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

PaulF81

Chance of IR raises? !!!! all. Said it in 07 on here, say it now.

Deflation it is.

Thrugelmir

PaulF81 wrote: »

Chance of IR raises? !!!! all.

Wholesale money markets are rising.

Without further QE. Savers hold the key. As they will move funds to the most attractive option.

Generali

michaels wrote: »

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

In theory yes. In reality, as Nick Taleb said, you can't price risks you don't know about or don't expect.

'Nobody' expected US nominal house prices to fall which meant that as far as pricing risk went you knew that if a mortgage went to foreclosure you would definitely the get the majority of your money back.

Loughton_Monkey

HAMISH_MCTAVISH wrote: »

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....

I've tried to follow your assertions, and glean a pearl of wisdom, but I remain baffled.

The bit I have most trouble with is the line "..and the velocity of money can create wealth....."

I believe this is a common myth, somewhat compounded by the fixation with GDP rather than balance of payments as an indicator of 'wealth'.

Let's assume that Bob earned his £100 as a tractor driver down the local farm. So far so good, his farmer is putting seeds in (at 2p per dozen) and selling his crops for a few £'000. He is creating wealth of which Bob's £100 is (we shall assume) his fair share.

After that it goes a bit wobbly doesn't it?

John's little liaison creates an awful lot of financial activity but I fail to see where wealth has been "created". Instead, it has been "transferred". Jill is now richer by £90. John is now poorer by £90. Assuming he lives on credit, John is also £5 poorer due to his interest, and the bank is £5 richer.

Now Dave steps in and does substantially the same thing. He transfers some of his wealth to Jack, who is now richer by the same amount as Dave is poorer.

.. and so it goes on. Wealth is transferred also to Jack's waiters, the inland revenue, food suppliers....

You would only have to draw up an accurate financial balance sheet for everyone involved after Bob deposited his £100, before anything else happened, and then after all those activities happened. The overall difference would be absolute zero. Neutral. Zilch. No wealth has been created. All that has happened is that it has been transferred in scores of different directions.

In other words, individuals have become wealthier, but other individuals have become poorer (financially) by exactly the same amount [John is richer in happiness but we can't value that].

I am not saying that such activity is 'bad'. Spreading wealth around is a vital part of the economy. If everyone kept wealth under the mattress, there would be a handful of rich people, and an awful lot of people with nothing.

Relative to the GDP as a whole, the actual wealth created is probably a miserably small proportion, and more importantly, probably declining. It's very hard to measure, since (for example) banging a bit of metal, plastic, and rubber together to make a car turns £10,000 worth of materials, and £2,000 worth of labour into £15,000 of value. But that 'value' depreciates rapidly over 10 years..... Sell that car abroad, and the £3K of wealth created stays in UK.

You really have to distinguish between any one individual or institution getting 'wealthier', and the sum total of all UK individuals and institutions. The latter is certainly getting less wealthy. The former.. well.. it's swings and roundabouts.

There are 100 people in a village. They all have £100 in the bank. They sit at home all day and do their own thing. All of a sudden, they get bored. So Alan offers to clean Bill's car for £5. Bill mow's Colin's lawn for £5. Colin gives Debbie a golf lesson for £5. Debbie cut's Eric's hair for £5.........

You get the picture. Tell me where a single penny of wealth has been created. From nothing, we now have an 'economy' of £500 a week, £25,000 a year, but absolutely no-one is any richer.

PaulF81

Thrugelmir wrote: »

Wholesale money markets are rising.

Without further QE. Savers hold the key. As they will move funds to the most attractive option.

Sorry, correction, BASE rate wont rise! :rotfl:

My mistake. You are right, savers are going to get better returns from now on though.

homelessskilledworker

HAMISH_MCTAVISH wrote: »

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

No I was as calm and chilled as hell.
I log on for a quick 10 minutes and leave a few points in what a believe is a discussion board, and you call it a rant.

I have even read it again before posting this, and cannot see any problem, except of course that yet again I do not agree with hardly anything you post, sorry!!

