Cyprus-Forum.com

[Robin Hood]

Paphitis:

My sanity is just fine, and I know what I am talking about.

If, as you claim you know what you are talking about, how come you don’t understand the following very simple statements by the Bank of England ......... this is a document that YOU reference and I have read and referred to many times since 2014?

http://www.bankofengland.co.uk/publicat ... 14q102.pdf

• Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’central bank money to create new loans and deposits.

i.e. The Multiplying factor you keep referring to, otherwise known as ‘Fractional Reserve Banking’ is proven not to be the method used to create new loans. Simply put ....... the ‘multiply up’ concept requires a deposit ........ it cannot work without a deposit ..... the BoE says .......loans create deposits not the other way round!’

If you can possibly accept that the BoE has some knowledge on the subject, you will realise this is exactly what Ryland Thomas (One of the co-authors of the 2014 bulletin) says in his video @1.02 “....banks create additional broad money whenever they make a loan” and @1.15 says “.....in fact loans create deposits not the other way round.”

Read it again and again ........ no loan ........ then no deposits ........ the bank is empty ....... it has NO ASSETS (loans) but can make loans because, as the BoE keeps telling you, there is no requirement for deposits to make a loan.

This is why Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s. said “The modern banking system manufactures money out of nothing!” he said that because he really did know what he was talking about. This is what Graham Towers, Governor of the Bank of Canada from 1935 to 1955 said about the same thing: “The manufacturing process to make money consists of making an entry in a book. That is all.”

They all say exactly the same thing ........ new money is created when a bank makes a loan ...... and they can do it with NOTHING in the bank.

That is how the banking system really works, it creates money out of nothing .......... and I really do fail to see how you do not understand that very simple concept!

You keep throwing in that the bank needs collateral to approve a loan; they may also require you to be over the age of eighteen; they may require you provide proof you have no criminal record; they may require you to have a fixed abode; they may require you to provide a guarantor; they may require proof of income? With all this I have no problem ...... but it has nothing at all to do with the Banks ability to create new money out of nothing. It is simply the security that is required by the bank to ascertain your suitability for the provision of a loan.

If you have read Werner’s Paper (which I doubt) he walked into a bank in Austria to carry out his empirical investigation into what happens within the banks IT system when a loan is granted. He asked them for a €200,000 loan ............ without any collateral .......... they trusted him to repay the money at the end of the study. Note! He didn’t need any collateral because they trusted him 100%.

You are way off track simply because you fail to see the keystone of money creation! Do you really believe that everybody but you is misunderstanding this principal?

Please, just accept you have the wrong end of the stick and we can move on? Because taking the privilege of money creation from commercial banks and making it the sole right of The Central Bank, is about the only thing that will save the banking system, national economies and private businesses from collapse.

[Paphitis]

My sanity is just fine, and I know what I am talking about.

If, as you claim you know what you are talking about, how come you don’t understand the following very simple statements by the Bank of England ......... this is a document that YOU reference and I have read and referred to many times since 2014?

http://www.bankofengland.co.uk/publicat ... 14q102.pdf

I understand this BoE narrative completely. It is YOU who is misinterpreting everything to fit your narrative.

I even posted an explanation of what this paper is actually explaining and at no point is it an admission that Commercial Lenders are able to create money from thin air.

Do banks really create money out of thin air?[/b]

https://www.weforum.org/agenda/2015/06/ ... -thin-air/

Do Banks Create Money from Thin Air?

http://neweconomicperspectives.org/2013 ... n-air.html

Money creation in the modern economy

http://www.bankofengland.co.uk/publicat ... 14q102.pdf

• Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’central bank money to create new loans and deposits.

The Multiplying factor you keep referring to, otherwise known as ‘Fractional Reserve Banking’ is proven not to be the method used to create new loans. Simply put ....... the ‘multiply up’ concept requires a deposit ........ it cannot work without a deposit ..... the BoE says .......loans create deposits not the other way round!’

This is not the only method. It is a method used by the more conservative Risk Averse Banks, which also have the most stringent lending criteria.

There are also banks who will only lend as much as their deposits. In other words, the Lending portfolio never exceeds their deposits as a general rule. The Commercial Lenders are far more outgoing, have better and cheaper products because they rely on volumes for profit.

