How the banks create money

[elbe]

1500 years ago, every body knew the earth was the centre of the universe. 500 years ago every body knew the earth was flat. Every body on this forum knows there is nothing wrong with the banking system. Who knows what you will Know tommorrow.

Wouldn't knowing the earth spherical generally precede a heliocentric model? I have a hard time imagining people, for 1000 years, knowing the earth revolved around the sun while believing it was flat.

 

[psionl0]

The banker would charge bank fees to cover all his expenses and charge interest on top. The money supply will dwindle as he is removing money from circulation.

You are only reading the story and not analyzing it. The people will sell their produce to the banker to pay their interest and bank charges bill. Since the banker lives on the island, he has to buy their stuff to survive (he does nothing productive himself).

The banker is making a living by simply supplying money to the islanders that the islanders could have created for themselves. That makes him a parasite. However, the money supply won't dwindle unless the banker withdraws the money from circulation or the islanders can't produce enough to pay their interest bill.

 

[webb5]

LOL! Another "fact", another cavalcade of fuzzy thinking and error.

First, that which we know as vitamin C was discovered only after a 25 year process that started in 1907 and ended in 1932. John Woodall didn't know about "vitamin C" in 1617.

Second, you completely failed to provide a reference for the the 150 year gap. It's possibly the time between the publication of Woodall's The Surgeon's Mate in 1617 and the widespread adoption of limes by the Royal Navy in 1795. It ignores the fact that just because someone mentioned something in a larger work, it doesn't follow that the people who needed to know the information actually got it.

the British Royal Navy, James Lind who first proved it could be treated with citrus fruit in experiments he described in his 1753 book, A Treatise of the Scurvy,[1] though his advice was not implemented by the Royal Navy for several decades.

Not until 1747, when James Lind conducted one of the very first scientific controlled trials, did it become obvious that lemons and limes were effective in controlling scurvy aboard ships. Even this work was hampered because the navy first attempted to use only the juice from limes, not realizing that boiling them to extract the juice and then storing it in copper kettles destroyed the vitamin C. Thus they wrongly concluded that lemons and limes were not effective against scurvy.

In 1747, Scottish naval surgeon James Lind discovered that an nutrient (now known to be vitamin C) in citrus foods prevented scurvy. It was rediscovered by Norwegians, A. Hoist and T. Froelich in 1912. Vitamin C was the first vitamin to be artificially synthesized in 1935. A process invented by Dr. Tadeusz Reichstein, of the Swiss Institute of Technology in Zurich.

Presenting arguments in bold coloured text is a sure sign of a crank.

The approach you show here is an all too familiar one to us: grand pronouncements that turn out to be incorrect because you haven't bothered to do the research necessary to back up your claims. Two successive failures of simple facts in one conversation, and you expect us to take you seriously when you talk about something complex like banking?

James Lind discovered that an nutrient (now known to be vitamin C) in citrus foods prevented scurvy

 

[webb5]

You are only reading the story and not analyzing it. The people will sell their produce to the banker to pay their interest and bank charges bill. Since the banker lives on the island, he has to buy their stuff to survive (he does nothing productive himself).

The banker is making a living by simply supplying money to the islanders that the islanders could have created for themselves. That makes him a parasite. However, the money supply won't dwindle unless the banker withdraws the money from circulation or the islanders can't produce enough to pay their interest bill.

You are not analyzing my last post. What you are saying is correct if there were only five people and the banker. The fact that the population is a lot bigger changes things quite considerably. last post copied below

The flaw in this story is that there is only five people and a banker. The story would have more impact if there were a hundred or more people. The banker would charge bank fees to cover all his expenses and charge interest on top. The money supply will dwindle as he is removing money from circulation. He could use this money to build himself a great empire or he could simply keep removing this money from circulation to ensnare the islanders with further spiral debt.

He can also reduce the money supply by printing less money causing a recession or depression as the islanders will not have enough money to pay their interest obligations and run the economey at the same time. This of course leads to bankbruptcies and real wealth changing hands to the banker.

 

[Sceptic-PK]

He can also reduce the money supply by printing less money causing a recession or depression as the islanders will not have enough money to pay their interest obligations and run the economey at the same time. This of course leads to bankbruptcies and real wealth changing hands to the banker.

