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How Money Disappears In A Fractional-Reserve Money System
Submitted by Frank Shostak via The Mises Institute,
Most experts are of the view that the massive monetary pumping by the US central bank during the 2008 financial crisis saved the US and the world from another Great Depression. On this the Federal Reserve Chairman at the time Ben Bernanke is considered the man that saved the world. Bernanke in turn attributes his actions to the writings of Professor Milton Friedman who blamed the Federal Reserve for causing the Great Depression of 1930s by allowing the money supply to plunge by over 30 percent.
Careful analysis will however show that it is not a collapse in the money stock that sets in motion an economic slump as such, but rather the prior monetary pumping that undermines the pool of real funding that leads to an economic depression.
Improving the Economy Requires Time and Savings
Essentially, the pool of real funding is the quantity of consumer goods available in an economy to support future production. In the simplest of terms: a lone man on an island is able to pick twenty-five apples an hour. With the aid of a picking tool, he is able to raise his output to fifty apples an hour. Making the tool, (adding a stage of production) however, takes time.
During the time he is busy making the tool, the man will not be able to pick any apples. In order to have the tool, therefore, the man must first have enough apples to sustain himself while he is busy making it. His pool of funding is his means of sustenance for this period—the quantity of apples he has saved for this purpose.
The size of this pool determines whether or not a more sophisticated means of production can be introduced. If it requires one year of work for the man to build this tool, but he has only enough apples saved to sustain him for one month, then the tool will not be built—and the man will not be able to increase his productivity.
The island scenario is complicated by the introduction of multiple individuals who trade with each other and use money. The essence, however, remains the same: the size of the pool of funding sets a brake on the implementation of more productive stages of production.
When Banks Create the Illusion of More Wealth
Trouble erupts whenever the banking system makes it appear that the pool of real funding is larger than it is in reality. When a central bank expands the money stock, it does not enlarge the pool of funding. It gives rise to the consumption of goods, which is not preceded by production. It leads to less means of sustenance.
As long as the pool of real funding continues to expand, loose monetary policies give the impression that economic activity is being boosted. That this is not the case becomes apparent as soon as the pool of real funding begins to stagnate or shrink. Once this happens, the economy begins its downward plunge. The most aggressive loosening of money will not reverse the plunge (for money cannot replace apples).
The introduction of money and lending to our analysis will not alter the fact that the subject matter remains the pool of the means of sustenance. When an individual lends money, what he in fact lends to borrowers is the goods he has not consumed (money is a claim on real goods). Credit then means that unconsumed goods are loaned by one productive individual to another, to be repaid out of future production.
The existence of the central bank and fractional reserve banking permits commercial banks to generate credit, which is not backed up by real funding (i.e., it is credit created out of “thin air”).
Once the unbacked credit is generated it creates activities that the free market would never approve. That is, these activities are consuming and not producing real wealth. As long as the pool of real funding is expanding and banks are eager to expand credit, various false activities continue to prosper.
Whenever the extensive creation of credit out of “thin air” lifts the pace of real-wealth consumption above the pace of real-wealth production this undermines the pool of real funding.
Consequently, the performance of various activities starts to deteriorate and banks’ bad loans start to rise. In response to this, banks curtail their loans and this in turn sets in motion a decline in the money stock.
Does every curtailment of lending cause the decline in the money stock?
For instance, Tom places $1,000 in a savings deposit for three months with Bank X. The bank in turn lends the $1,000 to Mark for three months. On the maturity date, Mark repays the bank $1,000 plus interest. Bank X in turn after deducting its fees returns the original money plus interest to Tom.
So what we have here is that Tom lends (i.e., gives up for three months) $1,000. He transfers the $1,000 through the mediation of Bank X to Mark. On the maturity date Mark repays the money to Bank X. Bank X in turn transfers the $1,000 to Tom. Observe that in this case existent money is moved from Tom to Mark and then back to Tom via the mediation of Bank X. The lending is fully backed here by $1,000. Obviously the $1,000 here doesn’t disappear once the loan is repaid to the bank and in turn to Tom.
