Financial crisis ! whats your opinion and why :)
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Original post by Classical Liberal
Right ****ing there.
And, if you add interest onto the debt of the Man then you see that the banks are now getting an income on money they manufactured out of thin air.
- John Kenneth Galbraith
And, if you add interest onto the debt of the Man then you see that the banks are now getting an income on money they manufactured out of thin air.
- John Kenneth Galbraith
You really don't get this do you. The bank is also paying interest to the women, do you not understand? A portion of the interest they are earning they are paying back to service their liabilities. The extra interest that they receive from the man, which is not paid to the women, is essentially their profit for the service provided of redistributing savings. You speak like a physical good has to be produced for money to be earnt.
(edited 12 years ago)
Original post by py0alb
I hate to break it to you but 10-10 = 0. If you're claiming that the bank is creating £0 out of thin air, then I suppose you would technically be correct although that's pretty much meaningless.
Thank you. I am right. The money multiplier and all that nonsense you refer to is absolutely useless.
Now lets change things a little. Lets suppose the Man Pays simple interest of £2,000. And the Woman gets simple interest of £1,000.
_______________________The Bank________________________________
____________Assets____________|_ ___________Liabilities__________ _
_£12,000 [The debt of The Man]___|__£11,000 [The deposit from the Woman]____
_____________________________|__ __________________________
_____________________________|__ ___________________________
The Bank has earnt £1,000 for money it manufactured.
No, they're taking a cut for their extremely valuable service of creating liquidity within the economy, which is used to pay their staff for their labour and reward their shareholders for the risk they take.
They don't put anything at risk ffs. They had nothing. Then they created the money.
Well, if you look carefully, you might observe that there is actually no need for a bank per se. The Man could have just promised the Woman the £11,000. The banks did not provide the liquidity, the people did.
The only useful thing a bank does today is makes judgement over the quality of debt and credit. Otherwise they are just parasites.
(edited 12 years ago)
Original post by Classical Liberal
Thank you. I am right. The money multiplier and all that nonsense you refer to is absolutely useless.
Now lets change things a little. Lets suppose the Man Pays simple interest of £2,000. And the Woman gets simple interest of £1,000.
_______________________The Bank________________________________
____________Assets____________|_ ___________Liabilities__________ _
_£12,000 [The debt of The Man]___|__£11,000 [The deposit from the Woman]____
_____________________________|__ __________________________
_____________________________|__ ___________________________
The Bank has earnt £1,000 for money it manufactured.
They don't put anything at risk ffs. They had nothing. Then they created the money.
Well, if you look carefully, you might observe that there is actually no need for a bank per se. The Man could have just promised the Woman the £11,000. The banks did not provide the liquidity, the people did.
The only useful thing a bank does today is makes judgement over the quality of debt and credit. Otherwise they are just parasites.
Now lets change things a little. Lets suppose the Man Pays simple interest of £2,000. And the Woman gets simple interest of £1,000.
_______________________The Bank________________________________
____________Assets____________|_ ___________Liabilities__________ _
_£12,000 [The debt of The Man]___|__£11,000 [The deposit from the Woman]____
_____________________________|__ __________________________
_____________________________|__ ___________________________
The Bank has earnt £1,000 for money it manufactured.
They don't put anything at risk ffs. They had nothing. Then they created the money.
Well, if you look carefully, you might observe that there is actually no need for a bank per se. The Man could have just promised the Woman the £11,000. The banks did not provide the liquidity, the people did.
The only useful thing a bank does today is makes judgement over the quality of debt and credit. Otherwise they are just parasites.
So you agree that the bank has created £0 through this transaction?
So times £0 by all the transactions, lets call them x, and how much money do the banks create in total? This is a good maths test for you. In short, no you are not right. You are wrong.
If the man defaults on his loan, they still owe money to the woman. That is risk.
The interest is payment for a service. This isn't money that is "created out of thin air" this is money that is earnt, the same as paying for any other service.
