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Why Can't the Government Create Money? watch

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    (Original post by Observatory)
    If the government buys its own bonds with money it has created then the net effect is to transfer the value of that money from private owners of money (and derivatives) to the government. Otherwise, it would have to repay the money to the private bond holders. Although that's not usually the main reason they do it, there's nothing weird going on here. The google search term you are looking for is open market operations.


    The MPC can keep inflation in check by controlling the rate of growth of the money supply. You are advocating indefinite monetary expansion. What you are saying does not contradict the criticisms to which you are trying to respond: the BoE can keep inflation in check or it can indefinitely loan newly created money to the state. It cannot do both.
    When Enron bought its own stock to manipulate the price it was called fraud. When the state apparatus banking buys the governments own bonds it's called QE.

    It's not being done as a buyback policy for purpose of settlement. It's being done to manipulate markets because the "common good" does not like the outcome of the "Open market".

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    (Original post by Polymath0)
    In reality, the interest rate isn't effective, since the private banks can create as much money as they want, which is why there is asset inflation in the housing market.
    You can read about this in the book, Modernising Money by Positive Money.
    If the interest rate mechanism works as well as you claim, why did the UK government introduce help to buy?
    Please read more carefully next time... you anger towards the government and way you perceive things (which is incorrect) is completely clouding your mind.
    I said the interest rate is ONE OF THE MANY WAYS the government uses to control the economy, no it doesn't work on it's own but I was giving an example, and yes, this is fact, the government do this.
    Second, you are wrong in thinking that private banks can simply create money, you are misunderstanding the idea of digital finance, a private bank could not issue a loan of £300,000 as part of a mortgage to everyone person that gets a mortgage through them in cash because they do not have that kind of money. What they do is almost abuse the digital finance system by taking other peoples money and pay off their debt using it, for every £1 of digital money in the UK there is £1 of debt. When I pay using my debit card, the bank issues a payment to the company I am buying from by taking money out of someone elses account, this is how banks survive, hence the reason they want more customers so they can lend more money.

    Even I could give you an IOU note and say "when you want to buy something using this money just call me" then I give them my friends bank details and take his money, but I pay him back with my dad's bank account but it's fine because he doesn't want to spend anything yet, but when he does I will take your money to pay for it ect ect.

    Also interest rates are primarily controlled by the bank of england and when they lower their rates all private banks have to follow their lead, although yes there is some leeway on what they can set but there is a reason pretty much all bank have the same or close to the same interest rates.

    And yes it does have negative effects on other industries which is why they control it with great care moving it up and down then stabilizing it for a while to make sure that these markets don't fall.



    Anyway the biggest point here is that you seem to be a very angry person with great hatred for the government (and I don't really blame you) but it seems that you are just here to argue and when someone puts something forward you seem to just spend the rest of your time finding counter arguments (Welcome to politics, the world where no one can win as there is a counter argument to EVERYTHING!)

    One last thing, you want hard evidence proving that the government creates and issues it's own money to save itself when we have people dying because they can't afford food and the elderly falling ill and dying because they can't pay heating? Sure, why the hell wouldn't the government make this really easy to find. Like everyone else trying to make money they hind these cost and statements of issued money within other expenditures to avoid suspicion, no one get reelected after printing his own money and using it for selfish reasons.
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    (Original post by Calum.McManus)
    I said the interest rate is ONE OF THE MANY WAYS the government uses to control the economy, no it doesn't work on it's own but I was giving an example, and yes, this is fact, the government do this.
    The government used to set interest rates until it was transferred to the Bank of England under the last Labour government.
    What are these "other ways?"

    Second, you are wrong in thinking that private banks can simply create money
    "In the modern economy, most money takes the form of bankdeposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."



    SOURCE: http://www.bankofengland.co.uk/publi...eycreation.pdf

    Even I could give you an IOU note and say "when you want to buy something using this money just call me" then I give them my friends bank details and take his money, but I pay him back with my dad's bank account but it's fine because he doesn't want to spend anything yet, but when he does I will take your money to pay for it ect ect.
    Sorry, but this is almost incomprehensible. Please string together a coherent sentence.

    Also interest rates are primarily controlled by the bank of england and when they lower their rates all private banks have to follow their lead, although yes there is some leeway on what they can set but there is a reason pretty much all bank have the same or close to the same interest rates.
    The interest rate mechanism is not effective since the private banks have monopoly power over (electronic) money creation, so the Bank of England simply caters to the profit-making proclivities of the private banks.



