Campaign for debt free money, stable house prices, pension still worth something...

antrobus

Thrugelmir wrote: »

That's all very well. At the point Barclays sold themselves out to the Arabs the balance sheet was leveraged up to £72 of assets to a £1 of reserves. So a loan default rate of over under 2% had them in trouble.

Light touch regulation combined with financial engineering are the real issues.

Well yes, but the princeofpounds is still correct that "The simple act of giving a loan 'creates' money". And yes, the whole point of regulation would be to place a cap on that process.

Generali

princeofpounds wrote: »

Exactly this.

It's amazing how many cranks out there seriously think that a bank manager sits there multiplying everything that comes in by 10.

I guess it doesn't help that the terms 'money creation' and 'money multiplier' are used. It probably doesn't help that most people don't understand that money is more than the stuff in your pocket.

I'll try to illustrate a simple example so people can understand how the banking system 'creates' money.

A granny walks into a bank, and deposits 100 of her savings.

A builder walks into the bank. He asks for a loan for 90, to build a house. The bank loans him 90; they have to keep 10 back because the granny may want to withdraw a portion of her savings at short notice, and besides the Bank of England tells them they have to to ensure the granny can.

The builder walks out of the bank. He needs bricks for his house, so he phones the brick merchant, and spends 90 on bricks to be delivered next week. The money gets transferred to the brick merchant's bank account, and the 90 flows straight back into the bank as deposits.

The bank has no clue that the 90 is the money they just lent out remember!

A few minutes later, a driver comes into the bank, wanting a loan for a car. The bank can offer him 81 because of the deposit inflow they just had - again, they need to keep a little back for liquidity purposes.

The driver walks out and visits the dealership. He hands over the 81 to order his car. The sales guy drives to the bank at lunchtime to deposit the 81 from his sale. So, now the bank has a new deposit inflow of 81.

A student walks in wanting to borrow 72 for his tuition fees. the banks can lend him that....

You get the idea.

So, from this original £100, we have managed to spend 90+81+72. £243 and the day isn't even finished!

The simple act of giving a loan 'creates' money. There is no master plan, nothing weird going on.

That is precisely how it works.

An additional £100 added to the money supply in your example could lead to a maximum of £900 being created through credit creation.

ging84

the act of lending money only creates more money if you let the person who deposits the money to believe he still has it when actually it's been lent out.
The OP is basically arguing that you get rid of the letting person who's paid a deposit believe they still have the money.
I'm not sure how he expects the savers to get interest on their savings, presumably he would come up with some sort of system where people who wanted to earn interest wouldn't put there money into some sort of money lending out fund with an investment bank, and instead of a balance, they would have a record of the amount of money that they have invested in the fund and every month gets their investment return added to it and that return remains within the fund, unless opt to have you investment return paid into another account.
Then presumably someone would come along and say these type of investment accounts are quite risky for investors because there are no controls to the amounts they can lend out and if there was a run on an investment bank they could be in trouble, come up with some sort of regulatory scheme where the investment banks must keep a certain amount in reserve and also the investment banks would underwrite each other to spread the risk, and perhaps have that all managed by a central investment bank, call the investment bank of England

tomterm8

Generali wrote: »

Banks don't just create money from nothing!!!! They create money from increased deposits as a system not as individual entities. In the UK the Bank of England is the body with the power of seigniorage so only it can initiate an increase in the money supply. Through Fractional Reserve Banking, any increase can be multiplied.

Gold is an in specie currency not a fiat currency.

Maybe we can understand what we're on about before posting about this. Seigniorage (the profit to be made from the difference between the cost of creating money and its value as a store of wealth) is an interesting point at the moment given the (temporary?) rise of private fiat money such as Bitcoin.

Bitcoin raises legitimate questions about whether seigniorage should solely be in the power of the Government and if not, who should profit from it.

Maybe you could read your own wikipedia article before telling me I'm an idiot, old chum. Firstly, gold is not even a currency at the moment, but when it was a currency its value was not determined by the intrinsic value of the gold ( gold has really only had intrinsic value since the electronic revolution ; its use in jewellery is IMHO as a store of value) . Right from the start the value of gold was established and regulated by governments.

Secondly, we should distinguish between banks - which in our actual system today aren't bound by fractional reserves - and the banking system which is.

If a bank, say Northern Rock, wants to lend more money than it would be allowed to under government regulations based on their reserve capital they have for years had the option of bypassing attempts at increasing deposits and going to the wholesale money markets.

Which is why I say creating money costs money; because, for any individual bank, fundamentally the limit to how much money they can lend isn't their reserve. It's the combination of the cost of borrowing (whether from deposits or the wholesale money markets or the government) and their expected rate of return.

