[nero]

$this->bbcode_second_pass_quote('', 'Y')es, but they can also control the amunt of money in supply too. They can do this via a number of mechanisms - go to http://www.propagandamatrix.com and check out the documentary of I think it was called the 'Lyndon Institute' or something similar.

[DesertBear2]

$this->bbcode_second_pass_quote('jaws', '
')The banks are the hardest working business of our economy.

[Markos101]

The UK is similar with real estate. I'm not on the property ladder yet being a young man, and I am certainly not planning to place any money in property for the next few years.

We've had the longest period of growth in house prices on record, and a record absolute growth. According to some economists (yes, economists...) this is due to the fact that the Monetary Policy Committee of the Bank of England focus only on consumer price index (CPI).

I think this has been fuelled by, as usual, brainwashing by television creating crowds of property developers looking to get passive income out of real estate. The television of course, never to be something to genuinely inform, doesn't mention of course that it is a virtual certainty that there will be a crash after the frenzy.

I think oil will be a far better investment for the next few years than real estate.

Mark

[Markos101]

Yes, the World Bank and IMF. Basically as far as I can see, this is a mechanism for the haves to buy up nations using debt. I say this, because firstly the records show that often the money lent goes into the power-hungry passive-income mad buerocrats pocket's and not into the hands of the people of the nation, and also, they tend to put political conditions on the loans in order to change the societies that they are 'bringing out of poverty'.

As is the case for most things, I think the World Bank and IMF are devils in disguise.

Mark

[Markos101]

I'll also point out another commonly overlooked characteristic of the banking system: they make money in both inflation and deflation.

That is, in inflation, they make money because when they make the money out of nothing and charge interest, because they typically charge 10% interest on business loans or 5% on mortgage loans (property loans in other words), they get more money back than the borrower gets from spending the money first and therefore not being subject to inflation. So the borrower still loses to the bank in inflation.

In deflation, there is not enough created money in circulation to pay back all interest, and therefore some people will default on their loans. The bank however, despite having created the money out of nothing, quote 'repossess' your property (actually they never had the property they 'created' in the first place) and sell it for create money. They then pay back their loan. It is the borrower that loses in deflation too.

Mark

[jaws]

$this->bbcode_second_pass_quote('DesertBear2', '')$this->bbcode_second_pass_quote('jaws', '
')The banks are the hardest working business of our economy.

[newellm]

$this->bbcode_second_pass_quote('', '
')By your logic there should be an infinite amount of money in circulation. Everytime someone takes out a loan they put that money into a bank somewhere else, thus increasing the deposits in that bank.

...

It quickly blows up to infinityand money would be essentially valueless.

[newellm]

$this->bbcode_second_pass_quote('', '
')By your logic there should be an infinite amount of money in circulation. Everytime someone takes out a loan they put that money into a bank somewhere else, thus increasing the deposits in that bank.

...

It quickly blows up to infinityand money would be essentially valueless.

[nero]

newellm,

Try to look past your antipathy towards banks for a moment and try to see if what you believe is really true. Does every deposit mean that the bank can then loan out 10 times as much as was deposited? What about instances where there isn't any reserve requirement? Say a term deposit. Does one dollar in a term deposit mean then that the bank can lend out an infinite amount of money?

[CrudeAwakening]

Nero, what I think newellm is getting at, is that a deposit expansion by the fractional reserve system eventually converts the initial deposit of $x into total deposits of $10x (assuming a reserve ratio of 10%), with the difference of $9x being made up of loaned money.

So in fact, the banking system as a whole loans out nine times the amount that was originally deposited, these loans constituting the increase in the money supply which occurs under fractional reserve banking.

[CrudeAwakening]

I should add that total deposits still exceeds total loans, as each individual bank can't loan any more than is deposited with it. I think the confusion arises because the loans themselves become deposits when they are spent.

The tenfold increase in loans over deposits (actually, its ninefold, but anyway) relates to the original deposit, and doesn't include the redeposits from the loans themselves.

Hmm, maybe I'm just confusing people..

[shady28]

$this->bbcode_second_pass_quote('newellm', '1'). You guys are completely wrong with your reserve requirement math.

If a bank has reserves of $1000(checking deposit) and a reserve requirement of 10%, then the bank is allowed to loan not $900 dollars, but $10,000.

Why.

Because the amount of deposits required is the reserve requirement multiplied by the liabilities. 10,000 * 0.1 = 1,000

...

P.S.
The bank with that deposit of $1000 has loaned out $10000 at 10% interest(historically not a high interest rate). The bank is now profitting $1000 per year from that $1000 dollar deposit, for doing virtually no work(except for employing some pencil pushing monkeys). The guy who deposited the $1000 dollars gets maybe $50, or 50/1000 = 5% of the banks profits.

[Markos101]

$this->bbcode_second_pass_quote('Markos101', '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

[CrudeAwakening]

$this->bbcode_second_pass_quote('shady28', '
')
This is just flat out wrong.

A bank cannot lend more than its deposits. Doing so would be 'creating money' and only the Federal Reserve banks can do that.

[jaws]

$this->bbcode_second_pass_quote('CrudeAwakening', '')$this->bbcode_second_pass_quote('shady28', '
')
This is just flat out wrong.

A bank cannot lend more than its deposits. Doing so would be 'creating money' and only the Federal Reserve banks can do that.

[newellm]

I realize now that i was wrong with my reserve requirements for net transaction accounts, however, that doesn't change the reality that "banks" create money out of thin air.

With a reserve requirement of 3%(institutions that have net transaction accounts totalling less than 47.6 million, ie most local banks), the banking system can loan out over 15 times the amount of original deposits. Is my math wrong? If it isn't than the banks ARE creating money from thin air.

And lets get something clear, these "reserves" are just dollars, either in the vault, or digits in a federal reserve computer. They are backed by nothing but confidence(not mine).

And this is just the one part of the "banking system", once we get into mortgage backed securities, derivatives, and other banking system creations, you come to realize that there is no limit to total credit under the current system(even without the fed creating the money), except the limit to peoples desire to borrow.

The reality of the situation is that the fed and the gov want the total money supply to inflate as much as possible, because that makes the current debt relatively smaller, but they don't want consumer prices to rise too quickly, so they try to funnel the credit creation into areas where it won't be chasing consumer goods. That's why housing is perfect, because they can give people some cash through refi, they can increase corporate profits, taxes, provide jobs, etc.

If we look at the macro view of what is happening, they are increasing the total supply of dollar credit exponentially, but most of it is just in financial assets. When the borrowers finally stop borrowing at a fast enough rate to keep credit expanding, then TSHTF. At that point asset values will be falling and wages and employment will be falling, people will be forced to cash in on these financial assets, and when they do there is a good chance they will want real goods in return. When this happens on a macro scale we will see rising prices like crazy. This is deflation and rising prices. Something many people can't seem to understand, including economists.

The fraudulent banking system is a creation designed to fail, but in the meantime it is making some people very very wealthy for doing no real work.

Matt

[Markos101]

Hi Matt,

I agree in that it is a system doomed to fail. I think peak oil and peak gas will correspond to peak food, and peak energy. All of these things will reduce the ability for centralisation, which is a good thing indeed.

Mark