Why do govts borrow from others? - Page 3 - Politics Forum.org | PoFo

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Everything from personal credit card debt to government borrowing debt.

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#14751608
'Money' is a commodity like any other form of goods that are traded.

Of course, it takes it's form as 'currency' within countries, or trading areas, but, essentially, it is subject to the law of 'supply & demand with it's price(interest rate) being reflected accordingly.

As most of the world's countries have a 'central' bank, which governs the rest of the banks operating within their borders, these central banks are either 'owned' or 'controlled' by that country's government.
Indeed, those banks serve the interest of their governments, raising money out of thin air(printing money electronically-crediting the Bond purchasers accounts directly)
As that money, 'Gilts' is a long term 'investment', the decision to buy gov't Bonds depends on the yield at the maturity date, which is determined by the inflation over that period.
Why government borrowing matters is that the sums are vast, in times of 'cheap' money, that 'price' is determined by the central bank & it's government.

That is wrong, because there is a mismatch between what savers get by return(nominal)& what government is paying by way of yields on 'Gilts'.
A government(lender) influences the cost of the money through the central bank, whereas a saver has no influence on what he\she is able to receive by lending the bank their money in the first instance & which is often taxed as well.

The Bank of England, indeed, ALL 'central' banks should be privatised to allow the free market to operate & control inflation.

Pension funds, insurance companies, along with overseas investors & other financial institutions hold(own) most the UK debt.
Banks, households & others actually hold very little though of recent years has grown exponentially.

The interest on ALL UK debt is phenomenal, it can only get worse, because governments have got the spending habit in their veins, a UK 'Weimar' is a not too distant prospect for our children & grandchildren.

One should bear in mind that before mass uncontrolled immigration, this country was in pretty good shape,given that our population has increased by some 10% in 2 decades, with a 4/1 ratio of births to immigrants compared to indigenous couples, one would expect our real wealth to have increased proportionately, this is NOT the case.

In FACT, people are poorer than they have been since the late 1950's-60's.

Governments take a higher proportion of incomes in direct\indirect taxes than at any time since the last war, YET, real welfare spending per head has fallen, thus spending on 'projects' outside of household incomes has increased disproportionately.
#14751695
Nonsense wrote:That is wrong, because there is a mismatch between what savers get by return(nominal)& what government is paying by way of yields on 'Gilts'.
A government(lender) influences the cost of the money through the central bank, whereas a saver has no influence on what he\she is able to receive by lending the bank their money in the first instance & which is often taxed as well.


Savers actually can influence the cost of money by withholding it from the central bank and investing it in commodities, commercial bonds, mortgages, real estate, stocks, and other investments instead of government debt. People tend not to invest in those things as eagerly as they might because the government is the safest borrower. I'm American, but you're talking about gilts, so: the British government has been the safest borrower in Britain for centuries. If you want to rank-list assets in Britain according to risk gilts are really safe.

Nonsense wrote:The Bank of England, indeed, ALL 'central' banks should be privatised to allow the free market to operate & control inflation.


The US did not have a central bank at all between 1836 and 1913. We had a really fun part called "Free Banking" with minimal federal banking regulation between 1836 and 1863. (the National Bank Act was passed in 1863 which strengthened federal regulation) A long series of huge banking crises prompted the US to create the Federal Reserve. It turns out relying on a conglomerate of private banking barons to bail themselves out doesn't work very well. We found that out just as recently as...2008.

Nonsense wrote:The interest on ALL UK debt is phenomenal, it can only get worse, because governments have got the spending habit in their veins, a UK 'Weimar' is a not too distant prospect for our children & grandchildren.


Image

Less than...Thatcher?

Nonsense wrote:In FACT, people are poorer than they have been since the late 1950's-60's


Image

I can use google...
#14751791
For your information, neither of the quoted figures of 'median' or 'GDP' takes into account inflation since then to give 'real' effects on GDP or median income.

In FACT, inflation from 1977-2015 is 143.84%(annualised at 4.64%), so 'real' GDP & personal disposable incomes of the majority have not kept pace at all, particularly for those on the Basic State Pension.

The State Pension since 1948 has been at a near constant ratio of 15-16% of Average Earnings Index levels(AEI).

This has been inflated by government statistics to look like 26% since the AEI was change to the AWE Index & is therefore no more than propaganda.

This is so, because the state\government is only responsible for the Basic State Pension(BSP)annual increases(before the Tories were elected- the annual increase was calculated according to the previous September inflation figure).
The AWE takes into account bonuses et'c.

Taking the value of £1 in labour earnings in 1977,one would have to earn a total of £8.85 in todays money & it's purchasing value at todays prices is, £5.60.

Just out of interest, I never take at face value what the ONS publishes,what goes into their data washing machine comes out all nicely 'rinsed & spun'.
Politicians in favour of mass migration, tell you that the majority of migrants come here to work & that they 'contribute' more than they take out.

