Moneyweek - British interest rates & debt....are we all doomed?

antrobus

Jegersmart wrote: »

..Banks do effectively create money because they are allowed to lend multiples of the deposits held, of course this can only happen if demand for such loans exist.

Banks do not "lend multiples of the deposits held". Banking balance sheets well, balance, and assets always equal liabilities. You're confusing deposits with capital.

Jegersmart wrote: »

....
Personally I do not see the point of discussing the definition of "creating money" - it is semantics because if an activity increases the money supply it has the same effect.

Please stop muddying the waters with semantics, it does neither the debate or yourself any favours.

J

What on earth are you on about. IronWolf is 100% correct "Private banks don't, and can't legally, create money".

JohnRo

Jegersmart wrote: »

I agree - however:

The only source of "income" is labour on which we pay tax. All the interest that has been fraudulently allowed to be applied has to be paid back by the only source of "income" which is labour - i.e. we either pay back banks straight interest on "debt", or we pay for it indirectly through corporations's debt. Either way, it is always the taxpayer that foots the bill - or the "performer of labour". In THAT way, we do owe ourselves all the money because we are the only ones paying it off. And this is the true meaning of the phrase "wealth transfer".

J

Unfortunately it isn't us in the sense of people here now, it's a transfer of the wealth of all future generations who have no say in the matter now but will have to pay back or do something similar to continuously kicking the can down the road which is getting less likely. Transferring wealth to ourselves now, mostly via governments addicted to deficit spending if you don't believe the official figures but also privately by similarly vast amounts, is great for the illusion of prosperity but its prosperity we haven't paid for and which "the future" will have to pay for on top of what they'll need for themselves.

The banks have simply been offered a criminal monopoly by captured governments and allowed to pay themselves staggering amounts now for being clever (read privileged) enough to create and profit from the invention of[STRIKE] money[/STRIKE] credit backed by nothing but the labour of generations unborn.

No matter how many people try to do the same as the bank that created the [STRIKE]money[/STRIKE] credit out of nothing in the first place all they're doing is offsetting their share of what is owed and compounding what is ultimately owed to the banks by everyone else now and in the future by passing it on down the economic food chain. As you say the interest owed will end up at some point being repaid by many with nothing, forced to work and produce something new to cover the debt.

Jegersmart

antrobus wrote: »

Banks do not "lend multiples of the deposits held". Banking balance sheets well, balance, and assets always equal liabilities. You're confusing deposits with capital.



What on earth are you on about. IronWolf is 100% correct "Private banks don't, and can't legally, create money".

Hi Antrobus

Thanks for some more information from you, it is much appreciated - and yes for this discussion I have interchanged the words "deposits" and "capital". I do not mean to confuse anyone so my apologies for this.

Perhaps it is best to go back to basics to see if we can agree on something simple:

Do you agree or disagree with the point that banks effectively increase the money supply through fractional reserve banking?

Let us start there and see how we go?

J

JohnRo

antrobus wrote: »

What on earth are you on about. IronWolf is 100% correct "Private banks don't, and can't legally, create money".

They create credit and then go looking for reserves. Essentially the same thing in an electronic age.

rpc

Jegersmart wrote: »

Do you agree or disagree with the point that banks effectively increase the money supply through fractional reserve banking?

First you will have to define "money." (M0/MB/M1/M2/M3/M4)

Fractional reserve banking increases the broader definitions, but not the narrower ones.

Jegersmart

rpc wrote: »

First you will have to define "money." (M0/MB/M1/M2/M3/M4)

Fractional reserve banking increases the broader definitions, but not the narrower ones.

This is not a debate around the finer definitions of "money creation" - this is a debate about debt. My question remains, can we agree that the banking system increases the amount of "money" available for corporations/individuals etc to spend through (increased) debt?

We can start a new thread if you are interested in the finer points of money supply statistics? If so, please just start a new thread and we can take it from there.

