This is starting to get a little scary Page 366

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  • Jazzassin 9 Dec 2012 16:46:52 75 posts
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    LeoliansBro wrote:
    Either I don't understand banking and money or that article doesn't. Banks don't create money out of thin air.

    But they do create money out of thin air, that's the entire point of the cash-to-loan ratio.

    If a bank has 100 million worth of deposits, and they hold onto 10 mil of that, and lend out the remaining 90 mil, they've created 90 mil of new money because both the depositors and the borrowers will think they have 90 mil worth of money and will behave accordingly. And the new money's not just in their minds, it does "exist" digitally.

    That's just as real as new money created by governments. No one actually goes and prints out new bills these days, except to replace worn out ones,
  • ComradePete 9 Dec 2012 20:44:16 485 posts
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    Errol wrote:
    We haven't had the crash yet. We are looking at the death of paper money - paper money collapse.
    Well at least hyper-inflation will take care of our huge debts.

    Trebles all round!
  • LeoliansBro 9 Dec 2012 21:37:16 43,825 posts
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    Jazzassin wrote:
    LeoliansBro wrote:
    Either I don't understand banking and money or that article doesn't. Banks don't create money out of thin air.

    But they do create money out of thin air, that's the entire point of the cash-to-loan ratio.

    If a bank has 100 million worth of deposits, and they hold onto 10 mil of that, and lend out the remaining 90 mil, they've created 90 mil of new money because both the depositors and the borrowers will think they have 90 mil worth of money and will behave accordingly. And the new money's not just in their minds, it does "exist" digitally.

    That's just as real as new money created by governments. No one actually goes and prints out new bills these days, except to replace worn out ones,
    Cute. But no.

    Why label banks in this way, why not cut out the middle man, so to speak? Say I lend you 100. According to you I've just created that money out of thin air, because you think you have 100 and so do I.

    Of course this isn't the case - the fact is you don't think you have 100 at all, you think you owe 100, and will behave accordingly.

    As for it existing digitally, that is just plain wrong. Or are you suggesting the borrowers digitally register that they now have 100 but the bank doesn't digitally register that it has 100 less? Or that the bank registers digitally that the borrower owes them 100 but the borrower doesn't digitally register that they owe 100?

    Money created by Governments is unlike any transaction a bank makes because, simply, it has no counterpoint. Banks borrow, they have more money but owe more. Banks lend, they have less money but are owed more. Government creates money, or doesn't, and there's no such counterpoint. It's a very powerful tool.

    LB, you really are a massive geek.

  • spamdangled 9 Dec 2012 22:20:22 27,276 posts
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    Isn't QE just creating money out of thin air?

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  • Gaol 10 Dec 2012 00:41:03 2,263 posts
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    Surprised at the naivete in this thread.

    What Jazzassin is failing to describe is fractional reserve banking, it's accepted economic theory.

    Banks do create money, it's basically about only a proportion of lent money having to exist on deposit allowing the money supply to multiply. Read wiki:

    http://en.wikipedia.org/wiki/Fractional_reserve_banking

    Edited by Gaol at 01:08:27 10-12-2012
  • Khanivor 10 Dec 2012 01:42:05 40,554 posts
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    Taking lessons from someone who doesn't understand difference between theory and practice.
  • LeoliansBro 10 Dec 2012 07:43:13 43,825 posts
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    darkmorgado wrote:
    Isn't QE just creating money out of thin air?
    Central banks aren't banks.

    LB, you really are a massive geek.

  • mcmonkeyplc 10 Dec 2012 09:47:31 39,440 posts
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    Saying banks create money out thin air is like saying adding a margin on a product is creating money out of thin air.

    Think about it.

    Come and get it cumslingers!

  • Jazzassin 10 Dec 2012 10:41:46 75 posts
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    LeoliansBro wrote:
    Jazzassin wrote:
    LeoliansBro wrote:
    Either I don't understand banking and money or that article doesn't. Banks don't create money out of thin air.

    But they do create money out of thin air, that's the entire point of the cash-to-loan ratio.

    If a bank has 100 million worth of deposits, and they hold onto 10 mil of that, and lend out the remaining 90 mil, they've created 90 mil of new money because both the depositors and the borrowers will think they have 90 mil worth of money and will behave accordingly. And the new money's not just in their minds, it does "exist" digitally.

    That's just as real as new money created by governments. No one actually goes and prints out new bills these days, except to replace worn out ones,
    Cute. But no.

    Why label banks in this way, why not cut out the middle man, so to speak? Say I lend you 100. According to you I've just created that money out of thin air, because you think you have 100 and so do I.