If you can possibly accept that the BoE has some knowledge on the subject, you will realise this is exactly what Ryland Thomas (One of the co-authors of the 2014 bulletin) says in his video @1.02 “....banks create additional broad money whenever they make a loan” and @1.15 says “.....in fact loans create deposits not the other way round.”

Oh I accept the fact that The BoE know Banking and Finance and are completely 100% competent and good at what they do. I also recognise that their document is either poorly written and assumes a basic level of understanding as a minimum. The document is poorly written, or people like yourself and Ryland Thomas are deliberately misinterpreting to support your own anti Banking narratives.

Once again, people are not stupid, and there are publications from the Economist, Forbes etc which have broken down the BoE publication and explained it in simple terms.

Read it again and again ........ no loan ........ then no deposits ........ the bank is empty ....... it has NO ASSETS (loans) but can make loans because, as the BoE keeps telling you, there is no requirement for deposits to make a loan.

I've been back to the document a few times, and I am not getting your interpretation at all about money creation from thin air.

This is why Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s. said “The modern banking system manufactures money out of nothing!” he said that because he really did know what he was talking about. This is what Graham Towers, Governor of the Bank of Canada from 1935 to 1955 said about the same thing: “The manufacturing process to make money consists of making an entry in a book. That is all.”

Yes well there are many who make very stupid statements, which can also be taken out of context. You have provided me with one meaningless sentence from Sir Josiah Stamp. Does it prove to me that the modern banking system creates money from thin air? No it certainly does not. You can quote the BoE like that, and it does say that they can create money, but you need to read on to see how they can actually do it by extending an IOU against a security.

If I say to you that I owe you $100, and perhaps even put it into writing, then I owe you $100. I am legally obligated to give you $100. I have not created $100, although according to your narrative I have done just that. But that is impossible, because I can't do that. But I do have to legally support and ultimately pay that $100 dollars from my own cash levels, or electronic money stuck in back accounts which we know does not exist. So I transfer it electronically to your account. This is what happens. It is not money creation from thin air because electronic deposits in banks also need to be supported by the Banks Cashflows and reserves.

They all say exactly the same thing ........ new money is created when a bank makes a loan ...... and they can do it with NOTHING in the bank.

Not true! They have to maintain their CASHFLOWS and Money supply. If they had nothing in the Bank, then they would be under Capitalized and bankrupt. but before it gets to that, the Central bank will step in and close the bank to the public and introduce capital restrictions like they did in Cyprus.

That is how the banking system really works, it creates money out of nothing .......... and I really do fail to see how you do not understand that very simple concept!

I don't think you know how the Banking System works at all. Just above, you said that a bank can create loans without even having deposits.

You keep throwing in that the bank needs collateral to approve a loan; they may also require you to be over the age of eighteen; they may require you provide proof you have no criminal record; they may require you to have a fixed abode; they may require you to provide a guarantor; they may require proof of income? With all this I have no problem ...... but it has nothing at all to do with the Banks ability to create new money out of nothing. It is simply the security that is required by the bank to ascertain your suitability for the provision of a loan.

It's not creating money from thin air. They are relying on securing the IOU against a security, which means that a transaction is taking place over this asset without the borrower having to sell it. The borrower is however, selling the asset to the bank almost. That is in affect what is taking place if the borrower defaults more than 3 times, things can get ugly with threats even from the bank.

So what is the advantage to the borrower? The borrower is advantaged by the fact they are using Equity to fund a purchase of another asset. They of course have no intention of defaulting at all, and they have proven to the Bank that they are able to service the debt.

If you have read Werner’s Paper (which I doubt) he walked into a bank in Austria to carry out his empirical investigation into what happens within the banks IT system when a loan is granted. He asked them for a €200,000 loan ............ without any collateral .......... they trusted him to repay the money at the end of the study. Note! He didn’t need any collateral because they trusted him 100%.

Banks are free to do what they like, but usually that is not how it works. Banks require collateral.

You are way off track simply because you fail to see the keystone of money creation! Do you really believe that everybody but you is misunderstanding this principal?

no I am not way off track at all. banks are highly regulated and they are monitored by the Federal Reserve whose job it is to ensure that there is a minimum level of money supply. Only they can create it from thin air.

The Banks are constrained by legislation and key indices performance criteria and are subject to regular stress tests which allocate them their Credit Rating, because the loans they make actually do come from the Federal Reserve which gets paid its base rate.

