Global financial system implosion begins
- Thread starter Falcon
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kyser_soze
Hawking's Angry Eyebrow
Well, to start with, FRB has been a normal banking practice since currency by fiat anyway. The issue with it at present is not FRB in and of itself (which, like derivatives, has a useful and important role in finance) but the capital/debt ratios that were allowable over the last 5-10 years or so.
So lets start with the problem of commodity based currency.
You need X amount of that commodity to have Y cash. So, let's say the UKG wants to spend a big pile of cash it doesn't have in tax receipts, it buys 1/4 of the world's oil reserves on option, gets it's money, then pulls the option sale, getting the cash but not left holding the barrells.
As far as I am aware the Tally stick method was used from Henry the 1st onwards. The sticks where in essence a fiat system and worked fine, so I disagree with the FRB being a normal banking practice since currency by fiat. Also the tally stick where a credit based system as opposed to debt.
The problem is not with the idea of fiat even, we don't have to have a gold standard, and as history shows the gold standard in the US and UK have been manipulated in the past, look at the great depression and recessions in Britain during the 19th C.
The problem is with the fact that the government has to borrow the money from the BoE and is charged interest upon said loan. The government should issue to currency debt free, that is at the core of my argument.
I have no problem with the FRB being used with regards to how banks operate between themselves or the public using their own form of currency, but to when we use the FRB with our sovereign monetary system we have massive problems.
With regards to the commodity based currency, yes there is obviously problems with that, and I personally wouldn't want to see the currency backed by oil.
TomPaine
Some links you may be interested in:
Tally Sticks:
http://fskrealityguide.blogspot.com/2008/10/tally-stick-monetary-system.html
http://en.wikipedia.org/wiki/Tally_stick
Colonial Scrip:
http://en.wikipedia.org/wiki/Colonial_Scrip
TomPaine
Tally Sticks:
http://fskrealityguide.blogspot.com/2008/10/tally-stick-monetary-system.html
http://en.wikipedia.org/wiki/Tally_stick
Colonial Scrip:
http://en.wikipedia.org/wiki/Colonial_Scrip
TomPaine
A Dashing Blade
Takes horses to water but can't make donkeys drink
You talking about gilt issuance here?
Sound like Mugabe School of Economics to me.
kyser_soze
Hawking's Angry Eyebrow
TBH it sounds like an argument once had in an economics degree seminar, altho I'm fucked if I can remember why it's a bad idea...
A Dashing Blade
Takes horses to water but can't make donkeys drink
"One of the most successful fiat monetary systems was the tally stick system used by the king of England. It lasted a long time and was used by the king to finance his empire."
Slightly disingenuous (Wiki School of Prooving A Point).
The English Kings also borrowed a hell of a lot of money (often failing to repay it) + periodically recalled all the coins in circulation and issued new (often debased) mintage.
A Dashing Blade
Takes horses to water but can't make donkeys drink
I provided that link more as an interesting read rather then a critique of the Tally stick system 
. However it was a system that worked and worked well, obviously though some of the kings where complete tosspots and did all sorts on the side.
Look at the mess the French king got into borrowing money from the Templars
.
The point being though that the Tally stick system in essence works, and the idea was carried to the colonies, where it worked well until it was stomped on by London.
TomPaine
. However it was a system that worked and worked well, obviously though some of the kings where complete tosspots and did all sorts on the side.Look at the mess the French king got into borrowing money from the Templars
.The point being though that the Tally stick system in essence works, and the idea was carried to the colonies, where it worked well until it was stomped on by London.
TomPaine
A Dashing Blade
Takes horses to water but can't make donkeys drink
Yes, but your system (ie no interest rate) creates more.
A_dashing_blade> I'd be interested to see what you think these are?
As far as I am aware inflation has risen rapidly in real terms under the FRB system in the US for example as opposed to previous system.
Between 1783 and 1913 inflation was barely above 0% except for periods of war. A dollar from 1813 would buy you essentially the same amount of goods in 1913.