You will NEVER,EVER get FACTS to back up those 'ASSERTIONS' & the ONS have 'archived' to the Public Record Office, the juicy bits of data that question the above assertions.
#14751922
Nonsense wrote:For your information, neither of the quoted figures of 'median' or 'GDP' takes into account inflation since then to give 'real' effects on GDP or median income.

In FACT, inflation from 1977-2015 is 143.84%(annualised at 4.64%), so 'real' GDP & personal disposable incomes of the majority have not kept pace at all, particularly for those on the Basic State Pension.

The State Pension since 1948 has been at a near constant ratio of 15-16% of Average Earnings Index levels(AEI).


So let's try what it looks like when we put inflation in:

Image

Nonsense wrote:Just out of interest, I never take at face value what the ONS publishes,what goes into their data washing machine comes out all nicely 'rinsed & spun'.
Politicians in favour of mass migration, tell you that the majority of migrants come here to work & that they 'contribute' more than they take out.

You will NEVER,EVER get FACTS to back up those 'ASSERTIONS' & the ONS have 'archived' to the Public Record Office, the juicy bits of data that question the above assertions.


Well, where do you get data from then?
#14752164
noemon wrote:Bruh first of all you may call me 'zie' :excited: but I'm actually a 'he' and a lot uglier than my avatar.

Sorry, I assumed Boycey knew you.
Second, I don't see any an argument in your post, just denial.

?? I am just correcting incorrect claims. The incorrect claims weren't supported by any arguments, just assertions, so they are just as easily refuted by assertions. But Sue has posted a quote from Investopedia which should set you straight. Any introductory macroeconomics text will also describe the process. Most definitively, a text on bank bookkeeping will inform you that the money put into a borrower's account when they get a loan does not come out of any other account. It is a liability created to balance the loan asset.
Third I am honestly curious as to why someone would argue that the fractional reserve is not what it is.

It is what it is. It is not what it is not. It is intended as a brake on bank runs, not a brake on money creation.
It surely slots somewhere, no?

Some governments think it is a good idea, others don't. It certainly is not necessary to banksters' creation of money, as already proved.
noemon wrote:Banks cannot lend money without the fractional reserve system because if they are required to keep 100% of deposits in their vaults, they do not have any money to lend.

They don't need money to lend. They create it by lending it into existence.
Why would they borrow money from the central bank in that case when the borrower can go directly to the central bank who again will have a fractional reserve system to be able to lend money from her vault.

Borrowers cannot borrow from the central bank, only banks and governments can. Central banks don't maintain fractional reserves for their own operations.
And then the creation of another central bank will be required to act as the central bank which you have now rendered into the state-national bank, while the other banks have been demoted to security vaults. You' re just going around in circles ending up at the same spot.

I have no idea what you incorrectly imagine you think you might be talking about.
The CPI basket of goods does not measure wages but how much value money has in purchasing a basket of goods for sustenance.

The goods in the CPI basket tend to have a high wage component.
The more the inflation the less goods a person can buy to sustain himself and his/her family.

Only to the extent that their income lags inflation.
The CPIH includes housing costs.

No it doesn't. It only includes rental costs, not house price inflation. Here are the facts:

"“From our point of view we want to signal what we think is the best measure,” said Jonathan Athow.

He also rebuffed suggestions the change had been sprung on people and defended the quality of the figures, which took in hundreds of thousands of rental prices. The ONS had been consulting on CPIH for several years, he said. He also defended the measure as reflecting housing costs, without being clouded by changes in house prices – something that would reflect asset prices not goods and services prices."

https://www.theguardian.com/uk-news/eco ... stics-cpih

You are just objectively wrong, but may now consider yourself schooled.
And the RPIX includes mortgage interest rates.

But not asset prices. As I said, and you so foolishly denied.
It is accepted as payment because of the fractional reserve system.

Garbage. Canadian banks have no fractional reserve system, yet their payments are accepted the same as anyone else's.
Different nominally, the same substantially,

Nope.
the first 2 are fundamentally the same for a consumer while the last one has more flexible inflationary effects because it gets injected according to demand in a more regulated fashion.

Garbage. It gets injected into the land market in an unregulated fashion because people have to pay whatever they CAN pay for land.
No tax to corporations combined with a non-fractional reserve system will provide magical loans to start-ups?

There's nothing magical about it. Most start-ups don't get bank loans. They are funded by the entrepreneur's own savings, and loans from friends and family. VC firms and business angels also provide money. The notion that start-ups are dependent on banksters' money creation powers is cretinous.
And that money will come from the Fairy God Mother? :knife:

No, that money really WILL come from savings.

GET IT???
Every time government has issued the coin/fiat money it needed, it has issued enough coin to render coin meaningless.

That is just objectively false. The Continental currency issued during the Revolutionary War was not over-issued, it was counterfeited by the British. The fiat greenbacks Lincoln issued in the Civil War were never rendered meaningless, and were ultimate redeemed at par value.
That is why we have independent Central Banks to oversee the process because a political party in your scenario can have a bonanza party during its term and leave a mess when the coin is rendered worthless.

