The Best Cyprus Community

Skip to content


BBC – THE SUPER-RICH ..... and us!

Feel free to talk about anything that you want.

Re: BBC – THE SUPER-RICH ..... and us!

Postby Pyrpolizer » Thu Mar 24, 2016 11:42 am

Paphitis wrote:
Pyrpolizer wrote:
Paphitis wrote:
Not irrelevant at all, you're just too daft as I explained to you before.

The Communists have never been like that, but things are just changing far too fast and many people are feeling the pinch.

For instance, many parents, pulling their children out of State Schools. Those who can afford private tuition all well and good.


Paphitis wrote: The new LEFT these days are extremely bigoted, intolerant, and they resort to name calling.


:lol: :lol: :lol: :lol:


It's not a laughing matter.

If you had anything like what I described to you occur in Cyprus, you wouldn't like it. It's also coming because you're in the EU, so hold on to your horses and children.


So you didn't even notice the laughing was about your repetitive ramblings and contradictions?
User avatar
Pyrpolizer
Leading Contributor
Leading Contributor
 
Posts: 12892
Joined: Wed Mar 29, 2006 11:33 pm

Re: BBC – THE SUPER-RICH ..... and us!

Postby Paphitis » Thu Mar 24, 2016 11:45 am

Pyrpolizer wrote:
Paphitis wrote:
Pyrpolizer wrote:
Paphitis wrote:
Not irrelevant at all, you're just too daft as I explained to you before.

The Communists have never been like that, but things are just changing far too fast and many people are feeling the pinch.

For instance, many parents, pulling their children out of State Schools. Those who can afford private tuition all well and good.


Paphitis wrote: The new LEFT these days are extremely bigoted, intolerant, and they resort to name calling.


:lol: :lol: :lol: :lol:


It's not a laughing matter.

If you had anything like what I described to you occur in Cyprus, you wouldn't like it. It's also coming because you're in the EU, so hold on to your horses and children.


So you didn't even notice the laughing was about your repetitive ramblings and contradictions?


No I didn't sorry.

I must be too stupid then. You win!

(Unfortunately, that is all that can be said to some people)

I really should be more liberal, just didn't think that meant telling boys its ok to wear a dress and use the female toilets.

I apologize.
User avatar
Paphitis
Leading Contributor
Leading Contributor
 
Posts: 32303
Joined: Sun May 21, 2006 2:06 pm

Re: BBC – THE SUPER-RICH ..... and us!

Postby Pyrpolizer » Thu Mar 24, 2016 12:33 pm

Paphitis wrote:No I didn't sorry.

I must be too stupid then. You win!

(Unfortunately, that is all that can be said to some people)

I really should be more liberal, just didn't think that meant telling boys its ok to wear a dress and use the female toilets.

I apologize.


Now you make me feel sorry. Simply because that was not my intention...

Let me tell you a little story, it has to do with one of the very first things we learned during the first 3 months at the University. We were all at that stage with the high school mentality. This meant that when writing essays we had to write as much as possible, put down any argument that would come to our minds no matter how much the connection to the main point was etc etc. We'd thought the more we would write, the better.

However things in real life don't work like that! When you have to deal with people you have to make yourself understood and be to the point pretty fast (*) or else you lose your audience or the people who have to take instructions from you.
The professors knew this problem and wanted to eradicate it from the very first year. They 've assigned us a project that should describe a 100 pages complicated and long procedure in the shortest possible manner, be to the point, and the basics of it understood even by ignorant.
Some of us wrote 20 pages. Some others 10 pages. In the end we all failed. After that we were told that anyone who would write more than one page would fail again. We all repeated the test, wrote less than a page and got graded based on the above criteria. (*)
Still some Kurupettoi failed because they wrote a few lines and they weren't to the point.
Ever since that became common practice...

Just think about it, it may help you get more understood, and even receive some thanks for your thoughts. :wink:

Thanks for reading my rather long explanation. I hope I was to the point.
User avatar
Pyrpolizer
Leading Contributor
Leading Contributor
 
Posts: 12892
Joined: Wed Mar 29, 2006 11:33 pm

Re: BBC – THE SUPER-RICH ..... and us!