If you had $100 in 1913 it would be the equivelant of some $2,038 these days.
Having a sovereign currency not based upon a FRB system of course wouldn't stop a voluntary free banking system emerging based upon trust and using FRB, however this option would be voluntary.
TomPaine
As far as I am aware inflation has risen rapidly in real terms under the FRB system in the US for example as opposed to previous system.
Between 1783 and 1913 inflation was barely above 0% except for periods of war. A dollar from 1813 would buy you essentially the same amount of goods in 1913.
If you had $100 in 1913 it would be the equivelant of some $2,038 these days.
Having a sovereign currency not based upon a FRB system of course wouldn't stop a voluntary free banking system emerging based upon trust and using FRB, however this option would be voluntary.
TomPaine
gosub
~#
No, but you both seem to have spent eons basically saying lets go back to a commodity backed currency...
Only poking dude...
I was at a cocktail party til 8am yesterday, then was up v late last night as had to get my accounts in order ahead of meeting with my accountant this morning, (slightly cranky).
Nothing is perfect, The current crisis stems from a few being to clever by half. That summit is being called a 21st Century Bretton Woods, but Bretton Woods was a stitch up in favour of the victors of WW2, but I don't think right now any of the world's financial captials have moral authority, and certainly do have vested interests against any shake up. Even if what is agreed is deleveraging to require say a 15% capital base, you are still in system driven by growth and you can't have growth without energy....
I agree with you here, so see your reasoning for linking the currency to oil. Although as was illustrated above you have problems with that.
Our obvious best way forward as a society is to look at producing energy as cheeply as possible, I guess geothermal is one option. Either way we need to get out of oil so we can avoid the constant wars that seem to kick off over it.
TomPaine
I'm suggesting that, since the control apparatus of the State is in turn controlled by Capital, gaining the sort of 'power' afforded by electoral success would only allow you that power as was ceded to State by Capital.
If Capital knows what you're planning to do with such power, you're likely to be able to exercise even less of it than the present herd of muppets.
Like battling to gain control of a bulldozer - you make it to the cab to discover you can barely steer it, let alone slow it to a stop.
Bernie Gunther
Fundamentalist Druid
Dicking around with theoretical stuff seems futile to me. Practical stuff is seeing that the people with fucked up mortages don't get thrown out of their homes. Practical is seeing that when capital tries to loot us all via government debt, to pay off their gambling debts and keep them in multi-million bonuses, we retain the means of subsistence and can resist their looting somehow, in terms of wages, assets, savings, benefits or whatever, to retain some measure of prosperity.
A nice piece from Sarel Oberholster.
The first part ('How does the “bailout with money from thin air” work?') I think we've already covered pretty well.
The second section ('From “bailout” to Depression' - scroll halfway down) is interesting, as it examines the consequences of the bailout using beutifully simple diagrams.
I posted the graphics (alone) on the 'Economic Crisis in Pictures' thread in the general forum here.
The first part ('How does the “bailout with money from thin air” work?') I think we've already covered pretty well.
The second section ('From “bailout” to Depression' - scroll halfway down) is interesting, as it examines the consequences of the bailout using beutifully simple diagrams.
I posted the graphics (alone) on the 'Economic Crisis in Pictures' thread in the general forum here.
Well, you'd have to be a little more specific regarding the methods you're advocating.
If by 'practical' you mean working within existing 'democratic' structure I'd say that's a false hope - delusional, even. You could wave a wand and put Caroline Lucas in No. 10 and she'd still be hamstrung by these pigfuckers and their monstrous debt. It's too late for that now. They've already sold at discount our children (and their children)'s future wealth and labour.
A little 'dicking around with theoretical stuff' may be necessary regarding this point if we ever hope to avoid ending up with a 'Norsefire' scenario.