No it can't. My scenario is money issued to the Treasury according to a fixed mathematical formula based on a commodity price index, by an independent Mint whose sole mandate is price stability.
Yeah I'm sure if you tax the billionaires you will punish their jet-fuel consumption and they will not have enough token to get their 500th pair of golden cufflinks to consume.

No, those funds by definition AREN'T being spent, and are the actual savings that can fund start-ups and other productive investment.
So, no taxation for the rich,

No; tax their privileges, not their savings.
no fractional reserve,

Canada does without, and had the most stable banks after the GFC.
no loans for start-ups,

False and disingenuous garbage, as proved above.
just unlimited fiat-money for everybody

False as proved above: just enough fiat money to keep prices stable, and only for government.
and the world will be full of flowers...

Silliness.
You should follow your own advice and read your own source:

I have (you haven't). It is about fractional reserve banking because the Fed is a fractional reserve system, not because systems without fractional reserves, like Canada's, are fundamentally any different.
Last edited by Truth To Power on 19 Dec 2016 23:42, edited 2 times in total.
#14752173
It is quite hilarious someone not being aware that the money-creating facility of the banks is directly facilitated by the fractional reserve system, when it is in its very definition:

Fractional Reserve Banking wrote:Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.[1][3] In most countries, the central bank (or other monetary authority) regulates bank credit creation, imposing reserve requirements and capital adequacy ratios


You are still not answering the question on where does your denial slot within your ideology and what you are hoping to achieve by denying it? It is a liability permitted because of the fractional reserve system. It is not permitted in a non-fractional reserve system.

From Sue's sensationalist source wrote:As noted above, banks lend first and look for reserves later, but they do look for the reserves.


At best the author is merely pointing out an extended leeway that allows banks to abuse the right provided to them through the fractional reserve system, but that does not mean that this leeway does not hinge and that is not entirely contingent upon the fractional reserve system because both technically and officially it is.
#14752179
B0ycey wrote:Because you said a bank can just alter someone's account by putting money into their account without having the reserve first.

Which is certainly correct, as Sue's quote from Investopedia showed.
The banking system does not work like that.

Yes, it does.
Banks can only spend with the assets they have (read quetzalcoatl post on assets and liabilities and remember the collateral concept we discussed earlier about financing risk until sufficent reserves are executed).

Banks do not and cannot spend deposits. Deposits are a liability to a bank, not an asset. And they cannot spend their loan assets because loans are not money. Demand deposits are money. That is very much the point.
But if you were right, why would a bank worry if every customer withdrew their money?

Because then they would have far less (often no) reserves, vault cash, etc. It is BORROWERS whose money the bank doesn't mind being withdrawn, because it was created for that purpose: so the borrower could spend it.
In your world, banks create fictional wealth.

They create real money.
The only bank who can create money is the nation's national bank in accordance with the government.

That is utter nonsense. All licensed commercial banks create money -- demand deposits -- when they lend.
Noemon explained to you that this wealth is then given to banks to loan out to sectors that need the money.

He was wrong.
Wow. So everyone's money when deposited in a bank sits in a vaulted somewhere never to be used!

It is used for lots of purposes, mostly reserves, just not for lending.
It doesn't get spend?

Not usually.
It doesn't get invested?

Not usually.
It doesn't get loaned out?

Nope.
Instead banks create fictional debt (as you put it)

No I didn't. It is real debt.
to buy assets and lends money out with this fictional created wealth too!

The bank cannot buy anything with the money it creates, because it is a liability of the bank, not an asset.
Again I ask why do banks have customers if you are right?

They need money for various purposes.
Where is the logic for a bank to have money it will never use?

The money is used as reserves.
Do you know how stupid you sound.

I don't really care how stupid you think I sound, because I am objectively correct.
Banks need capital to buy assets and invest.

Certainly. But not to lend.
The money customers deposit gets spent I assure you.

I assure you it usually does not.
And interest is given to depositors because profit is achieved by banks using their money.

But not by lending it out.
There is a big difference between not having regulation in place to make sure you have a reserve and not having a reserve.

True. Reserves allow a bank to operate more flexibly.
If a bank does not have a cash reserve, then their cash machines will be forever empty.

?? That's vault cash, not reserves.
Countries that do not regulate are in risk of their banks taking too much risk.

Not regulating is not the same as not requiring a reserve ratio.
Fine in a good economic climate but dangerous if their assets become toxic and they rely on their reserves to refinance and assure customers that their money is safe.

Funny how Canada, with no reserve requirements, came out of the GFC with the healthiest banks....
Who would create bad assets?

Greed-besotted banksters.
Banks bought cheap debt because it was profitable on paper to do so.

No, because it was lucrative for the individuals who did it.
But if the loanee defaults, assets become toxic. And like the US, property values fell globally and more assets became toxic. This was ultimately the reason for the crash in 2008.