The man could not have just promised the woman £11,000, because the woman would probably not have believed him, it would have been a hassle for her to collect the money in installments, she may not want it in cash, etc etc. Hence the reason she is willing to pay a small amount (the interest she could have charged the man directly) for the bank to handle the details and take on the risk.
Original post by Aeonstorm
You really don't get this do you. The bank is also paying interest to the women, do you not understand? A portion of the interest they are earning they are paying back to service their liabilities. The extra interest that they receive from the man, which is not paid to the women, is essentially their profit for the service provided of redistributing savings.
They created the savings, though.
The bank could have been entirely bypassed.
Original post by Classical Liberal
Thank you. I am right. The money multiplier and all that nonsense you refer to is absolutely useless.
Now lets change things a little. Lets suppose the Man Pays simple interest of £2,000. And the Woman gets simple interest of £1,000.
_______________________The Bank________________________________
____________Assets____________|_ ___________Liabilities__________ _
_£12,000 [The debt of The Man]___|__£11,000 [The deposit from the Woman]____
_____________________________|__ __________________________
_____________________________|__ ___________________________
The Bank has earnt £1,000 for money it manufactured.
They don't put anything at risk ffs. They had nothing. Then they created the money.
Well, if you look carefully, you might observe that there is actually no need for a bank per se. The Man could have just promised the Woman the £11,000. The banks did not provide the liquidity, the people did.
The only useful thing a bank does today is makes judgement over the quality of debt and credit. Otherwise they are just parasites.
Now lets change things a little. Lets suppose the Man Pays simple interest of £2,000. And the Woman gets simple interest of £1,000.
_______________________The Bank________________________________
____________Assets____________|_ ___________Liabilities__________ _
_£12,000 [The debt of The Man]___|__£11,000 [The deposit from the Woman]____
_____________________________|__ __________________________
_____________________________|__ ___________________________
The Bank has earnt £1,000 for money it manufactured.
They don't put anything at risk ffs. They had nothing. Then they created the money.
Well, if you look carefully, you might observe that there is actually no need for a bank per se. The Man could have just promised the Woman the £11,000. The banks did not provide the liquidity, the people did.
The only useful thing a bank does today is makes judgement over the quality of debt and credit. Otherwise they are just parasites.
Right, cos this is just sooooooooooo easy. How does a women in Edinburgh and a man in London negotiate this contract? How do they assess the risk? And your claim that there is no risk is laughable. The huge amounts of money they create are BASED ON THE CAPITAL RESERVES THEY HAVE! If there is a run on a bank, the bank can go bankrupt almost instantaneously unless there is government or external help.
Original post by Classical Liberal
They created the savings, though.
The bank could have been entirely bypassed.
The bank could have been entirely bypassed.
key word: REDISTRIBUTED
Oh and also, what if the saver wants access to his/her money. If the women lends the man 10,000 for 11,000 return, she can't get the 11,000 until the end of the contract. But because of the size of the bank, there is liquidity, allowing the woman to access her savings at any point in time, in case of emergency, or just for spending.
(edited 12 years ago)
Original post by py0alb
So you agree that the bank has created £0 through this transaction?
No. The bank created £10,000 of commercial bank money. If you ask the Woman how much money she has, she will tell you she has £10,000 [with the zero interest example].
If the man defaults on his loan, they still owe money to the woman. That is risk.
That is why the car is usually pledged as collateral in reality. And I am not denying that in reality there is a risk.
The man could not have just promised the woman £11,000, because the woman would probably not have believed him, it would have been a hassle for her to collect the money in installments, she may not want it in cash, etc etc. Hence the reason she is willing to pay a small amount (the interest she could have charged the man directly) for the bank to handle the details and take on the risk.
This is all true. And I am not denying banks are useful for this. My point is that banks do create money. And that the central bank or monetary policy generally is irrelevant.
Original post by Aeonstorm
The huge amounts of money they create are BASED ON THE CAPITAL RESERVES THEY HAVE!
