Cyprus-Forum.com

[Pyrpolizer]

Pyrpolizer:

What is the alternative? RH’s proposal in which the Banks would have no reason to exist, while the Government itself would turn itself to a huge Banker???

You are reading into the suggestion, things that are not there! The banks would still be there, providing personal loans to those that qualify but they would lose the right to create the money! They would be treated like any other commercial organisation ..... they would have to borrow it. The banks would still be required but would revert to the status of ‘a service to industry’ they would no longer be self declared as an ‘industry’!

The Government would merely be doing what it is supposed to do ......... protect the interests of the country and its citizens by applying statutory controls and regulations.

So in short, person A goes to the Bank and asks for a loan setting up some land as collateral, the Bank applies to the Government using that same collateral and gets a loan at X% , which in turn passes to person A at X+Y%. Question: What's the purpose of having the Bank acting as in intermediary between person A and the Government??

For the sake of discussion let’s accept there is some valid reason. Continuing:


In that case the Banks would need to have 100% liquidity. This would mean saving deposits would be useless to them, so they would have no reason to accept savings or pay interest for having them. Probably such depositors would need to pay some fee just for keeping their money safe. Just like they do in Switzerland. Negative interest for deposits then.
People could use private security companies that would offer "safe box" services.

Banks would only accept deposits from the borrowers for paying back their loans. That money would instantly go back to the Government, for paying back the Bank's loan from the Government.
Going one step further we shouldn't call them Banks any more. We would call them "Loan Agencies". Nearly everybody could set up such business. People could form co-ops with their own money and set up such Loan Agencies too by using their own money.

The only problem with this new system is there would still be bubbles and bursts just like they were before. By the minute you have a loan/borrowing system (of any type) you have absolutely no control on what the people would do with that borrowed money. We are effectively back to square one. So what’s the gain?

[Robin Hood]

Paphitis:

A Bank will only lend to you if you have security to offer. The borrowings are not possible without a security

.
Not true and Erol has explained why. A friend told me just this morning (he is one of those astute people that made millions by working for it without having to borrow from banks) ” If you go to the bank for a loan because you need it .... the chances are odds on you won’t get it without excessive security (collateral) However, if you go to the bank for a loan and you don’t need it ..... you will most likely get what you want as a mere formallity!”

So it's not correct to say that a bank can simply just create a "data entry". This so called "data entry" has very tangible implications on the borrower, but not only. It also has tangible implications on the Banking Sector because they have now created money into the economy which in turn becomes a liability to the banking Sector.

Once again ..... banking is no more than an accounting system. The money they create from thin air as extended credit to a borrower is an ASSET to the bank, not a liability. Ask any Banker. However, it is a liability for you as you have to repay it.

The banks liability is the money YOU lend them when you make a deposit, as explained before, it is so because they OWE it to you and they have a liability to repay it. To you it represents your monetary wealth, an asset but is really an IOU from your bank ..... it is not secured and it is only a number on a balance sheet, not money.

Follow the money through to see how it is also a liability for the Banks, or to a Bank. If Banks just "created" Trillions without any security or restriction, then in turn, there will be a Bank Meltdown, as they go to the wall one by one.

You demonstrate that you do not understand what bank ‘assets’ are nor what bank ‘liabilities’ are! How do you think the money supply continuously increases? By people not repaying debt ........ the money the banks create when giving credit remains perpetually in circulation. Which is why I believe the banks are not liable for their borrowers defaults.

[Robin Hood]

So I am a bit out of touch with the requirements in todays society. I apologise

You don't say!

Hardly surprising since you only think you know how money is created. Basically, you're only half right, because money is not exactly created out of thin air. It is usually backed up by a security.

I have yet to see a single post on this thread that actually agrees with your summation as to how ‘money/currency’ is created ..... except yours! You are trying to mix the qualities of apples and oranges ..... they are different as much as money creation and loans are different. I can list dozens of academics that will support my argument, along with creditable institutions like The BoE and The FED.

