CRASH2: Ignore what they would say anyway, economics is about to reset politics

DaveHill

Across the world today, TV anchors staring at falling markets, politicians facing referendums and Presidential elections, and bankers looking at credit crunches are saying daft things to try and make their leaky sieve cases seem vaguely credible. As so often happens, the more intelligent end of twitter is a lightning-rod for satire about that sort of tosh, so I was delighted to see this one first thing:

swivgag

The theory of continental drift is, of course, widely accepted as the reason why we wound up with continents as opposed to one gigantic Australia. But as such, it knocks every contemporary ‘theory’ about what’s going on into a cocked hat. Everyone has a theory today, and the theory is there to stop the opposing theory from gaining ground.

Bernie Sanders points out that, woman or not, Hillary Clinton is the Establishment candidate. And of course, she is. So Hillary plays the gender card as if she was some downtrodden negress from Alabama, as opposed to the wife of a two-time (and two-timing) US President.

Business telly points out that the banks are the main institutions getting caned in the markets, because (a) they’re overleveraged and (b) a credit-crunch is obviously nigh. So Bankers go on to Bloomberg and blame their woes on “regulatory restraints that make it impossible for us to make money”. What restraints? And when exactly did they last make no money?

For the entirety of 2016 to date, the leading theories put forward in financial circles have said anything rather than “the markets don’t buy the bollocks any more, and so a classic bear market is at last beginning to reflect a global slump”. There has been uncertainty, then volatility,  a small correction, stoopid markets, stock falls not reflected by the data, misconceptions about China, an oil-supply glut, not a recession, technically not bear territory, and now latterly “this will all settle down by the summer and then a lot of people are going to look dumb”.

But none of this changes the fact that the Dow is below 16K, the FTSE below 6K, and the Shanghai below 3K. Or, indeed, that without the PBOC spending 0.8 trillion Yuan on direct intervention while introducing draconian laws about selling, the Shanghai would be nearer 1,800. Or that the UK economy is 67% financial service profit dependent for its trade positives, but the banks are heading for big trouble.

On CNBC yesterday, one talking head pointed out that last August, 71 out of 73 ‘experts’ polled by Bloomberg got the US Bond yield futures wildly wrong. Yellen clearly got the rate rise wildly wrong – or was ordered to do it by the pyschos. Every oil opinion-leader has been shown to be wildly wrong.

And nobody is answering this question: what happens when Chinese New Year is over, and the poor sods in Shanghai get back to their desks? What does Goldman Sachs – ‘no chance of a recession’ – think they’re going to do, buy?

However, for me it’s the dots between economies, stock markets, commodities on the one hand – and politics on the other – that aren’t being joined up. One by one, the first three have become a line pointing down to the sewers. That’s going to put the fourth dot into an entirely different place.

That’s why Hillary (and Bill) Clinton know they have to beat Sanders in the early primaries….because as things get worse, his logic will be increasingly seen as real wisdom.

And that’s why Cameron wants the Refendum in June, not (say) September. For he and his Dark Knights know perfectly well that either or both of eurozone disaster and UK banking failure(s) could easily occur by the Autumn. One can argue that the latter would argue strongly against Brexit, but I disagree: I think both will show that the Clown Princes of Westminster and Brussels have little or nothing between their ears.

Those who think the Tusk ‘deal’ will get any better are deluding themselves. As I first revealed here three weeks ago, the deal was done and signed off ages ago. And there remain many in Merkel’s Party who think it is far too kind to Britain.

For the moment (despite the poverty of what David Cameron ‘negotiated’) the latest poll still shows the In/Out camps neck and neck. And the College votes in the US still suggest that Hillary is a shoo-in for the White House. At this point in the cultural Crash2 process, there is only one agent that can change those numbers.

“It’s the economy, stupid,” as a former President once said.

Yesterday at The Slog: does the US want the EMs to emerge, or be colonised?

