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how money is made

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Re: how money is made

Postby Robin Hood » Sun Feb 28, 2016 9:16 am

Pyrpolizer:
This is one of the points I disagree partially. There are rules to set up a Bank. The major shareholders put down huge amounts of money to set it.

You may well be right about that. I am looking more at the way COMMERCIAL banks operate than the way they are set up or the financing of shares capital. The shareholders are often bankers who will no doubt ‘borrow’ from their own bank to purchase the shares of another. I know this happens with big companies who buy-back their own shares to boost the value on the markets?
You may say that the next step is to start having people's deposits to initiate the process of making money out of nothing.
This is not always the case. There are cases the shareholders themselves have so much money that they don't need any deposits.
That was the case of the Arab Bank we had here in Cyprus a few years ago. They were NOT interested to get deposits! All they were interested for was to give loans.

If you read the article I posted by Prof. Richard Werner (link below) you will see that a bank has no need of deposits to make loans. It is not the deposit that creates the loan it is the other way round, loans create deposits. This has been corroborated by the BoE, The FED and the German Central Bank.

He describes the three concepts of banking:

• The ‘intermediary’ concept, what is what you have referred to.
• The ’multiplying factor’ concept or fractional reserve banking.
• The ‘creation’ concept, where the banks create currency without the need for deposits.

The first two have proven to be misconceptions but the ‘Creation’ concept is the only concept that matches the evidence. It sounds weird but it is true.

http://www.blacklistednews.com/A_Loophole_Allows_Banks_%E2%80%93_But_Not_Other_Companies_%E2%80%93_to_Create_Money_Out_of_Thin_Air/48338/0/38/38/Y/M.html

Secondly if the Bank is not making profits, it has 2 options: Either to go bankrupt or get sold. And when they do get sold they still have assets like buildings etc. In this case they get sold for less money than what the major shareholders paid to set it on the first place. So who are the losers here, the depositors or the shareholders?


The bank creates its own ‘assets’ by extending credit and by that means creating debt ...... on paper that is, but this is how the banks work, simply as a system of book keeping or accounting. I think you will find that the only assets a commercial bank has is its clients deposits. They usually rent the buildings all the branches are located in and may also rent the Head Office from another company. Banks avoid having anything of significant value that could be considered as an tangible (saleable) asset. I may be wrong on that but it is the conclusion I have come to.
The problem imo starts at the point the Banks have gone bankrupt ALREADY, hence they cannot be sold, but they just keep them running while they continue crunching their depositors money. This is what I think happens right now here in Cyprus and possibly other parts of the world, e.g the Scottish Bank that GIC mentioned before.

As I see it, the banks by virtue of the way they operate are ALWAYS bankrupt! In practical terms their assets are debt and their liabilities are also debts, the money they ‘borrowed‘ from depositors and now owe. They can’t lose the depositors money as that is deposited in the Central Bank and therefore it cannot be loaned out. That forms the ‘fraction’ they must hold in reserve to create new money.

So the number in your account(s) is in theory, safe even though it is an IOU. That is until reality kicks in when the banks make huge loans that do not perform. They then convert their ‘assets’ (debt) into ‘liabilities’ (also debt) but now on the other side of the balance sheet and the only way to correct the balance is to default i.e. write off their debt to the depositors. It is all paper shuffling from one side of a balance sheet to the other! This is their Trading Account.

Their profits (loan interest) however are a separate account.... their Profit and Loss account; profits IN .... and expenditure OUT (rent, salaries, maintenance, pension contributions etc.) what is left is the share holders dividend. Bad debts = no interest = no profit = no dividend = share value collapse ....... and the depositors lose their deposits.

With banking nothing is simple and straight forward, they use bank jargon to obscure their operations from all but those that delve and this confuses .......... a very successful MO as history shows! I find the whole thing incredible!
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Re: how money is made

Postby Pyrpolizer » Sun Feb 28, 2016 7:35 pm

I am not so sure the Banks all over the world do what the author says that the Banks in the US (presumably) do.
The author says they basically follow a non standard book keeping method-which I really doubt is as simplistic as he describes. He actually claims that when someone takes a loan of say $100 the Banks account for that (correctly) as an asset but at the same time input an imaginary figure in their books of an equal amount as liability (as if the very same client has actually deposited those money). So in this fashion they have no need to deduct the money they gave him from the deposits of other people that they have at the Central Bank!
Upto this point that would be a crystal clear fraud!