Why the Money Supply Shrinks
Things are, however, completely different when Bank X lends money out of thin air. How does this work? For instance, Tom exercises his demand for money by holding some of his money in his pocket and the $1,000 he keeps in the Bank X demand deposit. By placing $1,000 in the demand deposit he maintains total claim on the $1,000. Now, Bank X helps itself and takes $100 from Tom’s deposit and lends this $100 to Mark. As a result of this lending we now have $1,100 which is backed by $1,000 proper. In short, the money stock has increased by $100. Observe that the $100 loaned doesn’t have an original lender as it was generated out of “thin air” by Bank X. On the maturity date, once Mark repays the borrowed $100 to Bank X, the money disappears.
Obviously if the bank is continuously renewing its lending out of thin air then the stock of money will not fall. Observe that only credit that is not backed by money proper can disappear into thin air, which in turn causes the shrinkage in the stock of money.
In other words, the existence of fractional reserve banking (banks creating several claims on a given dollar) is the key instrument as far as money disappearance is concerned. However, it is not the cause of the disappearance of money as such.
Banks Lend Less as the Quality of Borrowers Worsens
There must be a reason why banks don’t renew lending out of thin air. The main reason is the severe erosion of real wealth that makes it much harder to find good quality borrowers. This in turn means that monetary deflation is on account of prior inflation that has diluted the pool of real funding.
It follows then that a fall in the money stock is just a symptom. The fall in the money stock reveals the damage caused by monetary inflation but it however has nothing to do with the damage.
Contrary to Friedman and his followers (including Bernanke), it is not the fall in the money supply and the consequent fall in prices that burdens borrowers. It is the fact that there is less real wealth. The fall in the money supply, which was created out of “thin air,” puts things in proper perspective. Additionally, as a result of the fall in money, various activities that sprang up on the back of the previously expanding money now find it hard going.
It is those non-wealth generating activities that end up having the most difficulties in serving their debt since these activities were never generating any real wealth and were really supported or funded, so to speak, by genuine wealth generators. (Money out of “thin air” sets in motion an exchange of nothing for something — the transferring of real wealth from wealth generators to various false activities.) With the fall in money out of thin air their support is cut-off.
Contrary to the popular view then, a fall in the money supply (i.e., money out of “thin air”), is precisely what is needed to set in motion the build-up of real wealth and a revitalizing of the economy.
Printing money only inflicts more damage and therefore should never be considered as a means to help the economy. Also, even if the central bank were to be successful in preventing a fall in the money supply, this would not be able to prevent an economic slump if the pool of real funding is falling.
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Lower the 10-15 basis points "primary dealers" are paid.
Repo's
The king's court (the financial community) is not intetested in the truth, just a validation of what they want to believe is the truth.
Personally, I don't care for these intricate articles about how and why debt-based fiat counterfeit money is unstable. It's like trying to explain the physics of a house of cards' structural weakness. It will fail because it it has no solid basis. All one need understand with our current Fed is the underlying fundamental flaws of the system itself. It is untenable from its inception. It needs to be abolished with honest and real money to replace it. Period.
Perhaps you should be MOAR aware?
I can feel that shell being sloughed.
Buy a few grams, NOT coins, of gold.
Sounds simple enough to net out deposits from credit to separate the created-from-thin-air-money, although I suspect it will trail a quarter or two. Is Grant Williams not doing something similar?
More like How Money is STOLEN >> >> https://goo.gl/2SIIh0
In the good old days they literally had to print every dollar. Today, there's no paper involved, it's all digital. So, in the old days, where did that PHYSICAL paper (money) go?
But there were still bank loans, and the paper cash still only represented a fraction of the total money supply, the remainder still being credit, just in paper/ledger form rather than digital form. So in the good old days, paper money regimes were plagued by bank runs as people made a dash to get cash out of the bank once rumblings of trouble hit the streets, and then some money would still get trapped on the insolvent books of the banks and be lost as the loans were sold at bankruptcy fire sales for less than their true value.