Please post a link to some source with credibility, that actually says you cannot create currency from thin air without having something to back it like gold, property or some other tangible form of wealth.

[Robin Hood]

Pyrpolyzer:

So in short, person A goes to the Bank and asks for a loan setting up some land as collateral, the Bank applies to the Government using that same collateral and gets a loan at X% , which in turn passes to person A at X+Y%. Question: What's the purpose of having the Bank acting as in intermediary between person A and the Government??

A fair question: The government doesn’t come into the equation at all. They are a customer of the Central Bank ..... albeit on different conditions to other customers ..... they would be recipients, not borrowers. The Central Bank would deal with the required balances as they do now. Commercial Private Banks would not need to declare collateral, it would be assumed they would have covered their responsibility to repay the debt if their borrower failed to make the payments. It would obviously be in their interests to do so. The collateral is the banks back-up security in case the deal goes sour.

For the sake of discussion let’s accept there is some valid reason. Continuing:

In that case the Banks would need to have 100% liquidity. This would mean saving deposits would be useless to them, so they would have no reason to accept savings or pay interest for having them. Probably such depositors would need to pay some fee just for keeping their money safe. Just like they do in Switzerland. Negative interest for deposits then.
People could use private security companies that would offer "safe box" services.

Absolutely!

Banks would only accept deposits from the borrowers for paying back their loans. That money would instantly go back to the Government, for paying back the Bank's loan from the Government.

Wrong way round ..... the Central Bank is the lender to the banks but is a benevolence to the Government ........... thus the government would not be a borrower but a beneficiary. Your bank would appear to operate just as it does now only the source of the money changes.

Going one step further we shouldn't call them Banks any more. We would call them "Loan Agencies". Nearly everybody could set up such business. People could form co-ops with their own money and set up such Loan Agencies too by using their own money.

No, because they would still function as banks do now! They would take your deposits, pay your bills for you, foreign exchange, grant personal loans etc. but would no longer borrow your deposits. So they would apply negative interest and no doubt impose a whole string of transaction charges. IMO: I could then see the high street banks cutting their own throats and co-op banks, owned by their depositors, becoming far more noticeable on the high street.

The only problem with this new system is there would still be bubbles and bursts just like they were before. By the minute you have a loan/borrowing system (of any type) you have absolutely no control on what the people would do with that borrowed money. We are effectively back to square one. So what’s the gain?

YES ,,,, but far less likely to happen than now, as the banks would be in no position to control the issuance of money. The gains are not to private borrowers, the gains are for the Government, the tax payers and citizens of the country.

As I said before, the ordinary bank customer would see little or no difference. But, any money the government needed in excess of its tax revenues, would be financed directly by the Central Bank, through transfers (numbers) to the treasury account. When the government spends it, it goes straight into the economy as new money, which is what SHOULD have happened to the £395bn created as Quantitative Easing. (QE) This means government finance is free of debt and, as such free of interest! ALL the tax revenue goes back to the treasury to be re-spent into the economy ..... over and over again ..... instead of being lent, recovered through taxation and then destroyed ..... only to be resurrected as yet another loan when the Government needs more money to operate.

Before anyone starts quoting Zibabwe and the Weimar republic, this is not necessarily inflationary to any significant degree. Because the next month there could be a surplus in tax revenues and the money is then withdrawn from circulation (into the ‘Rainy Day Account)

Corbyn’s QE for the people works on this principal but he has limited the application to the financing of major infrastructure projects through a National Investment Fund, but the same finance principal could be applied to ALL government financial requirements. The implications are a tremendous benefit to the country but an unmitigated disaster for the banks!

It also requires legislative changes in regard to a commercial banks ability to create money from nothing and the breaking the association between high street and investment banks trading as a single commercial entity.

To prevent a Zimbabwe scenario there would have to be stricter controls on imports and a regime to balance imports against exports, also the application of currency controls would be needed.

[Paphitis]

A Bank will only lend to you if you have security to offer. The borrowings are not possible without a security

.