No. Even pyOalb has conceded that the reserve are irrelevant. The banks do not need reserves. Go through my balance sheet example again.
The bank starts with nothing. And in the end it has a deposit and a liability that it created.
Original post by Aeonstorm
key word: REDISTRIBUTED
Oh and also, what if the saver wants access to his/her money. If the women lends the man 10,000 for 11,000 return, she can't get the 11,000 until the end of the contract. But because of the size of the bank, there is liquidity, allowing the woman to access her savings at any point in time, in case of emergency, or just for spending.
Oh and also, what if the saver wants access to his/her money. If the women lends the man 10,000 for 11,000 return, she can't get the 11,000 until the end of the contract. But because of the size of the bank, there is liquidity, allowing the woman to access her savings at any point in time, in case of emergency, or just for spending.
I am not denying that. My point is that banks do not need reserves. They can just manufacture money with absolutely nothing backing it except a bank charter.
Original post by Classical Liberal
No. The bank created £10,000 of commercial bank money. If you ask the Woman how much money she has, she will tell you she has £10,000 [with the zero interest example].
NO! Its really important you understand this. This is the crux of the argument. The bank did not create anything, they merely facilitated the transfer of equally valued assets between two individuals and charged them a fee for this service.
Look back at the first example. The total amount of money does not change before and after the transaction. So by definition no money has been created.
You can't look in one column and count it as a "real" change but deliberately choose to ignore the other column. The bank's credits and debits always cancel out. (Apart from any interest accrued, but as I explained, that is the fee for the service they provide).
That is why the car is usually pledged as collateral in reality. And I am not denying that in reality there is a risk.
This is all true. And I am not denying banks are useful for this. My point is that banks do create money. And that the central bank or monetary policy generally is irrelevant.
They do not create anything. They meet public liquidity demands by expanding the money supply by extending credit.
Original post by Classical Liberal
No. The bank created £10,000 of commercial bank money. If you ask the Woman how much money she has, she will tell you she has £10,000 [with the zero interest example].
That is why the car is usually pledged as collateral in reality. And I am not denying that in reality there is a risk.
This is all true. And I am not denying banks are useful for this. My point is that banks do create money. And that the central bank or monetary policy generally is irrelevant.
That is why the car is usually pledged as collateral in reality. And I am not denying that in reality there is a risk.
This is all true. And I am not denying banks are useful for this. My point is that banks do create money. And that the central bank or monetary policy generally is irrelevant.
If you asked the women how much value of assets she had before, she would have said, "I have $10,000 in assets because my car is worth $10,000".
Banks don't create money, they only circulate it. Think about it - if you gave two people a $100 note, and they gave it to each other, back and forth, 10 times. Well, they each would have earnt (rather, received) $1000 and spent (rather, gifted) $1000, or rather, one will have received $1100 because you gave the note to him/her in the first place. So what? The money is the same, its still a physical, tangible, $100 note. But it has been used repeatedly. Which is what the banking system do, which is what the money multiplier does - it allows multiple usage of money, but the essential wealth (you should have learnt that it is a stock concept, right?) at one moment in time, is the same. As py0alb has repeatedly demonstrated, 10 - 10 + 10 - 10 + 10 - 10 still equals 0. It doesn't matter to how many parties you circulate it, or how many different parties acquire assets and liabilities. Wealth is the same.
Original post by Classical Liberal
No. Even pyOalb has conceded that the reserve are irrelevant. The banks do not need reserves. Go through my balance sheet example again.
The bank starts with nothing. And in the end it has a deposit and a liability that it created.
The bank starts with nothing. And in the end it has a deposit and a liability that it created.
Actually, no I haven't conceded that. In order to cover the transaction in the first example, the bank would have to borrow £100 (assuming alpha = 0.1) from the central bank to cover their reserve requirements. We didn't go into that because there were more important issues that you were missing, such as the magical creation of money that you still apparently believe in.
Original post by Classical Liberal
I am not denying that. My point is that banks do not need reserves. They can just manufacture money with absolutely nothing backing it except a bank charter.