The paper money notes would see ebbs and flows of availability as velocity varied, but as far as I know, paper money regimes are not expected to be divorced from fractional reserve banking. The two usually go hand in hand. You can also have fractional reserve banking with a hard money standard. It's still just as fraudulent, but much harder to make a living as a banker because there are no fairy godmothers with endless supplies of unicorn money prancing around ready to jerk your irons out of the fire when you betray yourself as a dumbass with nowhere near enough prudence to be managing other people's money.
Shadow banking and credit predate even precious metals, never mind standard denominations of paper money. The author is trying to oversimplify events to fit a narrative, which leads to some interesting contortions and conumdrums, for example:
coupled with
In fact neither the base money supply nor "real wealth or funding" actually changes, credit (which does not even necessarily originate within the banking system and may be backed by real wealth) contracts and the unit of account used to measure wealth will purchase more wealth due to the contraction of the effective money supply.
Which is their real goal.
In a fractional reserve system money disappears whenever there is a default on a loan as well. Which is why the only real solution to this mess is to stop propping up asset prices and allow for the bad debt to clear itself. Then, and only then can a real recovery take place.
Which leads to dollar scarcity which leads to a more valuable dollar which benifits people who are frugal and that just can't happen.
So the question for me, and would love to hear from yas, if every country is in debt to their eyeballs, who the hell is the beneficiary of all this debt? The CBs? Their balance sheet is in the $22 trillion region as well. Who's Mr. Big?
If you borrow a trillion dollars (with no intention to ever repay it) and use it to buy a trillion dollars worth of "stuff" who is the beneficiary? It's you. You effectively stole a trillion dollars. You got a trillion dollars worth of stuff but you didn't use any of your own money to pay for it.
Change out "you" in that paragraph with "government", there you have it.
Capiche?
Understand what youre saying, beneficiary was the wrong word. I meant who is on the hook for all the debt.
Where did that trillion dollars from? That's who's on the hook.
Debt slaves, present and future.
No one. The system is never designed to clear. The debt is never expected to ever be purged and "paid off", because the ground floor of the system IS DEBT. Money does not appear in the system without being matched by debt, thus the only way debt ever completely disappears from the system is if money disappears from the system. Thus debt can never be erased from the system without crashing the system. It's like a car with no reverse. If you drive it into a dead end alley, get out and walk away because that sucker is toast.
The only way the monetary system can reverse is through bankruptcy.
The fundamental problem with the design can be imagined like two people shot into the air from a cannon. Those two people are called debt and asset appreciation. As assets appreciate, they are "worth" more as collateral, which means they can "back" more loans, said loans then used to drive up the asset price even higher in a steadily mounting spiral. So again, two things launched into the air holding hands, asset prices and debt.
But, debt has a parachute, while asset prices do not. Debt has a parachute because debt can only be paid off slowly over the course of decades because there is not enough cash flow to pay off loans immediately, otherwise the loans would not be requested. Thus after being fired into the air by easy money, asset prices begin to fall quickly like a man without a parachute, while debt can only drift down very slowly over the course of decades. Thus, the two separate quickly after reaching the apex of the easy money, financialization, debt saturation parabola in which all assets are matched with as much debt as anyone could possibly imagine could ever be paid back.
Which really means that the system can only go up and then crash. Again, there is no reverse. As debt saturation is reached and debt origination and therefore monetary flow levels off, asset prices start to fall because the only thing that was driving them at the end was the presumption that a greater fool could always be found, that assets could always be flipped at a profit to the next lender. Except suddenly there is no next lender, the music has stopped and you don't have a chair, and suddenly both lenders and debters are stuck with contract terms that no longer have any relevance. Debtors cannot afford to service their debt at the new lower price point of everything because the only thing that has not reset to a lower price point is their loan terms. And, because asset prices are now dropping, there is no collateral against which to originate new loans, so until you shoot a bunch of holes in the debt parachute through bankruptcy so that debt can finally fall fast enough to catch up and pass the drop in asset prices, the system cannot reset.