Postby Lordo » Thu Mar 24, 2016 1:47 pm

the old days of connection between university education and comfortable living is no longer true. you can get a degree and get nowhere and you can become a plumber or a painter or a plasterer and make a killing. it is all about who you work for. if you work for yourself and have a good skill that people are willing to pay for you shall have a good living. never mind owning a multimillion business, you cannot do that without sucking the life out of ordinary people.
User avatar
Lordo
Leading Contributor
Leading Contributor
 
Posts: 21344
Joined: Wed Oct 05, 2011 2:13 pm
Location: From the river to the sea, Palestine will be free. Walk on Swine walk on

Re: BBC – THE SUPER-RICH ..... and us!

Postby Robin Hood » Thu Mar 24, 2016 8:48 pm

Pyrpolyzer:
I guess you mean the creation of money by the State, not currency. If yes, what do you really mean?

Firstly, money and currency are similar but ‘money’ has one quality that ‘currency’ does not; check the dictionary .......... ‘money’ is a store of value over time ......... ‘currency’ has no intrinsic value ...... it is no more than an IOU! (But for ease let's assume they are the same thing ?)

The State (UK) creates currency as note and coin and this is spent directly into the economy, it is not lent by the State to the banks they merely distribute it. But that represents about 2% of the currency in circulation and is known as ‘drawer cash’ or ‘vault cash’, the other 98% is electronic currency created as a book keeping (computer) entry by commercial banks.

Banks create debt, they don’t loan anything ..... they provide credit! When you take up the offer of the credit and spend to the agreed amount, it is the payment by the means of transfer (say a cheque or bank transfer) that creates new money in the recipients account. Your bank will clear your (rubber) cheque and award you debt. Not a cent actually changes hands. Commercial banks really do create new currency out of thin air! :|
That the State itself should start giving loans to the people???

No, not directly anyway. The Central Bank would create the electronic currency, out of thin air, just like commercial banks do now. To provide you with the currency for a mortgage or a car loan the banks would borrow the currency from the BoE and at a very low interest rate, maybe even zero. So you, as an individual borrower would see no difference except for the fact that it would be the BoE that would determine the interest rates, and the collateral would be held by the bank on behalf of the State. As the primary lender the State, not the bank, would seize the collateral if you were to default.

BUT ..... if you are the Government it makes a very big difference! Currently, the government gets electronic currency from the banks in exchange for Bonds .... another IOU. They 'borrow' something that never existed until the bank created it to the value of the bond. The banks then charge the government interest for the debt they have created for you the tax payer to repay .... with the interest. This means the new currency is spent into circulation by government expenditure, and then has to be withdrawn from circulation by taking your taxes and eventually repaying it to the bank. It is called a ‘loan’ but it is no more than a debt, the new money is created when the Treasury adds the electronic currency to its current account and it is then destroyed, when repaid into the bank to redeem the bonds.

If you now transfer the creation of the electronic currency from the banks to the State, the currency is spent as before into the economy by government expenditure ...... but with a big difference! It is NOT a loan, it is effectively an investment by the State (Who now own the Central Bank) in the State, just as if it were buying shares in itself.

NOW ..... the tax money that before went to the banks to pay off the debt of the bonds, goes straight back to the Treasury through all the collected taxes ..... they then spend it straight back into the economy. It is now perpetual currency, it is not destroyed when paying of a bank debt ..... because there is no debt. Therefore there is no requirement to keep creating new currency it is only needed to top up the system as the government spends more on say education, medical care or new submarines ...... but eventually it all ends up back in the treasury through taxation.

The government no longer needs to control currency creation, the central bank (BoE) does that ........... it now has to concentrate far more on balancing imports to experts.

Paphitis:

All the above is accurate and true, it can be verified!