Watch "The Big Short."
However quetzalcoatl is correct on illegal processes that banks took in terms of ponzis that allowed banks to spend money they did not have. And 2008 pretty much highlighted these practices and global banks that allowed the conditions for ponzis to occur were fined and rogues who undertook these actions were sent to jail.

Which bankster went to jail for stealing billions?
This is why western banks are regulated and today the regulations are even stricter.

LOL!
So now you can see why your concept of giving money in the forms of loans without a sufficient reserve does not happen.

All I see are unsupported claims.
You don't know me. How can you make such an assumption?

Because of the fairy tales you repeat.
I won't go as far to say you know nothing about banking, however it is clear you have read something and misunderstood it.

Nope. You have.
When discussing with you, he is always correct. I sorry, but he is.

Sorry, he's not.
So banks take money from customers to loan back to them?

No, I said they CREATE the money they lend. Every economics student learns this in first-year macro.
Do you know how stupid that sounds?

I know it is fact. I'll let readers judge what -- and who -- sounds stupid.
Why wouldn't customers just keep the money they have and not pay interest on it?

Huh? Why would they pay interest on money they have?
Banks need capital to invest.

Certainly. But not to lend.
The day you understand that is the day you finally get the grasp of basic banking structures.

You and noemon are the ones who do not grasp basic banking structures.
My five year old understands the concept that you need money to invest.

But banks don't need money to lend.
#14752184
Lexington wrote:So let's try what it looks like when we put inflation in:

Well, where do you get data from then?


I get it from FACTS, that is to say, from ACTUAL figures, no other 'source' has such impeccable credentials.
#14752411
As noted above, banks lend first and look for reserves later, but they do look for the reserves.
noemon wrote:At best the author is merely pointing out an extended leeway that allows banks to abuse the right provided to them through the fractional reserve system, but that does not mean that this leeway does not hinge and that is not entirely contingent upon the fractional reserve system because both technically and officially it is.


It means the reserve requirement constrains money creation by banks in proportion to demand for loans, not existing deposits. That's no small difference and no bad thing as long as banks don't start pretending dodgy loans are safe loans and leveraging themselves up to the eyeballs.

The word "reserve" here is very misleading as the noun form basically means existing deposit. But finance and economics are replete with misleading redefinitions (and not by accident).
#14752413
Truth To Power wrote:Which is certainly correct, as Sue's quote from Investopedia showed.

Thank you for falling into my honey trap. I deliberately did not mention her article because I wanted to know if you were someone who knew the banking system or an article expert. I kind of knew the answer of course, but now I know for sure. Her article is a very true, but it's title is misleading. Because banks have fractional reserves, they are able to process a loan before they have sufficient funds because on paper a loan is both an asset and a liability. However they need the capital to do the loan in the first place. So now the loan is active, it was massive and your reserves are currently lower than regulation allows (in a country who has a fraction reserve policy), what do they do next? Make money up (as you put it) or something else? They sell assets (which ironically can be loans) or borrow from other banks (yes banks loan to one another) to please the national bank rules. There is more to this, but I cannot be arsed to go into everything because you don't understand real banking, just published articles.

Banks do not and cannot spend deposits. Deposits are a liability to a bank, not an asset. And they cannot spend their loan assets because loans are not money. Demand deposits are money. That is very much the point.

So a deposit is a liability? Again why have customers? Why create a liability? Banks need capital to invest. They cannot create wealth. If they could, no bank would ever go bankrupt. Depositors make the banking system work, hense why they attract customers with lucrative offers.

Because then they would have far less (often no) reserves, vault cash, etc. It is BORROWERS whose money the bank doesn't mind being withdrawn, because it was created for that purpose: so the borrower could spend it.

What a load of bollocks. So first you say that money deposited doesn't get used and now you say that banks want depositors cash because otherwise they would have no reserve. But in your world a reserve does not get used and banks make debt. So again, why do banks have customers who deposit cash? Whether a bank has a reserve or not is immaterial if it just sits in a vault somewhere never to be used.

They create real money.

Only a nations central bank can create new money. Have you headed of Quantitative Easing?


That is utter nonsense. All licensed commercial banks create money -- demand deposits -- when they lend.

Demand deposits? But you said deposits are a liability. Why would a bank create a liabilities unless it will make them money?

The bank cannot buy anything with the money it creates, because it is a liability of the bank, not an asset.

So money is a liability that cannot be spent? Money is an IOU, whose sole purpose is to be spent. Banks use money (reserve) to buy assets and invest.

No, because it was lucrative for the individuals who did it.

Things are different now, but banks created loans that were high interest and gave them to people who could not afford them in 2008. These loans are lucrative on paper, but dangerous if the loanee defaults. As it happens, many loans became toxic due to defaults. I do understand where you are coming from in terms of loans being an asset, but, and it is important you understand this, the days of 120% mortgages to unemployed borrowers is over. Hense you have regulation. And it is even stricter today.

