You are going to suffer to make sure those richer than you don't

No, that's not how fractional reserve banking works. Banks cannot create money (or rather expand the credit supply) without deposits, the government has no deposits and therefore cannot create money in this way. Unless of course, it literally prints it which would cause inflation and therefore render them unelectable.

I actually have no debt so I'm not a debt paying slave. If you want an institution to risk their capital on you, then yes you should pay interest relative to the risk. You are a liability, you are not entitled to other people's money. If I was buying a house, I would expect to pay interest as I am a risk. I would try to minimise that risk to the lender, but I am still a risk (they may not get their money back) and since it is not my money to start with, they should be compensated. If a wealthy individual decides to buy a house, they have the money (their own) and they are not a risk to anyone else but themselves and therefore should not pay interest. That's not to say they should not pay tax (they should) but that's a different argument.

You misunderstand a lot of things.

The government is often borrowing from the central bank. The central bank if it were a state institution (which it is not) does not need to charge interest. There is very little cost of printing notes/ bonds. A state central bank could create / coin money and lend it to the government at zero interest.

"It's just a deposit multiplier effect, caused by low reserve ratios" - reverse ratio is a way of saying the amount of actual money versus the amount of created money. Deposit multiplier is not caused by reserve ratios, they are one and the same thing.

It works like this. You lend me a fiver. Then I issue 9 noticed which I mark 5 pounds and lend them out to 9 people at interest. They can go spend my notes because people trust me, after all I have a fiver in my till. Then when they pay me back they can give me my notes plus interest. But where will all of them get the interest from? One or two of them are going to have to go bankrupt.

This process works electronically with banks making electronic interbank loans according to the Libor, Eurobor etc. Interest rate markets. It also works electronically with mortgages, credit cards and overdrafts.

If I borrow money from a bank to buy a house from you, the bank uses money from your "money multiplier effect" NOT its core reserves to create this money,
through electronic accounting the bank makes a debit and credit to a mortgage account, a solicitor transfers the money from my account to your account, and then you transfer someone it to someone else's account to buy a boat.

The financial system is build of "leverage", multiplying the amount of money as you go downstream from the central bank.



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Yeah, I know all of this, I've worked in a bank before.

What I am saying is that this is a good thing, not a bad thing. It allows the economy to grow faster and raises living standards for all of us. If you had a fully reserve banking system, the economy would stagnate (grow extremely slowly) and it would be hard for small businesses to raise capital simultaneously, creating a lack of employment.

Also, more often the government borrows through debt capital markets via investment banks (which issue bonds) to institutions and private investors such as pension funds and high net worth individuals, not the central bank. Everything you've said about the government borrowing from the central bank creates inflation and this is problematic for the government so I don't see why it is a good idea.

People don't have to go bankrupt in the process you've outlined as long as the credit supply is continually growing (which it almost always is apart from recently).

No, that's not how fractional reserve banking works. Banks cannot create money (or rather expand the credit supply) without deposits, the government has no deposits and therefore cannot create money in this way. Unless of course, it literally prints it which would cause inflation and therefore render them unelectable.

I actually have no debt so I'm not a debt paying slave. If you want an institution to risk their capital on you, then yes you should pay interest relative to the risk. You are a liability, you are not entitled to other people's money. If I was buying a house, I would expect to pay interest as I am a risk. I would try to minimise that risk to the lender, but I am still a risk (they may not get their money back) and since it is not my money to start with, they should be compensated. If a wealthy individual decides to buy a house, they have the money (their own) and they are not a risk to anyone else but themselves and therefore should not pay interest. That's not to say they should not pay tax (they should) but that's a different argument.

Yeah, I know all of this, I've worked in a bank before.

What I am saying is that this is a good thing, not a bad thing. It allows the economy to grow faster and raises living standards for all of us. If you had a fully reserve banking system, the economy would stagnate (grow extremely slowly) and it would be hard for small businesses to raise capital simultaneously, creating a lack of employment.

Also, more often the government borrows through debt capital markets via investment banks (which issue bonds) to institutions and private investors such as pension funds and high net worth individuals, not the central bank. Everything you've said about the government borrowing from the central bank creates inflation and this is problematic for the government so I don't see why it is a good idea.

People don't have to go bankrupt in the process you've outlined as long as the credit supply is continually growing (which it almost always is apart from recently).

You do realise when the government bailed out the banks it printed the money and gave it to them. Where do you think the money come from lol

Fractional reserve banking isn't used by central banks. It is used by commercial banks but they ratio is something like for every £1 of deposited money they lend out £99. Some are lower.

The government can have deposits if it opens a commercial bank which the constituents of the country must use which will be better than a regular profit orientated bank. No bank charges. No overdraft fees. None of that ****.

You do realise when the government bailed out the banks it printed the money and gave it to them. Where do you think the money come from lol



Risk won't apply to the government because it lends to itself not private individuals. Every single western government is guaranteed to have buyers for their bonds because governments never fail. They are backed by the people via tax revenue. Even now, the UK total government debt is somewhere around £2.4 trillion and increasing. It continues to lend from a private institution (the BoE) at interest. This means they are doomed for eternity. Debt with interest requires the level of debt to increase forever. There will be another crash which causes all you defenders of finance capitalism to wake up.

