"Banks create money out of nothing" - Guardian

[ViolentPanda]

Fractional reserve banking is real and a problem, so comments like this aren't really helpful and just add fuel to the fire that certain sections are merely trying to shut down debate.

Of course it's a problem, but implying that it's a far bigger problem than it actually is, it only deserves to be acknowledged through "international banking" jokes.
It's not FRB that's caused most of the financial problems in the last 20 years, it's the nature of derivatives trades and the poor understanding (and regulation) of them. FRB, even as appallingly-policed as it is, is merely an enabler of vices, rather than the vice itself.

 

[FridgeMagnet]

I didn't think the Guardian was paying her any more - I thought she was just the one in the Indie comment section who made Hari look good.

 

[ViolentPanda]

If you google Fractional Reserve Banking Inflation, you'll find plenty to read. Some people believe it *is* inflationary, but I'm not sure the maths stands up.

Not so much "is" as "can be", and then it's dependent on other unconnected, economic factors.
Nothing is ever as simple as we'd like it to be.

 

[butchersapron]

I didn't think the Guardian was paying her any more - I thought she was just the one in the Indie comment section who made Hari look good.

Still has a weekly column.

 

[ViolentPanda]

I didn't think the Guardian was paying her any more - I thought she was just the one in the Indie comment section who made Hari look good.

Ouch.

 

[ViolentPanda]

It's basically a pyramid scheme, it's always going to end in tears for some.

Similar construction, but historically there's one big difference between the classic scheme and the capitalist banking scheme - capitalism has historically kept the pyramidal growth inherent to FRB "under control" (sometimes successfully, sometimes less than successfully), even though it's only done so for purely instrumental purposes, i.e. to milk us for far longer. Your classic pyramid salesman is looking at short-term heavy growth in order to maximise the yield from the marks. Banking goes for the longer term.

 

[FridgeMagnet]

Ouch.

I'm not exaggerating, she really is that awful. At least Hari could occasionally plagiarise some readable copy.

 

[ItWillNeverWork]

Inflation always leads to repayment problems (money buys less, repayments are harder to meet, whether you're an individual or a corporation), so the virtuous circle you're attempting to construct here is flawed.

I would have thought it was the other way round. Money buys less yet the outstanding amount stays the same, therefore repayment is easier. It's deflation that makes loan repayments more difficult.

 

[FridgeMagnet]

Still has a weekly column.

Saturdays?

 

[Greebo]

FFS nobody say the U word.

 

[ViolentPanda]

I'm not exaggerating, she really is that awful. At least Hari could occasionally plagiarise some readable copy.

I think I read a few of her pieces in one of the sundays. Very uncontroversial "politics as viewed by a vaguely lefty middle-class mum" stuff, from what I recall.

 

[ItWillNeverWork]

FFS nobody say the U word.

Udders?

 

[butchersapron]

Saturdays?

Seems to be whenever some crap thought pops into her head or she sees something on the telly judging by the dates on these

 

[ViolentPanda]

I would have thought it was the other way round. Money buys less yet the outstanding amount stays the same, therefore repayment is easier. It's deflation that makes loan repayments more difficult.

Not really, because more of your money goes on buying the basics/satisfying immediate debt, leaving less to pay off your bank debt.
At least, that's they way history tells us things worked out in much of Europe and the USA in the '20s and '30s.

Inflation: Great for indebted governments, not so great for "ordinary Joes".

 

[Greebo]

Udders?

Usury

Don't ask me to repeat it or you might summon he who is apparently obsessed with that, by accident.

 

[ItWillNeverWork]

Not really, because more of your money goes on buying the basics/satisfying immediate debt, leaving less to pay off your bank debt.
At least, that's they way history tells us things worked out in much of Europe and the USA in the '20s and '30s.

Inflation: Great for indebted governments, not so great for "ordinary Joes".

OK, I see what your getting at. Although if incomes keep up with inflation to any degree it would essentially wipe out the debt.

 

[ViolentPanda]

OK, I see what your getting at. Although if incomes keep up with inflation to any degree it would essentially wipe out the debt.

Well, we often start off that way, by keeping pace, but we don't often end that way, unfortunately.

 

[Dr Jon]

Blimey!
Bankers in thieving, money-juggling parasites shocker...

