camouflage
gaslit at scale.
Back for more eh. Have at it son, you'll learn something yet.
"Banks create money out of nothing" - Guardian
- Thread starter Jazzz
- Start date
Back for more eh. Have at it son, you'll learn something yet.
littlebabyjesus
one of Maxwell's demons
He has one thing right, imo - that having such an important social function as creating money, even in that dependent role, in private hands is incredibly harmful. It is also incredibly profitable to be a money-creator, and you can't lose because you know you'll be bailed out when your greed leads you to fuck it all up.
Secret rulers of the world? No. But in a position of leverage such that they can rip the rest of us off? Certainly.
elbows
Well-Known Member
Being bailed out does not mean you arent losing anything. You can still lose your prestige (personal or institutional), your job, and potentially the lucrative sources of income that allowed you to become a financial giant in the first place. In a worst case (for the rich) situation you can even collapse the entire system and evaporate many of the things that people get lulled into thinking represent genuinely safe stores of wealth.
We have not seen all of that in this case, yet, but they arent out of the woods yet and the implications of what happened will be rumbling on for some time to come.
elbows
Well-Known Member
I think it would be better if you just accepted that your methods leave you open to this sort of criticism. You are perfectly entitled to use whatever method you like and draw whatever conclusions you choose, but dont expect to talk about them publicly without being challenged, and when it happens dont try to blame the person doing the challenging. When confronted with obvious shit some people will want to set the record straight, which is good for those who want to learn something.
Its no secret why having some sort of money token is better than bartering. Bartering is inflexible, does not scale well, and is easily subject to distortions and imbalances. For a start many items are impossible to divide beyond a certain point without destroying their value, others are perishable, and the whole thing is prone to terrible problems when supply and demand for a particular item are out of whack. There are a variety of items that can be used as a store of value, and some people will resort to this in certain situations where currency systems are wobbling, or as part of their standard approach to diversifying and protecting their accumulated wealth. Occasionally something happens where we see a much wider part of society resort to bartering, eg I believe this happened to a certain extent for a time in Argentina after they defaulted, but its really a poor fit for the way people have lived for a very long time indeed.
elbows
Well-Known Member
When it comes to deciding what your money token is backed by, I think its a terrible idea to attach it to one thing. You end up judging everything relative to the availability of the underlying thing, and thats bonkers for so many reasons. If the amount of economic activity changes at a rate quite different to the availability and future prospects for wheat, it all goes to shit. And people who want to make money by exploiting the system end up with reasons to mess with the production of the wheat, or its distribution. A special event that disrupts the availability of wheat quickly becomes a problem that threatens the whole system. And thats just a few off the top of my head.
The reason the gold standard became unsustainable involved a lot of factors, some of which were down to particulars of various nations at the time. But just look at some of the larger theoretical problems with having a currency backed by one thing and its not hard to see that the downsides of such a form of currency backing are not particular to gold, it could happen with almost anything.
Its perfectly possible for humans to have a money system that is sane, pretty fair and secure. But issues of control and property have to be addressed at the same time, since money is a mirror that will reflect other woes and failings of systems, structures and ideologies.
camouflage
gaslit at scale.
Explain, what have I said that's obvious shite, you disagree that value can be abstracted and carried around in some form of token or symbolic system, used to trade with other things? Or do you disagree that commodities themselves can be used in exchange, or as stores of value in a money-like way that can inflate the supply of money itself... if people are exchanging ious and underwriting mortgages with them and exchanging them for other promises and drawing credit with them and insuring them... isn't this all part of the general increase of uncontrollable credit-creation that money must then be summoned to represent? I would actually appreciate a discourse on why this idea is not correct if you think it not to be correct.
I'm getting at Apron because his method is the posting equivalent of some tosser barging into you in the street, repeatedly, on every street you go for a wander along, and growling "What? Fucko, Yeah? And??"
Convenient when looking for an idiot to row with but not so much when you're just trying to get into an overwise interesting discussion.
butchersapron
Bring back hanging
No, i've explained to you the root of your problem. I did it in small boy words as well. You insisted that you've have grasped what i'm saying - where? You can't do this discussion on your level.
camouflage
gaslit at scale.