62 thoughts on “CRASH2: Ignore what they would say anyway, economics is about to reset politics

  1. The Politicians colluded with the Bankers to design a Ponzi scheme to make money from nothing. The trouble was the Bankers’ greed was uncontrollable so they broke the Ponzi Scheme. To keep the Bankers money rolling in the Politicians allowed them to socialise their losses. Ponzi QE was born. As soon as this happened the die was cast. Penury for the masses was going to happen, the only thing we didn’t know what when this would occur.

    Now we see that the Ponzi QE is over with investors the world over taking their ball home. The investors have seen through Ponzi QE. The state of the global markets today prove this to be true. Once again, the greed of the Bankers has spoiled the party. Penury for the masses is now a stark reality.

    The only way any Ponzi Scheme could have been implemented was with compliant Politicians. I only hope that after the coming crash, we as a Nation have the guts to demand a full open inquiry on who lets those rapacious bastards destroy our economy and the livelihoods of millions of honest hardworking people who have never stolen a penny in their lives. Asset sequestration should be the first thing that happens while they spend years on remand.

    P.S. Mimicking the Lehmans protestations about their liquidity (2007 onwards), I see only yesterday Deutsche Bank have released a press statement proclaiming their liquidity.

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  2. The Tusk deal does not matter a jot to anyone in the UK. The Falling Economy, Continuing Migrant Influx and Lack of European Political Fraternity are all likely to get considerably worse in 2016, and even by this June, the average Brit ‘floating voter’ will likely take a take a look at the total chaos across the Channel and decide that for these reasons alone…..its time to get outta there!

    Sadly, I also forsee that any nice early summer May heatwave, when the young ladies of Germany or Sweden start enjoying the sun in skimpy tee shirts and shorts, will probably cause many dozens of ‘Sexual Emergencies’ among the repressed and culturally confused Middle Eastern male visitors to the shores of Europe…….And that by June, the British Tabloids will be having a field day that will render any more sensible arguments from Pro Europe UK Captains of Industry and Politicians utterly irrelevant to the UK Referendum vote ! Thanks for a good piece JW ! ….. But I’ll stick with my view that even by this June the EU mess may well be such, as to be far too late for a ‘Stay In’ vote.

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  3. Stevie (The Real One)

    The Politicians colluded with the Bankers to design a Ponzi scheme to make money from nothing.

    It is not so much that a bank can form a credit-debit contract “out of thin air”; the bank needs to make a profit on their part of that contract, the credit half. Thus the most important aspect for a banker is how they invest that money.

    The real problem is that most banks prefer to use this money to gamble with, rather than investing it in genuine, productive businesses.

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  4. Did anybody see this at Bloomberg?
    ‘While the rally tempered in London trading hours, Treasury yields fell to the lowest in a year earlier in the day, with those on short-dated German securities sliding to a record. Traders pared the odds the Federal Reserve will raise interest rates this year to 27 percent before Chair Janet Yellen begins her two-day testimony to Congress on Wednesday.’

    Interest rates at 27% FFS…
    http://www.bloomberg.com/news/articles/2016-02-09/treasuries-climb-as-global-market-turmoil-derails-fed-rate-bets

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  5. As I did yesterday, I’ll point you in the direction of the $ price action of Gold (and that’s with the Chinese currently celebrating another zoological lunar New Year – just imagine if the PBOC were sat at their desks hoovering up the yellow metal for the sovereign coffers).

    The pigeons are slowly but surely coming home to roost.

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  6. I know what it is, and how they do it. More importantly, do you understand the basics? Because without that knowledge, the banks can wind a person around their little finger…

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  7. Bad accident down the line from me in Bad Aibling today. I’ll tell you the cause – almost certainly crap software and data – I know because I worked on their railways 2.5 years.

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  8. Genma only yesterday you were telling us that the lack of real investment was the fault of the Anglo-Saxons. Is this still correct?

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  9. Stevie, do you know ANYTHING about fractional reserve banking???? What is the ‘fractional’ but the basis upon which a great deal more is invested. The point is this: are those investments any good, and what good do they for their society? It is this last which has been the bane of Anglo-Saxon society since the 1850s.