Repeating fallacies does not make them any less fallacious. You do not understand banking.

 

[Sceptic-PK]

The banker is making a living by simply supplying money to the islanders that the islanders could have created for themselves. That makes him a parasite. However, the money supply won't dwindle unless the banker withdraws the money from circulation or the islanders can't produce enough to pay their interest bill.

In your strange, imaginary world where money is provided for free to avoid the “parasitic” nature of banking, how do you prevent runaway inflation due to free money?

 

[webb5]

In your strange, imaginary world where money is provided for free to avoid the “parasitic” nature of banking, how do you prevent runaway inflation due to free money?

Money should only be supplied in correct quantities, - too much (over supply) then the value of money becomes devalued, inflation hits the roof. Too little (under supply) then spending will reduce so drastically that economies will collapse.

Obviously the creation of money must be regulated. It is vital that the supply of money is kept in check and in line with production of goods and services. Using Social CreditThe government elected by the people, should be the only body allowed to responsibly create money. It should not be created as debt!

If there ever was an over supply it could controlled by taxes an with held from the economy untill it could be released again when needed.

 

[Sceptic-PK]

Money should only be supplied in correct quantities, - too much (over supply) then the value of money becomes devalued, inflation hits the roof. Too little (under supply) then spending will reduce so drastically that economies will collapse.

Having money created when needed through loans, ie the system we have already is far more efficient and accurate than any of your fictitious scenarios could ever be with regards to under/over supply of currency. A government’s central bank already influences the cost of that money which has an effect on how many people borrow it.

Obviously the creation of money must be regulated. It is vital that the supply of money is kept in check and in line with production of goods and services. Using Social CreditThe government elected by the people, should be the only body allowed to responsibly create money. It should not be created as debt!

*Sighs* for the hundredth time, central banks already do this. Not all money is created as debt. Central banks can create more money for free if they so choose. The reason they don’t do this is because it debases the currency and fuels inflation.

If there ever was an over supply it could controlled by taxes an with held from the economy untill it could be released again when needed.

Nice idea if you don’t understand anything about economics! Yeah, let’s tax people who never received any of the magical social credit money dust. That sounds fair.

Your ideas are nonsense. You don’t understand banking or economics. Go back to school.

 

[psionl0]

You are not analyzing my last post. What you are saying is correct if there were only five people and the banker. The fact that the population is a lot bigger changes things quite considerably.

How choosing a story from which real life inferences can't be drawn helps your case I don't know. In a large community the bank (in theory) could create successive bouts of inflation and deflation which would cause some borrowers to default and thereby lose their property to the bank. In the story you presented, this doesn't happen.

In your strange, imaginary world where money is provided for free to avoid the “parasitic” nature of banking, how do you prevent runaway inflation due to free money?

Surely you don't equate "free money" with "unlimited money"?

Governments create money either by printing it or borrowing it into existence. So just like the current situation, governments need to live within their means if they want to prevent inflation (and with so many votes to buy, this will never happen).

Even if people write their own IOUs, this isn't "free" money - it creates an obligation on the issuer. Somebody who doesn't redeem his IOUs won't be able to get anybody to accept them.

 

[Sceptic-PK]

Surely you don't equate "free money" with "unlimited money"?

No, but free money is inherently inflationary. If it wasn’t for the charging of interest for the privilege, I’d borrow a billion dollars tomorrow.

Governments create money either by printing it or borrowing it into existence. So just like the current situation, governments need to live within their means if they want to prevent inflation (and with so many votes to buy, this will never happen).

Are you saying that inflation cannot be prevented in your system because governments will continue to buy votes with their free lending policies? I might agree with you there.

Even if people write their own IOUs, this isn't "free" money - it creates an obligation on the issuer. Somebody who doesn't redeem his IOUs won't be able to get anybody to accept them.

It IS free money. Yes, you have to pay it back, but you don’t pay for the right to use it. And given the rates of inflation the free money would cause, the government is actually losing money on these social credit loans. This process taken to its logical conclusion, would eventually destroy the currency.

People should have to pay a price for leasing money, just as they do for leasing a house, car or fancy dress costume.

 

[psionl0]

If it wasn’t for the charging of interest for the privilege, I’d borrow a billion dollars tomorrow.