Please, just accept you have the wrong end of the stick and we can move on? Because taking the privilege of money creation from commercial banks and making it the sole right of The Central Bank, is about the only thing that will save the banking system, national economies and private businesses from collapse.

No! Please just accept you are making it up to fit a narrative.

[Robin Hood]

Paphitis:

This (Fractional Reserve Banking) is not the only method. It is a method used by the more conservative Risk Averse Banks, which also have the most stringent lending criteria.
There are also banks who will only lend as much as their deposits. In other words, the Lending portfolio never exceeds their deposits as a general rule. The Commercial Lenders are far more outgoing, have better and cheaper products because they rely on volumes for profit.

So, having been proved to be incorrect in that you believed it was all down to the multiplier theory, ‘Fractional Reserve Banking’, you now change horses and go off on another tangent!

FYI: All banks use the same basic format software, if they didn’t they could not communicate. Yes, there are three concepts of how banking works and variously have each been hailed over a century of banking, as THE method. Werner did his empirical test using this standard software, no actual research had ever been applied to determine which was correct in the history of banking.

BoE and Werner’s test shows conclusively that banks do not lend the clients money to borrowers and they cannot lend their reserves held in the CB. So that is the ‘Intermediary Concept’ of banking out of the window.

You obviously have accepted that the ‘Fractional Reserve Concept’ is also not correct, because the BoE says so and Werner proves it. So that is that concept down the drain.

The final option is the ‘Creation Concept’! Again this is what the BoE explains ..... simply, Banks create new money when they grant a loan. Werner again proves this in a live test and notes (if you have read the paper) that when an entry is made into a ‘loan’ (Credit) account ....... there is no change to any other aspect in the accounting system. The €200k just appeared out of thin air as an entry into the accounts ...... one second the account was empty, the next second it had €200k in it. If no other entry in the system changed where did this €200k come from? There was no promissory note from the borrower noting the value of his asset ..... because that is not part of the accounting or monetary system.

The document is poorly written, or people like yourself and Ryland Thomas are deliberately misinterpreting to support your own anti Banking narratives.

Really? Poorly written? Deliberately misinterpreting? What you are saying is that if an informed explanation by an authoritative body does not agree with your perception, then it has to be wrong?

I've been back to the document a few times, and I am not getting your interpretation at all about money creation from thin air.

What is it you find so difficult to understand about “......loans create deposits not the other way round!” Read Werner! His empirical explanation of actual events during a loan transaction is more far concise as he refers to, and reproduces, the banks documents to demonstrate his point.

Does it prove to me that the modern banking system creates money from thin air? No it certainly does not.

Nothing has changed with the method for a hundred years or more, only the means it uses to achieve it. They have gone from the pen to the micro-processor. The system has never been properly analysed. Now it has been analysed ‘live’ it shows there is only one concept that fits ALL the evidence ...... that is the ‘Creation Concept’. The result has proved that Graham Towers, Governor of the Bank of Canada was correct when he said “The manufacturing process to make money consists of making an entry in a book. That is all.”

Not true! They have to maintain their CASHFLOWS and Money supply. If they had nothing in the Bank, then they would be under Capitalized and bankrupt. but before it gets to that, the Central bank will step in and close the bank to the public and introduce capital restrictions like they did in Cyprus.

We are talking ‘in principal’ as explained by all the various sources. A bank does not need a matching deposit to create a loan. A very simple and unambiguous statement. You are adding complications to support your concept ........ just stick to basics.

I don't think you know how the Banking System works at all. Just above, you said that a bank can create loans without even having deposits.

They can and do!

The borrower is however, selling the asset to the bank almost. That is in affect what is taking place if the borrower defaults more than 3 times, things can get ugly with threats even from the bank.

Almost?..... very scientific!. Once again you confuse the requirement of getting a loan approved with the physical (electronic) act of creating the money to provide the loan. They are two completely different things.

Banks are free to do what they like, but usually that is not how it works. Banks require collateral.

So you agree that banks do not require collateral to create new money?

No I am not way off track at all. Banks are highly regulated and they are monitored by the Federal Reserve whose job it is to ensure that there is a minimum level of money supply. Only they can create it from thin air.