If, on the other hand, you mean 'practical' as in individuals deciding that there's not much point waiting around for 'something to be done', so setting up systems and institutions (local currencies, Community Supported Agriculture projects, the sort of stuff Douthwaite was on about) then I'd agree, but point out that such endeavours currently invariably fail, since they can't 'compete' with the existing economy (being as it is a mere dangle-berry to the monstrous ponzi scheme) other than as a social club for middle-class yoghurt-weavers, doomed to remain so until collapse of the existing structure calls them into existence by necessity.
Here again, the theoretical argument for currency reform needs to be made, particularly if we are to benefit from some of the more promising if radical aspects entertained by Douthwaite, Keynes or Fisher (not 'radical' as in eviscerating your own daughter, though!
)Which brings us to a third possible definition of 'practical', which considers the above points to mean that the only 'practical' course of action is the sort of thing that they obviously had in mind whilst drafting much of the recent 'Anti-Terror' legislation. (Call that 'Jensen Practicality').
hipipol
Peckham Wry
Money
The BoE came into existance because the Govt of the day - ie The Crown and Cronies weren't to be trusted - they would just have printed money - there you go, debt free - or is it?
If you simply "print" money, those suckers who take it from you end up with unpayable debt as inflation runs riot
The whole point of Central banks is they control the rate Govts can borrow at, they also issue money as such against reserves and do so transparently enough for people to trust it - ie it is actually backed up
If the Govt wants to borrow why the fuck should it get it for free? I bloody well dont
The Govt does NOT pay some sort of license fee to the BoE for money, it pays interest on Gilts - neither for that matter does the Queen get a cut for having shite engravings of her chops on it
There are number of peeps on here who seem to think that somehow acomplete and total change is needed, that a world turned on its head is the only way to deal with systemic problems. I am only suprised that none of them is called Robespierre as the ideas evoked seem to have the same rather wafty footings as his
The BoE came into existance because the Govt of the day - ie The Crown and Cronies weren't to be trusted - they would just have printed money - there you go, debt free - or is it?
If you simply "print" money, those suckers who take it from you end up with unpayable debt as inflation runs riot
The whole point of Central banks is they control the rate Govts can borrow at, they also issue money as such against reserves and do so transparently enough for people to trust it - ie it is actually backed up
If the Govt wants to borrow why the fuck should it get it for free? I bloody well dont
The Govt does NOT pay some sort of license fee to the BoE for money, it pays interest on Gilts - neither for that matter does the Queen get a cut for having shite engravings of her chops on it
There are number of peeps on here who seem to think that somehow acomplete and total change is needed, that a world turned on its head is the only way to deal with systemic problems. I am only suprised that none of them is called Robespierre as the ideas evoked seem to have the same rather wafty footings as his
Oh and the orignal shareholders where eh
? I believe these investors were supposed to invest 1.25 mllion pounds, but only only 0.75million was actually deposited, hardly a good start is it .Then why has inflation in real terms in the US increased vastly since the introduction of FRB and the Fed? Why is the money supply at an all time high? I can't see how FRB has prevented inflation? I see no difference between the government printing the money themselves as opposed to issuing gilts which have payment coupons (yes sounds like a supermrket
) other then the gilts cost the taxpayer! If the government borrows a shed load from the BoE we still get inflation, the taxpayer still gets hit in the pocket and we still get devaulation of the pound/$ etc.Why did the Colonial scrip method which was fiat work and this did not use a private central bank with the colonial government providing gilts in return for currency?
So you are saying the government should borrow cash at interest and the taxpayer should be lumped with paying back the interest on that? Why should people in the US for example pay tax money into private investors pockets so said investors have the monopolised right to print the sole form of currency that is legal tender?
Reserves of what out of interest? The central banks have no physical reserves, they make a simple book keeping entry digitally and the money appears in the bank accounts of the government or the bank they lend too (after all the BoE is also the bankers bank). The $US nor the pound are backed by gold reserves for example.
The government issues gilts, as far as I am aware a gilt is issued by the British government which pays the BoE a coupon twice a year (I believe the payment on Britush government gilts by standard is 6 months maybe be different for the BoE) until the maturity date. Once it expires the BoE receives return of their principal and along with the final payment.