Not true and Erol has explained why. A friend told me just this morning (he is one of those astute people that made millions by working for it without having to borrow from banks) ” If you go to the bank for a loan because you need it .... the chances are odds on you won’t get it without excessive security (collateral) However, if you go to the bank for a loan and you don’t need it ..... you will most likely get what you want as a mere formallity!”

Yes it is true. Everything is backed up.

I did mentioned long before Erolz about non-secured lending and Credit Cards. But in reality, these are backed up too, by the Banks liquidity. A Bank for instance is unable to keep issuing these products, if its fractional reserve or liquidity becomes diminished.

A Banks Liquidity to a certain degree at least, also includes deposit funds.

So it's not correct to say that a bank can simply just create a "data entry". This so called "data entry" has very tangible implications on the borrower, but not only. It also has tangible implications on the Banking Sector because they have now created money into the economy which in turn becomes a liability to the banking Sector.

Once again ..... banking is no more than an accounting system. The money they create from thin air as extended credit to a borrower is an ASSET to the bank, not a liability. Ask any Banker. However, it is a liability for you as you have to repay it.

The banks liability is the money YOU lend them when you make a deposit, as explained before, it is so because they OWE it to you and they have a liability to repay it. To you it represents your monetary wealth, an asset but is really an IOU from your bank ..... it is not secured and it is only a number on a balance sheet, not money.

I think you're deluded. If they were nothing more than an accounting firm, then there is no need for any Bank to bankrupt itself.

The money is not created out of thin air, and when it is created, there are repercussions for the Banking Sector, not just the borrower.

The repercussion is that this loan also becomes an IOU and it impacts their liquidity until the borrower pays the loan off. Yes, it does impact their liquidity. It eventually becomes a liability from the Bank to someone else who is the beneficiary of those borrowed funds.

The funds are there, they are tangible as it was created by already existing wealth.

Follow the money through to see how it is also a liability for the Banks, or to a Bank. If Banks just "created" Trillions without any security or restriction, then in turn, there will be a Bank Meltdown, as they go to the wall one by one.

You demonstrate that you do not understand what bank ‘assets’ are nor what bank ‘liabilities’ are! How do you think the money supply continuously increases? By people not repaying debt ........ the money the banks create when giving credit remains perpetually in circulation. Which is why I believe the banks are not liable for their borrowers defaults.

I'm afraid you have demonstrated you have no clue about the Banking Sector. Usually, I find that this is always the case from people, usually from the Left side of politics, who come up with Brain Fades such as the Government being in control of Fiscal Policy. If you don't see huge issues with that, then I don't know what to say.

If you can't recognize the fact that Bank Lending actually keeps the economy moving, and ultimately makes people wealthier over time, then I don't know what to say.

You need to look beyond the conspiracy that is in your head. Sometimes people look for conspiracies just for the sake of it.

Once again, go and ask for a loan. See how they will place a caveat on your security. That is what makes the borrowing possible.

I said it before, that when a Bank does that, that virtually have part ownership on your security. Their name is even placed on the Title Deed in the form of A CAVEAT. But in actual fact, what is occurring is a Business Deal. They are helping the applicant buy something or start a business based on already existing wealth, thus liberating the applicant from having to sell assets. This generates more money into the economy. That is the kind of stuff that makes economies grow. To fuck with it, you end up with recession, and poverty. Pure and simple.

[Paphitis]

So I am a bit out of touch with the requirements in todays society. I apologise

You don't say!

Hardly surprising since you only think you know how money is created. Basically, you're only half right, because money is not exactly created out of thin air. It is usually backed up by a security.

I have yet to see a single post on this thread that actually agrees with your summation as to how ‘money/currency’ is created ..... except yours! You are trying to mix the qualities of apples and oranges ..... they are different as much as money creation and loans are different. I can list dozens of academics that will support my argument, along with creditable institutions like The BoE and The FED.

Please post a link to some source with credibility, that actually says you cannot create currency from thin air without having something to back it like gold, property or some other tangible form of wealth.