    Jeremy Stocks, a clear mind will make clear, sensible software. Whilst efficient and hard working, the Germans do not do clear thinking. It’s why half of the design staff at our design studio in Esslingen were foreigners…

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  10. I’m still forecasting a rerun of 1929 onward in the near term… The smart avarice will be on War based stuff, munitions drugs vehicle production etc… All the psychotics out there should have no problem spotting them, If you rub your screens, the red comes off & you begin to see green beneath. Works even if you believe you’re “Colour Blind” too.

    Such is the view of the foolish outsider…

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  11. “Jeremy Stocks, a clear mind will make clear, sensible software. Whilst efficient and hard working, the Germans do not do clear thinking. It’s why half of the design staff at our design studio in Esslingen were foreigners…”

    ….is correct. Most of the data I saw was captured badly in India.

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  12. OOPS!!

    Save money to cost lives, eh? Usually a business saves money to make it difficult for their customers to use their products – JW’s Microsoft woes are a case in point. It’s designed for big businesses who have large support teams; I recall one expert here saying that a Linux installation needed a far smaller support team. I wonder why?

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  13. Gemma,

    I will make this explanation simple for you.

    From time immemorial people made stuff and sold stuff. Banks when they came along and held people’s money. In the old days the bank was regulated to repay all deposit liabilities on demand. Otherwise the nasty peasants were likely to revolt.

    In recent history the clever people running the banks invented fractional reserve banking, which allowed the banks to only keep a fraction of the deposit liabilities in reserve. With a deposit of £100 and a reserve of 20% a bank could miraculously create £357 to use and still have £100 remaining in the account. To quote a crappy magician “now that’s magic”.

    Then some really clever people came along with the idea of financial transactions which don’t actually create anything of actual intrinsic value. They are only of value to the parties involved with the financial transaction. Then the really clever people invented more and more artificial transactions called derivatives which the bankers could use to invest money in and more importantly, invented more and more ways to hide these derivatives from the balance sheets.

    To conclude this little essay on fractional reserve banking I am happy to state (whether you agree or not) that this fallacy allows banks to create money out of nothing, use said money in any way to create wealth for the bank. The only way fractional reserve banking came into place was with the connivance and collusion of Politicians. The icing on the cake was the socialising of banking (gambling) losses, another wheeze enabled by Politicians for institutions that were too big to fail. Personally I don’t think we can afford both bankers AND politicians.

    Have I explained my knowledge of fractional reserve banking to your liking?

    P.S. You must be very naive to believe that any bank is an ethical enterprise.

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  14. Stevie, you illustrated my point very well. Because when you say “With a deposit of £100 and a reserve of 20% a bank could miraculously create £357 to use and still have £100 remaining in the account” you miss something out, don’t you?

    Do you understand how a bank creates money in the first place? Because in your sentence you merrily gloss over this very necessary detail. I’ll add that if you did understand how a bank creates money, you’d not say “this fallacy allows banks to create money out of nothing”.

    Life ain’t that easy; but that doesn’t mean it’s complex… take a look at this and let me know if you can get your head around it:

    https://gemmasponderings.wordpress.com/2014/12/03/leveraging-debt/

    As to unethical banks, that is the problem, isn’t it? If banks were ethical, we’d not have the problems we face today, would we? But then, the UK would look like a starved whippet wearing size twenty underclothing.

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  15. Gemma are you trying to be deliberately obtuse or does it come without effort?

    As soon as an institution obtains a banking license it can provide banking services including fractional reserve lending. It really is that simple.

    Have you tried to join all of the dots yet? Fractional reserve banking is the cause of this fiasco not the effect.

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  16. “Fractional reserve banking is the cause of this fiasco not the effect”

    Not quite correct Stevie. It is the combination of FRL (I now think of it as Fictional Reserve Lending) and uncapped fiat currency that is the primary cause, while the modern preponderance of intangible products rather than real goods, services and commodities just makes it worse.

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  17. John
    If the world was a perfect sphere ….there would be more than enough water to cover it!
    not sure about bollocks and bullshit.