There are only two kinds of people who would design a system built to fail like a fractional reserve, debt based money system is: 1) Sociopaths who understand exactly how the whole thing plays out and plan to profit as they ride the waves of alternating societal euphoria and misery, loading up on debt and leveraged inside deals on the up phase and then ducking into physical assets during the down phase in a pumping ratchet motion that steadily drains more and more resources from the bulk of the citizens, and 2) Complete idiots with no more fucking clue of how a system of relative value works than my dog.
Our county is, unfortunately, run by the former using political front men with the qualifications of the latter. Hence our impending doom.
What's your retirement plan invested in? Feel like you are sitting at a poker table, yet?
Great comments.
Just to add, credit is created for a loan and/or bond, however, no credit is ever created to pay the interest. This money has to come from somewhere. I believe interest is a major parasite to actual productive wealth creation.
The fact that Governments and Bankers are so interlinked is the real problem i.e Banks raise credit for Government debt bonds. Governments also own/control banking shares.
They are both as bad as each other. See USA CAFR Accounts or UK AFR Reserve Accounts.
Governments (including local) are run as Corporations, therefore all Nations are Corporations and are not run in the interests of 'the people' whatsoever. They are run for the benefit of their shareholders/owners/controllers.
Is this why Obama, Cameron et al totally ignore their Countries interests? They are merely puppets for the elite whose own better interests are elsewhere in the globe?
CEO's think nothing of stripping one Company for the benefit of another.
The CIA World Accounts are always an interesting read.
Are Countries operating in a state of Bankruptcy?
"I believe interest is a major parasite to actual productive wealth creation."
No. You cannot have a system in which resources that exist in limited supply are freely available to anyone that asks for them without cost because such a system will very quickly exhaust its supply of resources and collapse. This type of system is extremely unstable, prone to rapid inflations and collapses. If animals were given the freedom to reproduce without concern for survival what do you think would happen to the animal population? Feedback loops must always be protected so that they can continue to perform their vital function without being suppressed.
Interest does not design the system to fail. Instead, it just functions as a wealth concentrator. That's all. When the loan is repaid, one party has more of the available money in their possession than they had before the transaction was started. But, in a money system where humans relinquish the money supply to reality rather the artificial world of politics, this means that taking a loan is seen as a dangerous thing, which means you limit how much you are willing to borrow, you keep low loan to value ratios, and you don't design loan contracts around time periods that are impossible for anyone to predict like 30 years. This has the effect of keeping total loans low, which reduces the chance that the system will puff up and then implode.
In such a society money tends to stay with family dynasties longer but still turns over every few generations. And, this presents an obstacle for politicians whose only lever of power is the promise to change the flow of money. They can't make this promise if the system is built to stay stodgy and stable. So, they of course love systems that puff up, because during this time of rising tide they can promise all sorts of things and accumulate power based on promises to do something with someone else's money at some point in the future. Bankers can function and profit in either a stable or unstable system, but politicians can only profit in an unstable system.
So, you essentially have a war for resources between the people, the bankers, and the politicians. The bankers intoxicate the people with easy credit money while the politicians seduce them with promises of being given resources that belong to some other person, usually the citizens of the future, who are of course defenseless and mute. And for a while, the bankers and politicians cooperate and wash each others hand, but at some point, as the system implodes and there is no longer any ability to pretend that resources are flowing from some imaginary unicorn purse of monetarism, the politicians and bankers turn on each other. The bankers no longer have anything to offer the people except reality, while the politicians can still promise to take money from someone else, so the bankers always end up hanging from lamposts and the money system collapses, which tends to concentrate even more power in the hands of the politicians. You make a deal with the devil, he will always expect his due.
Hi, thanks for your constructive criticism. I am learning so please bear with me.
I don't agree with charging interest, but neither do I think loans should be freely available to anyone that asks for them as you have assumed. I agree there should be some sort of control.
I think I may have written my comment wrongly. What I meant to say was this. If £100 credit is created, and the person who loans £100 pays back £200. As only £100 is initially created, where does the other £100 come from? Surely this interest payment system will also very quickly exhaust its supply of resources and collapse?
You say, You cannot have a system in which resources that exist in limited supply are freely available to anyone that asks for them without cost. Please explain why a Bank should apply cost. As I see it, a Bank conjures credit from thin air and defrauds a Nation via Fractional Reserve Banking. Why should a Bank be allowed to charge interest for a fraud to benefit private individuals?
