Money Money Money Money............................ Money

HAMISH_MCTAVISH

mpmbm wrote: »

precious metals

A reasonably interesting post from you.

If you could keep your multiple identities posting like that, instead of silver ramping, etc, you'd get banned a lot less often.

homelessskilledworker

HAMISH_MCTAVISH wrote: »

I don't see debt as wealth.

I see debt as a large component of the money supply.

And both the quantity and velocity of money in circulation directly affects economic activity, and thus the wealth of us all.

Example:

Bob walks into his bank and deposits £100 from earned income. The bank holds back 10% (fractional reserve banking), and lends £90 to John as credit on his credit card.

John spends the £90 buying an hour's worth of "personal services" from Jill. Jill takes the £90 and deposits it with her bank. Who withhold 10% (fractional reserve banking) and lend out the remaining £81 to Dave on his credit card.

Dave spends the £81 buying a meal from Jack's restaurant, and Jack deposits the £81 with his bank. Who hold back 10% (fractional reserve banking), and lend the remaining £72.90 to Ben.

Ben takes the £72.90 and uses it to buy flyers from Tom's Printing company to promote his new business. Tom takes the money and deposits in his bank, who hold back 10% and..... you get the idea.

For every £100 created by the central bank, fractional reserve banking adds almost another £1900 to the system at a reserve rate of 10%.

So there is now £2000 in circulation.

And this is the important part.....

If we as a society determine that we want to increase the reserve rate to say 20% instead of 10%, then the supply of money in the system decreases from £2000 to just £500.

Because a 20% reserve rate only allows £400 of money to be created for every £100 of central bank money.

So the chain as above, now looks like this....

Bob walks into his bank and deposits £100 from earned income. The bank holds back 20% (fractional reserve banking), and lends £80 to John as credit on his credit card.

John spends the £80 buying an hour's worth of "personal services" from Jill. Jill gets a bit peeved that her punters can now only afford £80, but takes the £80 and deposits it with her bank. Who withhold 20% (fractional reserve banking) and lend out the remaining £64 to Dave on his credit card.

Dave spends the £64 buying a meal from Jack's restaurant, but can now only afford 2 courses instead of three, and Jack deposits the £64 with his bank after laying off a staff member as he now doesn't sell enough 3 course meals to justify keeping them all on. The bank holds back 20% (fractional reserve banking), and lends the remaining £51.20 to Ben.

Ben takes the £51.20 and now can't afford to buy flyers from Tom's Printing Company, so he buys a poster instead. Tom then doesn't need to order as much paper or ink from his supplier, and takes the £51.20 to his bank, who hold back 20% and..... again, you get the idea.

Debt is not wealth, in the way that internet posters sneer about.

But debt is part of the money supply, and thus part of the economy.

And if debt can create money, and the velocity of money can create wealth, then a reduction in debt can destroy wealth.

Which is a big part of the problems we face today....

Well Hamish, again I thank you, well not really you personally, but people like you.
You are a great reminder to me personally of how it all went wrong and how some people will believe anything to the point of becoming delusional if it fits their desperate circumstances.

Todays house prices reflect nothing more than the money lenders were prepared to loan pre 2007. Today in 2012 lenders are not prepared to lend anything close to the scale and percentage of valuation they did pre 2007.

You think(and a few others) present house prices are justified on the back of borrowing that everyone now considers wrong and destructive, lending I might add that nearly bought a few high street banks to the point of bankruptcy had it not been for the taxpayer.

I also would side with you and the usual suspects that house prices would double in the next year if another £1 trillion was recklessly loaned out to any mug willing to borrow the money. But not for one minute do I think it would be a good scenario for the future wealth of the UK or think that it would have any chance of not bringing this country to it's knees eventually.

But It would make some of you feel richer and better about yourself for a short while:)

HAMISH_MCTAVISH

homelessskilledworker wrote: »

Well Hamish,

Nice rant, but doesn't really address the topic of money supply, money creation and how it all fits into the wider economy.

Thrugelmir

Bob walks into his bank and deposits £100 from earned income. The bank holds back 10% (fractional reserve banking), and lends £90 to John as credit on his credit card.

John spends the £90 buying an hour's worth of "personal services" from Jill. Jill takes the £90 and deposits it with her bank. Who withhold 10% (fractional reserve banking) and lend out the remaining £81 to Dave on his credit card.

Dave spends the £81 buying a meal from Jack's restaurant, and Jack deposits the £81 with his bank. Who hold back 10% (fractional reserve banking), and lend the remaining £72.90 to Ben.

Ben takes the £72.90 and uses it to buy flyers from Tom's Printing company to promote his new business.

Ben's business goes bust. Then what?

The house of cards collapses.

michaels

Hasn't the bank charged enough interest on all the loans to make up for the odd one defaulting?

HAMISH_MCTAVISH

Thrugelmir wrote: »

Ben's business goes bust. Then what?

The house of cards collapses.

Of course not.

Banks charge interest on loans, and absorb the inevitable defaults from that margin.

You of all people should know that. Which of course raises the question of why you'd make such a misleading statement to begin with....

DpchMd

HAMISH_MCTAVISH wrote: »

Of course not.

Banks charge interest on loans, and absorb the inevitable defaults from that margin.

You of all people should know that. Which of course raises the question of why you'd make such a misleading statement to begin with....

Judging by the amount of poor, misleading and embarrassing financial advice he gives on this forum, my guess is that his "life in finance" involved making the tea for bankers.

HAMISH_MCTAVISH

DpchMd wrote: »

Judging by the amount of poor, misleading and embarrassing financial advice he gives on this forum, my guess is that his "life in finance" involved making the tea for bankers.

No, I'd be fairly sure even the tea boy in a bank would pick up a better grasp of the way the monetary system works.

But the real question is why?

Why does he persist in making statements we all know to be at best ignorant, and at worst outright lies?

abaxas

DpchMd wrote: »

Judging by the amount of poor, misleading and embarrassing financial advice he gives on this forum, my guess is that his "life in finance" involved fluffing for bankers.

Edited for accuracy

Thrugelmir

michaels wrote: »

Hasn't the bank charged enough interest on all the loans to make up for the odd one defaulting?

Little more complex.

As the banks have lent each other money. At the peak in 2008 its estimated that inter bank lending was 52% of all transactions in Europe. As banks repatriate capital now there's a big spring unwinding. Which s going to leave some banks exposed. Quite possibly the UK mortgage lenders. As they'll struggle to raise enough money on wholesale markets to fund their loan books. BOE must be worried that 2008 could repeat itself again.