But as entrepreneur it works in your favour! Let us say Paphitis Ltd. is a company that undertakes major construction projects and you have won the contract to create a new facility to build a new generation of patrol boats for the government. Your bid is £1bn in total, is accepted and you start work ......... but you need money to do that and you would have to factor into your bid the cost of raising the finance ..... usually through an International bank as stage payments. But, the government can now pay you on Invoice on a 'cost plus' basis. You don’t have to borrow as you would negotiate a deal on say a 30 day invoice. You submit your invoices as cost plus a percentage and are reimbursed by the State within 30 days. The Government does not have to borrow the money .... it creates it, on demand. You pay your contractors and suppliers as well as your employees ..... and they all spend the money into the economy. This raises currency, through taxation, this goes back to the treasury and gets spent again ..... and again .... and again. :roll:

The fact that the currency no longer has to be borrowed allows a government to sponsor projects that would otherwise have to be financed with bank ‘loans’ government bonds....... and with currency that banks just create out of thin air.

Where is the problem with that, which would place any limit on the operation of capitalism. You can still make money just as before, in fact more because you do not have to borrow at interest from banks. :?:

BTW: This is not a looney idea by some pot smoking, left wing, anoraks; it is simple common sense ..... once you get to grips with the fraudulent way the banking system operates today. If you can’t understand/accept the basics then you will never grasp what I am trying to explain to you. :wink: :roll:
Robin Hood
Main Contributor
Main Contributor
 
Posts: 4305
Joined: Mon May 18, 2009 7:18 pm
Location: Limassol

Re: BBC – THE SUPER-RICH ..... and us!

Postby Pyrpolizer » Thu Mar 24, 2016 11:25 pm

Robin Hood wrote:Pyrpolyzer:
I guess you mean the creation of money by the State, not currency. If yes, what do you really mean?

Firstly, money and currency are similar but ‘money’ has one quality that ‘currency’ does not; check the dictionary .......... ‘money’ is a store of value over time ......... ‘currency’ has no intrinsic value ...... it is no more than an IOU! (But for ease let's assume they are the same thing ?)

The State (UK) creates currency as note and coin and this is spent directly into the economy, it is not lent by the State to the banks they merely distribute it. But that represents about 2% of the currency in circulation and is known as ‘drawer cash’ or ‘vault cash’, the other 98% is electronic currency created as a book keeping (computer) entry by commercial banks.

Banks create debt, they don’t loan anything ..... they provide credit! When you take up the offer of the credit and spend to the agreed amount, it is the payment by the means of transfer (say a cheque or bank transfer) that creates new money in the recipients account. Your bank will clear your (rubber) cheque and award you debt. Not a cent actually changes hands. Commercial banks really do create new currency out of thin air! :|
That the State itself should start giving loans to the people???

No, not directly anyway. The Central Bank would create the electronic currency, out of thin air, just like commercial banks do now. To provide you with the currency for a mortgage or a car loan the banks would borrow the currency from the BoE and at a very low interest rate, maybe even zero. So you, as an individual borrower would see no difference except for the fact that it would be the BoE that would determine the interest rates, and the collateral would be held by the bank on behalf of the State. As the primary lender the State, not the bank, would seize the collateral if you were to default.

BUT ..... if you are the Government it makes a very big difference! Currently, the government gets electronic currency from the banks in exchange for Bonds .... another IOU. They 'borrow' something that never existed until the bank created it to the value of the bond. The banks then charge the government interest for the debt they have created for you the tax payer to repay .... with the interest. This means the new currency is spent into circulation by government expenditure, and then has to be withdrawn from circulation by taking your taxes and eventually repaying it to the bank. It is called a ‘loan’ but it is no more than a debt, the new money is created when the Treasury adds the electronic currency to its current account and it is then destroyed, when repaid into the bank to redeem the bonds.

If you now transfer the creation of the electronic currency from the banks to the State, the currency is spent as before into the economy by government expenditure ...... but with a big difference! It is NOT a loan, it is effectively an investment by the State (Who now own the Central Bank) in the State, just as if it were buying shares in itself.