    Of course this isn't the case - the fact is you don't think you have 100 at all, you think you owe 100, and will behave accordingly.

    Call it cute or whatever you want, but you still don't get it.

    If I borrow money from you, I'll have the money and you won't. You won't be able to use your money without getting it back from me first.

    Banks don't work like that. If you deposit money in a bank and they lend it to someone else, you can still go withdraw your deposit and use it at any time.

    Edited by Jazzassin at 10:46:07 10-12-2012
  • grey_matters 10 Dec 2012 10:50:57 3,691 posts
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    Only governments (through central banks) can print new money. Commercial banks have to balance the books, unless they fuck up so badly that they have to be bailed out.
  • mcmonkeyplc 10 Dec 2012 10:53:44 39,440 posts
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    And?

    You're saying that cause banks don't keep all your money in their vaults all the time their creating money out of thin air?

    I suppose simplistically speaking that's true...if you don't count loans that the bank makes with your money as an asset.


    The reserve ratio (minimum a bank has to keep liquid) is the realistic amount that it will have to give out at any one time. Unless there is a bank run.

    Do you want the banks to just sit on your money? What would be the point in that for them?

    Come and get it cumslingers!

  • LeoliansBro 10 Dec 2012 10:54:13 43,825 posts
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    Jazzassin wrote:

    If I borrow money from you, I'll have the money and you won't. You won't be able to use your money without getting it back from me first.

    Banks don't work like that. If you deposit money in a bank and they lend it to someone else, you can still go withdraw your deposit and use it at any time.
    It works exactly like that, but in the round, because banks a) have many more deposits than yours and b) have their own money as well. They pool all the deposits, assess how likely these are to fluctuate on average, build in a (FSA-approved) safety buffer, and then lend out the rest to ensure they are profitable and can keep going.

    If you lend out all the depositors' money and they all want it back at once, then you are certainly in trouble - that's what a run on a bank is.

    LB, you really are a massive geek.

  • mcmonkeyplc 10 Dec 2012 10:58:09 39,440 posts
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    I beat you to it! :p

    Come and get it cumslingers!

  • Dangerous_Dan 10 Dec 2012 11:02:10 2,380 posts
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    @Jazzassin

    Banks lend more money than they have. If I deposit 100 pounds in a bank they'll loan out to other people about 10 times as much. It's called fractional reserve banking and that's the reason why there is much more money in circulation than issued by the central bank.

    This became an issue in the 2008 crisis. If I am in debt and I can't pay back my 3000 pounds to the bank then I got a problem. If I owe the bank 3 billion pounds and I can't pay them back then the bank got a problem.

    This is why the central banks issued new money in 2008 to "save" the banking system.

    QE is the term which the US central bank uses when they save the banks or they save the US treasury from defaulting. By either issuing new money or in case of the US bank by lending them new money at about 0% interest.

    The reason why banks do and should earn money via interest on loans is because the debtors may not be able to pay it back which is a risk and potential loss for the banks.
    Now the problem is if I don't let any bank go bankrupt and keep bailing them out that the whole monetary system becomes a joke. If someone tells you that if your debts are high enough that you'll be bailed out with no serious consequences then you not gonna be very responsible with your finances me thinks...

    That's a part of the problem.

    Edited by Dangerous_Dan at 11:03:54 10-12-2012
  • LeoliansBro 10 Dec 2012 11:10:25 43,825 posts
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    Dangerous_Dan wrote:
    @Jazzassin

    Banks lend more money than they have. If I deposit 100 pounds in a bank they'll loan out to other people about 10 times as much. It's called fractional reserve banking and that's the reason why there is much more money in circulation than issued by the central bank.

    Yep, exactly, although this bit is an oversimplification as you've kind of missed a step. Banks take in deposits, they then use these as security to borrow money from various sources. They then lend this larger pool of money out as loans, profiting on the deal. Hence it's entirely possible that the depositors' money is still untouched within the bank (obviously not that simple as it is both liquid and available and secured by the bank against borrowings).

    LB, you really are a massive geek.

  • mcmonkeyplc 10 Dec 2012 11:21:23 39,440 posts
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    Who's gonna start talking about M1 > M5?!

    Cause that's when I'll lose the will to live :)

    Come and get it cumslingers!

  • Dangerous_Dan 10 Dec 2012 11:37:02 2,380 posts
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    The thing is I'm not in favor of the fractional reserve banking as is.
    Our financial system needs a constant monetary expansion - without it it will default.

    And constant monetary expansion is in the long run devaluating the deposits of the money-saving population. It's a transfer of wealth from the working people (the guys who actually do something productive) and it's the most effective way of robbing people of their personal freedom which is very much tied to ones wealth.