    SOURCE: https://www.positivemoney.org/wp-con...Puzzlement.pdf
    (Under the new subtitle on page 10.)

    And yes it does have negative effects on other industries which is why they control it with great care moving it up and down then stabilizing it for a while to make sure that these markets don't fall.
    It is logically impossible to stabilise all sectors of the market with a mechanism which invariably produces side-effects in one sector or another. Which is why the optimal alternative would be to abolish the interest rate mechanism and loan private banks money to be invested specifically in productive, GDP-enchancing activities.


    Anyway the biggest point here is that you seem to be a very angry person with great hatred for the government (and I don't really blame you) but it seems that you are just here to argue and when someone puts something forward you seem to just spend the rest of your time finding counter arguments (Welcome to politics, the world where no one can win as there is a counter argument to EVERYTHING!)
    Hatred for government? Not at all. An effective governing institution is necessary. However, there is no need for a governing body of a nation to fund its operations with debt. I haven't as of yet encountered any evidence-based counterargument as to why this isn't possible or desirable.

    One last thing, you want hard evidence proving that the government creates and issues it's own money to save itself...
    What are you talking about? What does a government save itself from?

    A government doesn't create and issue money. I've already provided watertight proof.
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    (Original post by Observatory)
    If the government buys its own bonds with money it has created then the net effect is to transfer the value of that money from private owners of money (and derivatives) to the government. Otherwise, it would have to repay the money to the private bond holders. Although that's not usually the main reason they do it, there's nothing weird going on here. The google search term you are looking for is open market operations.
    The government does not create money. How many times must I hammer this point home?
    The government does pay private bond holders, i.e. private banks.

    The MPC can keep inflation in check by controlling the rate of growth of the money supply. You are advocating indefinite monetary expansion. What you are saying does not contradict the criticisms to which you are trying to respond: the BoE can keep inflation in check or it can indefinitely loan newly created money to the state. It cannot do both.
    Money can be credited to the state, not loaned. And I'm not advocating indefinite expansion of the money supply. Pay attention. The MPC can create money at the same rate as private loans are being repaid and credit it to the Treasury's account, which would constitute debt-free money.
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    (Original post by Polymath0)
    The government does not create money. How many times must I hammer this point home?
    The government does pay private bond holders, i.e. private banks.
    You are just wrong on this point. The central bank is the original source of all money creation. Private banks can only multiply money created by central banks (or, in the past, some commodity currency). Since this multiplier is known to (actually, determined by) central banks, and their purpose in creating money is to match an inflation target not to extract seigniorage, this multiplier does nothing to obstruct their actions.

    Money can be credited to the state, not loaned. And I'm not advocating indefinite expansion of the money supply. Pay attention. The MPC can create money at the same rate as private loans are being repaid and credit it to the Treasury's account, which would constitute debt-free money.
    I hesitated to reply to this because I do not understand what you are saying; I think you are actually using your own non-standard terminology.

    The best I can approximate your position is that you would like to keep the money supply at the current level but to take all of the money currently being loaned by private banks to private individuals and instead have a state bank loan it to the state. If that is not an accurate picture then please help me to understand. If it is, then I hope you can see that there is no free lunch here. You are increasing the state's income but you are also increasing its obligations - all investments that previously were funded by private credit must now be funded by the state.
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    (Original post by Observatory)
    You are just wrong on this point. The central bank is the original source of all money creation. Private banks can only multiply money created by central banks (or, in the past, some commodity currency). Since this multiplier is known to (actually, determined by) central banks, and their purpose in creating money is to match an inflation target not to extract seigniorage, this multiplier does nothing to obstruct their actions.
    The money multiplier theory is completely wrong. I've already provided a statement from the Bank of England itself that the private banks are in charge of creating money in the economy. The BoE only caters to the decision making of private banks by creating the required reserves post-hoc.

    I hesitated to reply to this because I do not understand what you are saying; I think you are actually using your own non-standard terminology.

    The best I can approximate your position is that you would like to keep the money supply at the current level but to take all of the money currently being loaned by private banks to private individuals and instead have a state bank loan it to the state. If that is not an accurate picture then please help me to understand. If it is, then I hope you can see that there is no free lunch here. You are increasing the state's income but you are also increasing its obligations - all investments that previously were funded by private credit must now be funded by the state.
    - The commercial banks would remain private entities.
    - It is the money supply, per se, which would be democratically controlled by the state.
    - The private banks would operate within a full-reserve system, taking actual savings and lending it to borrowers.
    - Money would be created by the BoE at the same rate as private loans are being repaid and credited to the Treasury's account, which would be debt-free money to finance government expenditure.
    - This would be a countercyclical system to ensure that there is a constant supply of money in the economy, which would end the unstable boom and bust cycle.
    - State monopoly over money creation would allow the state to benefit from seigniorage.