Well no, because it is risky... Sure, like, they could, but the moment someone came in to withdraw some money, they'd go bankrupt. The point of a reserve ratio is to allow the bank to have sufficient reserves to pay out any withdrawal request that comes.
But in times of crisis, even the reserve ratio is not enough - in Australia, back in the Great Depression, Jack Lang famously froze all bank accounts to prevent a run on the banks, and as a result, hundreds of thousands of people had to rely on the dole to feed themselves because they couldn't access their bank accounts.
Original post by py0alb
Actually, no I haven't conceded that. In order to cover the transaction in the first example, the bank would have to borrow £100 (assuming alpha = 0.1) from the central bank to cover their reserve requirements. We didn't go into that because there were more important issues that you were missing, such as the magical creation of money that you still apparently believe in.
What I think he's getting at is that, if there was no reserve ratio, banks could just go wild and lend every single cent that they have. The crucial error here, is that, a bank is not going to lend to the man, get the deposit back from the woman, and then STOP LENDING. No, it will once again lend out the ENTIRE $10,000, and then get it back in another deposit, and then lend it out AGAIN. In this way, an infinite amount assets and liabilities can be generated, but the moment someone comes to withdraw money, the bank collapses.
(edited 12 years ago)
Original post by py0alb
You can't look in one column and count it as a "real" change but deliberately choose to ignore the other column. The bank's credits and debits always cancel out. (Apart from any interest accrued, but as I explained, that is the fee for the service they provide).
You can't look in one column and count it as a "real" change but deliberately choose to ignore the other column. The bank's credits and debits always cancel out. (Apart from any interest accrued, but as I explained, that is the fee for the service they provide).
That does not matter. There is a debt on the part of the bank. And there is a debt on the part of the Man. The bank has created credit, without any reserves. You cannot deny that.
There was no central bank, no reserve requirement and no ****ing money multiplier.
They do not create anything. They meet public liquidity demands by expanding the money supply by extending credit.
Maybe I am going insane, but you definitely just contradicted yourself there. Really, I thought you were more careful than that.
Original post by Classical Liberal
That does not matter. There is a debt on the part of the bank. And there is a debt on the part of the Man. The bank has created credit, without any reserves. You cannot deny that.
There was no central bank, no reserve requirement and no ****ing money multiplier.
Maybe I am going insane, but you definitely just contradicted yourself there. Really, I thought you were more careful than that.
There was no central bank, no reserve requirement and no ****ing money multiplier.
Maybe I am going insane, but you definitely just contradicted yourself there. Really, I thought you were more careful than that.
The money multiplier still applies in this case. It's simply infinite, because the ratio would be 10000/1-R, where R is 1, because the entire deposit is relent. So an infinite amount of credit could be created. I agree. And an equivalent infinite amount of debit is created. So therefore, no wealth is created. But if anyone wanted to withdraw money, the bank would collapse.
Original post by Aeonstorm
The reserve ratio does not matter. It is a ****ing relic. They can create as much money as people are willing to get into debt. The banks create their own reserves because the promises to money they make are eventually deposited back into the bank. The banks can finance themselves.
Original post by py0alb
Actually, no I haven't conceded that. In order to cover the transaction in the first example, the bank would have to borrow £100 (assuming alpha = 0.1) from the central bank to cover their reserve requirements. We didn't go into that because there were more important issues that you were missing, such as the magical creation of money that you still apparently believe in.
No it would not, because banks have some amount of time to get the reserves after they have issued the promise to the Man. And if all the transactions were to happen on the same day, then my example stands.
Original post by Classical Liberal
The reserve ratio does not matter. It is a ****ing relic. They can create as much money as people are willing to get into debt. The banks create their own reserves because the promises to money they make are eventually deposited back into the bank. The banks can finance themselves.
Sigh...
K imagine this.