Imo what actually happens is something similar but not quite the same. In short the amount they enter in their books (as if the borrower has actually deposited an equal amount to what he's taken as loan) is actually the mortgages or other guarantees he 'd put down.

In this sense you are right in that they create money out of nothing, but if you think about it it's not really out of nothing. The mortgages the borrower put down did have a "sleeping" value, and that value just woke up and got cashed.

It's obvious that this distorted "bookkeeping method" that the Banks follow leads to other distortions as to what their profits or loses really are.
Especially when the loans are not performing, what the heck do they do with those mortgages (virtual money that the borrower had presumably deposited)?? It seems the just keep them unchanged, and nobody intends to force them to change anything.
Otherwise -especially in Cyprus- they would show up totally bankrupt. :wink:
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Re: how money is made

Postby Lordo » Mon Feb 29, 2016 6:53 pm

soon you will begin to see lordo dollars in circulation.
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Re: how money is made

Postby Robin Hood » Mon Feb 29, 2016 9:42 pm

Pyrpolizer:
I am not sure I understand what you are saying. It is not that you are wrong, more that I am thick! You seem to be talking book keeping and balancing the account using double entry book keeping practice?

Although it is not money we are talking about let’s use that for simplicity.

Very simply how I see it is:

• The Customer ask for a loan. But in practice it is not a loan it is extended bank credit i.e. they let the borrower spend something he does not have ..... money..... but neither do they!

• When he spends this agreed loan amount by transferring it to A.N.Other it creates new money in A.N.Others account when he deposits €XXX into that account.

• The transfer medium, say a cheque, is referred back to the issuing bank i.e.the borrower’s bank, for clearance. The problem is that account has nothing in it so your cheque should in all honesty, bounce.

• No problem for the bank, they just fail to bounce the cheque and write next to the entry in your credit account €XXX DR. (Drawn) You now owe the bank €XXX, plus interest.

• Every time you make a payment off the loan the figure in the account decreases until it reaches zero ..... i.e. debt repaid and the new money created by the bank extending credit, has been removed from circulation ...... destroyed!

• But bankingwise ....... between the borrower asking for the loan, to the point he repays it ....... not a cent has changed hands! It is all book keeping ..... smoke and mirrors.

All parties are happy. The borrower has, with his loan, bought something he wanted from the recipient and the recipient has the ‘money’ safely deposited in his account. The bank just gave the borrower a debt for which the bank has no liability, and they are making interest on something they loaned but never had! When the borrower repays the loan, the bank covers their fraud by just writing the account down to zero and pockets the interest.

So, I say yes ............ it is fraud or at the least deception. Banks were fraudulent from the beginning. When the first Banker issued a Promissory Note against gold he did not have in reserve .... he committed the first fraud in banking ........... and that process has never stopped!
So in this fashion they have no need to deduct the money they gave him from the deposits of other people that they have at the Central Bank!

They don’t (can’t) use deposits at the central bank to loan out. (Except loans between banks LIBOR) What you are suggesting is the normal perception but incorrect concept of banking, i.e. the bank acts as an intermediary between the depositor and the borrower. Werner and the BOE etc. have proved this is not the case. If it were so, loans could never exceed deposits! They all say that the only perception of banking that fits all the evidence is the concept of the creation of ‘money’ out of thin air.
Especially when the loans are not performing, what the heck do they do with those mortgages (virtual money that the borrower had presumably deposited)?? It seems the just keep them unchanged, and nobody intends to force them to change anything.