Unfortunately for you, there have been a couple who have already stated that they agree because it is a reality you too conveniently ignore. There are only 2 other posters that have made some contribution to this thread and both those agree with my summation. They do not agree in arbitrary money creation in accordance with your beliefs. The were a couple of other idiots who came here to call me a JEW. I can only assume that they agree with you.

If money is created according to your summation, then any person can apply for credit. And giving everyone credit has no repercussions because all loans are is a simple data entry right? That is not the case.

Banks only give non-secured credit to people with income, and secured lending for big purchases or investments. And these loans have repercussions to the Banking Sector as well as the borrower, otherwise Banks like Laiki and BoC can't fail. They do fail, and they fail on their lending.

As far as the boom/bust cycle is concerned, it is NOT the Banks who have ultimate control over this cycle. Sure, they can try and stimulate the economy as can the Government, but it is in fact the PEOPLE and their borrowing habits/cycle which create the boom/bust cycle and the same principle applies to the stock market.

The good thing is, all our Banks try and do the right thing, and they anticipate the bust cycle as much as possible, and they take action to protect themselves as do borrowers who borrow too much who find themselves in a position where they need to reduce debt.

It's no different to a new business start up which attracts an "Angel Investor" or which is formed by a Consortium of Partners. The Angel Investor and the Partners get a Stake in the new venture for their money. Money is not just created. It is backed up one way or another.

that is the reality. And it is a harsh one too, and it precludes people with no wealth.

[Robin Hood]

Paphitis:
You are relying on smoke and mirrors to support your argument! You have a very narrow vision of the system, which is why you keep treating two completely separate subjects, money creation and loans, as a single entity. You seem unable to separate cause (creating money) from the effect (debt).

The creation of money and the granting of loans are two independent aspects of the banking system! To make a loan you need something to loan and in society today that is called money. Does money need to be backed up, no, not until it is used to provide a loan and used to buy something. Then the borrower then has a debt obligation ..... which is a liability to repay the debt. Usually this is the currency which was created from nothing when the loan was used to purchase something, you recall the IOU's. It is then the loan is backed up, not the currency, because what you have used as security is wealth and, as you point out, that can be anything of value ...... even your labour. The US has been paying for goods with IOU's!

When I watch Americans singing their National Anthem I am always impressed by their open loyalty to their country ........ something that cannot be said for the British public! As they clasp their hand over their heart and sing that final few words, “ ...... and the Land of the Freeeeeee!” , it brings tears to my eyes! However, never in human history have the people of a nation been so enslaved by debt as the American People are today and your argument spells this out very clearly. Their apparent wealth ..... is based on debt! Even though you cannot understand the difference between ‘cause’ and ‘effect’ , you have summed up the 'cause' and the effect , admirably.

The US has a government debt of around $20trillion ...... what backs that up? Those dollars are ALL IOU's ........ an IOU is not wealth it, is a unit of measurement of wealth and a means of transfer. So what tangible wealth does the US have to back up this debt ......... comprised of US dollars (IOU’s) produced from nothing? It cannot be gold, as it used to be prior to 1973 when the US unilaterally dropped the gold standard, so what other tangible wealth does the US have? How about........ the USA itself!!!! The collateral for all these dollar IOU’s is the lands, resources and infrastructure of the US and the wealth of the American people.

By abandoning a set standard (Gold) in 1973, the US has paid for everything it has bought from abroad, since then with IOU’s that the FED created out of thin air.......... commonly known as the Petro Dollar. A very large part of this is foreign debt. In effect the US has been exporting its inflation and has been getting all its goods on IOU’s. ....... i.e for nothing! Like any debt, eventually the debt is called in by creditors! That day is very close for the US and the Western World in general ............. including the UK, although their £ national debt fades into insignificance when compared to the US dollar!