Obviously, as demand increases in the wholesale market the price of money also increases.

Generali

tomterm8 wrote: »

Maybe you could read your own wikipedia article before telling me I'm an idiot, old chum. Firstly, gold is not even a currency at the moment, but when it was a currency its value was not determined by the intrinsic value of the gold ( gold has really only had intrinsic value since the electronic revolution ; its use in jewellery is IMHO as a store of value) . Right from the start the value of gold was established and regulated by governments.

Secondly, we should distinguish between banks - which in our actual system today aren't bound by fractional reserves - and the banking system which is.

If a bank, say Northern Rock, wants to lend more money than it would be allowed to under government regulations based on their reserve capital they have for years had the option of bypassing attempts at increasing deposits and going to the wholesale money markets.

Which is why I say creating money costs money; because, for any individual bank, fundamentally the limit to how much money they can lend isn't their reserve. It's the combination of the cost of borrowing (whether from deposits or the wholesale money markets or the government) and their expected rate of return.

Obviously, as demand increases in the wholesale market the price of money also increases.

Bit harsh old chap. I don't recall calling you an idiot.

Mike4DebtFreeMoney

Well, here it is from the Bank of England:
http://www.bankofengland.co.uk/publications/Pages/news/2014/051.aspx#
And here it is from the UK Economics Correspondent for the Financial Times, which has about 40x the circulation of Moneyweek.
http://www.ft.com/cms/s/7f000b18-ca44-11e3-bb92-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F7f000b18-ca44-11e3-bb92-00144feabdc0.html%3Fsiteedition%3Duk&siteedition=uk&_i_referer=http%3A%2F%2Fwww.positivemoney.org%2F2014%2F04%2Fstrip-private-banks-power-create-money-financial-times-martin-wolf-endorses-positive-moneys-proposals-reform%2F%3Fmc_cid%3Deea141e381%26mc_eid%3D09fdf57947#axzz30PY2Lbn2
And here’s the graph that shows there is no Fractional Reserve relationship. Banks contracted the money supply when they were feeling sad due to the crash they caused, and in-spite of huge QE from the BoE, the money supply still contracted. Do you really want the economy driven by the mood swings of bankers? That contraction made the recession worse: it was business not getting loans.

Under the proposal I prefer, money creation would return to democratic control. Parliament would set the inflation target, an independent committee would determine how much new money was needed to meet it, BoE would create the money and Parliament would get to decide where it goes. Instead of propping up banks, £375bn could have gone into flood defences, manufacturing industry support, rail infrastructure, schools, hospitals and a whole host of public projects currently starved of cash. He who creates the money gets the benefit: at the moment it’s private companies and they put most of it into property, which is why YOUR mortgage is expensive and/or why YOU can’t get on the property ladder.
If you like your debt, don’t mind another financial crash, and are happy with the bonuses of the financial sector, then do nothing. If not, write to your MP and educate him on this societal advantage held by a handful of private profit seeking companies. This is not a pipe dream, Parliament ALREADY VOTED TO REMOVE THIS POWER.
http://en.wikipedia.org/wiki/Bank_Charter_Act_1844
They just didn’t predict the appearance of computers. The petition is simply to update the legislation. It’s about time we did.
http://epetitions.direct.gov.uk/petitions/64050

Thrugelmir

Mike4DebtFreeMoney wrote: »

Parliament would get to decide where it goes.

After the Brown\Blair years we've learnt that lesson. Some of us are still working on the mess that's been left behind.

Thrugelmir

Mike4DebtFreeMoney wrote: »

Banks contracted the money supply when they were feeling sad due to the crash they caused, and in-spite of huge QE from the BoE, the money supply still contracted.

I can recommend some books to read that may help your comprehension better. Feeling sad? That's twaddle of the first degree.

Mike4DebtFreeMoney

ging84 wrote: »

... if you let the person who deposits the money to believe he still has it when actually it's been lent out...

Yep, that's exactly how banking works today.
Here's a Douglas Carswell MP's bill to change it:
http://www.publications.parliament.uk/pa/cm201011/cmbills/071/2011071.pdf
In a nutshell, it would give you the choice of a deposit account as you believe it to be (i.e. safe money that's yours) or an interest bearing account where the bank can do what it likes with your deposit, as is the universal situation today.

Mike4DebtFreeMoney

Thrugelmir wrote: »

After the Brown\Blair years we've learnt that lesson. Some of us are still working on the mess that's been left behind.

Are you of the opinion that politicians do not get to decide where public funds are spent today? Steering clear of the mention of QUANGOs, who do you think decides?