Therein lays another deception! The credit/loan account realistically never has a positive value, it will either be a negative figure or zero (when the loan is repaid) . Because the bank has not had to borrow this amount from anyone else, as they created it out of nothing, they have no liability to repay it. But it can’t stay on their books as an asset, so they swap columns and call it a ‘LOSS’ because it is now a liability. Another FRAUD ........ how can it be a loss if they have no liability to repay the sum ......... it never existed until they created it! :x

Then the ECB creates some more money (QE) and buys all the commercial banks NPL’s at rock bottom prices (at least an amount equal to or greater than the outstanding interest, where this is possible) and the ECB acquires all the collateral for these loans. The commercial banks will get its owed interest paid and anything left goes into reserves ...... then the commercial bank write off the ‘loss’ i.e. the original debt amount, from the books. The ECB sells the collateral off to private investors, maybe even at a profit, and the investor goes after the original owner of the collateral to make his profits. :( :cry:

LORDO:

You can’t print your own money it’s illegal ...... unless you are a bank! If you have the odd five million available ...... start your own bank in Cyprus and ‘print’ all the money you like! :roll: :wink:
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Re: how money is made

Postby erolz66 » Mon Feb 29, 2016 10:59 pm

Robin Hood wrote: But bankingwise ....... between the borrower asking for the loan, to the point he repays it ....... not a cent has changed hands! It is all book keeping ..... smoke and mirrors.


To me you are just getting too hung up on an entry in a computer and physical cash. I ask for a loan, get given it and immediate draw that amount out in cash for the bank that gave me the loan ? Is this any different because I took cash ? Even the cash itself is just pieces of paper. It makes no difference if it is an entry in a computer or physical cash. In both cases the bank effectively creates 'new money' even if it gives me 'old cash' to represent that newly created money.

You also confuse such entries in computers with balance sheet accounting. Balance sheet accounting is how you list assets and liabilities.

Robin Hood wrote: The bank just gave the borrower a debt for which the bank has no liability,


The bank does have a risk - the risk that the person they give the loan to fails to repay it or the interest on it or both - then the loan does become a liability for the bank.

Robin Hood wrote:and they are making interest on something they loaned but never had! When the borrower repays the loan, the bank covers their fraud by just writing the account down to zero and pockets the interest.


You say they never had - but actually they DID create new money (as you keep telling us). That newly created money only disappears if and when it is paid back. Not all such loans are paid back. If they are not the bank can not just 'disappear' the money they created for the loan and say 'well nothing gained but nothing lost either. It continues to exist in that case - as a liability to them. Interest covers the bank making a profit (like someone who sells you bread wants to make a profit), and the costs of administering and managing the giving of loans (creation of money out of thin air) and the payment bacxk of those loans - staff, buildings etc etc.

Now please do not get me wrong. I am not 'fan' of banks or of modern banking systems or indeed the dominant global capitalist system in general. That does not mean I however I will just call banks 'fraudsters' by 'default' if I do not actually believce they are in a given instance. I do not believe that commercial banks giving loans of money they have created out of thin air (and you can just as easily claim the person taking the loan is actually the one who creates the money out of thin air, with their promise of repaying it) is fraud. Sorry.
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Re: how money is made

Postby erolz66 » Mon Feb 29, 2016 11:04 pm

Robin Hood wrote:You can’t print your own money it’s illegal ...... unless you are a bank! If you have the odd five million available ...... start your own bank in Cyprus and ‘print’ all the money you like! :roll: :wink:


Actually that is not quite true as I see it. Anyone can create a currency of their own and print notes to represent that currency. What they can not do is create 'fiat currency' - that is currency that everyone else in the country is obliged to accept as legal tender.

https://en.wikipedia.org/wiki/Local_currency
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Re: how money is made

Postby Pyrpolizer » Mon Feb 29, 2016 11:07 pm

RH, the bookkeeping method of the Banks I was referring to was described at your link
http://www.blacklistednews.com/A_Loopho ... 8/Y/M.html
at where it says:
In particular, the legality of the act of reclassifying bank liabilities (accounts payable) as fictitious customer deposits requires further, separate analysis.

There is a more clear explanation with diagrams here:
http://www.sciencedirect.com/science/ar ... 434#bb0070
summarized at table 3.

The procedure in creating money out of nothing that you described is correct, what I wanted to say is that this procedure is also backed up by an "illegal" (?) book keeping method--> they make it look like as if the borrower himself has actually pre-deposited the money he is borrowing.