Yes, the central Bank creates ‘NOTES’ and have done exclusively since 1844, they were of course at that time real ‘money’ because it was backed by gold. They were printed at will provided they had the ‘collateral’ (Gold) as equal value security. In 1971 the US unilaterally declared the ‘Gold Standard’ as dead. (That is another very interesting story and again comes back to the creation of ‘money’ out of thin air!)

Since then the Fiat money (‘Broad’ Fiat money) in your account has been backed by nothing except a trust in the banks that they would act in an honest, open and up front fashion. Well ..... that worked well didn’t it? The Cypriot people found to their cost that the banks are no more than a criminal cartel?

The Banks are constrained by legislation and key indices performance criteria and are subject to regular stress tests which allocate them their Credit Rating, because the loans they make actually do come from the Federal Reserve which gets paid its base rate.

Legislation and key indices have nothing to do with the banks methodology and accounting system, that is a standard across the sector but, legislation differs from country to country. Loans do NOT come from the FED/BoE, they are created by commercial banks. Loans at CB level are between banks at their reserve level and are not loaned to borrowers.

No! Please just accept you are making it up to fit a narrative

.
I have explained it, simply and as it is as explained by various informed sources ..... to counter your view and opinion. IMO: So far you have written nothing, or produced anything that has made me consider your opinion as having any credence at all.

The fact you now clearly endorse the statement that ‘Private, commercial Banks create 97-98% of the currency in circulation’ is all that is required. Again, that you now acknowledge that the Central Bank can create currency notes at will from 'thin air' is also noted.

[Paphitis]

Paphitis:

This (Fractional Reserve Banking) is not the only method. It is a method used by the more conservative Risk Averse Banks, which also have the most stringent lending criteria.
There are also banks who will only lend as much as their deposits. In other words, the Lending portfolio never exceeds their deposits as a general rule. The Commercial Lenders are far more outgoing, have better and cheaper products because they rely on volumes for profit.

So, having been proved to be incorrect in that you believed it was all down to the multiplier theory, ‘Fractional Reserve Banking’, you now change horses and go off on another tangent!

FYI: All banks use the same basic format software, if they didn’t they could not communicate. Yes, there are three concepts of how banking works and variously have each been hailed over a century of banking, as THE method. Werner did his empirical test using this standard software, no actual research had ever been applied to determine which was correct in the history of banking.

BoE and Werner’s test shows conclusively that banks do not lend the clients money to borrowers and they cannot lend their reserves held in the CB. So that is the ‘Intermediary Concept’ of banking out of the window.

You obviously have accepted that the ‘Fractional Reserve Concept’ is also not correct, because the BoE says so and Werner proves it. So that is that concept down the drain.

The final option is the ‘Creation Concept’! Again this is what the BoE explains ..... simply, Banks create new money when they grant a loan. Werner again proves this in a live test and notes (if you have read the paper) that when an entry is made into a ‘loan’ (Credit) account ....... there is no change to any other aspect in the accounting system. The €200k just appeared out of thin air as an entry into the accounts ...... one second the account was empty, the next second it had €200k in it. If no other entry in the system changed where did this €200k come from? There was no promissory note from the borrower noting the value of his asset ..... because that is not part of the accounting or monetary system.

The document is poorly written, or people like yourself and Ryland Thomas are deliberately misinterpreting to support your own anti Banking narratives.

Really? Poorly written? Deliberately misinterpreting? What you are saying is that if an informed explanation by an authoritative body does not agree with your perception, then it has to be wrong?

I've been back to the document a few times, and I am not getting your interpretation at all about money creation from thin air.

What is it you find so difficult to understand about “......loans create deposits not the other way round!” Read Werner! His empirical explanation of actual events during a loan transaction is more far concise as he refers to, and reproduces, the banks documents to demonstrate his point.

Does it prove to me that the modern banking system creates money from thin air? No it certainly does not.

Nothing has changed with the method for a hundred years or more, only the means it uses to achieve it. They have gone from the pen to the micro-processor. The system has never been properly analysed. Now it has been analysed ‘live’ it shows there is only one concept that fits ALL the evidence ...... that is the ‘Creation Concept’. The result has proved that Graham Towers, Governor of the Bank of Canada was correct when he said “The manufacturing process to make money consists of making an entry in a book. That is all.”

Not true! They have to maintain their CASHFLOWS and Money supply. If they had nothing in the Bank, then they would be under Capitalized and bankrupt. but before it gets to that, the Central bank will step in and close the bank to the public and introduce capital restrictions like they did in Cyprus.

