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cdm61 30-10-2017 02:30 PM

How the magic money tree actually works
 
https://www.theguardian.com/global/s...P=share_btn_tw

85% of MPs were unaware that new money is created every time a bank extends a loan. Were you?

Shock data shows that most MPs do not know how money is created. Responding to a survey commissioned by Positive Money just before the June election, 85% were unaware that new money was created every time a commercial bank extended a loan, while 70% thought that only the government had the power to create new money.

The results are only a shock if you didn’t see the last poll of MPs on exactly this topic, in 2014, revealing broadly the same level of ignorance. Indeed, the real shock is that MPs still, without embarrassment, answer surveys.

Yet almost all our hot-button political issues, from social security to housing, relate back to the meaning and creation of money; so if the people making those choices don’t have a clue, that isn’t without consequence.

How is money created? Some is created by the state, but usually in a financial emergency. For instance, the crash gave rise to quantitative easing – money pumped directly into the economy by the government. The vast majority of money (97%) comes into being when a commercial bank extends a loan. Meanwhile, 27% of bank lending goes to other financial corporations; 50% to mortgages (mainly on existing residential property); 8% to high-cost credit (including overdrafts and credit cards); and just 15% to non-financial corporates, that is, the productive economy.

What’s wrong with that? On the corporate financial side, bank-lending inflates asset prices, which concentrates wealth in the hands of the wealthy. On the mortgage side, house prices rise to meet the amount the lender is prepared to lend, rather than being moored to wages. The lender benefits enormously from larger mortgages and longer periods of indebtedness; the homeowner benefits slightly from a bigger asset, but obviously spends longer in debt servitude; the renter loses out completely.

Is there a magic money tree? All money comes from a magic tree, in the sense that money is spirited from thin air. There is no gold standard. Banks do not work to a money-multiplier model, where they extend loans as a multiple of the deposits they already hold. Money is created on faith alone, whether that is faith in ever-increasing housing prices or any other given investment. This does not mean that creation is risk-free: any government could create too much and spawn hyper-inflation. Any commercial bank could create too much and generate over-indebtedness in the private economy, which is what has happened. But it does mean that money has no innate value, it is simply a marker of trust between a lender and a borrower. So it is the ultimate democratic resource. The argument marshalled against social investment such as education, welfare and public services, that it is unaffordable because there is no magic money tree, is nonsensical. It all comes from the tree; the real question is, who is in charge of the tree?

What could we do instead? We could do QE for the people, overt monetary financing in which a government creates money for social benefit, such as green infrastructure or education. Or helicopter money, a central bank distributing it to everyone, either in a one-off citizen’s dividend or a regular citizen’s basic income. The nature of centrally created money should itself be opened up for debate, whose starting point is: if we agree that commercially created money is skewing the economy, can we then agree that it should be created by a public authority, even if we don’t yet know what that authority would look like.

Spindle 30-10-2017 02:37 PM

I'm keen to hear Biggin's take on this

Eagle's Nest 30-10-2017 02:39 PM

This doesn't include the fake money created by banks when they were lending massive amounts to people who couldn't pay it back in the years before the global financial crash.

S.P.R. 30-10-2017 02:48 PM

IMF system, privately owned central banks, all run out of the World Bank, Bank of International Settlements in that nice little 'neutral' country.

Money created out of thin air, backed by nothing.

It's all a Rothschild scam...

cdm61 30-10-2017 04:49 PM

Quote:

Originally Posted by Eagle's Nest (Post 13920293)
This doesn't include the fake money created by banks when they were lending massive amounts to people who couldn't pay it back in the years before the global financial crash.

That money wasn't fake ...the collatorised debt obligations taken out on the mortgages were

cdm61 30-10-2017 04:50 PM

.

Kidofwonder 30-10-2017 04:58 PM

Quote:

Originally Posted by S.P.R. (Post 13920310)
IMF system, privately owned central banks, all run out of the World Bank, Bank of International Settlements in that nice little 'neutral' country.

Money created out of thin air, backed by nothing.

It's all a Rothschild scam...

you were doing so well till you got to the last line.

wedgetail 30-10-2017 11:54 PM

I am reading Ann Pettifor's book - The Production of Money at the moment, where this is all explained in detail. Her previous book was The Coming First World Debt Crisis, published in 2006 so she knows what she talks about.