Bit of a cheek anyway coming from a man that spends his whole life on here and has posted more than 10000 times with the same points over and over and over again, some would call that ranting:)

HAMISH_MCTAVISH

homelessskilledworker wrote: »

I have even read it again before posting this, and cannot see any problem,

OK, lets start from the beginning....

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.

I post a simple and indisputable fact about how the money supply works through fractional reserve banking, and get called "delusional" and "desperate" for my efforts.

That the money supply is shrinking because banks are reducing lending is beyond dispute.

Look it up.

Todays house prices reflect nothing more than the money lenders were prepared to loan pre 2007.

If that were the case then a fall in lending of 65% would have resulted in a fall in house prices of far more than the 10% below peak we currently sit at.

Today in 2012 lenders are not prepared to lend anything close to the scale and percentage of valuation they did pre 2007.

Yet prices remain surprisingly close to peak levels in most places.

You think(and a few others) present house prices are justified on the back of borrowing that everyone now considers wrong and destructive,

How many times?

UK mortgage lending had absolutely nothing to do with the global financial crisis.

UK banks lost £15 on overseas mortgages (mostly US sub prime slime) for every £1 they lost on UK mortgages.

lending I might add that nearly bought a few high street banks to the point of bankruptcy had it not been for the taxpayer.

Wrong again.

The lending standards in use by UK banks had nothing to do with why they failed. That happened because the global wholesale markets froze, and it made not the slightest difference whether you were Northern Rock or Lloyds or Santander, you simply could not access funds to cover your liabilities.

The Northern Rock "bad bank", containing the worst of the worst of UK mortgages, made a staggering 750 million pound profit last year.... Quite clearly it was not those profitable mortgages which put the bank under.

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.

Completely irrelevant to the topic at hand today.

Which is that of the money supply and fractional reserve banking.

Now I must have missed it, so could you point out which part of your post was an on-topic discussion of the facts around the money supply and it's interaction with fractional reserve banking?

Rather than just a generic rant repeating your mistaken belief that UK house prices were a result solely of UK lending practices.

homelessskilledworker

HAMISH_MCTAVISH wrote: »

OK, lets start from the beginning....



I post a simple and indisputable fact about how the money supply works through fractional reserve banking, and get called "delusional" and "desperate" for my efforts.

That the money supply is shrinking because banks are reducing lending is beyond dispute.

Look it up.



If that were the case then a fall in lending of 65% would have resulted in a fall in house prices of far more than the 10% below peak we currently sit at.



Yet prices remain surprisingly close to peak levels in most places.



How many times?

UK mortgage lending had absolutely nothing to do with the global financial crisis.

UK banks lost £15 on overseas mortgages (mostly US sub prime slime) for every £1 they lost on UK mortgages.



Wrong again.

The lending standards in use by UK banks had nothing to do with why they failed. That happened because the global wholesale markets froze, and it made not the slightest difference whether you were Northern Rock or Lloyds or Santander, you simply could not access funds to cover your liabilities.

The Northern Rock "bad bank", containing the worst of the worst of UK mortgages, made a staggering 750 million pound profit last year.... Quite clearly it was not those profitable mortgages which put the bank under.



Completely irrelevant to the topic at hand today.

Which is that of the money supply and fractional reserve banking.

Now I must have missed it, so could you point out which part of your post was an on-topic discussion of the facts around the money supply and it's interaction with fractional reserve banking?

Rather than just a generic rant repeating your mistaken belief that UK house prices were a result solely of UK lending practices.

Gosh!!! :rotfl:

HAMISH_MCTAVISH

homelessskilledworker wrote: »

Gosh!!! :rotfl:

So still no comment on the shrinking money supply then....;)

Is it because you don't understand how it works, or because you can't get your head around the implications?

homelessskilledworker

HAMISH_MCTAVISH wrote: »

So still no comment on the shrinking money supply then....;)

Is it because you don't understand how it works, or because you can't get your head around the implications?

Yep, you are far too bright for me:T

I am not out to prove how bright I am, I am just after a cheap house x