    Savings which are save enable people to say No to some piece of shit job. A class of debt serfs is weak and dependant.

    Eventually it will turn around that's like saying there will be sunshine after rain. The more interesting question for me is how to get ahead now, how to preapare, how to make the best out of things right now.
  • LeoliansBro 10 Dec 2012 11:42:20 43,825 posts
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    D_D: you're effectively talking about inflation. I would argue that inflation actually helps working people (who are most likely net borrowers) as the expense of the wealthy (who have savings).

    A 'class of debt serfs' is actually strikingly empowered - they have been able to secure (encumbered, yes) assets in their name based solely on their potential as wealth creators, whereas under your preference they would start poor and pretty much remain poor. Leverage is the most powerful accelerant of wealth we have. It's OVERleverage that's the problem.

    LB, you really are a massive geek.

  • Dangerous_Dan 10 Dec 2012 12:11:44 2,380 posts
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    You talk about the entitlements of the low income class I get that. Yes they profit from inflation which is keeping all those entitlement programs afloat. The state needs inflation as well to devalue its debts.

    And you talk about the class of debtors who profit from inflation after buying a house or a new OLED Tv by going into debt.
    You used the word empowered. And that is very fitting. That class is empowered and yet I do not want to be empowered myself. I want power and self-determination, something very different in my views. This would get a way too long much more encompassing topic.

    The way to escape poverty I find this bit sums up my thoughts half-descently:


    I find it funny that people on the left argue against the evil capitalist banking system and people on the right defend it.
    Me, I think this banking system is working very much in tune of marxism. Now you know how fucked up my views are ;)

    Edited by Dangerous_Dan at 12:12:59 10-12-2012
  • LeoliansBro 10 Dec 2012 12:14:51 43,825 posts
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    Dangerous_Dan wrote:
    And you talk about the class of debtors who profit from inflation after buying a house or a new OLED Tv by going into debt.
    Exactly this. In an inflationary environment, their earnings increase but the debt stays constant.

    LB, you really are a massive geek.

  • LeoliansBro 10 Dec 2012 12:29:17 43,825 posts
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    Also, Berlusconi is a monumental penis.

    LB, you really are a massive geek.

  • spamdangled 2 Jan 2013 04:23:03 27,276 posts
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    I'm sure there are lots of sighs of relief going on now that a Fiscal Cliff solution has been agreed.

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  • LeoliansBro 2 Jan 2013 08:57:50 43,825 posts
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    Hardly a solution though. And both sides have realised that this game of brinkmanship is brilliant for boosting their individual importance, so without a chance to processes I reckon this will happen forever.

    See also: market reaction to ECB Euro policy, apparently saying what you'll do something minor but feasible leads to panic, but saying you'll do something major but probably impossible calms everyone down.

    Almost as if investors were only interested in the markets they're in, rather than the markets they could be in a year or two from now.

    LB, you really are a massive geek.

  • mcmonkeyplc 2 Jan 2013 09:15:16 39,440 posts
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    What's impossible?

    Come and get it cumslingers!

  • LeoliansBro 14 Jan 2013 11:44:20 43,825 posts
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    Just had one of those head-slapping duuuuurr moments on the independence of central banks. Given the need for politicians to differentiate themselves they will wilfully choose policies that are different (and have different merits and risks) simply because they need to be different (this was what caused Vince Cable to fluke his way to being seen as someone prophetic - he was simply third to the table when economic policies were being handed out and had to pick something suitably outlandish for the Lib Dems to stand apart on).

    So therefore any decision the bank makes, however independently it seems, will create poitical winners and losers. Impossible to be apolitical in that situation, not least because politicians won't allow it. Obvious once it is said like that.

    LB, you really are a massive geek.

  • sport 14 Jan 2013 11:47:08 12,697 posts
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    You've NAILED it LB!!
  • LeoliansBro 14 Jan 2013 11:50:27 43,825 posts
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    Quoi?

    LB, you really are a massive geek.

  • MightyMouse 14 Jan 2013 13:14:50 1,132 posts
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    People use the word 'political' in odd ways a lot of the time. I presume they meant the motivation behind the Bank of England's decisions isn't whether they favour one party or another? Though since the chancellor appoints the governor of the BOE, that's taking a lot on trust from some distinctly untrustworthy people.
  • Dougs 14 Jan 2013 20:47:33 67,254 posts
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    HMV are fucked then. Administrators called in, shares suspended. Always on the cards
  • Load_2.0 14 Jan 2013 20:56:14 19,156 posts
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    The high street is fucked. Non of these closures suprise me.
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