    Eventually, the government would no longer have to borrow money from private banks. It would be created free of debt.

    Have you understood? Please clarify.
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    I get you now. By operating full reserve banking though you'd be needlessly slowing credit inflation substantially though. Fractional reserves should only exist in so far as banks have enough money to cover the average loss during a large recession (larger than now, granted), there's no need to go further and bring in full reserve banking, not least if you leave banks private since they now cannot ever fail.

    Ending boom and bust sounds great but the next effect over 20, 50 or even 100 years could be that you've had slower growth than the alternative. The last business cycle according to the world bank (92-09) saw cumulative economic growth of 44.7% set against a loss of 4.6%. By bringing in full reserve banking you likely lower growth which over the full business cycle may end up inferior as opposed to the staircase of the current system. This can be true for other metrics if you prefer like employment or wage growth.
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    the government can print money but it can't print value
    value is meant to be behind each bank note (the purpose of money)
    so if you make too many bank notes, you have way too much money per property
    therefore, property becomes worth less money because money is too available in proportion to money
    unless the government forced people to price things at a certain value, which would destroy the market-based economy due to false incentives for production
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    They got money for wars but can't feed the poor..
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    (Original post by Rakas21)
    I get you now. By operating full reserve banking though you'd be needlessly slowing credit inflation substantially though. Fractional reserves should only exist in so far as banks have enough money to cover the average loss during a large recession (larger than now, granted), there's no need to go further and bring in full reserve banking, not least if you leave banks private since they now cannot ever fail.

    Ending boom and bust sounds great but the next effect over 20, 50 or even 100 years could be that you've had slower growth than the alternative. The last business cycle according to the world bank (92-09) saw cumulative economic growth of 44.7% set against a loss of 4.6%. By bringing in full reserve banking you likely lower growth which over the full business cycle may end up inferior as opposed to the staircase of the current system. This can be true for other metrics if you prefer like employment or wage growth.
    According to research conducted by Positive Money, who always source their research, the result of money being controlled by private entities is that most 'investment' goes into property price inflation and financial market speculation, rather than the real economy for true GDP-enhancing investments. SMEs constitute only 8% of bank lending.
    Under the full reserve system, economic growth would no longer be stifled as a result of profit-seeking motives. The private banks will naturally be forced to make careful investment choices to ensure that they don't become bankrupt, and the BoE would loan the private banks broad money with an attached conditionality that they lend only to the real economy.
    Thus, on the contrary, the full reserve system would produce both a stable and highly productive economy. There will be enough credit to fuel a constant upward growth trend whilst, at the same time, reducing private debt significantly.

    Positive Money have described the system in painstaking detail in their proposals, so I strongly recommend that you read them and try to indicate any flaws. The benefits of the Sovereign Money system are immeasurable. It would put an end to the pretence that taxing and borrowing are the only options available.
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    http://prosperityuk.com/2004/04/keynes-without-debt/
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    http://prosperityuk.com/2006/10/stop...e-debt-driver/
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    If I understand the present position correctly because the UK government has debts of £1.5 trillion the UK Treasury debt management office borrows c.120Bn p.a. of debt-based money by issuing bonds and gilts and auctioning bills in the money market to cover the shortfall between income and expenditure, in the case of PLC’s when they buy the time-limited financial instrument with money they create in a loan account. HMT receive it and pay interest to the PLC until the expiry of the instrument. PM’s proposal that you are promoting is that the process is altered, the central bank (BoE) not the government creates the money (at present it creates debt free currency (3% of UK money) and debt based QE )) at the behest of the BoE monetary policy committee (overseen by the all-party treasury select committee) that is required to cover the difference between income and expenditure (so it is created debt-free and spent ) and the PLC has its ability to create money removed. Right so far?
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    It is great that you're actually asking this question because the system we reside in is completely retarded. The reason why governments aren't allowed to issue debt-free money is because in theory they would assimilate an infinite amount if it were possible. There have been calls for an independent body to regulate government issuing of debt-free money but it would still be another arm of the state and therefore pointless. Our current system predicates that corporations are at least on a relative economic platform with governments. If governments could create debt free money our current notion of capitalism wouldn't work because all the world's problems would be solved by every country's governments issuing money to solve every conceivable problem. Instead we must remained entrenched in the current system where we are subservient to all kinds of debt (personal debt, mortgages, national debt) in a never-ending debt spiral where private institutions (banks) are allowed to create money as debt out of nothing to allow for the elite hegemony to exploit the everyday population. There are alternatives to this bull**** and don't let anyone tell you otherwise.
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    One of the ways Positive Money suggests for injecting money into the economy is;