No, I said they CREATE the money they lend. Every economics student learns this in first-year macro.

No they learn you need money to make money. However there are many ways to make money. Using assets as collateral is one.

I know it is fact. I'll let readers judge what -- and who -- sounds stupid

Yes lets. I will no longer reply to you, because I know you have read things and misunderstood them and no matter what I write, you will believe you are correct. But you do sound silly in the things you believe. Even rationality doesn't seem to commute with you.
#14752445
Lexington wrote:Image

Less than...Thatcher?.

Nominal interest rates and inflation were much higher in the early / mid eighties. That graph is total misleading. In fact in the eighties there may have been periods where the real interest rates on government debt were negative, hence in effect there were no debt interest payments but debt receipts.
#14752593
B0ycey wrote:Thank you for falling into my honey trap.

I didn't fall into anything, don't be ridiculous. I corrected your error, and gave the source.
I deliberately did not mention her article because I wanted to know if you were someone who knew the banking system or an article expert.

You are not competent to judge that question, as you are neither.
I kind of knew the answer of course, but now I know for sure.

See Dunning-Kruger Effect.
Her article is a very true, but it's title is misleading.

Nope.
Because banks have fractional reserves, they are able to process a loan before they have sufficient funds

They don't need any funds to process a loan, just a commercial bank license.
because on paper a loan is both an asset and a liability.

No, it is both an asset and a liability in reality.
However they need the capital to do the loan in the first place.

No, they do not.
So now the loan is active,

Meaningless gibberish.
it was massive and your reserves are currently lower than regulation allows (in a country who has a fraction reserve policy), what do they do next?

If their reserves are now inadequate to meet regulatory limits, they can borrow reserves from the central bank, sell assets for cash, get cash from depositors, etc. None of which changes the fact that they created the loan proceeds de novo.
Make money up (as you put it) or something else?

No, the money was already created when the loan was made.
They sell assets (which ironically can be loans) or borrow from other banks (yes banks loan to one another) to please the national bank rules.

Could be.
There is more to this, but I cannot be arsed to go into everything because you don't understand real banking, just published articles.

You are making a fool of yourself. But that's OK. I am here to help you. Watch:
So a deposit is a liability?

Yep. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Again why have customers?

Because the liability is balanced by an asset -- cash from a customer or an interest-bearing loan from a borrower -- that the bank wants to use more than it wants to eliminate the liability. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Why create a liability?

To get use of the depositor's cash or the interest on the borrower's loan. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Banks need capital to invest.

But not to lend, other than ensuring their capital adequacy ratio. You clearly know nothing even of double-entry bookkeeping, let alone banking.
They cannot create wealth.

Depends how you define "wealth." They can certainly create money. You clearly know nothing even of double-entry bookkeeping, let alone banking.
If they could, no bank would ever go bankrupt.

No, because they need someone to BORROW the money they create, giving them the balancing loan asset. They can't do it otherwise. The money they create by lending is not an ASSET they can spend for their own purposes, it is a LIABILITY they owe the borrower. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Depositors make the banking system work, hense why they attract customers with lucrative offers.

A bank does not need depositors to lend, only to provide cash if it does not have enough capital or reserves to operate while meeting regulatory requirements. You clearly know nothing even of double-entry bookkeeping, let alone banking.
What a load of bollocks.

See your claims, above. You clearly know nothing even of double-entry bookkeeping, let alone banking.
So first you say that money deposited doesn't get used

I said it doesn't get LENT. You clearly know nothing even of double-entry bookkeeping, let alone banking.
and now you say that banks want depositors cash because otherwise they would have no reserve.

They might or might not have other reserves, but depositors' cash is certainly an asset they can use as reserves. You clearly know nothing even of double-entry bookkeeping, let alone banking.
But in your world a reserve does not get used and banks make debt.

The PURPOSE of a reserve is that it does not get used except in extremis. You clearly know nothing even of double-entry bookkeeping, let alone banking.
So again, why do banks have customers who deposit cash?

<sigh> Again, because they want to use the cash more than they want to eliminate the deposit liability. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Whether a bank has a reserve or not is immaterial if it just sits in a vault somewhere never to be used.

In theory, that's true. In practice, things do not always go as planned, which is why banks need reserves.

You clearly know nothing even of double-entry bookkeeping, let alone banking.
Only a nations central bank can create new money.

That is just baldly false. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Have you headed of Quantitative Easing?

You clearly know nothing even of double-entry bookkeeping, let alone banking.
Demand deposits? But you said deposits are a liability.

Which they certainly are. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Why would a bank create a liabilities unless it will make them money?

That's the idea. You clearly know nothing even of double-entry bookkeeping, let alone banking.
So money is a liability that cannot be spent?

A DEMAND DEPOSIT is a liability to the bank, consisting of money that cannot be spent BY THE BANK. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Money is an IOU, whose sole purpose is to be spent.

