The debt hoax ...

[Captain Obvious]

We cancel all debt, and instead people just pay back what they owe and some extra to compensate the lender for lending the money. I think this new system will work.

Is there enough money in the system as a whole to pay off all debts (even without the added interest slavery part) ?

Or is the system such that you can only create an appearance of attempting to do the above by creating more money out of thin air in the form of 'quantitative easing', bailouts and the like?
The devaluing of the currency in this way effectively robs value from those of us not printing money and getting to use it early on.

It's a crazy system, except for the very few who have some controlling influence in it, who, of course, do wonderfully well out of it.

The inevitable built-in cyclical recessions and busts effectively amount to those in high finance periodically 'harvesting' the fruits of labour and creativity invested by the rest of the populace over years.
In bust periods, for example, small and medium business going to the wall through things like banks' reluctance to lend means that the same banks can then buy up these business assets at a knock down price.
You can see this writ large in things like IMF demands for countries like Greece and Italy to "privatise" many of their state concerns and open them up to foreign "investors".

Control the money, print the money, lend (get em in debt), when they're indebted to the correct degree withold lending and bust them, buy up their real assets on the cheap with your fiat money that cost you almost zero labour or assets to get hold of.

And so it goes on.
On the positive side, it does seem that people are starting to wake up to all this.

 

[Jhau]

Fractional reserve banking creates an exponentially growing debt that can never be repaid. As an example, out of $1 in assets the bank can lend out $10. This means $9 created out of thin air. To pay the interest for the loan new money has to be created and when using the same fractional reserve banking principle the cycle is repeated.

Why?

Do you typically borrow money to repay other money that you have borrowed? I'm willing to bet that most people don't (although yes, some do).

Essentially, borrowing is taking something from the future so that you can have it now. You are taking from your future earnings (or earning potential) so that you can have that money in a lump-sum now. As a result, you pay interest to cover the cost of somebody else letting you use their money, instead of you having to save up your money over time. You then use your future earnings to pay back the interest on the debt.

The idea is simple. It only becomes complicated when people (or companies, or countries) borrow too much, or when their future earnings don't match up with their expectations and they can't afford to repay the amount that they borrowed.

 

[Anders Lindman]

Why?

Do you typically borrow money to repay other money that you have borrowed? I'm willing to bet that most people don't (although yes, some do).

Essentially, borrowing is taking something from the future so that you can have it now. You are taking from your future earnings (or earning potential) so that you can have that money in a lump-sum now. As a result, you pay interest to cover the cost of somebody else letting you use their money, instead of you having to save up your money over time. You then use your future earnings to pay back the interest on the debt.

The idea is simple. It only becomes complicated when people (or companies, or countries) borrow too much, or when their future earnings don't match up with their expectations and they can't afford to repay the amount that they borrowed.

See post #20.

 

[twinstead]

It is a fact when looking at the whole fractional banking system as a whole. Individual debts can of course be repaid, but the total debt created by fractional reserve banking can never be repaid.

You use the word "fact" rather willy-nilly; If the system is used properly why not?

 

[Saggy]

You use the word "fact" rather willy-nilly; If the system is used properly why not?

If the systems were used properly we wouldn't be in this mess. Instead the crooks on Wall St. and financial institutions worldwide have systematically bankrupted most of the world. They've been doing it for the last 30 years to the third world, see 'Confessions of an Economic Hitman', and now they've developed the chutzpah to go after the economic powerhouses.

 

[Anders Lindman]

You use the word "fact" rather willy-nilly; If the system is used properly why not?

The whole fractional reserve banking system can be thought of as a huge aggregate loan. Let's say for example that the total amount is 100 trillion dollars. And let's say that the interest is 1% per year. To pay back the total amount after one year then means that 101 trillion dollars is needed. But only 100 trillion dollars exists! So 1 trillion dollars of new money has to be created as new debt. It's mathematically impossible to repay the total amount of loans with fractional reserve banking. And in practice most large loans are not payed back in one year. Mortgages for example are payed back in full usually only after decades and the interest is seldom as low as 1%.

Imagine that you yourself had $100 and created a loan by adding $900 out of thin air and lent that money to your neighbor and charged 5% interest on the loan. Pretty good scam..... eh excuse me, deal for you, eh? And if your neighbor can't pay you can take his/her car. Either way you win, big time. That's the ordinary banking scheme in a nutshell.

 

[deeper]

You're misreading my OP.

You know what? You're right, I did. In light of this, how do you suggest we impliment your suggested solution, which you make sound pretty easy,

The solution to the debt problem is to recognize the hoax, and then identify the debtees, and then give them, in financial terms, a haircut. Just erase the debt so that the real economy of goods and services can return to normal.

ETA: I still think you need to address the following,

Every nation is in debt, every individual is in debt, but, somehow there is no one who benefits from this debt, no one to whom it is owed. At least, that is what one must assume from reading the reports.

Where are those reports?

 

[Sceptic-PK]

How do people fail to get even the basics right?

Fractional reserve banking creates an exponentially growing debt that can never be repaid. As an example, out of $1 in assets the bank can lend out $10.

NO. If a bank has $1 in assets it may lend 90c (since we're presumably talking about the US here).

To pay the interest for the loan new money has to be created

Simply not true. Just nonsense.

 

[timhau]

How do people fail to get even the basics right?

If they didn't, the Conspiracy Theories subforum would be a really, really quiet place.