 

[ayatollah]

About a million years ago I used to teach, amongst other things, "o" level Commerce, to secretarial students ..... they always used to think I was simply making it up when I got to that bit of the syllabus covering banking-- particularly the way banks could, and constantly did, lend out much more money than they actually held as deposits - to the extent governed by the Cash Reserve Ratio set by the Bank of England:

It simply IS the case that banks can and do "create money" out of nothing , all the time - a factor which does have to be strictly controlled by the central bank in a state, or it does indeed produce runaway inflation. Making adjustments to the size of the reserves banks have to hold on to , rather than lend out to new borrowers, is a key part of government economic management. Without the ability of banks to increase the money supply via this "lend more than you have in your vaults as deposits" wheeze, capitalism wouldn't be the dynamically expansive system it has been (most of the time).. and bankers wouldn't have got so very rich ! Of course this entire "upside down pyramid of lending" (balanced on a relatively tiny pile of available cash and easy to liquidate into cash investments) by banks comes seriously unstuck when, Like Northern Rock, the customers lose confidence in the bank and all decide to take their money out -- only to discover it aint in the vaults, it was never all in the vaults .. its been lent out to other people. This "run on the bank" bank collapse happened all over the USA in the 1930's.

 

[Jazzz]

Not intrinsically. They're lending deposits. Whilst the deposits remain deposited, they can't be spent.

However money multiplies - I, Mr Depositor, would say I "have £1000".
The bank however may have lent say £900 of my £1000. So Mr Borrower says he "has £900".

So now we have £1900, which started has £1000. This can go round and round a fair bit. (e.g. Mr Borrower deposits the £900 in a bank, and they lend £800 of it... etc etc).

This isn't really it paolo, although you describe a credit expansion it doesn't have to happen that way at all, and it is important to get away from the idea that the banks are just passing things around.

From the book earlier linked to:

There are several conflicting ways of describing what banks do. The simplest version is that banks take in money from savers, and lend this money out to borrowers. This is not at all how the process works. Banks do not need to wait for a customer to deposit money before they can make a new loan to someone else. In fact, it is exactly the opposite; the making of a loan creates a new deposit in the customer’s account.

http://www.positivemoney.org.uk/where-does-money-come-from-book/

Popular Perceptions of Banking 2: Taking Money from Savers and Lending it to Borrowers

The ICM/Cobden Centre poll found that around 61 per cent of the public share a slightly more accurate understanding of banking: the idea that banks take money from savers and lend it to borrowers. When asked if they were concerned about this process, this group answered ‘I don’t mind as long as the banks pay interest and aren’t too reckless.’

This view sees banks as financial intermediaries, recycling and allocating our savings into (we hope) profitable investments that provide us with a financial return in the form of interest. The interest we receive on savings accounts is an incentive to save and a form of compensation for not spending the money immediately.
...

This theory is incorrect.

http://www.positivemoney.org.uk/2011/12/common-misconceptions-banking/

 

[Dr Jon]

About a million years ago I used to teach, amongst other things, "o" level Commerce, to secretarial students ..... they always used to think I was simply making it up when I got to that bit of the syllabus covering banking-- particularly the way banks could, and constantly did, lend out much more money than they actually held as deposits - to the extent governed by the Cash Reserve Ratio set by the Bank of England

*snip*

Yeah, most people are shocked to discover that our banking system is based on fraud.

The process by which banks create money is so simple that the mind is repelled

This system appears to "work" while the resources are available to fuel the growth required.
After that point, the fraud can no longer be sustained and the system falls over on its arse.

 

[camouflage]

Amazing, truth hitting the mainstream press! Thank you Deborah Orr.



http://www.guardian.co.uk/commentisfree/2012/jul/13/deborah-orr-better-banks-move-money

She's wrong.

Anyway currently I like to think banks create credit (which is also debt) and this is used as money. Something like that anyway.

 

[Dr Jon]

Just spotted:
Tony Blair: Don’t Hang Bankers

Why Is Everyone Suddenly Talking about Hanging Bankers?

No idea. Complete mystery.

 

[grit]

Why the denial of the fractional reserve system?

 

[bluestreak]

so what? this is capitalism, it's not the big conspiracy you want it to be, just the way capitalism has always been.

or; fuck off.

 

[FridgeMagnet]

No, we're meant to absolutely spunk everywhere because somebody half-arsedly mentions stuff in the Guardian which people already knew. Oh fractional reserve banking it's a fucking revelation let me buy a million Zeitgeist DVDs right now.

 

[Dr Jon]

 

[paolo]

you describe a credit expansion

I was describing fractional reserve banking (and it seems like most other posters on the thread took it that way too and understand what that is).

 

[ItWillNeverWork]

I was describing fractional reserve banking (and it seems like most other posters on the thread took it that way too and understand what that is).

Some argue that credit expands by mechanisms other than FRB. The endogenous-money theorists, for example. I assumed that this is what Jazzz was referring to.

 

[RaverDrew]

It was in the Guardian... so it's true