NOW ..... the tax money that before went to the banks to pay off the debt of the bonds, goes straight back to the Treasury through all the collected taxes ..... they then spend it straight back into the economy. It is now perpetual currency, it is not destroyed when paying of a bank debt ..... because there is no debt. Therefore there is no requirement to keep creating new currency it is only needed to top up the system as the government spends more on say education, medical care or new submarines ...... but eventually it all ends up back in the treasury through taxation.

The government no longer needs to control currency creation, the central bank (BoE) does that ........... it now has to concentrate far more on balancing imports to experts.

Paphitis:

All the above is accurate and true, it can be verified!

But as entrepreneur it works in your favour! Let us say Paphitis Ltd. is a company that undertakes major construction projects and you have won the contract to create a new facility to build a new generation of patrol boats for the government. Your bid is £1bn in total, is accepted and you start work ......... but you need money to do that and you would have to factor into your bid the cost of raising the finance ..... usually through an International bank as stage payments. But, the government can now pay you on Invoice on a 'cost plus' basis. You don’t have to borrow as you would negotiate a deal on say a 30 day invoice. You submit your invoices as cost plus a percentage and are reimbursed by the State within 30 days. The Government does not have to borrow the money .... it creates it, on demand. You pay your contractors and suppliers as well as your employees ..... and they all spend the money into the economy. This raises currency, through taxation, this goes back to the treasury and gets spent again ..... and again .... and again. :roll:

The fact that the currency no longer has to be borrowed allows a government to sponsor projects that would otherwise have to be financed with bank ‘loans’ government bonds....... and with currency that banks just create out of thin air.

Where is the problem with that, which would place any limit on the operation of capitalism. You can still make money just as before, in fact more because you do not have to borrow at interest from banks. :?:

BTW: This is not a looney idea by some pot smoking, left wing, anoraks; it is simple common sense ..... once you get to grips with the fraudulent way the banking system operates today. If you can’t understand/accept the basics then you will never grasp what I am trying to explain to you. :wink: :roll:


RH I 've read all your proposed links (and more) plus watched all the relevant videos from previous discussions.
The issue is extremely complicated (for anyone to explain in words) so I will revert with diagrams.
I am really interested to check your hypothesis as you explained it above. For the moment I can't tell if you are right or wrong.
So far I can only comment on the first paragraph- I think you are missing something there.
Anyway I will prepare a full reply with diagrams to see where we can get and revert.
User avatar
Pyrpolizer
Leading Contributor
Leading Contributor
 
Posts: 12892
Joined: Wed Mar 29, 2006 11:33 pm

Re: BBC – THE SUPER-RICH ..... and us!

Postby Paphitis » Fri Mar 25, 2016 12:42 am

Robin Hood wrote:Paphitis:

All the above is accurate and true, it can be verified!


No it isn't. I don't believe you have explained to me how Banks work. You think you know. You probably don't like them either. But you have not explained to me how they work.

Robin Hood wrote:But as entrepreneur it works in your favour! Let us say Paphitis Ltd. is a company that undertakes major construction projects and you have won the contract to create a new facility to build a new generation of patrol boats for the government. Your bid is £1bn in total, is accepted and you start work ......... but you need money to do that and you would have to factor into your bid the cost of raising the finance ..... usually through an International bank as stage payments. But, the government can now pay you on Invoice on a 'cost plus' basis. You don’t have to borrow as you would negotiate a deal on say a 30 day invoice. You submit your invoices as cost plus a percentage and are reimbursed by the State within 30 days. The Government does not have to borrow the money .... it creates it, on demand. You pay your contractors and suppliers as well as your employees ..... and they all spend the money into the economy. This raises currency, through taxation, this goes back to the treasury and gets spent again ..... and again .... and again. :roll:


Nothing could give entrepreneurs some real jitters more than what you are proposing. The reason for that is because it's such a huge gamble for them. And when they think times are uncertain, then start to close shop and retrench people. They restructure, stop spending, stop everything.