After WWII, the US did a deal with Saudi Arabia, which was then proven to have vast oil/gas reserves .... and the US wanted those reserves under their control. The deal was that the US would buy the Saudi gas/oil in dollars, and Saudi would ONLY sell gas/oil in dollars. In return, the US promised to protect the Saudi regime and make them rich. So, not only was the US going to get all this oil on IOU’s, it eventually made sure that every other country also priced its oil in dollars and sold in dollars!

At the time the UK did not have oil, the Nth.Sea was in its infancy, but we had to buy all the oil we needed in US dollars. The problem was that unlike the US we could not just ‘print’ these dollars we had to sell our goods/services to the US and other countries for US dollars. We could convert our pounds to dollars but through a currency market dominated by US banking and financial institutions.

When up-starts from other countries that discovered they also had ‘black gold’, decided they would sell theirs for gold or other currencies, the US realised this was a serious threat to their domination of the world monetary system and the creditors could start calling in the debt. The only thing the US had to back these enormous debt’s, was the USA as a country. They are in hock to their eyeballs and thus, it was worth going to war for .... and that is why the banking system is closely allied with the US war machine ..... which the USA has become!

The US, unlike any other country has around a 1000 overseas military bases, it has to dominate all markets, to do otherwise would be suicide. But they sell the concept to the US people (and others) that this military dominance over all other nations as being a protection for the US’s national interests ......... which most people assume to be a military threat, this is why they demonise people like Putin, the Chinese, the Iranians ......... they have to be ‘aggressors’ to justify the military build up around the world of US/NATO forces. But it is not a military threat, there is little evidence to support that. The threat is an economic one NOT MILITARY!

When the US has its back against the wall and the Chinese and Russians become the major economic powers, they will become a direct threat to the USA and the American people who are the collateral for their Government’s debts. Then the US like all bullies will resort to violence to protect their interests!

If you believe that the attacks on Afghanistan, Iraq, Libya and Syria, events in Ukraine and the demonization of Russia, Iran and China, have anything to do with bringing their people freedom, democracy and the US dream ........ then you are living in cloud cuckoo land!!!

Saddam, Ghadaffi and Assad were all planning to, or actually, selling their oil/gas for something other than the Petro dollar and this was completely unacceptable to the US (Read some of Hillary’s e-mails!).......... as they said every time, it was contrary to US national interests .......... you betcha it was! So, these people had to go(Assad must go!) and a more pliable client put in their place (regime change) and the US dreamed up reasons to go to war with these countries as we now all know to be the case. (Blair/Bush and non-existent WMD’s?) ...... then they destroyed the richest country, with the highest standard of living on the African Continent ...... Libya and left it a failed state .........they are now doing the same in Syria, although they seem to have failed this time, thanks to the Russian intervention. ........ and are eyeing any other countries that refuse to toe their red-line. ..... the US’s national ECONOMIC interests.

As they say ..... the rest is history.

It is all about money ..... which is something I realised some time ago, only a very small minority of people know anything about, except what they are led to believe by those who have most to lose if the people wake up!. In turn that is all about understanding the origins of money/currency, the banking and financial system ............which is something you clearly do not comprehend. You only see what you want to see. I don’t for one minute think you are stupid, you just believe a well entrenched fairy story ...... because you will not apply common sense and work it out for yourself. All the bits of the financial jigsaw are there ..... all you need to do is put them together ....... BTW: it is one bloody big jigsaw ......... it will take you many, many hours to get it anywhere near comprehensible.

BTW: When you sink to the level of ‘.... left wing conspiracy theorists’ to destroy counter an argument, it simply shows you do not have an argument and are scraping the bottom of the ‘excuses barrel’ ! All you can do is cast ridicule! So, left wing I am not ...... I question more and see society as all people, not just a very small minority that exploit the ignorance of the majority. So, please don’t insult my intelligence ...... I am pragmatic and pedantic and always (well most often) question my own judgement before I open my mouth.

So, I have provided the back-up for my argument and linked them. i.e. ‘ Money is created out of thin air by private commercial banks’ ........... where’s yours? Not your opinion but creditable people and institutes that specifically support your contention that they don’t?