BeaverWilly 31-10-2017 12:17 AM

Funny how a fundamental and simple question such as "where does money come from?" is one of those things no school or university will ever teach in any meaningful detail. Why might that be? Could it be because there would be a revolution if enough people knew?

This is a topic that is so badly understood by so many.

Louis 31-10-2017 03:54 AM

Oh, another thread on money creation ...

BeaverWilly 31-10-2017 09:29 AM

This video is a very good explanation of the workings of the money system:


smileysmith 31-10-2017 09:31 AM

Quote:

Originally Posted by BeaverWilly (Post 13921140)
This is a topic that is so badly understood by so many.

The most troubling thing about this, is the number of people who run our country who don't understand it.

cdm61 31-10-2017 10:43 AM

Quote:

Originally Posted by Louis (Post 13921168)
Oh, another thread on money creation ...

Are there more?

Maz 31-10-2017 10:47 AM

Quote:

Originally Posted by cdm61 (Post 13921454)
Are there more?

If there are, I missed them. And this is a rather interesting one…

cdm61 31-10-2017 11:06 AM

A failure of government to own money creation and supply (not to set its volume) leads to considerable detriment of citizens. Just one example of this is PFI. In Norwich PFI hospital cost £215m to build, mortgaged to Norfolk citizens health budget for 65 years. Currently they are paying in excess of £38m per year to meet that mortgage. £38m x 65 years = £2.47billion. These payments should be going on patient care.

The alternative way of funding the building of our infrastructure, hospitals/council housing etc. Is for a national infrastructure bank to issue bonds to the Bank of England - which in exchange created the money required for the construction of these needs.

The bonds would be at 0 interest rate - so the government and its departments would no longer finance the interest payments to commerical banks.

Golf Boy 31-10-2017 11:15 AM

Quote:

Originally Posted by cdm61 (Post 13921483)
A failure of government to own money creation and supply (not to set its volume) leads to considerable detriment of citizens. Just one example of this is PFI. In Norwich PFI hospital cost £215m to build, mortgaged to Norfolk citizens health budget for 65 years. Currently they are paying in excess of £38m per year to meet that mortgage. £38m x 65 years = £2.47billion. These payments should be going on patient care.

The alternative way of funding the building of our infrastructure, hospitals/council housing etc. Is for a national infrastructure bank to issue bonds to the Bank of England - which in exchange created the money required for the construction of these needs.

The bonds would be at 0 interest rate - so the government and its departments would no longer finance the interest payments to commerical banks.

Don´t be ridiculous. The government should keep out of it* and leave it to the experts.


* apart from when we all need to be in it together to bail them out.

Skintagain 31-10-2017 12:29 PM

Quote:

Originally Posted by cdm61 (Post 13920270)
https://www.theguardian.com/global/s...P=share_btn_tw

85% of MPs were unaware that new money is created every time a bank extends...............

None of this makes any sense to me at all. I see qualitative descriptions of it but never a mathematical one.
When the bank extends a loan which is claimed to be creation of money it is matched by the debt of loaner. Therefore overall balance nothing has changed. If it did we'd all be rich by loaning money to each other. Which countries in the world do this?
Printing Money or QED whichever is the fashionable term, is simply a form of tax, with everybody paying the same % as their money/earnings become worth less. You can print as much money as you like but the overall value of the country will not change.

Fake news.

SE25 exile 31-10-2017 12:39 PM

Quote:

Originally Posted by Skintagain (Post 13921569)
None of this makes any sense to me at all. I see qualitative descriptions of it but never a mathematical one.
When the bank extends a loan which is claimed to be creation of money it is matched by the debt of loaner. Therefore overall balance nothing has changed. If it did we'd all be rich by loaning money to each other. Which countries in the world do this?
Printing Money or QED whichever is the fashionable term, is simply a form of tax, with everybody paying the same % as their money/earnings become worth less. You can print as much money as you like but the overall value of the country will not change.

Fake news.

What is the overall value of the country?

S.P.R. 31-10-2017 01:30 PM

Quote:

Originally Posted by Kidofwonder (Post 13920451)
you were doing so well till you got to the last line.

Said with tongue in cheek, anyway, it's a monster out of control bigger than anybody now.

jimos_uk 31-10-2017 01:42 PM

Quote:

Originally Posted by Spindle (Post 13920290)
I'm keen to hear Biggin's take on this

:p:love::D:hi::lux:


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