I agree, what I was saying about wheat wasn't that it's where money came from originally, my point was more about how promises of future production add to the money supply, not just the wheat already harvested and bagged, or already made into bread-products or whatever, but even the wheat that doesn't exist yet, the wheat in the future, the wheat that a feild of arable land can be said to represent. My point isn't about bags of wheat being the backing of money, rather it's about future expectation being the basis of credit creation, adding to the current money supply even though in fact that production hasn't been produced yet, it's theoretical, speculative, a plan, a dream, a promise... it's thin air. Who can say what tomorrow will bring? Last year so much wheat grew, on the basis of that can it really be assumed that next year the field will show the same performance? Forget wheat, it's not about wheat or any one particular commodity. It's about money created off the back of promises of future value.
butchersapron
Bring back hanging
It's called fictitious capital and marx nailed it 150 years before you were born. How it worked, why it worked and what it's effects are. But that's just old shit to someone with an ipod. Still real and still right whenever you feel like stepping out of your advert.
camouflage
gaslit at scale.
ipod?
You go Too Far!
You go Too Far!
elbows
Well-Known Member
Interesting, but frequently infuriating. Some paragraphs suffer from a complete overload of jargon, others are fascinating but do flit around to different subjects a too bit much at times.
I have not reached a level of understanding that enables me to offer confident and detailed critique of this stuff, but I still got a sense of some flaws or omissions at times. So I cheated and went looking for critiques by others on forums some years ago (since the article is 5 years old now, wow time flies). I am still chewing this over at the moment, thought I had something worth adding but now Im not so sure. So I shall read some more and perhaps sleep on it.
elbows
Well-Known Member
Well I wasnt exactly a great student of Marx, and much of my focus had been on energy & resource issues. So when the financial crisis made itself apparent I was inclined to shout 'They've borrowed against a future which isnt going to exist, and they've blinked and noticed'. But I couldnt keep the story that simple because the shift of various important things eastwards, and some spectacular imbalances seemed likely to influence the story heavily.
I suspect I have trouble with many of the threads about money and banks because some people seem to want to look at that stuff in a vacuum, which can quickly lead to plenty of nonsense, or at least a failure to grasp the underlying causes and ramifications. It is not surprising that the mainstream blame-game has been confined to some very narrow banker-hate realms, although for some reason quite early on in the crisis some liberal commentators decided to offer one small ideological sacrifice, by saying that 'trickle down' was now suddenly discredited. Nor is it too surprising that at this stage, despite the continued crisis of confidence in leaders, institutions and great chunks of the game, critiques that scratch well below the surface have largely come from those who were already well-versed at using Marx & associates to understand how stuff works. And that territory has some baggage, not least the typical length of such articles, along with jargon and required pre-requisite knowledge. So my own journey of understanding is progressing painfully slowly, and eureka moments of understanding are few and far between.
Anyways I cant look at todays global currency picture without looking at balance of trade issues. Although I want to understand more about money, I am also a fan of sometimes putting the entire issue to one side completely and looking at everything else in the world from all the other angles. Much as I enjoyed Roger Waters singing about 'cant you see, it all makes perfect sense, expressed in dollars and cents, pounds shillings and pence', I sometimes think this should be turned on its head. One way to appreciate the functions money and its related institutions are providing to todays systems is surely to first consider all the grotesque imbalances of everything else. Plenty of them did not come to exist because of dodgy bankers or perversities of the money system, rather money was being used in a distorted manner to compensate for these other imbalances. Its a great enabler and can represent everything from power to trust, the past and the future, work and exploitation, the real and the imagined, so its no wonder that it can play a multitude of villainous roles in the play of life. But what horrors does it unleash of its own accord as opposed to simply reflecting everything else?
No.
This is the whole point. And how could it be true?
If I pass you a banana, then I haven't created a banana. It would be utterly absurd to say that I have. To create a banana you need to grow one on a tree. If I told you that I could create bananas by passing around bananas you would say sorry jazzz, that is insane. So likewise how can we say that banks create money simply by passing around central bank cash? It is just as insane and is missing the trick.
BigTom
Well-Known Member
It's the difference between real capital and fictional capital.
If I deposit £10 in a bank, and they lend that £10 on, is there £10 or £20 in the economy?
littlebabyjesus
one of Maxwell's demons
Is that really how it works? Where did your initial £10 come from?
Or is that a case of thinking that the tail is wagging the dog? Simplifying the whole system to one bank, all that is needed is demand for the loan of £10. The loan is made, the transaction occurs - a good or service is bought using the £10, with both sides agreeing that the value of that good or service is £10 – and the £10 is deposited back in the bank instantly by the seller. There is something in the economy with real value, and that value has now been measured as £10-worth. At the bank, there is a trace of the transaction in the form of equal and opposite loan and deposit.