It sounds like you are a well off individual. Only a well off person would talk like you. You probably own more than one home and rent them out.

Do you not understand what he is trying to say. If you have the power to make money and charge interest on that money, are you not in control of the whole world?

Under the gold standard there was no inflation and speculation was only for trade activities.

Under the fractional reserve system, there is so much spare money floating around that people need to do something with it. They find ways to invest it like shares, property, Beanie Babies, antiques. The problem is that these investments are not always rational (e.g. Facebook shares overvalued, trading today at something like 500x earnings), bubbles form, the when people realise there is a bubble they over-react and push the line into an undervaluation, thus the boom and bust cycle.

The state finds itself in the position of having to plug shortfalls in the boom and bust cycle to prevent "recession", monetary collapse and the failure of institutions which are considered "too big to fail" due to the ripple effect of their failure. The cost of this is met by state borrowing and paid for by many generations of taxpayers.

The stupidity of this is that these are solutions to problems that never existed in the first place and only exist under the modern high leverage fiscal system.







Posted from TSR Mobile

But without leverage, society would still be in the dark ages. I agree with a lot of what you've said although I think we disagree on the solution.

I much prefer the direction we are heading in at the moment, reasonable leverage with superior risk management will give us the best of both worlds. That's not easy to achieve long-term, but financial stability can be possible. I believe most are learning from mistakes of the past. For one, this recession was not as bad as the "Great Depression".

While i do agree with you, was the tamer recession not due to QE and bailing the banks.

Somewhat, yes. But this recession would have been disastrous without that. My point is, we know that these tools will help reduce the impact of a recession. They are so unpopular however, it mean future recessions of the same extent will be avoided at all costs.

One would think so but unfortunately the political class still appears to be pushing it. The Basel and Vicar reforms appear to have been watered down and we've started taking on tonnes of unfunded liabilities (guarantees for the nuclear plants and help to buy). Granted that the government has given the BOE more control (provided they use it) to take away help to buy and alter the leverage ratios.

On the whole though i think the QE and bailouts were required at the time even if i question the extent and actions afterward.

My point is, we know that these tools will help reduce the impact of a recession

No, I know it isn't used by central banks.

The idea of having one huge government bank is bizarre but interesting although initially I don't think it would work but that's a different conversation.

Do you have a source for the "money was printed to bail out the banks"? As far as I know this was raised via a debt issuance on financial markets, but even if it wasn't, there are a few other options that can be exhausted before the printing money stage.

Also where has this idea come from that the government borrows from the Bank of England? As far as I know, this also isn't correct. The government borrows on financial markets from mostly institutional investors.

I'm not saying it's perfect, I'm saying it is the best system for now. Personally, I predict in due course (say 50 years+) when technology really takes over and unemployment increases for this reason, then the whole economic system will need a big re-think. But again, that's another discussion.

For the record, I turn 20 in November and I am not well-off by any stretch of the imagination, haha. I live with my parents and went to a state school.

I wouldn't say in control of the world, no.

I'd say the private institutions charge a fair fee relative to the risk of the service they provide.

It's not so much banks create money, but rather, the money supply increases overall as the result of a fractional reserve banking system. You cannot link the "new money" back to a particular institution as it is created through a deposit multiplier effect.

You can continue to think that private institutions should make money from the fact that you don't have money. Go and get a mortgage, get a car on finance, get a credit card and hope that you get enough money to pay for all that bs because the interest will tie you to an eternity of debt payments.

Let me ask you something. Do you want to move out of your parents house?

China does it now. All the major banks are state owned although they have bought into the asset bubble culture which will inevitably impact their economic standing.

This idea is to have two banks. The Government owned Central Bank with the sole to issue debt to the government owned commercial bank when its required (with consideration of course) for social projects (energy, infrastructure etc...) or day to day operations. The people living in that country will use that bank for day to day activities and savings accounts. It will be mandatory for corporations to have a bank account with the government owned commercial bank to ensure they do not dodge tax.

Etc etc...It's a work in progress on my behalf. Just slowly aim to phase out asset speculation and invest purely into the real economy so people see the benefits of debt not investment bankers.

They printed/created the money. I use those words interchangeably. The government injected £1.4 trillion in 2008 to stop the domino effect of a financial collapse. All the assets on banks balance sheets there went straight to zero were essentially bought by the government and moved onto the public debt hence the huge increase. I get all this information from the ONS so it's produced by the government. I made my own analysis of the national debt since 2007 in an effort to see how much was given to financial institutions. Incidentally, what the government does is publish national debt figures which exclude the bailout money to make it seem less horrific and they are slowly passing the debt onto the main debt so it looks like he debt is slowly increasing instead of a massive increase lol. Also, the call the bailout money 'the cost of financial intervention'.

It does via gilts (government bonds). Central bank is the largest buyer of gilts hence the 300 year highs in the gilt market. Government bonds like the UK's are actually crap hence why the central bank is the highest purchaser. Actual investors do not invest in government bonds. It is a huge risk to them. But not to the central bank because it will fuel the government until the end of time because of its mystical money printing/creating powers.

. Your very wrong on investors not going for GILT's because of risk, its because the BOE buying bonds at such a low price has led to negative real returns which is what initially put the stock market on steroids

So why do you admire a system that makes you poorer?