    To make direct payments to citizens, with each person able to spend the money as they see fit (or to invest or pay down existing debts)

    The suggestion suggests that the proposer should get out more and acquaint himself with a greater cross- section of British society. What does he think the money is going to be spent on, lowering peoples personal debt? Human nature being what it is it’s going to be spent on wants not needs, they are still going to owe the rent and not pay their bills now they can afford that trip with the kids to Florida (my apologies to the few who would draw down their debt and release a small additional amount of their cash into the economy). Those that stay at home will spend it on imported goods (if you haven’t noticed we don’t produce the amount of consumer goods we once did) so the balance of payments deficit will go through the roof. Maybe the proposer is too young to remember Nigel Lawson’s tax give-away budget in 1986 initially it triggered a fall in unemployment then a balance of payment crisis then unemployment at twice the level it was in 1986. Who was it who said they never learn ?
    On a positive note the use of debt free money created by the MPC of the BoE (overseen by an all-party TSC) seems eminently feasible. Could it be accomplished in the following manner ?
    1) A costed Government budget for 12months is forwarded to the BoE where the MPC consider it and approve it or make certain recommendations with regard to it before returning it to the government.
    2) If approved debate the budget in parliament and when it is eventually approved forwarded it to the BoE to implement the creation of the necessary debt-free credit line.
    3) If the government agrees with the MPC recommendations it alters the budget accordingly and follows path 2).
    4) If it disagrees it puts their original budget before parliament and follows path 2)

    It would be unusual for spending not to exceed the approved budget but once the BoE receive the original budget the amount of debt free created money cannot be altered. The government will have to borrow the shortfall from the territorial banks at the current interest rate (see following).

    Removing the ability of international PLC’s to create money is critical to the restoration of control over the financial system. Control would be exercised by the chief civil servant of the country the governor of the BoE. They would exercise control through territorial banks (banks that could not invest outside the UK). The BoE would determine at what multiple above their deposits they could operate with, raising or lowering it as the MPC advised. Both current and investment accounts would be considered the bank’s money but the BDPS would only reimburse current accounts and then only up to a fixed amount for an individual no matter how many current accounts they had (large sums could either be invested- with the chance of gains or losses, or placed on deposit for a fixed small fee that guaranteed delivery on demand).

    Should the territorial banks have surpluses they could buy the bills, bonds or gilts ( the BoE could raise their deposit multiple in order to facilitate their purchase).

    International PLC bank’s would be deprived of their ability to create money they would have to rely on attracting investors or raising finance from the global money market to finance themselves and they or their clients would have to go to the market to obtain protection for any deposits or investments and also submit to the rules laid down by the BoE in order to trade within the UK.
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    (Original post by landscape2014)
    It would be unusual for spending not to exceed the approved budget but once the BoE receive the original budget the amount of debt free created money cannot be altered. The government will have to borrow the shortfall from the territorial banks at the current interest rate (see following).
    That's where I part with Positive Money. Why must there necessarily be a shortfall? Why not issue debt-free money to finance all public expenditure without borrowing or taxation? That's how the Greenbacks currency once worked in the US.
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    (Original post by Polymath0)
    That's where I part with Positive Money. Why must there necessarily be a shortfall? Why not issue debt-free money to finance all public expenditure without borrowing or taxation? That's how the Greenbacks currency once worked in the US.
    Why are you trying to bring this thread of yours back from the dead after six months of inactivity?
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    (Original post by Quady)
    Why are you trying to bring this thread of yours back from the dead after six months of inactivity?
    Because no one had been posting replies. I only just found a new reply and chose to respond. Is there a problem?
    This thread ought to be pinned as far as I'm concerned. To understand the monetary scam is paramount.
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    (Original post by Polymath0)
    I want to emphasise first and foremost that I don't belong to any particular sociopolitical ideology. I am a free thinker. I believe that there is an element of truth in every persuasion of thought, and that information ought to be gleaned in order to arrive at any given truth. It is all about reading between the blurred lines so as to connect the dots.

    Sounds a lot like pragmatism to me :P
 
 
 
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