By the party for whom it is an asset, not a liability. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Banks use money (reserve) to buy assets and invest.

They most certainly do not use reserves to buy assets or invest. They are RESERVES. You clearly know nothing even of double-entry bookkeeping, let alone banking.
Things are different now, but banks created loans that were high interest and gave them to people who could not afford them in 2008.

They were typically extended at low interest. You clearly know nothing even of double-entry bookkeeping, let alone banking.
These loans are lucrative on paper, but dangerous if the loanee defaults. As it happens, many loans became toxic due to defaults. I do understand where you are coming from in terms of loans being an asset, but, and it is important you understand this, the days of 120% mortgages to unemployed borrowers is over. Hense you have regulation. And it is even stricter today.

It's different, but still lax enough for banksters to take billions.
No they learn you need money to make money.

:lol: :lol: You have obviously never taken an introductory macro course. You clearly know nothing even of double-entry bookkeeping, let alone banking.
However there are many ways to make money. Using assets as collateral is one.

What does that have to do with the topic?
I will no longer reply to you, because I know you have read things and misunderstood them and no matter what I write, you will believe you are correct.

I scored 170/170 on the GRE verbal. You did not. If anyone is reading things and misunderstanding them, it is not me.
But you do sound silly in the things you believe.

The same has been true of everyone who was ahead of their time.
Even rationality doesn't seem to commute with you.

I have no idea what you incorrectly imagine that could mean.
#14752626
First of all it is not cool to reply after I have made my reply by editing your previous post without notifying me, giving the impression that I have ignored your post. Second your posting style of quoting words and repeating yourself like a broken record is tiring for the eye and is not conducive to intelligent conversation.

Now let's take a look at this:

Truth To Power wrote:They don't need money to lend. They create it by lending it into existence.
Borrowers cannot borrow from the central bank, only banks and governments can. Central banks don't maintain fractional reserves for their own operations.
I have no idea what you incorrectly imagine you think you might be talking about.


That is because you have no idea of what you are suggesting. You claimed that Banks outside a fractional reserve system, that is in a system where 100% of deposits must always be kept intact would be able to borrow the money from the central bank and resell it to a customer requiring a loan. That was your claim, I informed you that in your scenario you don't need the banks to act as intermediaries(why would you?), you can enable the central bank to hand these money out to customers herself and you have thus rendered it into a national bank which would require a fractional reserve to operate the same system, you have demoted the banks to security vaults and you are back at point 0.

The goods in the CPI basket tend to have a high wage component.


This does not even make sense. The goods in the CPI basket measure what money can buy from this basket, money from any potential source such as wages, inheritance, trustfunds, whatever. Either your belligerence or your ignorance forces you to make wasteful arguments.

No it doesn't. It only includes rental costs, not house price inflation. Here are the facts:
https://www.theguardian.com/uk-news/eco ... stics-cpih
You are just objectively wrong, but may now consider yourself schooled.


You are using the arguments of people who claim that the RPI is better than the CPIH, when you claim that they are both useless because neither include purchase house-prices:

your source wrote:Jill Leyland, a fellow of the Royal Statistical Society, is another economist worried that the ONS is shifting its focus to CPIH and not providing the general public with a measure that reflects their experience of inflation – something the retail prices index (RPI) was previously seen to do, although it has also faced criticism for overstating inflation and the way it includes housing costs.

“We are concerned about some ongoing issues with this measure, which were reflected in its de-designation as a national statistic,” said Leyland.

“CPIH, which as a derivative of CPI was primarily designed for macroeconomic purposes, does not give the public a price index which measures the actual impact of inflation on households to replace RPI.”

Sentance feels there is confusion around the UK’s use of different inflation measures for different purposes – the UK still uses the RPI for inflation-linked bonds, for example, but CPI is used to set an inflation target for the Bank of England.

“We seem to be getting ourselves into quite a muddle about which measure of inflation we should focus on,” said Sentance.

But the ONS deputy national statistician responds that it is precisely this “alphabet soup” of inflation measures that supports its move to announce a move to focussing on CPIH.

“From our point of view we want to signal what we think is the best measure,” said Jonathan Athow.

He also rebuffed suggestions the change had been sprung on people and defended the quality of the figures, which took in hundreds of thousands of rental prices. The ONS had been consulting on CPIH for several years, he said. He also defended the measure as reflecting housing costs, without being clouded by changes in house prices – something that would reflect asset prices not goods and services prices.

Athow said CPIH was asking: “What’s the service you are getting from your home in terms of being able to live there.”

“We are certainly not alone in using this among statistics offices around the world. We think it’s the best measure,” he added.

Economist and former BoE policymaker Kate Barker agrees. She chairs the advisory panel on which Sentance sits. “I’ve listened hard to everyone’s views and I support moving things on,” she said on Monday, backing the move to CPIH as something that offers an alternative to RPI and all its shortcomings.