So they are paying interest on it in theory, which essentially is a fee.
It is also worth paying out that originally the BoE had shareholders, when Labour nationalised the bank after WW2 they didn't simply take the shares of the holders, but issued them government stock in return for the shares. So in theory the government has been paying out on that stock as well.
TomPaine
hipipol
Peckham Wry
So the BoE acts as the Govt broker as well as its banker eH?
No suprise there then
The old Discount Houses once covered that function -Union Discount, Gerrard and National, Cater Allen and King and Shaxson - they would release the Gilt into the market, not this BoE auction bollocks, a very Yankee idea that one
As for the Olde King of England somehow running hies "empire" (his writ would not have run effectively much beyond Peterborough or Bristopl if you are going back that far) with a collection of notched twigs - I suspect you are getting confused with the Inca, who used coloured knots on string for acounting purposes. Henry the 5th had to go to the City to raise the wedge to invade France to recoup the lost lands in Normandy - the leader of this "syndicate", which is what they were known as for the first time, was a Dick Whittington - so the Govt borrwing from the City has a pretty long tradition
So, who owns the B0E? Who are these invisible sharholders? Are you saying its a private equity type operation, ripe for KKR to have a pop at?
Wrong. Seems its ours
It may also be worth pointing out that alot of Gilt issues find their way into Pension and Insurance funds, etc which benefit us, Joe Bloggs etc
As for why has inflation still occurred - its a bit like asking why certain coastlines erode - thats they way it works - without virtually constant intervention it would be EVEN WORSE. Inflation was partially the cause for the collapse of the Roman Empire - no central bank, govt make the wedge,and regularly devalued it in EXACTLY the way The Blade said
Inflation
The roman economy suffered from inflation (an increase in prices) beginning after the reign of Marcus Aurelius. Once the Romans stopped conquering new lands, the flow of gold into the Roman economy decreased. Yet much gold was being spent by the romans to pay for luxury items. This meant that there was less gold to use in coins. As the amount of gold used in coins decreased, the coins became less valuable. To make up for this loss in value, merchants raised the prices on the goods they sold. Many people stopped using coins and began to barter to get what they needed. Eventually, salaries had to be paid in food and clothing, and taxes were collected in fruits and vegetables.
thats from here
More detail here
The idea of any cash strictly by fiat is absurd...."I declare this to be...."
makes as much sense as a State having Savonarola: as its head - oh my, its all happened before aint it?
Here you go, info about the loonspud head of state "inspired by God" (ring any bells?) and the birth of investmant banking via the Meidici Bank - mid 15thc mate, been thru loads of this crap before
They world will go on, mutated slightly, not entirely reworked but still resilient
No suprise there then
The old Discount Houses once covered that function -Union Discount, Gerrard and National, Cater Allen and King and Shaxson - they would release the Gilt into the market, not this BoE auction bollocks, a very Yankee idea that one
As for the Olde King of England somehow running hies "empire" (his writ would not have run effectively much beyond Peterborough or Bristopl if you are going back that far) with a collection of notched twigs - I suspect you are getting confused with the Inca, who used coloured knots on string for acounting purposes. Henry the 5th had to go to the City to raise the wedge to invade France to recoup the lost lands in Normandy - the leader of this "syndicate", which is what they were known as for the first time, was a Dick Whittington - so the Govt borrwing from the City has a pretty long tradition
So, who owns the B0E? Who are these invisible sharholders? Are you saying its a private equity type operation, ripe for KKR to have a pop at?