J

IronWolf

Jegersmart wrote: »

This is not a debate around the finer definitions of "money creation" - this is a debate about debt. My question remains, can we agree that the banking system increases the amount of "money" available for corporations/individuals etc to spend through (increased) debt?

We can start a new thread if you are interested in the finer points of money supply statistics? If so, please just start a new thread and we can take it from there.

J

The definition of money is important though. For example if I put £10 in the bank, who lends that £10 to someone who buys a pint of beer. The pub deposits that £10 in a bank who then lend it out to another person who buys a book. The bookshop owner then deposits that in a bank who lend it out etc etc (I've ignored reserves).

The total amount of money involved in this loop is £10, but that same £10 has been used to purchase multiple items via the creation of debt.

I would not say that the bank is 'creating money', it is simply an enabler, it allows money that would be otherwise be doing nothing to be active in the economy.

StevieJ

IronWolf wrote: »

Wow, there's a lot of mis-information and mis-interpretation on this thread.

Private banks don't, and can't legally, create money. That function is reserved exclusively to the Bank of England. What private banks do is to take money on short term loan (deposits) and lend it long term (mortgages, loans etc). Because short term debt has a lower interest rate than long term debt, they make a spread on the interest and that's how they make profits.

The act of loaning money increases the money supply in the economy, because now that money has been lent out to be spent, whereas otherwise it would have sat as savings doing nothing. That is not the same thing as creating money.

Moneyweek are very sensationalist, it sells magazines. I would take everything they say with a pinch of salt. I'd never take investment advice from them. I remember buying an edition 4 years ago saying to sell your house it will drop in value by 40%. Look how that turned out...

I always think of the Groucho quote when I see a Moneyweek post.

Those are my principles, and if you don't like them... well, I have others.

cepheus

antrobus wrote: »

Banking balance sheets well, balance, and assets always equal liabilities.

If only :rotfl:

.... in a broader sense, it could be said that commercial banks introduce new money by multiplying base money created by the central bank through fractional reserve banking; this expands the amount of broad money (i.e. cash plus demand deposits) in the economy.

Money creation through the fractional reserve system

Main article: Fractional-reserve banking
Through fractional-reserve banking, the modern banking system expands the money supply of a country beyond the amount initially created by the central bank.[4] There are two types of money in a fractional-reserve banking system, currency originally issued by the central bank, and bank deposits at commercial banks:[5][6]

1. central bank money (all money created by the central bank regardless of its form, e.g. banknotes, coins, electronic money)
2. commercial bank money (money created in the banking system through borrowing and lending) - sometimes referred to as checkbook money[7]

When a commercial bank loan is extended, new commercial bank money is created. As a loan is paid back, more commercial bank money disappears from existence. Since loans are continually being issued in a normally functioning economy, the amount of broad money in the economy remains relatively stable. Because of this money creation process by the commercial banks, the money supply of a country is usually a multiple larger than the money issued by the central bank; that multiple is determined by the reserve ratio or other financial ratios (primarily the capital adequacy ratio that limits the overall credit creation of a bank) set by the relevant banking regulators in the jurisdiction.

Thrugelmir

Macca37 wrote: »

I have just listened to the latest Moneyweek presentation about UK debt.

The theme was that due to the amount of debt that the UK has accumulated and the fact that we are still continuing to run up even more debt means that we will soon hit a crunch point where interest rates will increase leading to the UK becoming effectively bust.

They mention that this could lead to the abolition of the NHS, State pension etc just to try and cover the interest payments.

They go on to compare our position to Greece to try and emphasise how bad a position we are in. The coming crisis will in turn lead to a run on banks, a housing crisis, stock market collapse which will eventually leading to the complete breakdown of society within the UK.

From my own perspective it all seems very overblown to me but I would be interested to see what other people think?

Nothing new in this. Probably made more sensationalist to make a story. However debt is an issue than no politician has yet taken by the horns. At some point will become very real. Take a look at Japan for the past 2 decades. An indication of what maybe in store.