But not asset prices. As I said, and you so foolishly denied.


I did not deny your claim, I find it irrelevant, house prices as well as rental prices differ wildly from location to location and would eschew the index. London House prices rise by 10-20% a year while Birmingham house prices rise by 1% per year, this does not apply to more general sustenance items from the basket such as grain, bread, raw-meat, vegetables and so on and forth.

Garbage. Canadian banks have no fractional reserve system, yet their payments are accepted the same as anyone else's.


Ok, why didn't you say it all this time and you dance around it instead, you do not wish to see a non-fractional reserve system where banks are required to keep 100% of their deposits, you wish to see a fractional reserve system with a 0% reserve so that banks do not have to keep any of their deposits as reserves. Right, you want to authorise them to go beyond from what you accuse them of going. :lol: You call these people banksters but you want to give them total authority to banksterism. :lol:

Garbage. It gets injected into the land market in an unregulated fashion because people have to pay whatever they CAN pay for land.
There's nothing magical about it. Most start-ups don't get bank loans. They are funded by the entrepreneur's own savings, and loans from friends and family. VC firms and business angels also provide money. The notion that start-ups are dependent on banksters' money creation powers is cretinous. No, that money really WILL come from savings.
GET IT???


Cretinous is not knowing what you are arguing and flipping around like free-willy, first of all you need to clarify on what you are arguing before you make any more of this, are you arguing for a non-fractional reserve system where banks would be required to keep 100% of their customers deposits as reserves, or for a "canadian" system where they are not required to keep any reserves?

That is just objectively false. The Continental currency issued during the Revolutionary War was not over-issued, it was counterfeited by the British. The fiat greenbacks Lincoln issued in the Civil War were never rendered meaningless, and were ultimate redeemed at par value.


These are silly excuses to hide the rampant inflation behind a fig-leaf, such rampant inflation is precisely why these current systems were developed in the first place.
#14752868
Truth To Power wrote: You clearly know nothing even of double-entry bookkeeping, let alone banking.

Against my better judgement, I will reply to this only, because it made me laugh. Firstly, double-entry book-keeping has nothing to do with most of the quotes you used it for (which was almost all of them you used towards me), and secondly (the real reason for my laughter), it is an accounting term to balance the books. Double-entry book-keeping is the reason you cannot make fictional wealth (debt, whatever you call it), because it balances the books!!. I should be throwing this term at you, but you did it to me. How ironic! Anyway, the reason I think you have used it, is because you have misread something. I can only assume this, but I think it might be to do with Assets and liabilities perhaps? Well a loan is a liability because it is a risk and uses the banks capital, and an asset because you potentially get a earning from it (like government bonds). So a loan, like a bond is worth something. You can sell it. And banks do sell it. Hence why the US mortgage crash did not only affect US banks. So do banks create money? No, the money is potential money. It's not new money. The money exists, but it is the customers to return to the bank. So a loan relies on the customer being able to return it. So again, assuming you got your misunderstood information from articles based on banking practices that occurred in 2008, when banks lent money to people who couldn't afford it, I write this. Ok, I agree bankers did loan out money that they shouldn't have (because loans became toxic and was the reason banks needed bail outs), and yes they did so because it was profitable on paper. I understand peoples anger here. But these practices don't occur now due to regulation. And I also write this. BANKS DO NOT CREATE MONEY!! Only the nations CENTRAL BANK can create new MONEY!!

And that really is my final word on this issue. Enjoy your bubble of make believe and imagination.
#14753037
noemon wrote:First of all it is not cool to reply after I have made my reply by editing your previous post without notifying me, giving the impression that I have ignored your post.

Sorry, I've been raked over the coals too often here for "double posting," so I often edit rather than posting afresh.
Second your posting style of quoting words and repeating yourself like a broken record is tiring for the eye and is not conducive to intelligent conversation.

Intelligent conversation would require intelligent responses to my intelligent posts. I'm not seeing that, especially not from B0ycey.
That is because you have no idea of what you are suggesting.

No, I am very clear on what I am suggesting, as well as on the current system, and popular misapprehensions thereof (like yours).
You claimed that Banks outside a fractional reserve system, that is in a system where 100% of deposits must always be kept intact would be able to borrow the money from the central bank and resell it to a customer requiring a loan.

No, I did not. And being outside a fractional reserve system is irrelevant as well as indeterminate. Being outside a fractional reserve system could mean a 100% reserve system (I don't know of an example in modern history), or a no-lower-limit reserve system like Canada's.
That was your claim,

No, it was not.
I informed you that in your scenario you don't need the banks to act as intermediaries(why would you?),

To exercise their shaky risk management skills?
you can enable the central bank to hand these money out to customers herself and you have thus rendered it into a national bank which would require a fractional reserve to operate the same system,

No. A central bank doesn't need reserves, it can emit money as needed.
you have demoted the banks to security vaults and you are back at point 0.

