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Email this1:30 am
June 20, 2011
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What year was it, some time in the late seventies perhaps, that Trudeau's gov't passed a law that increased the already unethical practice of lending out money the banks don't even have in their vaults.
If you take out a mortgage they just create money digitally right? It doesn't actually come from anywhere. It is accounting sleight of hand, no?
12:37 am
No. Banks are businesses that are in the business of leveraging. What bothers me is that our education system does not teach the basics of what money is and how it is created.
10:19 am
No, it doesn't bother me at all. Fractional reserve banking is perfectly ethical. I think you're getting confused with the multiplicative effect of loans getting deposited in a chartered bank and then that money can be loaned out again (with reserves withheld of course) and deposited and loaned out again and again. So $100 of central bank money gets multiplied out to say $500 via commercial banks and the fractional reserve system, that's no big deal and is far easier to manage than say $500 of central bank money being tracked and controlled such that there is no multiplicative effect? The money supply gets centrally controlled anyway through various mechanisms, including the overnight rate.
3:43 am
March 25, 2009
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Yes, it does bother me.
Why? Because it devalues your labour by making your income less.
Leverage of 10:1 was common in the past, today banks are 20:1 or even 30:1. At these rates their currency reserves could not support even a tiny bank run... thus AIG, Leman Brothers, Northern Rock (and many others) bank defaults and trillions of dollars in bank bailouts.
Have a great day
4:59 am
The gold standard forced governments and big business to be accountable. That's why we now have fiat currency. Without it, there would have been no funny money for countries to use to wage wars, pillage resources, and generally impose their will (i.e. the US of A). Countries on the gold standard would have gone broke before their first tank rolled onto enemy territory. Now, we have countries that are essentially bankrupt that continue to borrow from eachother in a gigantic global ponzi scheme to maintain the high livings standards of their citizens. Once these countries start defasulting on their loan payments (e.g. Greece, Portugal, Ireland, Spain, others to follow) nobody is going to lend them any more funny money. These countries will be forced to be accountable once again by innovating and producing goods that are in global demand. Union protection for jobs will disappear. High-paying government jobs will disappear (except for the high level bureaucracy and their families which are entrenched like ticks on a hound). Things will generally not be good for women. So to answer the OP's post, no, I don't think creating "money" out of thin air is a good idea (unless you grew up in the 60s and 70s and benefitted from the faux rise in prosperity after the gold standard was dropped in the US).
9:00 am
mike said:
Yes, it does bother me.
Why? Because it devalues your labour by making your income less.
Leverage of 10:1 was common in the past, today banks are 20:1 or even 30:1. At these rates their currency reserves could not support even a tiny bank run... thus AIG, Leman Brothers, Northern Rock (and many others) bank defaults and trillions of dollars in bank bailouts.
Actually, what devalues your money is when the Central Bank creates more fiat money. When regular banks leverage, the money supply is increased due to leverage / credit, but if a bank run were to occur, the overall credit increased by that bank would disappear when the bank went bankrupt. In the United States example you are using, the only reason money was devalued was because the Federal Reserve traded reserves for CDOs and Treasuries, which IS creating new fiat money and not simply credit because the Federal Reserve increased their asset holdings with a bunch of numbers that they punched into a computer. The source of the problem isn't the banks leveraging, but rather the Central Bank being able to create new fiat money and buy real assets with it, thus increasing the money supply through inflation. The Central Bank can't go bankrupt because it is the supplier of the fiat money and can simply will more into existence, whereas the regular banks can't actually will more money into existence, they can only create credit which can just as easily disappear.
Fiat money is just as viable as commodity based currencies but one form of currency should not prevent the other from existing. The free market should decide which form of currency they would like to use as a check and balance. If a Central Bank decided to inflate their currency, then the people might not like that and may switch over to a commodity based currency, thus creating a disincentive for creating new fiat money.
