Why bankers rule the world

CLAPTON

Thrugelmir wrote: »

If that's the case. Then debt does not equal saving.

yes to some extent that may be true as 'savings' are greater than 'debts' although the details depending upon account conventions.

a more complete look at a bank needs to recognise the role that the banks' reserves play.

with our fractional banking system, only a proportion of the banks borrowing can be relent so that there is sufficent reserves to be able to meet randon customer withdrawals and bad debts.

However the point of the discussion was to challenge the mindless 'debt based banking sytem' mantra by pointing out that the 'debts' are broadly matched by the 'saving'.
In fact, because of the reserves in a bank the total loans the bank has made wiill be less than the total of 'saving' people have deposited with the bank.

Jegersmart

CLAPTON wrote: »

yes to some extent that may be true as 'savings' are greater than 'debts' although the details depending upon account conventions.

a more complete look at a bank needs to recognise the role that the banks' reserves play.

with our fractional banking system, only a proportion of the banks borrowing can be relent so that there is sufficent reserves to be able to meet randon customer withdrawals and bad debts.

However the point of the discussion was to challenge the mindless 'debt based banking sytem' mantra by pointing out that the 'debts' are broadly matched by the 'saving'.
In fact, because of the reserves in a bank the total loans the bank has made wiill be less than the total of 'saving' people have deposited with the bank.

http://en.wikipedia.org/wiki/Reserve_requirement#United_Kingdom

The current "voluntary" reserve requirement is 3.1% in the UK as far as I can see - in any case the link above shows the continued drop in requirements in most parts of the world since the last 60's - hence creating more interest-bearing debt-based money through loans. Anything less than 25% reserves seems crazy to me, however this would mean that a lot less money is created which would not encourage "growth"..............

J

John_Pierpoint

Surely the remit of the Bank of England includes an instruction devalue the money by 2% inflation every year - it thought it could do this by simply increasing the money supply.
However it had forgotten that inflation is caused by too much money chasing too few goods. So inflation can be cause by a fall in production just as much as an increase in money.
The statistics are now showing that British workers are less productive than they used to be (ie the value they are adding is falling).
This might go some of the way to explaining why the recent higher rates of inflation have totally failed to "stimulate" the economy.

So who has got a better suggestion for the B o E ?

Jegersmart

QE - at least at the current time - is for the benefit of the banks in the main. It is also a very blunt tool because once the "money" is created and securities purchased and funds deposited there is no guarantee that the money will find its way to the desired areas of the economy. Banks may choose (which I see is definitely the case) to bolster their reserves or they may invest the money in any area they choose which can be seen by a very broad-based asset inflation - gold up, stocks up, bonds up and so on. We don't see severe inflationary pressure yet (officially) and there could be many reasons for this, however what is clear is that there is not a strong demand for goods and services or production is lagging as you point out. In short I favour an explanation where the printed money is not finding its way into the larger economy, and that is why I believe banks are deleveraging aggressively. This is backed up (somewhat anecdotally) by close friends I have within the banking industry.

Whilst I don't believe that holding individual bank stocks over the longer term is any kind of investment and extremely risky (I trade them only through short term positions) I am thinking that some fund-based or basket tracker positions may be in order because once the banks complete shoring up their positions their equities should do quite well - in fact a number of them have already started to recover very well over the past 6-12 months. Off on a tangent - apologies.

J

CLAPTON

John_Pierpoint wrote: »

Surely the remit of the Bank of England includes an instruction devalue the money by 2% inflation every year - it thought it could do this by simply increasing the money supply.
However it had forgotten that inflation is caused by too much money chasing too few goods. So inflation can be cause by a fall in production just as much as an increase in money.
The statistics are now showing that British workers are less productive than they used to be (ie the value they are adding is falling).
This might go some of the way to explaining why the recent higher rates of inflation have totally failed to "stimulate" the economy.

So who has got a better suggestion for the B o E ?

it's interesting to reflect why all parties agreed that devaluing people savings by 2% year on year was a good thing.

should be on election material
'we the XXX party solemnly promise to slash the value of your saving by at least 40% over the next 20 years'

John_Pierpoint

When was the last time that any politician admitted to "the inconvenient truth".

Thrugelmir

Jegersmart wrote: »

and that is why I believe banks are deleveraging aggressively.

Simple as bank regulatory requirements. As set out in Basle 3. Introduction in phased stages from 2013 to 2018.

Banks became overleveraged and many were taking excessive risk. Losing sight of a prudent banking model.

Jegersmart

Thrugelmir wrote: »

Simple as bank regulatory requirements. As set out in Basle 3. Introduction in phased stages from 2013 to 2018.

Banks became overleveraged and many were taking excessive risk. Losing sight of a prudent banking model.

Yes, these are transparent changes coming - the speculation on my part is that QE is sold to the taxpayer as propping up the economy, whereas the likelihood as I have stated is that it is almost entirely for the benefit of the banking system.

All imho ofc.

J

Thrugelmir

Jegersmart wrote: »

Yes, these are transparent changes coming - the speculation on my part is that QE is sold to the taxpayer as propping up the economy, whereas the likelihood as I have stated is that it is almost entirely for the benefit of the banking system.

All imho ofc.

J

QE was injected by buying gilts from pension funds and life assurance companies in the main. This deposited cash into the banking system not to the banks themselves. There's a common misconception that the cash belongs to the banks.

Jegersmart

Thrugelmir wrote: »

QE was injected by buying gilts from pension funds and life assurance companies in the main. This deposited cash into the banking system not to the banks themselves. There's a common misconception that the cash belongs to the banks.

I am not so much talking about ownership here, although when money is deposited into a bank it becomes part of the bank's reserves, thus allowing banks to shore those up or create more money depending on the situation. Unless the "pension fund" or "life assurance company" just keeps the cash that it got from the BOE who created it out of thin air of course.

Mind you, to put it another way:

"In most legal systems, a bank deposit is not a bailment. In other words, the funds deposited are no longer the property of the customer. The funds become the property of the bank, and the customer in turn receives an asset called a deposit account (a checking or savings account). That deposit account is a liability of the bank on the bank's books and on its balance sheet. Because the bank is authorized by law to make loans up to a multiple of its reserves, the bank's reserves on hand to satisfy payment of deposit liabilities amounts to only a fraction of the total which the bank is obligated to pay in satisfaction of its demand deposits."

the above from wikipedia by the way....

So my position that money=debt, is that fair enough now or are we still debating that point?

J