Even if the Government can create money, something btw I believe they can do through the Central Bank, you would still need to borow from a Retail Business Lender because the Government is not going to fund your business for 30 days and pay everyone's wages just because they can put a data entry into your Bank Account. It all sounds like pie in the sky to me. Not to mention the fact that the Gubberment all of a sudden has far too much power now, and can Bankrupt you because you went to an Opposition Party Fundraiser and donated some money etc etc. Yes that is exactly what would happen.

Or what about the Gubberment coming to tell you we have 500 people you must employ, otherwise you're not getting that Patrol Boat contract? That is the kind of nonsense that will happen. The Government owned Cyprus Airways and they bankrupted that company which employed 1,100 people. If the Gubberment is so good, then why can't they run a business like Cyprus Airways. It's not just Airlines btw. Their incompetence has been demonstrated in all utility companies, all major infrastructure projects which always blow out and never delivered on time.

Yes sure, all businesses would be interested in FREE MONEY, but what are all the other catches? How will that work? Are you sure interest rates won't suddenly go up to 20%? Who is going to pay the Gubberment for sponsoring business? The tax payer? It sounds awfully close to Communism to me, and I don't see it working. So the Gubberment is going to take my business if things don't work out hey?

I think all big business would just flee to the next tax haven. That is what will happen.

Robin Hood wrote:The fact that the currency no longer has to be borrowed allows a government to sponsor projects that would otherwise have to be financed with bank ‘loans’ government bonds....... and with currency that banks just create out of thin air.


There must be one jurisdiction around the world that does this? Give us an example, so we can see if it works. I'm pretty open.

Robin Hood wrote:Where is the problem with that, which would place any limit on the operation of capitalism. You can still make money just as before, in fact more because you do not have to borrow at interest from banks. :?:


The problem with that is that we are all gonna end up in the Paphian Kolokasi fields growing Kolokasi. Back to our roots, arghh peace at last! :lol:

Robin Hood wrote:BTW: This is not a looney idea by some pot smoking, left wing, anoraks; it is simple common sense ..... once you get to grips with the fraudulent way the banking system operates today. If you can’t understand/accept the basics then you will never grasp what I am trying to explain to you. :wink: :roll:


I never said your ideas were looney. But there are a lot who are looney and who have similar ideas. I'm not convinced at all.

I do grasp the basics. You need money, see a Bank, and do what you want. It works. That is the bottom line.

You need to prove to me that you're ideas will work and that we are not gonna be in some Stalinist or Mao style country for the political elites and bureaucrats. I couldn't think of anything worse myself. Told what I must do, what I can do, and what I must think. No thanks.
User avatar
Paphitis
Leading Contributor
Leading Contributor
 
Posts: 32303
Joined: Sun May 21, 2006 2:06 pm

Re: BBC – THE SUPER-RICH ..... and us!

Postby Robin Hood » Fri Mar 25, 2016 7:19 am

Pyrpolizer:
RH I 've read all your proposed links (and more) plus watched all the relevant videos from previous discussions.
The issue is extremely complicated (for anyone to explain in words) so I will revert with diagrams.
I am really interested to check your hypothesis as you explained it above. For the moment I can't tell if you are right or wrong.
So far I can only comment on the first paragraph- I think you are missing something there.
Anyway I will prepare a full reply with diagrams to see where we can get and revert.


Thank you for taking the trouble to reply, I appreciate your interest. Nobody in their right mind would chose to investigate the banking system, because we all know how it works ..... or at least we thing we do! You would be right in thinking it is tantamount to watching paint dry or grass growing ...... but at that point the penny drops ..... you realize the implications and that all the economic experts you see on TV are missing it and that the hypothesis turns out to be true.

I continually doubted my own conclusions but it just seemed so obvious to ask the question ‘How is money created?’ and when authorities like the BoE, FED and many respected and established economists started writing papers explaining it, I realised that they were seeing ‘money creation’ as I did.

I e-mailed the BoE ‘Money Policy Directorate’ and asked them if what i believed was the case with money creation, was as explained in their paper and also the conclusions as to the effect on the economy. I thought their reply was a bit evasive; they certainly didn’t say that I had got it wrong .... they said that they intended the paper to explain the origin of money but did not feel they could comment on the implications. In other words I was looking into the subject in more depth than their paper intended.