As you say, I agree interest functions as a wealth concentrator which is why I think all Banks should be Nationalised for the people and not for GOVERNMENTS run as CORPORATIONS.
You state, Bankers can function and profit in either a stable or unstable system, but politicians can only profit in an unstable system. Having read many CAFR accounts, it appears Governments own large (often controlling) shares of Banks (and many other investments in large Corporations). Hence I would argue that Governments (Politicians) are also private Banks (Bankers). I often consider them one of the same.
gwiss - Interesting analogy but...
"...all assets are matched with as much debt as anyone could possibly imagine could ever be paid back."
Its more like
all assets are matched with 100 times as much debt as anyone could possibly imagine could ever be paid back.
What we call fractional reserve banking is little more than a fraudulent Ponzi scheme designed with the help of the big 4 accounting firms to transfer all the public wealth into the hands of a criminal private banking cabal. Money is invented into existence, accounted for as being a deposit ( Bank of England 2014), the public are loaded with debt plus interest making it a Ponzi scheme and making us debt slaves and ever more money has to be lent to stop the Ponzi collapsing. To even dream that this system should be somehow saved is stupidity!
"On the maturity date, once Mark repays the borrowed $100 to Bank X, the money disappears." No. The repaid loan/money never disappears. Do you suppose the bank burns it? The bank keeps it.
Not quite. The original $100 they poofed out of thin air to lend is entered on BOTH sides of the balance sheet. Once it is repaid, BOTH entries cancel eachother out. The money "disappears". They keep the interest they earned on the loan over that time, however.
Yes exactly.. I love it when people trivialize the collossal scam that fractional reserve banking is. Aside from the fact that there is no lawful consideration given on any loan from a bank, these fuckers don't load 100 dollars of every thousand they keep 100 of every thousand and create 900 dollars more on every thousand. And then create 810 dollars more on that 900 ad infinitum. This simple concept eludes almost 100% of people when asked how the money system works. This small fact is probably the most difficult thing in the world to accept that I have ever come across. On top of all this is the interest owed that doesnt exist at origination. It is simply unbelievable!
Fractional reserve banking dates to a bygone era when the supply of currency was constrained by the amount of real base-stock money (gold, primarily).
You are correct that with a 10% reserve ratio requirement that $900 of every $1000 in deposits could be loaned out, not $100 as the article says.
Fractional reserve banking based on sound money (gold) was not nearly as evil as it is today. There were definite limits to it's capability when it was constrained by available base money supply (again, gold-based). But once you change base money stock from a tangible, finite commodity to FIAT poofed out of thin air by a central bank with a computer you've blown everything out of the water. Now not only does the bank lending vary, the base money stock can be changed at will, too. All semblance of a self-correcting system is lost. Additionally, banks no longer need new deposits to create new loans. They, too, are "poofed" out of thin air. Lending is completely decoupled from productivity (since only real productivity can create money from which deposits are made).
Yes.. There was an interesting case in the 1960's (I can't think of the litigants names now) regarding a man who was fighting a forclosure and brought to light the fraudulent nature of the so-called loan. He stated that for a contract to be legal there must be an exchange of valuable consideration and the bank never honored that pillar of a basic contract. The judge, back then I suppose they were not as co-opted as today, saw things his way. It was open and shut. The foreclosure was thrown out. I think since then, the banker boys lawyers and lobbyists have probably learned from that case and maybe others. It appears that at some point in the past, any bank could create money out of thin air; any federal reserve system member. I haven't tried to find evidence to the voractiy of this claim but it seems today they've changed things around where only the big what they call money center banks or we know the big 9 or so have this power and they do it on a grand scale. The little guys basically borrow from them now to make their loans. I only think this is true because of a conversation I had with the CFO of a small bank. He insisted they do not ever create money out of nothing but they go borrowing from the bigger banks what they need and so on... I don't know if the guy was telling me the truth. But at this point I think your absolutely right. Its gotten to the point where the origination of the credit is so well hidden in a labyrinth of secret transaction within the Fed that claims made like that one which won this man in the 60's his home out of foreclosure is probably impossible today. Except of course when the abuse becomes so obvious as it did in 2007/2008 where MERS was an open book of fraud and graft the likes of which probably has never been seen before on earth.