[Robin Hood]

Erolz66:

Sounds like Reganomics / Tatcherite economics (what I would call voodoo economics) to me. The very policies and 'way forward' that sowed the seeds that eventually bloomed into the global fincical ciris of 2008 and the miserly that has inflicted on billions of people world wide - not least of all those in Greece.

Doesn't it just? That sounds to me like you recognise that there is something wrong with the system?

Paphitis wrote:The power belongs to the consumer who decides the products they need and what they are going to do with the money. Often, opportunities are being provided to people to invest in what they want and over time these individuals will become more wealthy. That is the whole point of it all.

See my 'story' above.
I could recount a similar story ..... so I see what you mean. But for thousands of years the means of exchange and the means of transfer has been the prerogative of 'government' through its central bank or village elders depending on how far back in history you want to go.. It was only when banks became more powerful than government the system went wrong! That Rothschild guy was no Dumbo ..... he knew if he controlled the Nations money supply, the World was his oyster, and all done by creating money through debt.

Paphitis wrote:The power belongs to the Central Bank. Banks are only Businesses that have to abide by the Financial Regulations they operate under. Their performance is monitored by the Central Bank.

The Central Bank has no power and, except for QE, does not even have the power to create money! What some seem not to understand is that banks are not a regular wealth creating business ..... they are a service to wealth creating industry..... or should be. They create money and thus create the loans, which in turn create debt. He who owns your debt ..... owns you!

I do not think this is true today. Just look at the desperate and unprecedented measure central banks are trying today to influence such things, and still getting at best mediocre results and at worse no results. Billions in QE - sustained low and even negative base rates. To me these things are indications that actually Central Banks no longer have the 'levers' they need to be able to influence things as much as is needed. Maybe the solution is just to return to them having better more effective 'levers' or maybe it is time and an opportunity to re evaluate the whole mechanism and seek better more stable solutions that meet the same needs ?

Pretty obvious to many of us, although few know the reasons. It is the time to evaluate the whole system. The problems started in earnest when currency was no longer attached to something of value .... i.e. when the US decided to drop the Gold Standard (1973) and printed US dollars like they were going out of fashion. It was all downhill from there on.

Paphitis wrote: Banks can only create money when you offer them Collateral. As I stated earlier, I am not talking about consumer credit products like Credit Cards. All other debts a supported by a Security. That's how it has always been.

He is right, the currency the banks created as book keeping entries were all backed by pallets of gold in the vaults of central banks. Now there is no gold left in the vaults and the money they still create out of thin air, is backed by the Nation and its people. It is called debt slavery and is an invention of private commercial banks, but possible only if they can get you into debt.

I am still not sure I agree with this though it does depend on what you actually mean by collateral. If you mean, for example, a' threat to break my knee caps if I do not repay' is a form of collateral then maybe I agree with you. If you mean by collateral a specified specific asset then no I do not think this is true. Much lending is based on collateral but not all and not just 'consumer credit' either. From venture capital banks to 'mezzanine' lending - there are forms of lending that do not require the borrower to have a specific real world asset with a value at the time the loan is taken out in excess of the value of the loan.

They don’t need specific assets only the knowledge that if a borrower defaults, they have asset/wealth to seize. Take a look at the events in Greece ...... did the government put all their airports up as specific collateral? No! But they have now all been sold off to a German Group! What happened to the money ...... it went to the banks to pay back the Euros the ECB created on their computer, transferring it to the Greek CB computer as debt, and they kept lending them, knowing full well they could not afford to repay it.

This idea that some have, that a loan unleashes dormant value locked into an object of wealth, is only valid when the borrower fails to repay what he owes. To create the debt in the first place cost a few strokes on a keyboard to tell a computer to change numbers in another computer.

[Pyrpolizer]

I side with Paphits that money taken as a loan is fully backed up by the collateral itself, in fact that was the meaning behind my term "sleeping money". Therefore Paphitis was not alone in this and even you RH confirmed your agreement by saying:

How about........ the USA itself!!!! The collateral for all these dollar IOU’s is the lands, resources and infrastructure of the US and the wealth of the American people.