We are talking ‘in principal’ as explained by all the various sources. A bank does not need a matching deposit to create a loan. A very simple and unambiguous statement. You are adding complications to support your concept ........ just stick to basics.

I don't think you know how the Banking System works at all. Just above, you said that a bank can create loans without even having deposits.

They can and do!

The borrower is however, selling the asset to the bank almost. That is in affect what is taking place if the borrower defaults more than 3 times, things can get ugly with threats even from the bank.

Almost?..... very scientific!. Once again you confuse the requirement of getting a loan approved with the physical (electronic) act of creating the money to provide the loan. They are two completely different things.

Banks are free to do what they like, but usually that is not how it works. Banks require collateral.

So you agree that banks do not require collateral to create new money?

No I am not way off track at all. Banks are highly regulated and they are monitored by the Federal Reserve whose job it is to ensure that there is a minimum level of money supply. Only they can create it from thin air.

Yes, the central Bank creates ‘NOTES’ and have done exclusively since 1844, they were of course at that time real ‘money’ because it was backed by gold. They were printed at will provided they had the ‘collateral’ (Gold) as equal value security. In 1971 the US unilaterally declared the ‘Gold Standard’ as dead. (That is another very interesting story and again comes back to the creation of ‘money’ out of thin air!)

Since then the Fiat money (‘Broad’ Fiat money) in your account has been backed by nothing except a trust in the banks that they would act in an honest, open and up front fashion. Well ..... that worked well didn’t it? The Cypriot people found to their cost that the banks are no more than a criminal cartel?

The Banks are constrained by legislation and key indices performance criteria and are subject to regular stress tests which allocate them their Credit Rating, because the loans they make actually do come from the Federal Reserve which gets paid its base rate.

Legislation and key indices have nothing to do with the banks methodology and accounting system, that is a standard across the sector but, legislation differs from country to country. Loans do NOT come from the FED/BoE, they are created by commercial banks. Loans at CB level are between banks at their reserve level and are not loaned to borrowers.

No! Please just accept you are making it up to fit a narrative

.
I have explained it, simply and as it is as explained by various informed sources ..... to counter your view and opinion. IMO: So far you have written nothing, or produced anything that has made me consider your opinion as having any credence at all.

The fact you now clearly endorse the statement that ‘Private, commercial Banks create 97-98% of the currency in circulation’ is all that is required. Again, that you now acknowledge that the Central Bank can create currency notes at will from 'thin air' is also noted.

No I didn't say it was just down to multiplication. That is one method available to them.

The other method is to conduct a viable transaction over collateral.

Look, we are never going to agree on this. What you are understanding, misinterpreting and even molding to fit into a narrative perhaps is simply not there.

The Banks are unable to create money from thin air and that is what it comes down to. It is definitely possible for them to go bankrupt if they have non servicing loans because loans are also IOU's which they are immediately liable for potentially, whilst the borrower has significant time to make payments and eventually pay out the loan.

What the Banks are doing is actually extremely beneficial to the economy. There is no use in you denying it because it is undeniable. Without them, countries would not develop or even progress and virtually no one would be paid an allowance or a pension. And yes, I would go as far as saying that they indirectly do help people, families and businesses.

What they also do is put their profits before people. Which is the only criticism I have. But that is not unique to Banking. The corporate world as a whole places profits before people no matter what industry. But overall, just like the Apples offer technologies which make our lives a little easier in some way or at least keep us entertained, the Banks actually make the economy function and it is that investment which keeps people working and prospering.

As to the Boom/Bust cycle, Banks are as much at the mercy of these market fluctuations as individuals are. It is society as a whole which trigger off these cycles because humans are very emotional creatures and can get carried away once confidence increases. people take more risks, but eventually there is always a breaking point where things slow down until the next Boom cycle. Generally however, it is all an upwards trend for all people, including the working classes. Banks help us create the upward trend because at the end of the day, it all depends on every individual consumer. That is the whole purpose of it all. People getting wealthier and more comfortable in their lives. Comfort could have a different meaning for different people and depends on the individual and their own comfort zones. Some people are more tolerant to getting out of their comfort zones than others.

[Robin Hood]

Paphitis:

No I didn't say it was just down to multiplication. That is one method available to them.