In the real world, of course, there are lots of banks, but that's where overnight inter-bank lending comes in. And the sum total of deposits/loans represents the perceived real value in the economy, as represented by these transactions in which buyer and seller agree a price. Fictional capital would then come into play not because of the banks' workings but because of the overvaluing of assets, whose price goes up despite the lack of a corresponding increase in real things based on things like optimism that the economy will grow in the future. This sum total of deposits/loans can become worth several years' gdp - which isn't necessarily a problem if they are long-term loans: we regularly borrow several times our yearly income to buy a house, but we are given 25 years to pay it back, so this isn't necessarily a mad thing to do.
Paying back loans destroys the 'money' that taking out the loan created, but in general, more loans are being taken out than paid back, so the money supply keeps growing. At points where the opposite happens, and more is being paid back than taken out, you then risk deflation and all the disincentive to invest that this brings with it, and this is what happened following the 2008 crisis, which qe was intended to address.
BigTom
Well-Known Member
Well I'd argue that originally the £10 came from the central bank when the currency in question was started (with £ sterling this may go back to when promissory notes appeared in the 17thc iirc so people didn't have to haul around gold/silver), but that it's been passed around so much now it's kind of divorced from the central bank in practical terms.
But I also think you're right that the loan - and the money that is created with the loan - comes into existence because of demand for the loan. At some point (overnight, end of month/quarter/year) the bank needs to be able to fund that loan. The funds for that loan could come from the loan itself though I guess, though it seems weird I can certainly follow through the reality of the situation and how it works.
I'll be the first to admit I don't understand the endogenous theory of money creation properly, but what I do understand still seems to be fairly well divorced from the positive money type take on banks creating money.
I also hit the wall when I try to understand what happened which meant that banks stopped being able to create money, and why they went bust/bailed out, which I know you've got onto in the last paragraph, but isn't the issue that the loans didn't get paid back, and weren't going to be paid back rather than that more loans were being repaid than created? This meant that the banks couldn't fund their lending from the repayments being made, and since this affected all banks there was no-one to turn to to borrow money from to fund the loans they were still creating (or to pay their staff etc).
I have a feeling I've made a very basic error in that above paragraph but I can't see what it is at the moment so I'll leave that for others to point out
But I also think you're right that the loan - and the money that is created with the loan - comes into existence because of demand for the loan. At some point (overnight, end of month/quarter/year) the bank needs to be able to fund that loan. The funds for that loan could come from the loan itself though I guess, though it seems weird I can certainly follow through the reality of the situation and how it works.
I'll be the first to admit I don't understand the endogenous theory of money creation properly, but what I do understand still seems to be fairly well divorced from the positive money type take on banks creating money.
I also hit the wall when I try to understand what happened which meant that banks stopped being able to create money, and why they went bust/bailed out, which I know you've got onto in the last paragraph, but isn't the issue that the loans didn't get paid back, and weren't going to be paid back rather than that more loans were being repaid than created? This meant that the banks couldn't fund their lending from the repayments being made, and since this affected all banks there was no-one to turn to to borrow money from to fund the loans they were still creating (or to pay their staff etc).
I have a feeling I've made a very basic error in that above paragraph but I can't see what it is at the moment so I'll leave that for others to point out
ItWillNeverWork
Messy Crimbobs, fellow humans.
At this point I honestly have no idea what the truth is. There's only so much that can be understood about the world by theorising, as there are as many theories as there are people, and I don't know who to believe. Empirical evidence one way or the other might help.
littlebabyjesus
one of Maxwell's demons
I agree. You and I have both linked in the past to Steve Keen, who thinks he has found empirical evidence for the 'loan-first' theory of money creation, in that the central banks expand the base money supply after the loans have been made, not before as ought to be the case in conventional economic thinking. He also models a theoretical banking system in which there is no central bank at all, merely credit, and his models show a striking similarity of behaviour between this kind of system and the system we have.
Here is Keen's manifesto. fwiw, he is one of the economists who accurately predicted the financial crisis before it happened. Doesn't mean he's right, but imo any professional economist who didn't see the crisis coming (and plenty didn't) is not worth listening to.
BigTom
Well-Known Member
Yeah, I've tried to read through some more of Keen's stuff twice now and gave up both times because my head was hurting too much. What I've read on his blog sounds like he is someone to be listening to - opposed to austerity but not a classic keynesian either. iirc it's his idea that instead of QE we should be paying that money straight to people to pay off debts or do whatever they want if they have no debts, which is something I like the sound of.
littlebabyjesus
one of Maxwell's demons
yep, that's exactly his idea. It has a lot of merit, imo. He's a follower primarily of Hyman Minsky, but he draws on others too, including Marx and Keynes.