 

[Anders Lindman]

How do people fail to get even the basics right?



NO. If a bank has $1 in assets it may lend 90c (since we're presumably talking about the US here).



Simply not true. Just nonsense.

"All depository institutions -- commercial banks and thrifts -- in the United States are subject to reserve requirements on customer deposits. The required reserve ratio depends on the amount of checkable deposits a bank holds. No reserves are required on the first $10.3 million. Between $10.3 million and $44.4 million, deposits are subject to a 3% reserve. Above $44.4 million they are subject to a 10% reserve. These breakpoints were effective year-end 2008, and are adjusted annually in accordance with money supply growth. No reserves are required against time deposits or savings accounts." -- http://wfhummel.cnchost.com/bankreserves.html

 

[Sceptic-PK]

Yes, they are required to keep a 10% reserve, hence they may lend 90%. Not 900%. Sheesh.

 

[Anders Lindman]

Yes, they are required to keep a 10% reserve, hence they may lend 90%. Not 900%. Sheesh.

As I wrote before, $1 in reserves means that the bank can create $9 out of thin air and lend out $10. That's 10% fractional reserve requirement.

 

[Saggy]

Where are those reports?

There are five articles today in your local newspaper about the debt, the machinations of congress to tackle the debt, the approaches favored by Herman Cain et. al. to solve the debt, and so on. None of these reports mention to whom the debt is owed. That's where the reports are, i.e. everywhere.

Occasionally there will be a mention of the small fraction of the debt held as bonds in Chinese banks, but that's it.

Here is an typical example from the even the best economist (IMO), Michael Hudson ...

The basic problem today is that nearly everyone is in debt. This is the problem in Europe too. There are Occupy Berlin meetings, the Greek and Icelandic protests, Spain’s “Indignant” demonstrations and similar ones throughout the world.

http://www.counterpunch.org/2011/11/18/first-steps-in-reforming-the-u-s-financial-and-tax-system/

 

[Halcyon Dayz]

Every nation is in debt, every individual is in debt,

I'm not.

but, somehow there is no one who benefits from this debt, no one to whom it is owed.

You owe it to me, and the hundred of millions of others like me who have a bit of money in a savings account or a pensionfund.

And I really do want my money back.

As I wrote before, $1 in reserves means
that the bank can create $9 out of thin air and lend out $10. That's 10% fractional reserve requirement.

Thank you.

We're all dumber now.

 

[twinstead]

As I wrote before, $1 in reserves means that the bank can create $9 out of thin air and lend out $10. That's 10% fractional reserve requirement.

Doesn't that mean 1$ in reserves means that the bank loan 90 cents, and keep 10 cents in reserve?

ETA: Ah, semantics. 1$ in RESERVE means the bank can loan 10$--10$ it already has--but can only really loan 9$ of it...?

ETA again: So that doesn't mean the bank has 1$ and loans 9, it means it has 10$ and loans 9?

 

[Anders Lindman]

Doesn't that mean 1$ in reserves means that the bank loan 90 cents, and keep 10 cents in reserve?

No, the term 'fractional' means that the banks only need a certain fraction of the total amount in reserves. So 10% of for example $10 means that the fractional reserve required is $1. The other $9 is created out of thin air.

Here is a good (although maybe not entirely correct) documentary Money as Debt that explains the basics of fractional reserve banking: http://www.youtube.com/watch?v=Dc3sKwwAaCU

 

[Saggy]

Yes, they are required to keep a 10% reserve, hence they may lend 90%. Not 900%. Sheesh.

Correct, but then the borrower of the 90% deposits it in another bank, or the same bank for that matter, and the bank then can lend 90% of that 90%, and so on, so that eventually 10 times, 1000%, the original deposit is lent.

But that is too technical, and only applies to banks which we understand, but not to the credit created by derivatives and other financial instruments we don't understand, i.e. the secondary credit market.

What it boils down to is that banks, and other financial institutions, can create money out of thin air and lend it.

 

[timhau]

Every nation is in debt, every individual is in debt,

I'm not.

I think that in SaggyWorld, that means you're neither a nation nor an individual, which makes you a Jew.

 

[twinstead]

Correct, but then the borrower of the 90% deposits it in another bank, or the same bank for that matter, and the bank then can lend 90% of that 90%, and so on, so that eventually 10 times, 1000%, the original deposit is lent.

That's how banking works, saggy. Why else would a bank be in business? It pays interest to people to be able to use their money, and gives them a safe place to keep it, with the promise that they can remove it whenever they want, subject to certain restrictions depending how much money they are paying the depositor to use his money.

 

[Saggy]

That's how banking works, saggy. Why else would a bank be in business? It pays interest to people to be able to use their money, and gives them a safe place to keep it, with the promise that they can remove it whenever they want, subject to certain restrictions depending how much money they are paying the depositor to use his money.

That's how banking works, and bankers have always realized that they are in the catbird seat. But even from the short example above you should realize that banks don't just lend 'other peoples' money, they create money out of nothing. Galbraith has the famous quote ..."The process of money creation is so simple, the mind is repulsed".

Beyond that they also can borrow money today from the Fed at 0% interest. The Fed creates the money out of thin air by following the necessary accounting charade, or if that fails an appeal to congress is made, and the rules changed, and that the bank, or Goldman Sachs, et. al., gets the money for nothing.