Thank for informing me of what happens when he is not performing. A "LOSS" huh!! Jesus. :o

Btw I think you know much more than me about these things, I am not an economist myself, the only part of economics I know of using within my profession is cost analysis. :wink:
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Re: how money is made

Postby Pyrpolizer » Mon Feb 29, 2016 11:27 pm

erolz66 wrote:
Robin Hood wrote:You can’t print your own money it’s illegal ...... unless you are a bank! If you have the odd five million available ...... start your own bank in Cyprus and ‘print’ all the money you like! :roll: :wink:


Actually that is not quite true as I see it. Anyone can create a currency of their own and print notes to represent that currency. What they can not do is create 'fiat currency' - that is currency that everyone else in the country is obliged to accept as legal tender.

https://en.wikipedia.org/wiki/Local_currency


"print" in quotation marks. Also he referred to the term money not currency.
Do you know that every 100 Euros of deposit that a bank may give out as a loan (withholding 10% as reserve) she creates 10 times as much money, 1000 Euros i.e. ?
It's written in BundensBank's museum.
https://www.youtube.com/watch?v=OQWMd_NPSBA#t=22m30s
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Re: how money is made

Postby erolz66 » Mon Feb 29, 2016 11:46 pm

Pyrpolizer wrote:"print" in quotation marks. Also he referred to the term money not currency.


I create a local currency. I print notes to represent this currency. Those notes are money as far as anyone else will accept them in exchange for something else. Anyone can do this and the notes they print are money to the degree that they can be used as a medium of exchange. What 'anyone' can not do, what only the banks can do, is create fiat currency. That was the point I was trying to make.

Pyrpolizer wrote:Do you know that every 100 Euros of deposit that a bank may give out as a loan (withholding 10% as reserve) she creates 10 times as much money, 1000 Euros i.e. ?


I do know what fractional reserve banking means and how it works - yes. A fractional ratio of 10:1 is actually quite conservative in many ways. A deposit of 100 euros means the bank can lend out 1000 euros - its not that a deposit of a 100 euros in and off itself creates the other 900 euros. It is other peoples pledges to pay back the money that creates the other 900 euros. The ration of 10:1 defines the limit of how much more money the bank can create out of thin air based on deposits it has.

Nor is this in and off itself 'evil and fraud'. Imagine for example I want to start a business. Imagine that the business, if I can get it started, will be successful - it will employ people and earn a living for me. However I need 20,000 euros of capital to start this business. I am credit worthy - I can show in a convincing way that I can and will be able to repay the loan. I go to the bank and ask for 20,000 euros. The bank says, I can see you business is good, I can see you can and will be able to repay the 20,000 euros. However I am sorry but we do not have 20,000 euors in deposits right now. All the desposits we have taken in have already been loaned out to others. Try again in three months - hopefully we will have had 20,000 in despoits by then that we can loan you.

What is supposed to be the point of the fraction reserve banking system that allows a bank with a 100 euro deposit to loan in turn 1000 euros is to address issues like these.

Like I say I am not a fan of modern banking systems or the dominant global economic systems in general. I think they have many flaws and are the root of many problems, not least the obscene size and ever growing gap between the worlds poorest and wealthiest. However fractional reserve banking in and of itself is not 'evil'. Kind of like a gun is and of itself not evil.
Last edited by erolz66 on Mon Feb 29, 2016 11:49 pm, edited 1 time in total.
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Re: how money is made

Postby Pyrpolizer » Mon Feb 29, 2016 11:47 pm

erolz66 wrote:
You also confuse such entries in computers with balance sheet accounting. Balance sheet accounting is how you list assets and liabilities.

the risk that the person they give the loan to fails to repay it or the interest on it or both - then the loan does become a liability for the bank.



But that's the whole point! They don't enter it as liability. Have a look at the link which explains it in diagrams. They make it look as if the borrower had pre-deposited the money he is taking as loan.
I already mentioned that I am not sure if this is what the Banks in Cyprus do, (the obviously do it in the US) ...

I think the process of creating money out of nothing is not bad per se, and I already told RH perhaps that new creation of money comes from the rise from sleep of the value of some land the borrower put down as guarantee.
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