The bank makes $10,000. It lends it to the man. It gets it back from the woman. Now it has $10,000 in liabilities (to the woman), and $10,000 in assets (from the man), and $10,000 in capital reserves. Now it repeats this process 1000 times, with different people. Now it has $10 million in liabilities (to 1000 similar women), and $10 million in assets (from 1000 similar men). AND YET IT HAS $10,000 IN CAPITAL RESERVES. Can you see a problem with this? What if 10 of those women withdrew all their money? That's $100,000! Where is the bank going to get that?!?!?!?!
And why is the bank going to stop at 1000 people? When there is a reserve ratio, there is a limiting sum. Every time, they can lend less, so there is a definite cap on the amount of assets and liabilities that are eventually created - also, it doesnt matter, because every time they relend the money, they have to store 10% as capital reserves (or whatever percentage) - they therefore have 10% of the entire amount of assets and liabilities as capital reserves. This limiting sum is given by A/(1-R), where A is the principle, and R is the ratio that is relent.
Now, if R is 1, that is, everything is relent, then there's an infinite possibility for assets and liabilites. The bank could owe $10 trillion, and have $10 trillion in assets. And it still has a measly $10,000 in capital reserves. Do you see how this is a godamn problem
Once again, this COULD happen, but then, what if 1000 bank deposit holders decided to withdraw their money? Considering the bank owes $10 trillion, this might be just daily expenditure for buying clothes or a TV or something. Then the BANK IS SCREWED. This is the reason there is a reserve ratio. Do you understand?
(edited 12 years ago)
Original post by Aeonstorm
Well no, because it is risky... Sure, like, they could, but the moment someone came in to withdraw some money, they'd go bankrupt. The point of a reserve ratio is to allow the bank to have sufficient reserves to pay out any withdrawal request that comes.
But in times of crisis, even the reserve ratio is not enough - in Australia, back in the Great Depression, Jack Lang famously froze all bank accounts to prevent a run on the banks, and as a result, hundreds of thousands of people had to rely on the dole to feed themselves because they couldn't access their bank accounts.
What I think he's getting at is that, if there was no reserve ratio, banks could just go wild and lend every single cent that they have. The crucial error here, is that, a bank is not going to lend to the man, get the deposit back from the woman, and then STOP LENDING. No, it will once again lend out the ENTIRE $10,000, and then get it back in another deposit, and then lend it out AGAIN. In this way, an infinite amount assets and liabilities can be generated, but the moment someone comes to withdraw money, the bank collapses.
But in times of crisis, even the reserve ratio is not enough - in Australia, back in the Great Depression, Jack Lang famously froze all bank accounts to prevent a run on the banks, and as a result, hundreds of thousands of people had to rely on the dole to feed themselves because they couldn't access their bank accounts.
What I think he's getting at is that, if there was no reserve ratio, banks could just go wild and lend every single cent that they have. The crucial error here, is that, a bank is not going to lend to the man, get the deposit back from the woman, and then STOP LENDING. No, it will once again lend out the ENTIRE $10,000, and then get it back in another deposit, and then lend it out AGAIN. In this way, an infinite amount assets and liabilities can be generated, but the moment someone comes to withdraw money, the bank collapses.
Well yes, thats how the money multipler works and why we have reserve ratios - once we brought that in in the 19th century we didn't have a bank run for over 100 years.
Thats not what CL is on about though. His brain has been infected with far-out full reserve propaganda and he doesn't believe in the money multiplier.
Original post by py0alb
Well yes, thats how the money multipler works and why we have reserve ratios - once we brought that in in the 19th century we didn't have a bank run for over 100 years.
Thats not what CL is on about though. His brain has been infected with far-out full reserve propaganda and he doesn't believe in the money multiplier.
Thats not what CL is on about though. His brain has been infected with far-out full reserve propaganda and he doesn't believe in the money multiplier.
Yeah, I'm just responding to his claim that we don't need reserve ratios. Plus yeah, he doesn't get in that in his situation, the money multiplier still applies, its just an infinite multiplier.
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