As if anybody would lend that much money to you.

And given the rates of inflation the free money would cause, the government is actually losing money on these social credit loans. This process taken to its logical conclusion, would eventually destroy the currency.

The government loses money if it prints the money instead of borrowing it???

 

[Sceptic-PK]

As if anybody would lend that much money to you.

Why, I deserve social credit just like every single other person, right? I thought you wanted an equitable system? Well, since your money is free I have developed a sudden need to have a billion dollars. The government should attend to my need.

The government loses money if it prints the money instead of borrowing it???

Governments don’t borrow money unless they are spending more than they get in tax (and other) receipts. Yes, in your magic system the government would lose tons of money as the currency devalues and they are paid back by hugely inflated dollars.

 

[psionl0]

yes, in your magic system the government would lose tons of money as the currency devalues and they are paid back by hugely inflated dollars.

strawman!

 

[Sceptic-PK]

strawman!

I am unsure whether you actually know precisely what a strawman is, but this isn’t one. It is the logical outcome of your system of free money. You are advocating lending at 0% interest. What do you think happens when that occurs?

 

[Tippit]

Having money created when needed through loans, ie the system we have already is far more efficient and accurate than any of your fictitious scenarios could ever be with regards to under/over supply of currency.

Except, it's not. The Fed was responsible for the roaring twenties bubble, the dot com bubble, the real estate bubble, and now the bond market bubble. Only a fool would conclude that this monetary manipulation is "efficient". Q.E.D.

*Sighs* for the hundredth time, central banks already do this. Not all money is created as debt. Central banks can create more money for free if they so choose. The reason they don’t do this is because it debases the currency and fuels inflation.

The vast majority of Fed funny money is used to purchase US government obligations - debt. The fact that the Fed isn't limited to this blatant manipulation of debt markets is not evidence that they purchase much of anything else. Fed generated fiat money causes inflation regardless of whether they buy debt or not. Much of this is offset by productivity gains. When the Fed bought Wall Street's garbage debt, it resulted in massive *asset* inflation of financial assets that otherwise couldn't catch a bid in a fair market.

Nice idea if you don’t understand anything about economics! Yeah, let’s tax people who never received any of the magical social credit money dust. That sounds fair.

Your ideas are nonsense. You don’t understand banking or economics. Go back to school.

What's unfair is the arbitrary transfer of weath that the Fed engages in, whether it's hundreds of billions to the Wall Street banking class, or big government corporate and social welfare pimps.

 

[psionl0]

You are advocating lending at 0% interest.

THAT is one strawman argument you are making. Unfortunately, you are one of those people who thinks that ALL arguments that don't support the official line are identical. Therefore, you will never know WHAT I am arguing for.

 

[Sceptic-PK]

Except, it's not.

You can save your bluster. I have absolutely no interest in anything you have to say on the topic of central banking.

 

[Sceptic-PK]

THAT is one strawman argument you are making. Unfortunately, you are one of those people who thinks that ALL arguments that don't support the official line are identical. Therefore, you will never know WHAT I am arguing for.

So, tell me what rate will be getting charged. You have repeatedly implied that the evil banks charge too much and that social credit could be provided at near zero. So, what’s the figure champ? As you have yet to specify and prefer to use vague notions when explaining yourself it falls to us to infer what we can from your nonsense. I will never know what you are arguing for because even after 10 pages, you still haven’t explained it yourself.

 

[psionl0]

I will never know what you are arguing for because even after 10 pages, you still haven’t explained it yourself.

I was going to post links to where I "explained" myself but I noticed that whenever you have responded to anything I posted, it is always based on statements that I never made.

Waste of time!

 

[Sceptic-PK]

Here is one time you "explained yourself".

As I have pointed out many times, the government can create all the money we need interest free. Yet for some reason, it is believed that governments have to BORROW the money instead.

Maybe you can forgive those of us that misunderstood that you weren't really saying governments should create interest free money. Forgive me.

I was going to post links to where I "explained" myself but I noticed that whenever you have responded to anything I posted, it is always based on statements that I never made.

You do not appreciate the logical conclusions of your quaint little notions. We're just filling in the blanks that you apparently can't see. But, instead of dodging the question if you feel like properly explaining how your system is supposed to work, I am still interested in hearing it.