Sorry mate there is ONLY one method and all banks run it the same way! If you fly VFR you do not ‘pik-n-mix’ as to which rules you apply! There is only one VFR and banking is no different.

As to the Boom/Bust cycle, Banks are as much at the mercy of these market fluctuations as individuals are.

Surely banks control lending, not people? It is the banks that create the booms and busts and this has been described numerous times in both the Media and economic papers and journals! They are the creators of the bubbles ...... watch’The Big Short’ it shows you how devious and manipulative banks are ..... and the Rating Agencies. An interesting film.

Which brings me to the Arabs. Tax is 0%

Yes, but now think a bit further than that.

• Americans did not pay income tax until the formation of the FED around 1912-13.
• In the UK there is a thing called a tax threshold, below which level no income tax is payable.
• In the 40’s almost 50% of currency in circulation was notes issued by the BoE.
• Only the very well off paid income tax, the majority of workers were below the threshold.
• Only the well off had bank accounts.
• Wages were paid in note and coin for staff or for the senior staff as cheques.
• These notes were true money .......... they were receipts for Gold.
• Gold supplied the collateral and backed the currency.
• In the 50’s the US persuaded the Saudi’s to let them pay them for the oil in $US instead of gold transfers.
• The US also got them to agree that they would both price and only sell oil for $US.
• In return the US promised to make them rich and provide protection by providing military equipment that they paid for in $US.
• All countries now required dollars to buy oil.
• Countries now had to sell to the US their trade goods/services for $US just to buy oil/gas.
• The US was effectively printing $US to buy the goods they wanted from overseas, nothing more so than Saudi’s oil.
• To do this, they ‘printed’ $US by the boat load.
• Prior to their declaration of the death of the Gold standard, countries started to demand return of their gold deposits.
• The US had not got sufficient gold to cover these debts.
• They had created far more $US than they had gold to cover them.
• They promised to peg the dollar to gold at $US33 to the troy ounce, in the late 60’s
• They failed to do so as they printed even more $US thus devaluing the $US even more and the gold price rose accordingly.
• Their response was to detach the creation of currency from gold, by abandoning the gold standard in 1971.
• The very high US standard of living (The American Dream) was so because everything they were buying was financed with paper/electronic currency IOU’s that they were producing without collateral.
• The price of gold is now held at an artificially low value against the dollar by the markets, which are predominately dominated by US Multinationals.
• Russia, China and other non US dominated countries, are now buying up the gold and doing it from their $US reserves.
• The sh*t storm is just around the corner!!!!!

Since the end of WWII the US has ever increasingly been printing money out of *** *** . The brakes were released in 1971 and even more abuse of the global financial system when the Glass Steagall Act was abandoned by Clinton in 1999. It has been voiced by many economists that this triggered the 2008 recession and thus the current chaos and many predictions of an imminent collapse of financial markets.

Paphitis: You hail the fact that the Saudi’s have 0% income tax and I agree with that. But I look deeper and further into it, than you do! No offence to you, it is not everybody’s favourite pastime but I find it fascinating ............ and also quite frightening.

If a State issues its own sovereign currency, as the Saudis do, there is no need for income tax! This was also the case pre WWII in the UK as the threshold kept most people out of the tax trap. The tax is recovered from sales taxes/VAT/death duty/capital gains etc. etc. i.e. direct taxes on purchases or reclaims against secondary sources. The tax rate is varied by the Government to reflect that.

Necessities are 0% rated, imported goods rated according to need, even subsidised, and luxury goods could be multiples of the price, say 200-300% of more. But because the money is created without debt and without interest, the taxes are recovered by the Government and re-spent. There is no bank loan to pay off and no interest. You now have a perpetual currency that is never destroyed as it would be if it were loaned.

This is how the Saudis do it now and how both the US and the UK did it before the ‘Banksters’ took over and decided their profits were paramount to all other considerations.

The Saudi’s of course have the distinct advantage that their income is predominately in $US and a small amount in other internationally traded currencies. This is why the UK sells them arms, which they pay for in $US and £’s. They have no import/export balance to worry about .... normally.

What difference will this make to the way the banks are operating? ....... No apparent difference, they carry on trading as before. The only thing they lose control over is the creation of the basic commodity, the ability to create the money. They now have to borrow it from the State Central Bank, as said previously, even at negative interest rates and they still take their cut as reward for their services but they are now customers of the State not the other way round. Which IMO is as it should be!