The bottom line is really the whole system is a precarious illusion. It's just the whole business of the interest which doesn't exist at origination strikes me as the most wicked diabolical scheme one can imagine.
you appear to have missed the rest of the story, of the entire thing being completely buried, and the judge meeting an untimely "accidental" death soon thereafter.
Nicely put.
another stupid article about the fractional reserve lending boogie man. can banks still skim, steal and commit fraud in a 1 to 1 lending system? YES, so ending FRL doesn't stop "sheet"
we had a boom and bust in the 20s and 30s while on the gold standard, so the gold standard did not protect us from/stop crap from happening. so you can throw that simpleton sound bite meme out the window as well.
You sure don't understand much, particularly regarding the 1920s boom. Maybe your moniker reflects that ignorance.
Wow, no wonder why you are still losing money. You have no clue how fractional reserve banking or rehypothicating of assets work, and no idea how loose lending during the 20s and 30s set the stage for the Great Depression.
Try educating yourself on the derivatives market. Wanking your dick is a one man show.
I know Israel sure disappears Billions every year
I'll gladly pay you Tuesday, for your un-qualified paper. HARP-Refinanced-Patsy Paper, for my commission to pay back my contractor building a pool in my backyard.
Tylers edited it. But they're "on topic".
Well that was certainly a muddle.
It is really much simpler to explain.
Money supply goes up when REAL loans to Main St or even corps are made. NOT when BS loans between the Fed and NY banks are made that never touches the real economy.
Money supply goes down when loan outstandings go down.
End of lesson
Not quite. Money supply goes up when it is lent out for productive purposes. It goes to hell in a handbasket when it's lent out only to roll pre-existing debt and for other non-productive uses.
As a conservative republican, the two system political lies have finally converged. Time to end the establishment.
George Bush Sr. New World Order Live Speech Sept 11 1991 ...
Your're your OWN man.
El capitain" ZERO, has not only destroyed himself, He's divulged the circumference of a broader idea.
That's unfair. Who helped you during the carry trade wars?
Bathhouse Barry is a fucking idiot. Winks
My lol "gold 100 toz" levered @ 100:1 trade, is well in the MONEY.
The CFTC is a fucking JOKE.
I can't hedge my comments.
What happened to CFD's with spreads?
The author's theory on fake money creation and the resulting pull back in lending due to a lack of borrower quality is, imho, supported by this chart: https://research.stlouisfed.org/fred2/series/M2V Took the banks awhile to figure out who the low quality borrowers, (bogus real estate players, bogus technology, bogus dot coms) were -- all of whom were fueled by "the maestro"'s fake money.
And it's gone....
How does money disappear when Obama taxes the people to wreck heweys? Oh, wait, that's more important than what kaitlyn jenners doing tomorrow. If everyone knew, we could all live in peace. Which is why I'm using my voice in this dictatorship (where no voices are heard masonically or otherwise) to say screw you, the true 1% didn't exist in 'rome' and will proceed to dust your ass.
Audi caught hell for this video. Thank goodness for BMW.
Green police full raid / Audi Superbowl - YouTube
The niger in chief from a Kenyan hut is selling climate change. Oh the laughter. Let's sell some catalytic converters to increase stock holdings. Save the world bullshit.
USGS Minerals Information: Platinum-Group Metals
Re-anchoring/indexing fiat money to Real Money is conceptually easier than people realize:
You simply index it to a Basket of Precious Assets, and expand or shrink its Supply according to the same Assets.
Precious Assets = Precious Materials + Precious Energy; because the Input of Matter+Energy is required for Labor to add its value to subsequent Output.
Precious Materials = Precious Metals + Strategic Materials
Precious Energy = Hydrocarbons or Renewable Electricity (solar, wind, wave, hydro)
Thus every country is able to create Real Money, and be free of parasitic opportunists and rent-seeking financial leeches, who would seek to manipulate, corrupt or take over the Money Supply. Gone would be the Globalist Banksters. They'd actually would have to find a real job, where they might provide innovation or value-added labor.
