan + the interest on the loan from increased tax the next year. However it was afraid to raise taxes and loose popularity, so when the loan repayment fell due it didn't have the money, so the loan rolled over with compount interest. This has continued since that time.

National Debt (the amount the government has borrowed with the intention of repaying it through taxes) exceeded Gross Domestic Protit (the amount of wealth the country creates on which tax can be levied) even before the bailout. The gap between what the government has borrowed and what the country can produce has dramatically widened since the recent torrent of government borrowing.

You can see here, borrowing already exeeded production in 2006.
http://www.dailymail.co.uk/news/arti...nt-claims.html

There is no way we can pay off the debt in the style of Andrew Jackson (US president that paid of the national debt, closed the central bank and refused to allow the government to borrow).

The value created in this country through the work of the people is now considerably less than the principal of its borrowing even before the new interest is added.

Nothing in this country has actually been paid for as the original money was borrowed so it has outstanding debt attached accruing compound interest at rates which the government will not disclose.

So for every years work we do all of that production PLUS a portion of the means of production is repaid to the banks to meet the repayment demands. As the means of production is decreased with each repayment how can we produce the next repayment?

You can see the effects of this in action as house prices and share prices fall. Remember the price of these assets is a reflection of their Net Present Value, the sum of the future discounted cash flows. Houses will no longer be able to be rented for as much and rents will fall, companies will shrink and profits will fall there fore the NPV, or amount people are prepared to pay for them today is falling. This is also why banks are unable to use your savings to create more whealth in the country and are failing.

We now owe the banks the government borrowed from for everything in this country, plus everything that it will ever be able to create.

These loans have been taken out without your consent and you will have to try and repay them through increased taxation.

Notice there was no income tax in the US or UK untill the government borrowed (as recently as 1913 in the USA!). Income tax was meant to be temporary (it is still renewed yearly) to repay the loans. If you think about it where does income Tax go...it existed long BEFORE the NHS, or state schools. Council Tax, Road Tax etc. are designed to pay for the services they provice. Income tax is not apportioned to anything.

I hope this has been informative for you. If you wish to question anything, google the questions. You will infact find much of the info on the Bank of England Website and HMR Treasury sites.

For an easy overview of the topics see: http://www.prosperityuk.com/prosperity/prosperity.html

or watch this 40 min video: http://video.google.co.uk/videoplay?docid=-9050474362583451279&ei=3u_tSOTPGJOwiALTofnGBg&q=money+as+debt&hl=en

MrOrchard

I'm concerned that the link is from the Daily Mail, i daren't click on it in case they blame asylum seekers, the gays or women.

mark.4-2

Very interesting. The current situation has come to a head because the banks decided that instead of lending to customers and taking all the risk themselves, they started selling the mortgage debt and the ongoing repayment income to third-parties. By spreading the risk, and trying to remove it from their own balance sheets, they took that as an opportunity to start taking more risks with their lending.

By the time it became clear that the level of defaults would be much higher than forecast, the amount of high risk debt in the financial markets had got out of control and spread far beyond the banks themselves.

wazaaap123

Wow what a great Post - thanks for that - i have just joined this forum and this this the first post i have read that makes great sense to me.

im going to watch that Video now.

Thanks.

1694

mark.4 wrote: »

Very interesting. The current situation has come to a head because the banks decided that instead of lending to customers and taking all the risk themselves, they started selling the mortgage debt and the ongoing repayment income to third-parties. By spreading the risk, and trying to remove it from their own balance sheets, they took that as an opportunity to start taking more risks with their lending.

By the time it became clear that the level of defaults would be much higher than forecast, the amount of high risk debt in the financial markets had got out of control and spread far beyond the banks themselves.

Whislt that is the superficial situation and has come to ahead. The post explains the root of the problem is much deeper.

There is no money left, the nation is no creating more wealth it is trying repaying its national debt but falling short. It is no different to you or I working for cadbury and borrowing 10 mars bars from Cadbury at interest of 1 mars bar a year compound interest. Cadbury is the only maker of mars bars. To repay Cadbury we have to work to make atleast 11 new mars bar a year to repay the debt. If we don't repay that debt, the next year we owe 11 mars bars, year after 12.1 mars bars, the year after 13.4 etc. Once we owe cadbury more mars bars than we can make in a year the system collapses.

Replace yourself with britain, cadbury with banks (yes banks do create money, it is not minted) and mars bars with money and you will see the sticky brown stuff we are in is not chocolate.

wes88

Who owns the Bank of England then?

I bet its the masons.

1694

MrOrchard wrote: »

I'm concerned that the link is from the Daily Mail, i daren't click on it in case they blame asylum seekers, the gays or women.

Although published by the Daily Mail the factual content was from a report for the Centre for Policy Studies think tank.

http://www.cps.org.uk/

Seajays

1694 wrote: »

Although published by the Daily Mail the factual content was from a report for the Centre for Policy Studies think tank.

http://www.cps.org.uk/

A yes - that liberal far-left think tank, the Centre for Policy Studies (created by Margaret Thatcher and "the power behind the throne", Sir Keith Joseph.) :rolleyes:

http://en.wikipedia.org/wiki/Centre_for_Policy_Studies

wazaaap123

wes88 wrote: »

Who owns the Bank of England then?

I bet its the masons.

It is the same people who own the federal reserve.

They are all controlled by the same people.

Reaper

I don't think that explains it at all. Instead it explains what the National Debt is. A contributing factor maybe but not the root cause. Let me try...

The first step in the crisis was when banks started copying the government and lent out money that they did not actually have. This "Funding Gap" is a recent thing - in 2001 it was zero. Now, to pick just one of many examples, RBS has a funding gap of £160bn.

This was compounded when the money they lent out was to dodgy US sub prime mortgages which had no chance of ever being repaid, but nobody realised until it was far too late.

Now nobody will lend to anybody else for fear they might go bankrupt, so as all those loans they took out come up for renewal they can't find anybody to extend them and they face being declared insolvent.

The government has therefore concentrated on "providing liquidity". That is, lending money to renew those loans or guarenteeing repayment to anybody else who is willing to take them on

That is what the credit crunch is about

1694

wes88 wrote: »

Who owns the Bank of England then?

I bet its the masons.

Apart form Patterson the names of the other original investors were secret.

Although nationalised in 1947, with the treasury holding the shares, there was no money to buy out the owners (the state was in debt to the owners) so they were given government gilts to the same value which paid 12% interest. So the state now owned the money, but also owed 12% on that money. The BOE since then has lapsed as a money creation body and that has fallen to other commercial banks who create and lend at interest. Infact commercial banks lend there deposits to the BOE and recieve interest for it.

The Fed is directly privatly owned by other commercial banks. You will find the Federal Reserve bank next to Federal Express in the American business pages not the government listings.