They still make personal and business loans but THEY now have a liability of repaying the loan to the Government, instead of writing it off if things turn pear shaped. This should make them more careful as lending would be their life blood .......... buying Government Bonds would be history.

There are a whole host of benefits to doing this as you have pointed out with the Saudi system.

[erolz66]

The Banks are unable to create money from thin air and that is what it comes down to.

Banks are unable to create money from thin air in the sense they can do so for themselves. If they could they would simply own everything. They could buy Apple and Google and Uber and pay for it with money they created out of thin air for themselves. Of course they can not do this. However they CAN do something than non banks can NOT do. If I want to borrow £10,000 I can borrow it from a bank or I can borrow it from my Mother. For my mother to lend me £10,000 she has to have £10,000 in liquid form that she can transfer to me in order to loan me £10,000. The bank on the other hand does not have to itself have £10,000 in liquid form in order to loan me £10,000. That is the point. They can make that £10,000 loan to me without first having an existing £10,000 they already own - they can create an entirely new £10,000 from 'nothing' to make the loan to me. Only banks can do this - non banks can not do this.

What the Banks are doing is actually extremely beneficial to the economy. There is no use in you denying it because it is undeniable. Without them, countries would not develop or even progress and virtually no one would be paid an allowance or a pension. And yes, I would go as far as saying that they indirectly do help people, families and businesses.

Extending credit to be used to create new productive enterprise, or to increase the efficiency of existing productive enterprise is extremely beneficial to the economy and indeed vital for it to be able to grow. However to make out that banks lending in the way they do today is the only way such a need can be met is not true. There are already countless ways money can be raised for productive enterprises - venture capital, mezzanine financing, private loads (borrow from my mother). These do not involve increasing the money supply so are limited by the total amount of money in existence. so yes there is still a need to be able to create new money to fund productive ventures beyond the limits of existing money supply - but agin this function does not have to lie solely with banks. You could have systems where you achieve the same amount of 'progress', people are still paid 'allowances', pensions still exist and function and yet new money is not created solely or near solely by private banks.

What they also do is put their profits before people. Which is the only criticism I have. But that is not unique to Banking. The corporate world as a whole places profits before people no matter what industry. But overall, just like the Apples offer technologies which make our lives a little easier in some way or at least keep us entertained, the Banks actually make the economy function and it is that investment which keeps people working and prospering.

It is exactly because the creation of new money that can then be used to invest in new productive enterprise (or increasing efficiency of existing enterprise) is so import to the economy in general that it is being argued that leaving this function solely or near solely in the hands of private enterprises is not therefore the best solution.

As to the Boom/Bust cycle, Banks are as much at the mercy of these market fluctuations as individuals are. It is society as a whole which trigger off these cycles because humans are very emotional creatures and can get carried away once confidence increases.

The point is it is ONLY the banks that can and do create the vital 'new money' needed to grow an economy faster than the limits of 'existing money supply' allow and thus because of this they have a far greater impact on boom bust cycles than other entities. A normal business after a bust like 2008 will scale back its growth plans, investment plans, may reduce staffing levels and the like and this has an impact on the economy of course, as its 'confidence' in the future is reduced. The Banks do the same but they do not affect just their own businesses as banks when their 'confidence' in the future goes south - they effect the whole economy, they end up driving viable business into bankruptcy, stopping new viable businesses being created. The effects of the Banks 'loosing confidence' is far far greater than that of a 'normal business' - because they today have an almost total monopoly on the creation of new money and they exercise this function NOT according to the needs of society as a whole. That is the whole point and basis for the argument that this function should not be left solely or near solely to private banks alone, or more effective means for central banks to influence and direct such money creation are needed.

[Sotos]

Some questions:

1. Why is/was gold the standard? Just because it is rare and shiny? It still doesn't make much sense to me. I understand that products and services have value because people need them, but why should something like gold have value beyond that of a metal that can be used to produce certain products? Is it all a matter of perception... gold has certain value because people think it has that value? But in that case how is it any different than paper money?

2. What would be the ideal financial system? One that allows people to trade and generate useful products and services, that can't be gamed and wouldn't allow people to profit by simply shifting money around and doing accounting tricks?