Btw before continuing let me say the post from which I took the above extract was a really great post, well done.

However I also agree with you RH that those money that the Bank gives to the borrower is drawn out of thin air. To start with It’s not even their own money. A part of it (~10%) is money that belongs to their depositors, and itself has it’s own saved value from the depositors’ labor.
The other 90% is thin air.

We have to see things from both sides of the transaction. From the borrower’s side everything is normal, he puts down his land as security and he gets money. From the Bank’s side however nothing is normal. The Bank gives him money 10% of which belongs to it’s customers and the remaining 90% is just thin air. It’s like it prints it’s own money. From this side of the equation everything is fraud. The bank may go bankrupt and eat away the savings of her clients without anyone noticing early enough to stop it.

The correct procedure would be that the state itself should print new money to reflect the "waken up value" of the asset. However this will be true for a limited time -up until the loan gets paid off in which the newly created money should be withdrawn.
In reality and because of the volume of loans the Central Bank would only have to issue some limited number of extra currency to do that.

The Banks should therefore get their money for loans directly from the Central Bank, probably at zero interest, and the client’s securities assigned directly to the Central Bank.

I am almost certain it will not solve the problem of the boom-bubble circles, it will most certainly solve other problems though.

NB. To make myself clear: money waken up from an asset's sleeping value is not thin air it's real/true and honest money. However the money the Banks give to the borrower is not real, it's just thin air drawn out from fraudulent procedures..

[Paphitis]

I side with Paphits that money taken as a loan is fully backed up by the collateral itself, in fact that was the meaning behind my term "sleeping money". Therefore Paphitis was not alone in this and even you RH confirmed your agreement by saying:

How about........ the USA itself!!!! The collateral for all these dollar IOU’s is the lands, resources and infrastructure of the US and the wealth of the American people.

Btw before continuing let me say the post from which I took the above extract was a really great post, well done.

However I also agree with you RH that those money that the Bank gives to the borrower is drawn out of thin air. To start with It’s not even their own money. A part of it (~10%) is money that belongs to their depositors, and itself has it’s own saved value from the depositors’ labor.
The other 90% is thin air.

We have to see things from both sides of the transaction. From the borrower’s side everything is normal, he puts down his land as security and he gets money. From the Bank’s side however nothing is normal. The Bank gives him money 10% of which belongs to it’s customers and the remaining 90% is just thin air. It’s like it prints it’s own money. From this side of the equation everything is fraud. The bank may go bankrupt and eat away the savings of her clients without anyone noticing early enough to stop it.

The correct procedure would be that the state itself should print new money to reflect the "waken up value" of the asset. However this will be true for a limited time -up until the loan gets paid off in which the newly created money should be withdrawn.
In reality and because of the volume of loans the Central Bank would only have to issue some limited number of extra currency to do that.

The Banks should therefore get their money for loans directly from the Central Bank, probably at zero interest, and the client’s securities assigned directly to the Central Bank.

I am almost certain it will not solve the problem of the boom-bubble circles, it will most certainly solve other problems though.

NB. To make myself clear: money waken up from an asset's sleeping value is not thin air it's real/true and honest money. However the money the Banks give to the borrower is not real, it's just thin air drawn out from fraudulent procedures..

Created out of thin air is not correct. Yes money is created, but it is created from existing wealth. That is, someone has to put a Security down for the money to be created in the first instance. This is what inevitably protects the Banks and the Depositors if a portion of the lending is backed by deposits, which it doesn't have to be. A Bank uses its deposits to support its liquidity to cover other deposits fractionally. If 100% of depositors ran against a particular Bank over a few days, then yes, the Bank will go Bankrupt. This was about to happen in Cyprus which is why they introduced Capital Controls to stop it from occurring.

