[Markos101]

This is an interesting matter of debate, as there are both good and bad points about the current banking system.

Under the current system, money is created out of nothing by the private banking sector. Under central bank 'regulations', if you go to a bank for a £10,000 loan, they may loan you up to £100,000 and charge you in the region of 10% interest on that loan. You must then work for the money to pay back the bank its principle, and interest, before you 'own' whatever you received a loan for. Notice that 10% interest obtains the same reserve amount in return annually simply via interest payment.

The bank did not have to work for the money on which it based its loan reserve either, that is your savings. You worked for it, and decided to put it in the bank. Often, this comes from employee income, which is the highest taxed income available, far higher than most taxes on corporate profits and extracted share dividend.

In addition, the central bank is also able to create money for the government, out of nothing. If the US government collects taxes, almost always it spends all of that money on its own projects, 'whatever is in the national interest'. It then borrows from the public, which is its next source of funds, in the form of government bonds. In this case, the government promise to take everything you have back in taxes in order to pay you back your investment, plus interest after X years.

Finally, once that source is dried up, which it usually does, they go to the central bank. They say, 'give me $1,000,000,000'. And the central bank writes a cheque, on the basis of no account whatsoever, and hands it to the government who then spends it. It has just fabricated that $1,000,000,000 out of nothing.

In the next step, it then ends up in the private banking sector, who can loan up to $9,000,000,000 from that $1,000,000,000 at interest, unearned. It ends up in the private banking sector because all of us have private banking accounts, whether we own businesses, work for private businesses, or work for the government. That $1,000,000,000, whereever it is spent, must end up at the next step in private banking accounts, in private banks.

Of course, all this lending has its consequences. Inflation then devalues all this new money going into supply. Inflation is actually a hidden tax. Why? Because whoever spends the money first, gets the full purchasing power of that money. So in the case of the government, they spend that $1,000,000,000 into the economy - and then the dollar devalues. In the case of the private sector, it is the borrower that gets the full purchasing power of that $9,000,000,000. Who is at the edge of the pot? Usually the worker - the employee who has his salary extracted from the company funds - and who is then accordingly taxed the most. The employees pay the full force of inflation, by losing the most purchasing power.

Who gets that lost purchasing power? The government, and the banks, because they spend the money first. Remember that even though the private borrower spends his money first, he must pay back on average more than double his gains from zero inflation back to the bank in interest payments - so say he paid 10% interest (that is 100% return per year for the bank if the principal isn't reduced), he loses his typical 2.5% gain in purchasing power through lack of inflation. So the bank gets back whatever the borrower gained from spending the new money first.

These are the two entities that are part of the partnership - the government, and the banks. And since 1000% inflation has occurred since 1910 under this inflating currency, every single penny, multiplied by all those millions and billions of dollars, has gone back to the bank, and the government, unearned, effectively stolen from the worker, who must already contend with having to fund shareholder's investments and the heaviest tax already.

So is banking a scam? Well if the currency didn't inflate, then as production grew, the value of money would go up. Why? Because there would be less money in supply in relation to goods and services in supply. This would mean that people could sit on their behinds, and make money; and hence production would slow and hyperinflation would ensue. You need some inflation, ideally 0%, to keep the economy turning over. However, the central banks seem to want 2% inflation. Why? Because the government and the banks continue to get this additional supply of labour-free money, unearned.

So essentially, banks provide a valuable service by allowing us to value our assets using an accounting tool. But their service charge - that is, interest - is an absolutely astronomical charge for their service, which essentially consists of signing a loan form. And because banks have a monopoly on the creation of our 'legal tender', you have to go back to the bank, to get a loan. You don't have any other choice. However, if they didn't charge that interest, then you might not be psychologically motivated to use that money efficiently.

So, is banking a scam?

[Aaron]

Yes... it is.

[CrudeAwakening]

Yep, I think it is.

The traditional justification for charging interest on a loan is that it is the fee paid to the saver for foregoing the present use of their loaned money, as in 'loan banking', where previously saved money is transferred to the borrower.

In fractional reserve banking, the loaned money is just conjured into thin air at scarcely any cost to the bank, and yet they can claim back interest on it. Nice little earner.

Any bankers out there care to justify this interest charge?

[Free]

Yes, together with "unfair money" (interest) it is the source of many evils -exponential growth, inflation and deflation, disparate distribution of wealth.

http://userpage.fu-berlin.de/~roehrigw/ ... m/english/

http://userpage.fu-berlin.de/~roehrigw/ ... ml#english

[MrBean]

Not only a scam, but according to original Christianity and even today's Islam, taking interest is a sin.

[falser]

$this->bbcode_second_pass_quote('MrBean', 'N')ot only a scam, but according to original Christianity and even today's Islam, taking interest is a sin.

[lowem]

Yes, I'd suppose it is. From time to time, people would bring up the subject of the "ultimate way to get rich". They might be talking about MLM schemes, or striking the lottery, or some exotic financial charting techniques.

My response was always, "well, if there are people who have really found a way to get rich, they'd have all the world's money by now".

A couple of years back, I found that :

a. That way is called the modern banking system, and
b. The people who now have all the world's money? The bankers.