[Robin Hood]

Some questions:

1. Why is/was gold the standard? Just because it is rare and shiny? It still doesn't make much sense to me. I understand that products and services have value because people need them, but why should something like gold have value beyond that of a metal that can be used to produce certain products? Is it all a matter of perception... gold has certain value because people think it has that value? But in that case how is it any different than paper money?

I asked Google and this thread alone has 41 opinions all of them credible! Take your pick?

The first answer was:

• It is extremely dense. Meaning it is easier to carry & handle than a sack of rice or a barrel of oil. In fact, anybody could put their entire family's wealth in a small bag and carry away (in times of crisis, disaster or migration).

• It is quite inert and doesn't corrode. Meaning it doesn't lose value. Thus, generations could hand over their gold to their next ones. Can you do that with paper or iron? Can your grandma give her savings in some crumbled notes to you (that her great grandmother gave)? Unless you are a philatelist or history students, those notes will have no worth to you.

• It is very easy to test purity anywhere in the world at almost zero cost. How easy is it to test a foreign counterfeit note? How easy is it to value land or diamonds?

• The supply of gold is stable across centuries. Very unlikely to produce new mines any time soon. How easy is to print currency & debase value? How likely is to find a newer mine for another metal? No government can cheekily steal your saving's value by increasing production.

• Gold has only one grade and thus single pricing. Meaning it is very liquid. If you were to trade in diamonds or oil, you have to deal with myriad range of grades & quality. Can you get the same value for your diamond ring if you were to sell it now at the price you bought it?

• Gold is recognized all over the world. This means flexibility and trust. No other material is this recognized across the world. Will your Yuans or Rupees or Rials work this way?

• Unlike silver or platinum, gold has very little industrial use (only about 100t annually is used in industries such as semiconductors). Thus, you are not taking away a valuable industrial commodity for trading.

https://www.quora.com/Why-is-gold-considered-so-precious-and-why-does-it-have-such-high-prices

[Robin Hood]

Sotos:

2. What would be the ideal financial system? One that allows people to trade and generate useful products and services, that can't be gamed and wouldn't allow people to profit by simply shifting money around and doing accounting tricks?

That is a tough one to answer in detail!

IMO: Take the suggestion I have posted here as a starting point because it is one that many economists and some governments are taking a serious look at. Iceland being one!

Basically, a monetary structure that is, as far as is possible, one that cannot be exploited for personal gain but does not prevent the genuine creation of wealth. If the supply of the basic commodity, a sovereign ‘currency’ is under the control of the State there is much less chance of this exploitation happening. If crooked self serving ministers use their position to exploit the system to their benefit ...... it would have to be treated as a crime against the State and the people ..... I think the description of that is treason?

This system negates the requirement for income tax. Income tax is a tax that takes money out of the economy before it can be spent, which is a bit pointless. In the current system this is the way the government finances it’s debts. The tax is collected to repay bank loans and interest, not to expand the economy. In the proposal there are no loans and thus no interest, the currency produced by the state is perpetual and circulates at a fairly constant rate, thus lower and controlled inflation.

Because it is a sovereign currency it has little or no value outside the country of origin.( Try buying a packet of cigarettes with a Saudi Rial note!) Therefore to take it out of the country it would need to be converted and the value is controlled by the issuing State not the Markets. You buy and sell goods and services in foreign currencies but using the sovereign currency internally. It would be nigh on impossible and pointless, to secretly squirrel the currency out of the country to put it into an off-shore tax haven because it has no value outside the State of origin.

The government would then recover the money they have created through direct taxation, as previous post. Adjusting the tax rate, according to necessity, so that imports and exports can be balanced. The Cyprus pound was a sovereign currency and worked.

To me the benefits to the population are obvious. No more national debt, no more tax evasion as there is no tax to evade and the opportunity for the State to give financial aid to aspiring businesses and start ups but using the banks as a service to make the necessary loans with government supplied finance.

Just an idea but Corbyn has his QE for the people and, in spite of the ridicule he gets, to me he has more idea of how this works than all the other MP’s put together.

[Pyrpolizer]

Talking of this deposits to loans ratio one would expect the loans in Cyprus to be about 10 times those of deposits.
Yet it's not so in Cyprus.According to the official announcement here:
http://www.centralbank.gov.cy/nqcontent ... 13&lang=en
deposits reached €46,1 billion in December 2014.
loans reached €61,6 billion in December 2014.

How do you explain that?