9:25 am
guest said:
The gold standard forced governments and big business to be accountable. That's why we now have fiat currency. Without it, there would have been no funny money for countries to use to wage wars, pillage resources, and generally impose their will (i.e. the US of A). Countries on the gold standard would have gone broke before their first tank rolled onto enemy territory. Now, we have countries that are essentially bankrupt that continue to borrow from eachother in a gigantic global ponzi scheme to maintain the high livings standards of their citizens.
I don't disagree with you that fiat money has enabled all of these things, but I think where the problem lies is the fact that many people don't understand what money is and simply accepts it and its usage. An uninformed public is what allows all of the things you list to occur. What forces government and big businesses to be accountable is not the type of currency, but rather the people. The people allow both government and businesses to exist. They allow government to exist by accepting the laws they impose, and businesses to exist by owning them or buying from them.
6:39 am
March 25, 2009
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There isn't many more informed than I. I listen to Alex Jones daily, watch Glenn Beck and even read several sites dedicated to contrarian thinking.
The gold standard is gone and won't come back. Gold is in a speculative bubble.
Most people think you can create money out of thin air and while that is "true" you have to get someone to borrow it to have inflation. Even with tarp, QE, QE2 and other bailouts, the vast majority of money haven't been spent and sits at the FED, as there is little debt demand right now.
The other side of the coin is fiat money can be removed from the system very fast, faster than it can be made which is happening today (just ask Ben Bernanke). We currently have deflation in the marketplace as defaults, bankruptcies and as bad investments die. Over 4 Trillion has been lost in the US RE market alone, greater than all printed money from the bailouts.
The only inflation we have are on "small priced goods" such as food and gas. "BIG priced goods" such as homes*, cars, big electronics are in a deflation. (*most of USA, some Canada)
Interesting times, but savers have it right, save cash, not gold.
Have a great day
11:43 am
fiat is here to stay, nothing short of a total global catastrophe (meteor strike, solar radiation, ice age, nuclear war) will change that fact because too many people profit from the system and they will never give up their positions of power over the rest of us... anyone who threatens the control of these elite will be killed, one way or the other... accept it, live your life, move on
7:18 pm
mike said:
Most people think you can create money out of thin air and while that is "true" you have to get someone to borrow it to have inflation. Even with tarp, QE, QE2 and other bailouts, the vast majority of money haven't been spent and sits at the FED, as there is little debt demand right now.
By simply creating money, you are inflating because you are supplying more of it, thus the central bank money / monetary base (MB) has inflated.
The other side of the coin is fiat money can be removed from the system very fast, faster than it can be made which is happening today (just ask Ben Bernanke). We currently have deflation in the marketplace as defaults, bankruptcies and as bad investments die.
To reduce the MB inflated by QE and QE2, Helicopter Ben has to sell the CDOs and Treasuries that were purchased back to the open market. The CDOs are basically worthless so it would be difficult to deflate the MB by the same amount that was inflated by the original purchases of CDOs. The more Treasury Bills that he sells, the higher the interest rate will be for them, which is counter to their goal of keeping the US debt interest low so it would be difficult to offload that portion of the balance sheet as well so it is not as easy to deflate MB.
Over 4 Trillion has been lost in the US RE market alone, greater than all printed money from the bailouts.
Commercial bank money (M1, M2, and M3) has deflated due to defaults, but the MB does not change because of this. The original amount of MB still exists and can still be used to reinflate M1, M2, and M3. The problem is that there is now more MB due to QE and QE2 which devalues anything held as M0, which in turn devalues any M1, M2, and M3 created by M0 money.
The Federal Reserve wants to reinflate M1, M2, and M3 by inflating MB. Deflating M1, M2, and M3 is a good thing because it gets rid of bad debt so that good debt can take its place and restore healthy productivity. When MB is used to buy bad debt, not only does it devalue all existing money, it prevents good debt from taking the place of bad debt.
1:19 pm
March 25, 2009
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Andrew said: The Federal Reserve wants to reinflate M1, M2, and M3 by inflating MB.
I agree with you, but the FED has failed at creating the inflation they want. Again, you can't MAKE people borrow, even if you have a mountain of cash to give out.
Have a great day
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