At no time am I trying to talk down to you as if I know everything and you know nothing. I have acquired what I know over a long period of time and it is, I agree, difficult to put into words but I do try. At least I can now relate what I believe to be so, to tangible sources who confirm it. I will be very interested in what you have to say. :D
Robin Hood
Main Contributor
Main Contributor
 
Posts: 4305
Joined: Mon May 18, 2009 7:18 pm
Location: Limassol

Re: BBC – THE SUPER-RICH ..... and us!

Postby Paphitis » Fri Mar 25, 2016 10:12 am

RH I 've read all your proposed links (and more) plus watched all the relevant videos from previous discussions.
The issue is extremely complicated (for anyone to explain in words) so I will revert with diagrams.
I am really interested to check your hypothesis as you explained it above. For the moment I can't tell if you are right or wrong.
So far I can only comment on the first paragraph- I think you are missing something there.
Anyway I will prepare a full reply with diagrams to see where we can get and revert.


Robin Hood wrote:Thank you for taking the trouble to reply, I appreciate your interest. Nobody in their right mind would chose to investigate the banking system, because we all know how it works ..... or at least we thing we do! You would be right in thinking it is tantamount to watching paint dry or grass growing ...... but at that point the penny drops ..... you realize the implications and that all the economic experts you see on TV are missing it and that the hypothesis turns out to be true.


And yet Banks are investigated all the time, with Royal Commissions even, Royal Inquests, and there is even a banking Watchdog which can audit them to ensure they are not falling foul of any legislation. Even insider trading is something the Securities and Investments Commission will follow up on, and only a couple of years ago, the HSBC was going from one court case to the next.

Robin Hood wrote:I continually doubted my own conclusions but it just seemed so obvious to ask the question ‘How is money created?’ and when authorities like the BoE, FED and many respected and established economists started writing papers explaining it, I realised that they were seeing ‘money creation’ as I did.


I agree with you that Commercial Banks create money. They have to. Most money simply does not exist in circulation. Hence, all our Balance Sheets are numbers on a piece of paper. That is every single person, every business and every Bank. So the Banks are not the only ones that have to rely on this for their existence. Most money is in the form of a bank Deposit. And most Bank Deposits are created by a Bank when someone applies for credit. The Bank creates a Deposit in the Borrowers account, and the Borrower goes and buys an asset.

At the same time, the Bank needs to support all the deposits through its own Capitalization. It can only go as far as is fractional ledger allows it to do. It has to support deposits by a minimum amount - let's say 15% (I don't know what the ratio is. If the Capitalization falls under that, then the Bank is basically up shit creek, and probably Bankrupt. That is what happened in Greece and Cyprus, hence the need for a Bail In. It has never occurred in any other country other than Iceland I believe. And our Banks in the West have been trading for decades with not that many issues.

Robin Hood wrote:I e-mailed the BoE ‘Money Policy Directorate’ and asked them if what i believed was the case with money creation, was as explained in their paper and also the conclusions as to the effect on the economy. I thought their reply was a bit evasive; they certainly didn’t say that I had got it wrong .... they said that they intended the paper to explain the origin of money but did not feel they could comment on the implications. In other words I was looking into the subject in more depth than their paper intended.


Well of course they won't comment on the "implications" and especially the implications as you see them. They would probably get into trouble for even engaging in this topic. But they did basically tell you that they create money. It's just that they can't create money without restriction and just keep on going without having a fractional foundation to support the deposits. Because when they apply a Credit to someone's Bank Account, they need to support it in theory. There is still nothing to stop the individual from taking out a substantial amount in cash.

Robin Hood wrote:At no time am I trying to talk down to you as if I know everything and you know nothing. I have acquired what I know over a long period of time and it is, I agree, difficult to put into words but I do try. At least I can now relate what I believe to be so, to tangible sources who confirm it. I will be very interested in what you have to say. :D


But you are saying that we have a problem. And you are offering solutions which I am thinking are quite dodgy and wont work.