A system like that would tend towards abundance rather than scarcity. Because thats where the proffits are. imo.
Banks keep lending until the bubble pops
"But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Chuck Prince, CEO of Citigroup
If you want to understand money much better than the person who wrote this article:
Beginner:
https://www.hiddensecretsofmoney.com/videos/episode-4
Steve Forbes – Editor in Chief of Forbes Magazine endorses this video (can be seen at the end) so it has very good credentials.
Intermediate:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyintro.pdf
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
Advanced:
“Where does money come from” available from Amazon
Bankers having trouble with prudent lending ……
“What is wrong with lending more money into the Chinese stock market?” Chinese banker recently
“What is wrong with lending more money into real estate?” Chinese banker last year
“What is wrong with lending more money to Greece?” European banker pre-2010
“What is wrong with a NINA (no income no asset) mortgage?” US banker pre-2008
“What is wrong with lending more money into real estate?” US banker pre-2008
“What is wrong with lending more money into real estate?” Irish banker pre-2008
“What is wrong with lending more money into real estate?” Spanish banker pre-2008
“What is wrong with lending more money into real estate?” Japanese banker pre-1989
“What is wrong with lending more money into real estate?” UK banker pre-1989
“What is wrong with lending more money into the US stock market?” US banker pre-1929
It’s a global problem.
Most classical economists differentiated between earned and unearned wealth.
Unearned wealth being the parasitic, rentier trickle up of Capitalism that benefits those that inherit wealth and don't earn it.
Adam Smith:
“The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”
Bankers, investors, land owners and landlords should be taxed for Government spending, earned wealth should be kept or at least used to supplement the rentier taxes.
Income tax only started one hundred years ago on a permanent basis, before that the land owners and rentiers were taxed.
Tax has constantly been shifted off the rentier sector and onto the productive side of the economy, industry and labour.
All rentier activity is detrimental to the productive parts of the economy, siphoning off prospective purchasing power to those that like to sit on their behinds.
If we were still able to recognise the difference between earned and unearned wealth we might realise that encouraging rising prices of stuff that exists already is not very productive, e.g housing booms.
Same houses, higher prices, higher mortgages and rents, less purchasing power.
As the rentier economy booms, rents and interest repayments on debt escalate and purchasing power goes down leading to the current debt, deflation.
We need to re-learn the distinction between earned wealth and unearned wealth.
The productive side of the economy and the unproductive, rentier side.
Everyone works in their own self interest even economists.
Malthus – supports the vested interests of landlords and so finds nothing wrong with parasitic landlord rent extraction.
Ricardo – supports the vested interest of bankers coming from a banking family, sees problem with feudal landowners but not bankers that create money out of nothing
The Austrian School – Austrian aristocrats, of the European Leisure class, support investor’s interests. Anti-Government as they are trying to do away with the old European aristocracy.
Most classical economists differentiated between earned and unearned wealth.
The Austrian Aristocrats benefit from inherited wealth and hid the distinction.
As members of the European Leisure class, they liked to invest and make money from the hard work of others while doing very little themselves.
The Austrian Aristocrats benefit from inherited wealth
What the fuck? Regular people do not benefit from inherited wealth? I wonder why you did not mention Keynesian pigs.
Eradicate muslims!
I see no evidence banks destroy money, that they created out of nothing and loaned out, after it is paid back. As far as I can tell, they keep it all. There is no evidence at all the money supply has ever decreased in decades.
One factoid that almost nobody today remembers, is that 50+ years ago almost all loans were to create or expand production, not consume.
While the article is not wrong, borrowing to consume always lowers wealth and economic efficiency, while borrowing to produce CAN sometimes (but doesn't necessarily) increase wealth and economic efficiency.
However, even in the best case, even borrowing for productive activity is marginal. Why so? Because the borrower may end up competing with others who did not take loans to create their production facilities, and are thus at a serious disadvantage against them.
The most efficient business is always one created from savings.