Wrong. Seems its ours
It may also be worth pointing out that alot of Gilt issues find their way into Pension and Insurance funds, etc which benefit us, Joe Bloggs etc
As for why has inflation still occurred - its a bit like asking why certain coastlines erode - thats they way it works - without virtually constant intervention it would be EVEN WORSE. Inflation was partially the cause for the collapse of the Roman Empire - no central bank, govt make the wedge,and regularly devalued it in EXACTLY the way The Blade said
Inflation
The roman economy suffered from inflation (an increase in prices) beginning after the reign of Marcus Aurelius. Once the Romans stopped conquering new lands, the flow of gold into the Roman economy decreased. Yet much gold was being spent by the romans to pay for luxury items. This meant that there was less gold to use in coins. As the amount of gold used in coins decreased, the coins became less valuable. To make up for this loss in value, merchants raised the prices on the goods they sold. Many people stopped using coins and began to barter to get what they needed. Eventually, salaries had to be paid in food and clothing, and taxes were collected in fruits and vegetables.
thats from here
More detail here
The idea of any cash strictly by fiat is absurd...."I declare this to be...."
makes as much sense as a State having Savonarola: as its head - oh my, its all happened before aint it?
Here you go, info about the loonspud head of state "inspired by God" (ring any bells?) and the birth of investmant banking via the Meidici Bank - mid 15thc mate, been thru loads of this crap before
They world will go on, mutated slightly, not entirely reworked but still resilient
david dissadent
New Member
link
They managed to survive the post WWI debt, the great depression, the bombing by Hitler, the post war lean years, the devaluations of the pound and the collapse of Bretton Woods, god even the three day week better than they survived our stable growth and exuberance.
Its almost poetic that our bodies are supposed to be about to start dying younger due to the excesses of our lifestyles. Heart disease, diabetes, lung cancer as our fincial system is being killed by too much sweet credit.
Link
Obviously with regards to the kings power. As a side note the word rich comes from the Old English rice (pronounced Reeche) meaning Kingdom (and where the German - Reich comes from) and refered to the reach of influence of the King or Cynning (pronounced cooning). I agree that even by the middle ages Kings survived by luck and the good graces of their Barons and nobleman not rising against them, which history is of course littered with. However I believe I am correct with regards to tally sticks, and I am not getting this confused with the Inca. The Tally stick was a notched branch split in two. The king kept one half of the stick and the other half was released into the economy, the sticks could then be used as currency to repay the kings taxes, the idea being the two halves matched and this prevented counterfeits. This method was used right up until the formation of the BoE in 1694, I believe that one of the original shareholders used a tally stick to buy shares in the bank. These where later burnt possibly in the 19th C.
You may have missed the point I made above regarding the fact the bank was taken back into national ownership post World War 2.
Prior to this it lay from its conception in private hands. After WW2 the Labour government bought it back from the shareholders in return for stock. I presume we are still via taxes paying out on that stock. Prior to this the interest went into private pockets. I presume the money the treasury nets from the gilts via the Bank of England is then eventually paid back out on the stock at any rate.
The Federal reserve in the US is still run like this. However you can't buy the stock on the open market, currently it is owned by a number of banks. There is a list somewhere but I believe it is the major banks like Chase Manhatten that part own it.
However the majority of the Banks staff come from industry, yes they have the experience and that is to be expected, but I am dubious that there the checks and balances in place that prevent private corporate interest getting what they want when they want from the BoE. There is not the clean break between industry and government that I think is vital in these types of arrangements. I would also be interested to investigate who the stock holders are that where the original share holders, I wonder how many private corporations own said stock for example.
I'll come back to your point with regards to the Roman Empire.
I agree, I am not proposing a fiat system either, I was pointing out though that a fiat system has worked in the past and it was a truly fiat system. Although backing it with gold which has very little use other then looking "pretty" and being finite could be argued to be just as absurd, but thats open to debate
.One would hope.
TomPaine
gosub
~#
I agree, I am not proposing a fiat system either, I was pointing out though that a fiat system has worked in the past and it was a truly fiat system. Although backing it with gold which has very little use other then looking "pretty" and being finite could be argued to be just as absurd, but thats open to debate
Quote:
"The world will go on, mutated slightly, not entirely reworked but still resilient " hipipol
One would hope.
TomPaine
Are the bounds of human imagination and realisation also infiite?...
"Mark my words, it will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking. We're about to elect a brilliant 47 year old senator president of the United States of America. Remember I said it standing here...we're gonna have an international crisis, a generated crisis, to test the mettle of this guy" Joe Biden.