Offer an example and let's see if your system works, and let's see if there is an economy to be confident about.

What I see in the Banks is fairness. Everyone is equal to a certain extent because a bank wants to have you as their customer generally speaking. If you're a borrower, then all they care about is your ability to pay and collateral. I don't think that will be the case for a Gubberment such as let's say Cyprus or even other countries like the USA or any EU Country for instance. Free money sounds good, but how is the Gubberment going to fund all the infrastructure if you don't even recognize that money does actually have a cost?

You are giving one entity too much power.
User avatar
Paphitis
Leading Contributor
Leading Contributor
 
Posts: 32303
Joined: Sun May 21, 2006 2:06 pm

Re: BBC – THE SUPER-RICH ..... and us!

Postby Paphitis » Fri Mar 25, 2016 10:39 am

Robin Hood,

you appear to be anti Banks. You need to do more research because Banks are heavily regulated by the Central bank.

There are actually a few ways money is created.

A Central Bank can introduce new money into circulation. This is termed Expansionary Monetary Policy. The detractors call it Money Printing. Essentially that is what it is. When a Central Bank does this, inflation usually increases so that is in fact the regulator that prevents Central Banks from printing too much. It also increases the cost of money, and decreases interest. A Central Bank will do this in an effort to try and stimulate the economy into growth. They will also try and reduce interest rates down to stimulate growth.

It is the Central Banks which control interest rates and not the Retail Banking sector.

Fractional Reserve Banking - most countries rely on a Fractional Reserve System. That is, every Bank MUST have a Fractional Reserve of Cash to support their total sums of Deposits and they have these reserves within their own Institution or in the form of their own deposits with the Central Bank itself. Fractional Reserves also apply to all the mortgages they create which could end up being a deposit in someone else's account. If the money is transferred to another institution, then it becomes their problem or benefit, depending on how you look at it.

Central Banks do in fact monitor the amounts of money in circulation. They call it M2.

https://en.wikipedia.org/wiki/Money_sup ... rve_System

This in theory defines each Banks Capitalization. That in theory is the trigger for understanding whether a Commercial Bank is adequately resourced and is maintaining Fractional Minimums (whatever the ratio is). Banks also have their own Credit Worthiness Ratings, issued by Agencies such as the Central Bank and even Private Firms such as Moody's etc. When their liquidity falls, and their Fractional Minimums are breached, then there is cause for a lot of concern. What that means is that the Bank is unable to support all depositors and that makes things worse because depositors will run on the Bank causing in to fold even. This occurred in Cyprus with Laiki, and BoC.

In fact, in theory, any Bank Run against any Bank will cause it to fold. That is where the central bank has to step in. And yes, the Government want a Fractional System because it allows it to spend a lot of money it doesn't have. So when things go bad, they have to protect depositors. That is how it is suppose to work anyway. The problem with Cyprus is that Cyprus no longer had a central Bank with the power to intervene like it does in the USA or Australia for instance. So that is a major a flaw in the Eurozone.

It relies very heavily on the regulatory systems in place from the Central Bank and Government and it also relies on banks actually trying to do the right thing.

So you are not being very accurate that the Banks can just create money without restriction. that is not the case at all. :wink:

Another interesting fact is that borrowers actually stimulate the economy, and that creates growth and employment. It's when people and business stop borrowing or don't borrow at all, when things turn to shit. Which is why a Central Bank would lower interest rates, and even Print Money to increase the liquidity of Banks in order to encourage a new increased wave of borrowing. The bottom line is, that all this is fueled by growth in the economy. If the economy grows, all is good. When it stops, then things get bad for everyone.

You can get a pretty good synopsis by reading this.

https://en.wikipedia.org/wiki/Money_creation
User avatar
Paphitis
Leading Contributor
Leading Contributor
 
Posts: 32303
Joined: Sun May 21, 2006 2:06 pm

PreviousNext

Return to General Chat

Who is online

Users browsing this forum: No registered users and 1 guest