I've grappled with his maths, and it seems to make sense to me. I wouldn't say he's entirely won me over because as you say, it's hard stuff. Worth studying his ideas, though, I think, because if he's right, then 95% of the world's economists are totally wrong! That wouldn't surprise me, though. After all, there was a time when monetarists came to dominate economic thinking, and monetarism is, I think we can safely say, provably, empirically, wrong.
I've grappled with his maths, and it seems to make sense to me. I wouldn't say he's entirely won me over because as you say, it's hard stuff. Worth studying his ideas, though, I think, because if he's right, then 95% of the world's economists are totally wrong! That wouldn't surprise me, though. After all, there was a time when monetarists came to dominate economic thinking, and monetarism is, I think we can safely say, provably, empirically, wrong.
BigTom
Well-Known Member
Yeah, it's the maths I have trouble with. I'm going to be taking another break from weed soon so I'll give it a go then cos being stoned is not conducive to me getting to grips with serious maths after so many years of doing nothing harder than gcse (and not even calculus level cos I was always working with students with SEN, so it was always the lower papers).
And I know it's the maths that will give the proof of his theory (well as much as you can have proof in economics), without understanding that I will always be left with a feeling of not quite understanding it and/or thinking it's got a point but also gone wrong somewhere.
I also want to read some Minksy cos he's not someone I came across during my degree, not sure why tbh.
And I know it's the maths that will give the proof of his theory (well as much as you can have proof in economics), without understanding that I will always be left with a feeling of not quite understanding it and/or thinking it's got a point but also gone wrong somewhere.
I also want to read some Minksy cos he's not someone I came across during my degree, not sure why tbh.
littlebabyjesus
one of Maxwell's demons
The maths is key, unfortunately! Mind you, Minsky's work is very light on maths. I came to Minsky through Keen, and he's well worth reading too. Minsky predicted exactly how the US sub-prime crisis would happen. He only published in obscure minor journals and was largely ignored in his lifetime, but the way that the financial crisis played out has led to a revival of interest in his ideas. Those few, such as Keen, who were already followers of Minsky are also now being listened to.
With Minsky, it was rather a case of Cassandra syndrome, I think. He was making predictions that didn't accord with what people wanted to be true, so he was ignored.
With Minsky, it was rather a case of Cassandra syndrome, I think. He was making predictions that didn't accord with what people wanted to be true, so he was ignored.
butchersapron
Bring back hanging
Hyman Minsky opposed the welfare state btw. His position is that the real economy - what he called 'the income producing system' (wage labour if want to follow through on this properly rather than the quasi-rents that capital assests produce according to Mynsky) that produces profits that then enter the banking system and can then function as money. The income/profit/surplus value necessarily exists prior to any loans.
butchersapron
Bring back hanging
Minsky was no minor figure.
littlebabyjesus
one of Maxwell's demons
Interesting.
The good/service for which the loan is needed is there first. Generally speaking, we pay people for their work after it's been done - for instance, a house is built, then someone buys it; a thing is made, then we buy it from a shop. So the real value exists before the loan is taken out to create the money that represents that value.
I'll have to think about that.
As for Minsky opposing the welfare state, well, it's possible to take from what he wrote what you think is right and reject what you think is wrong. For me, his analysis of the financial system has a lot of merit. That doesn't mean I agree with his politics, though.
littlebabyjesus
one of Maxwell's demons
Really? Or is it the case that he is no longer a minor figure? My understanding is that, as BigTom indicated, it was perfectly possible to do a degree in economics without ever touching on Minsky. I would guess that this is no longer true.
butchersapron
Bring back hanging
Wrong way round - we actually lend money to the bosses to employ us.
butchersapron
Bring back hanging
He published a number of very well known and very well read books in his lifetime. He studied under and the post-war greats. He taught at elite institutions his whole career. He served on numerous govermental bodies. Doesn't really matter if mainstream economics courses ever taught him does it - esp given your own comments above about the problems with such courses.
littlebabyjesus
one of Maxwell's demons
Ok, I'm going to contradict myself here, perhaps. (Thinking this through, so I may be wrong, btw.) We're paid for our work at the end of the month, but we have to pay for things generally either in advance (rent) or at the point of consumption (buying stuff from shops). So surely we end up having to borrow in order to live, and then this money that we've borrowed is precisely the money that we are then paid with at the end of the month.
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