The more I'm forced to look into this at any depth, the more confidence I have about the Banking Sector once I learn the finer details of how banks operate. It is actually, a very well run, legislated and controlled industry. The Sector is heavily regulated and there are actually huge restrictions placed on Banks which protect the consumer, and also their Cash Levels and hence the economy and people at large. It is as heavily regulated as the Aviation Industry. In fact they are more regulated than Aviation Industry. They actually have a Watch Dog in the form of a Central Bank, which btw has the power to create currency and to Capitalise the Banks and Government. These Central Banks are truly independent from Government, but are Publicly owned (by the tax payer).

I also see that the industry itself is very Conservative. A Banker is usually seen as a position of esteem, high responsibility and is suppose to Command Confidence in the market and among customers and people. Yes, they all have a stiff upper lip. These guys are not Stock Brokers selling high risk securities. Their products are zero risk to low risk. Even on the lending side, Banks appear to be very cautious and very risk averse compared to a Stock Broker. That is the industry they work in. But yes, they also have the Investment Units, and can trade in currency, stocks, options, and even derivatives. It's usually the big Banks that do this. They have an entire Risk Analysis Team which assesses the Banks daily exposures, liabilities and which ensure things are not done to excess.

I also understand that Banks have to collude with one another otherwise the small Banks will go Bankrupt. Yes, there are huge banks, big banks, medium banks, small banks and tiny banks. The Small banks can potentially go Bankrupt as the huge and big banks create Trillions worth of lending which btw will end up being IOUs for a Bank and hence a liability. The small and tiny banks could be the "beneficiaries" of these IOU's which means their liquidity based on what the big Banks have released to the economy will hit their liquidity. That is where the Central Bank comes in, and they monitor this very stringently.

Banks usually hate when any Bank goes to the wall. The reason for this is due to the ripple effect. They all rely on each other to a certain extent. In other words, they may compete with each other for market share, but each bank has to be wary about the money they create into the market to ensure they don't over-burden the sector or another Bank, because eventually it could be their Bank. That is because the entire system relies on CONFIDENCE. When Banks go down, the public lose confidence and this can cause a Bank Run which is like the worse thing that can happen, and all Banks fear this. But as long as the sytem ticks along, everyone is happy, and CONFIDENCE exists and is measured by the amounts people are borrowing and spending.

And of course, that is where a small Bank can actually introduce charges to customers in order to deposit funds there. What this Bank is actually doing is saying to the public "don't deposit your money here as it is not welcome" because their Balance sheet is not properly leveraged against Assets or lending. They will maintain this until they get back into equilibrium. And the Central Bank will let them do it because the last thing it wants is a Banking Collapse.

And yet, because of this fantastic system, there are hundreds of small Banks and even Coops that exist and have existed for years. And they offer great products like Erolz Credit Card facility. Coops in particular, are actually fully owned by its own customers. I know this because I use to bank at a Coop, which was taken over by a Big Bank. As part of the change, I was offered shares in the big Bank as were many other customers - the big Bank was buying my interest in the Coop. Made a few thousand dollars out of it just because I Banked with the Coop. Still own those shares which are now nearly $100 per share plus it pays me a generous dividend that is fully franked.

So it is also incorrect that Banks are going to start charging for deposits. That is actually a method they use to discourage deposits, and usually when a bank does this, it is an indication that all is not well with that Bank as it is over burdened with liabilities. The next step is to introduce capital Controls, but that is something the Central Bank would like to avoid because it only encourages a bank Run making things worse. The Central Bank is eventually forced to print and capitalize the Banks, and also lower the cost of money.

The entire process is very intricate, and quite complicated. That it even works is an amazing accomplishment for me. And it is a system that generates wealth for all willing to engage in it, and that includes Middle and Lower income or poorer individuals. Basically, everyone owning a house or land. The money created supports property prices, share prices and just about everything else in the market place. Without it, our economy, hence employment will only be a fraction and business will not be able to function unless you just want to grow tomatoes and kolokasi and sell your toil by the roadside.

Next time I see my Bank Manager, I am going to give him a big hug! I truly appreciate what they do now.