I have done no such thing, because that is not what I propose. I propose to demote banks from what they are -- effectively, counterfeiters -- to what they claim to be: financial intermediaries.
This does not even make sense.

It makes perfect sense. A large portion of the cost of production of typical CPI basket items is labor. That means CPI inflation is largely a measure of nominal wages.
The goods in the CPI basket measure what money can buy from this basket, money from any potential source such as wages, inheritance, trustfunds, whatever. Either your belligerence or your ignorance forces you to make wasteful arguments.

:roll: That's not what I said. It's not how the CPI goods are BOUGHT that makes it a measure of wages, but how the PRICES of those items are determined. The prices of CPI items are typically close to production cost, which means wages are a big component of the CPI. Asset prices effectively ignore production cost, as their value is determined by the discounted net income they are expected to generate.
You are using the arguments of people who claim that the RPI is better than the CPIH, when you claim that they are both useless because neither include purchase house-prices:

I am not responsible for who else might have identified the relevant facts, and I don't care.
I did not deny your claim, I find it irrelevant, house prices as well as rental prices differ wildly from location to location and would eschew the index.

Varying wildly from location to location doesn't affect the overall direction of their prices.
London House prices rise by 10-20% a year while Birmingham house prices rise by 1% per year, this does not apply to more general sustenance items from the basket such as grain, bread, raw-meat, vegetables and so on and forth.

That is exactly the point: because the vast flow of money into the London land speculation bubble doesn't show up in the CPI, the newly issued debt money that is financing the bubble doesn't count as "inflation."
Ok, why didn't you say it all this time and you dance around it instead, you do not wish to see a non-fractional reserve system where banks are required to keep 100% of their deposits, you wish to see a fractional reserve system with a 0% reserve so that banks do not have to keep any of their deposits as reserves.

No. The fractional reserve system is irrelevant, just a red herring, as proved by the fact that Canada requires no reserve fraction, and did better through the GFC than the countries with fractional reserve systems.
Right, you want to authorise them to go beyond from what you accuse them of going.

No. I want to REMOVE THEIR PRIVILEGE OF ISSUING DEBT MONEY. You are permanently unable to understand what I am saying, because you refuse to know the fact that they actually DO issue debt money.
You call these people banksters but you want to give them total authority to banksterism.

:roll: Here's a simple way to remove your blinders. Call up your local commercial bank, and ask to speak to the accountant. Ask him or her WHICH ACCOUNT FUNDS ARE TAKEN OUT OF WHEN THE BANK MAKES A LOAN TO A CUSTOMER. The answer, if you can find a willingness to hear and understand it, should help you participate more constructively in this discussion.
Cretinous is not knowing what you are arguing

It is you who do not know what I am arguing, because you refuse to know the facts my argument is based on.
and flipping around like free-willy, first of all you need to clarify on what you are arguing before you make any more of this,

I am arguing that banks should not be privileged to issue debt money. You can't understand that argument, because you don't think they HAVE any such privilege.
are you arguing for a non-fractional reserve system where banks would be required to keep 100% of their customers deposits as reserves, or for a "canadian" system where they are not required to keep any reserves?

Neither. Reserves are irrelevant, as proved by the Canadian example.
These are silly excuses to hide the rampant inflation behind a fig-leaf, such rampant inflation is precisely why these current systems were developed in the first place.

True, current systems were developed in part to moderate the rampant inflation -- and bubbles and crashes -- caused by private banksters' over-issuance of debt money. If you can't find a willingness to know the facts I am trying to teach you, at least read quetzalcoatl's MMT stuff; he at least does understand that banks create the debt money they lend, even if he doesn't understand the differences between the different forms of debt, taxes, and money.
#14753045
Banks create or over-issue debt money because of the fractional reserve, I am not denying your claim as you accuse me of, I am not denying that banks do not over-issue, I am pointing out the mechanism that facilitates that, the Canadian system is not a non-fractional reserve system, nor is it a system where what you claim applies so as to be used as an example. It is a fractional reserve system with a 0% fractional reserve requirement. Canadian banks are not "better" than anyone else's and were bailed out just like the rest of them.

Varying wildly from location to location doesn't affect the overall direction of their prices.


The overall direction would show an increase of inflation without that being the case for anyone outside London.
You have a point here but this is not a major catastrophe and it is not like housing prices are hidden from view anyway.
#14753151
all of this heated argument, I think that we everybody can agree to this one thing:

fractional reserve banking would be fine if the bank was nationalized and the interest profit went directly to public interest, (such as education or infrastructure.)

If there are FR-banking is privatized, it is the tool of satan. :)
#14992338
david.findley wrote:I think that we everybody can agree to this one thing:

fractional reserve banking would be fine if the bank was nationalized and the interest profit went directly to public interest, (such as education or infrastructure.)

I disagree. The banks' issuance of money as debt through lending is inherently economically destabilizing no matter who does it, and no matter who gets the interest.
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