Well. How about that.

[lowem]

... well perhaps not *all* the money / resources, but perhaps I could add that having the power to create money is "almost" like having the power to create energy. It *ought* to be impossible, and yet ...

[jaws]

$this->bbcode_second_pass_quote('Markos101', 'S')o is banking a scam? Well if the currency didn't inflate, then as production grew, the value of money would go up. Why? Because there would be less money in supply in relation to goods and services in supply. This would mean that people could sit on their behinds, and make money; and hence production would slow and hyperinflation would ensue.

[jaws]

$this->bbcode_second_pass_quote('CrudeAwakening', 'Y')ep, I think it is.

The traditional justification for charging interest on a loan is that it is the fee paid to the saver for foregoing the present use of their loaned money, as in 'loan banking', where previously saved money is transferred to the borrower.

In fractional reserve banking, the loaned money is just conjured into thin air at scarcely any cost to the bank, and yet they can claim back interest on it. Nice little earner.

Any bankers out there care to justify this interest charge?

[MrBean]

$this->bbcode_second_pass_quote('falser', '')$this->bbcode_second_pass_quote('MrBean', 'N')ot only a scam, but according to original Christianity and even today's Islam, taking interest is a sin.

[GoIllini]

I think it's become less of a scam since banking reforms were made back in the '30s that don't just have the government backing banks, but more importantly, force banks to be more responsible in how they manage savings. For instance, banks are required to keep some of the money put in as cash. I think that they're required to keep even more as cash on demand deposits, such as savings and checking (not CDs).

Thank goodness we had the Great Depression. Some of the legislation and reforms put through back then are going to help round out the peak in the economy and give us the time we need to turn a doomsday scenario into just a very bumpy landing.

Yes; those reforms can be undone, but if the peak happens anytime soon, I think the sentiment in congress is, if anything, to keep other peoples' debt (IE: raising minimum payments on credit cards) managed responsibly.

[I_Like_Plants]

Islamic banking is not a scam, our present system is.

[jimmydean]

Creature from Jekyll island was an interesting book on this very subject that I thoroughly enjoyed. Although it has a conspiracy theory foundation there is enough evidence presented to scare even the most conservative of people.

[nero]

Alot of people seem to think that a bank can lend more money than they have in deposits or capital. If you are one of those people this post is for you:

No they can't. A commercial bank has to get the money it lends out from somewhere. In the US the law is that the bank has to hold on to 10% of their chequing account deposits.

So it works this way:

Bob deposits $1000 in bank A.
bank A lends $900 to Dick.
Dick deposits $900 in bank B.
bank B lend $810 to Harry.
Harry deposits $810 in bank C.
bank C lends out (0.9 *810)....

In the end, the total deposits in all banks is $10,000.
But no single bank ever lent more than they had in deposits.

Now here in Canada the law doesn't require reserves at all for the chequing accounts so in theory the total amount of money in accounts in all banks could be infinite. Of course in the real world the banks do keep something in reserve and the money supply isn't infinite.

[aahala]

To those of you who don't think banks should charge interest:

Have any of you had a savings account and returned the interest
to the bank?

[Markos101]

nero and jaws, you're both incorrect.

The banks do create money, however there are several intermediate steps, like so:

Bank A starts up with capital of £10,000. It can lend £9,000 based on 10% reserve.

Bob borrows £9,000 from Bank A, and puts it in his savings account, Bank B.

Now Bank B has £9,000 and can lend £8,100 based on 10% fractional reserve.

Bill borrows £8,100 from Bank B.

Bill spends the money. Bob has still not paid back Bank A.. £8,100 has just been created, out of nothing, from Bob's £9,000 loan.

Mark

[MacG]

The very effect of it is indeed a scam, although it might have originated as a terrible mistake out of limitless greed and ignorance.

We must remember that when the fractional reserve banking system was created in the late 1600's, money was not a part of everyday life for the majority of the population, money was something for kings and rich merchants. Today every single person in the industrialized world is depending on this very monster of a system for their mere survival.

Debt based money is THE very thing which has to be fixed in order to survive PeakOil. If we get that fixed, the rest will sort out itself.

Edwin Riegel cracked this nut in the late 1930's (although Silvio Gesell saw the problem earlier, I dont belive in his suggested fix in the long run)

http://www.newapproachtofreedom.info

Some people are actually running a commercially sucessfull Riegel scheme here:

http://www.bartercard.com

And there is a prominent grassroots version here:

http://www.ces.org.za

[Tyler_JC]

Banking is prefectly acceptable.

It's paper money and fiat currency that is a scam.

[nero]

$this->bbcode_second_pass_quote('', 'n')ero and jaws, you're both incorrect.

The banks do create money, however there are several intermediate steps, like so:

Bank A starts up with capital of £10,000. It can lend £9,000 based on 10% reserve.

Bob borrows £9,000 from Bank A, and puts it in his savings account, Bank B.

Now Bank B has £9,000 and can lend £8,100 based on 10% fractional reserve.

Bill borrows £8,100 from Bank B.

Bill spends the money. Bob has still not paid back Bank A.. £8,100 has just been created, out of nothing, from Bob's £9,000 loan.

Mark