Why bankers rule the world

CLAPTON

Jegersmart wrote: »

In some ways it does get a bit jaded to have this discussion every month or so but at the same time it is fascinating how many people do not understand how money and a monetary system works and what effect it has on all taxpayers on an ongoing basis..




J

Indeed so, it is surprising how many people don't understand how a banking system works.

It is perfectrly possible for a small isolated island to have a banking system that does not require infinite growth.

However in truth that requires an understanding of economics and not just banking.

Jegersmart

CLAPTON wrote: »

Indeed so, it is surprising how many people don't understand how a banking system works.

It is perfectrly possible for a small isolated island to have a banking system that does not require infinite growth.

However in truth that requires an understanding of economics and not just banking.

Actually, even a small isolated island with money created out of debt would have the same situation. Perhaps there are more people than you realise?

J

CLAPTON

Jegersmart wrote: »

Actually, even a small isolated island with money created out of debt would have the same situation. Perhaps there are more people than you realise?

J

Why?...........................

ruggedtoast

CLAPTON wrote: »

Why?...........................

Perhaps it would be easier if you explain why you think it wouldn't.

You get a spinning Martin if the explanation doesn't include some cobblers about the velocity of money.

Linton

Jegersmart wrote: »

Hi Clapton

Whenever money is printed - i.e. money supply increased - interest is always applied. There is some debate on how this work in the UK, when the Government wants to print money it issues Gilts which the BOE buy from them with money it created out of thin air. All these gilts or bonds have a coupon or interest rate applied to them. You may have seen in the news recently that the UK Government may be getting a "windfall" because the BOE is due to hand over the interest paid on the gilts by the Government, back to the Government. In the US it is not so clear what happens to the interest paid - it gets paid to the Fed - but not sure how/when/if they pay the interest back to the taxpayer or not. Remember that the Government has no funds or create any "wealth" apart from what it receives from taxpayers. Why is there interest applied when a Government wants to expand the money supply?

Nonetheless, all money that is created has interest applied to it, it is debt. All money that currently exists is owed by someone to someone else. Almost all interest paid flows back to a bank.

The interest owed is what makes infinite growth necessary, unless there are major changes to the system there will always be more money needed to pay back the debt/money that exists now because interest is applied. Please note that I say *unless they change the system completely*.

As to your comment about banks lending out less than they have as deposits is completely false, I suggest you do some reading.

In some ways it does get a bit jaded to have this discussion every month or so but at the same time it is fascinating how many people do not understand how money and a monetary system works and what effect it has on all taxpayers on an ongoing basis. It is very important that as many people as possible understand this. If enough people see the system for what it is then we may have a chance of changing it in the longer term, before the change is forced upon us of course. This planet has limits, both in terms of finite taxpayers that can be sustained and the resources needed for survival.

A monetary system is one of the most limiting systems I can think of for humankind in a high-level sense...

imho

J

Really? From a quick review of human history it seems to me that the absence of a monetary system was much more limiting. No long term investment and a hand to mouth existence based on barter.

Surely investment is the key advantage of fractional reserve banking. Are you proposing a system whereby major development only takes place on the basis of individual public subscription or forced labour?

As to this bit about not enough money to pay off all the debts: Surely debts and their interest are zero sum. Every debt is ultimately another's investment, and every £ paid in interest is received elsewhere as investment income.

lvader

Then why are banks doing so badly?

CLAPTON

ruggedtoast wrote: »

Perhaps it would be easier if you explain why you think it wouldn't.

You get a spinning Martin if the explanation doesn't include some cobblers about the velocity of money.

To ascert that fractional banking implies infinite growth is a curious thing. It would invite some explanation.
Without knowing your logic it's a little difficult to disprove such a thing.
You could if you wish provide me with a detailed reference, as I would be happy to read that instead.

grizzly1911

lvader wrote: »

Then why are banks doing so badly?

Because they lent on bad risks, so didn't get their money back or simply gambled what wasn't theirs and have to repay the people who "trusted them".

For all the failures there will have course been beneficiaries.

Jegersmart

CLAPTON wrote: »

To ascert that fractional banking implies infinite growth is a curious thing. It would invite some explanation.
Without knowing your logic it's a little difficult to disprove such a thing.
You could if you wish provide me with a detailed reference, as I would be happy to read that instead.

Why would you wish to disprove it? Is this an internet thing?

Fractional banking does not imply on its own that infinite growth is necessary but the application of interest does. A person/entity/corporation/government always needs growth to be able to pay the principal PLUS interest. This is why most businesses that do not grow are either cash-rich with limited liabilities (and generally get purchased by other corporations using debt) or the company gets into a spiral of non-growth and often fail because the lending they took on was based on future growth.

As I said, when you factor in that in addition to the application of interest we live on a planet with finite resources you have a problem. Hydrocarbon energy underpins our civilisation as absolutely as the atmosphere does currently, what happens when resources become scarce? How do we overcome those limitations when we are increasingly burdened by debt?

I have been working in the financial and energy markets for the past 15-20 years (the vast majority of my working life - I am 40 years old) and I tend to think of it like this: Energy=Money=debt. There is a wonderful/horrific (delete as necessary) synergy between these things. It is oversimplified of course, but we are a petroleum civilisation using a monetary system.

We digress and I am not sure I have helped you disprove what I have said. I would summarise it thus that if you consider that all money created is created out of debt (it has interest applied to it) - does this suggest that infinite growth will be required if one looks at a very long term view? In my mind it does, why do you think every single economist/politician/etc always talk about "growth"? This is because it is absolutely needed in the current system.

Thanks for the debate by the way, it is always good to learn and consider different viewpoints.

J

Jegersmart

Linton wrote: »

Really? From a quick review of human history it seems to me that the absence of a monetary system was much more limiting. No long term investment and a hand to mouth existence based on barter.

Surely investment is the key advantage of fractional reserve banking. Are you proposing a system whereby major development only takes place on the basis of individual public subscription or forced labour?

As to this bit about not enough money to pay off all the debts: Surely debts and their interest are zero sum. Every debt is ultimately another's investment, and every £ paid in interest is received elsewhere as investment income.

Yes, if you look historically there has been challenges with a barter system - at least if you believe the reports and studies that have been done retrospectively. However, the world has changed more for humankind in the last 100 years than it did in the previous 5000 years. Technology allows us to not be limited by dealing with the others in our village or travelling traders that visit twice per year.

I am not sure I have the answers, but if we replace a monetary system with a resource-based system I think it can work, or at least better than a monetary system. A monetary system is based on profit, scarcity, competition and labour. This in short means that we submit to labour to pay off debt, companies will do anything to maximise profits and we do not create abundance because there is no economical reason to do so. A lot of the crime and conflict is caused by the monetary system, we have every reason not to trust each other and it is "every man for himself" (sorry ladies). Everyone only does something if they get something out of it. Do we have the resources to build houses, hospitals, solar energy panels etc etc for the whole world? I believe we do, the reason we don't is because there is no profit in it (amongst other things). A resource-based system would also be beneficial for us all as a whole as we would make efficient use of those resources and protect them for future use. Have you heard of "planned obsolescence"?

I am not saying I am right on this, but I think I am right in saying that a monetary system cannot be a long term solution. I would like to try to think outside what we are taught to believe, the values that we operate under and the institutions that we uphold. In a resource-based society, it would be hard to envisage why we would need countries, religion, governments (too a large degree) or anything else that divides us currently.

Discuss.

J