I also hope so.
gosub
~#
gosub
~#
No, silly buggers going on. Friday.
MBS208.08
Date:
October 21, 2008
To:
Mortgage-Backed Securities Division Participants
Subject:
Lehman Brothers, Inc. -- Liquidation Update
Pleased be advised that the liquidation process for forward open commitments involving Lehman Brothers, Inc. (“Lehman”) has been completed. FICC is pleased to announce that no loss allocations will be imposed on MBSD member firms as a result of the liquidations of these forward trades.
As per MBSD Important Notice 185.08, participants requested that FICC perform the net liquidation of the Lehman MBSD Clearing accounts for forward trades, in lieu of a bilateral liquidation process. This request was made by member firms in order to minimize potential market disruptions and ensure a more orderly liquidation of the open forward trades.
With regard to failed trades, as per MBSD Important Notice MBS183.08, member firms were asked to submit a MBSD Liquidation Template for those failed items that were liquidated in order to establish the associated profit and losses.
FICC has completed reviewing these spreadsheets and is in the process of reconciling fail claims. As previously indicated, as a result of the bilateral liquidations on failed trades, those member firms that made a profit will be debited and those members incurring a loss will be credited via a COI entry.
In order to ensure that the final monies are consistent with firm expectations, FICC is now requesting member firms to resubmit their templates reflecting the final monies of each liquidated transaction and the associated P&L for each net liquidation trade. Firms should resubmit the exact same templates as previously submitted with the same information and add two new columns reflecting the final monies including accrued interest of the liquidated trades and the corresponding P&L on each liquidated item.
Please furnish this information by close of business Thursday, October 23rd. Upon final review of these documents, FICC will announce the processing date of the appropriate COI entries.
You can use your original spreadsheet and simply add the two new columns.
We ask that you please return the supplemental templates to Michele Hillery at Mhillery(at)dtcc.com by October 22, 2008. FICC will contact firms in the event of any discrepancies.
MBS208.08
Date:
October 21, 2008
To:
Mortgage-Backed Securities Division Participants
Subject:
Lehman Brothers, Inc. -- Liquidation Update
Pleased be advised that the liquidation process for forward open commitments involving Lehman Brothers, Inc. (“Lehman”) has been completed. FICC is pleased to announce that no loss allocations will be imposed on MBSD member firms as a result of the liquidations of these forward trades.
As per MBSD Important Notice 185.08, participants requested that FICC perform the net liquidation of the Lehman MBSD Clearing accounts for forward trades, in lieu of a bilateral liquidation process. This request was made by member firms in order to minimize potential market disruptions and ensure a more orderly liquidation of the open forward trades.
With regard to failed trades, as per MBSD Important Notice MBS183.08, member firms were asked to submit a MBSD Liquidation Template for those failed items that were liquidated in order to establish the associated profit and losses.
FICC has completed reviewing these spreadsheets and is in the process of reconciling fail claims. As previously indicated, as a result of the bilateral liquidations on failed trades, those member firms that made a profit will be debited and those members incurring a loss will be credited via a COI entry.
In order to ensure that the final monies are consistent with firm expectations, FICC is now requesting member firms to resubmit their templates reflecting the final monies of each liquidated transaction and the associated P&L for each net liquidation trade. Firms should resubmit the exact same templates as previously submitted with the same information and add two new columns reflecting the final monies including accrued interest of the liquidated trades and the corresponding P&L on each liquidated item.
Please furnish this information by close of business Thursday, October 23rd. Upon final review of these documents, FICC will announce the processing date of the appropriate COI entries.
You can use your original spreadsheet and simply add the two new columns.
We ask that you please return the supplemental templates to Michele Hillery at Mhillery(at)dtcc.com by October 22, 2008. FICC will contact firms in the event of any discrepancies.
A Dashing Blade
Takes horses to water but can't make donkeys drink
Ended up being about about $6bn as opposed to the $400bn + (whatever) that doomsayers had promulgated.
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