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  18. Nice stuff being spoken. Keep looking for the leeks (Welsh Dyslexic) guys… those of any mind will always be looking at what go’s in & what comes out. be it lumps of rock, effort, anything… The feed stock is the same. Measure it against the same coming out.

    No useful by product for you then some one took a cut & it’s all … Shit!

    Life’s
    simple, just like me….

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  19. Steve, you’ve obviously missed my point in its entirety. Peter Charles seems to have a better idea of what’s really going on.

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  20. If anyone is interested I downloaded a quaterly report from the Bank of England from a year or so ago, which quite clearly states that when Banks advance Credit/Debt they create money from nothing. Private banks have been allowed this privelege but use it to inflate asset bubbles especially property. Property is a safer investment than buisness esp small business.

    Also the BBC’s Robert Peston was forced to remove a post from the BBC website wherein he perpetuated the myth that banks make their money by taking in deposits and paying the depositor a certain interest rate and then lending out that money at a higher interest rate:their profit being the difference in interest rates.

    Stevie +10 but I think you and Gemma may be talking at cross purposes – a problem with internet communication.

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  21. Gemma you haven’t made a point.

    You have waffled a bit and told me I didn’t understand “ANYTHING”, and even told me to do my research using your blog site (very condescending by the way). If you have a counter argument then make it using your own thoughts, but do not try and pick apart my comments to confirm your own supposed superiority.

    Peter actually added to this discussions without any childish gain saying and I agree with his comments. He made the point.

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  22. Waldgänger, “If anyone is interested I downloaded a quaterly report from the Bank of England from a year or so ago, which quite clearly states that when Banks advance Credit/Debt they create money from nothing.” – the same question applies: do you understand that interest has to be paid on the money a bank ‘creates’?

    Do you know to whom it must be paid (which is perhaps why it is quietly overlooked by the BoE, for you did not quote the fact).

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  23. Well, these are happy days.The Prime Minister, the Archbishop of Canterbury and the Lord Mayor of London are, all three, too young to have fagged for me, but what they have in common is being too young to remember 1974.To recap, the mother and father of property booms in 1973 (caused by a Chancellor called Barber, not Brown) was brought to an abrupt halt by our allies in the Gulf raising the price of crude oil by a multiple of 4. Cue a sharp recession, a run on sterling,rumours about the mighty Natwest (cf. Deutsche Bank today, and Socgen,and Santander,and every Italian and Greek bank you can think of) and panic. We are in February,1974,if you like, and none of the leaders of state, be it political, spiritual,or financial have got a clue. This time round the problem is not inflation (zero), the miners( zero), the unions (non existent), but an oil price collapse, which taken with other commodity price falls, is putting a lot of pressure on the zero sum derivatives game which did not exist in 1974! So where do we go from here? Historical analogies do not work precisely : you would have thought, however, that s omebody in the Bank of England would remember Barber pumping up the money supply by 30 percent in one year, before authorising QE., and the consequent distortion of all asset prices and economic activity. My gut feeling is that Cameron is an OE Heath, consigned to oblivion, after the referendum, with a successor crucified by financial markets, unable to find any answer to a huge trade deficit, and a structural borrowing requirement caused by tax credits for all and sundry (and my winter fuel allowance).Sharp bear market,and a winter election, to be won by Hilary Benn, in the guise of Jim Callaghan.

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  24. Gemma, I give up, go and do your own research on interest paid. When you have done it come back and tell us if the interest question has anything at all, even in the slightest way, to add to the discussion whether economics is about to reset politics?

    Waldganger, you may have read a report on how the BoE achieves Quanative Easing. That is, by the click of a mouse, they create money when a Bank agrees to buy a financial asset (a government bond for example). Money is created the same way by Central Banks all over the globe in any country with a fiat currency. In case you are asking, a fiat currency is any legal tender that is not backed by a commodity (gold for example).

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  25. Paying interest, in relation to our discussion, that is to say, creating money. It’s obvious that you would feel condescended to if I should go any further on this topic.

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  26. Gemma
    When a bank creates money by say advancing a mortgage (subject to some leveraging requirements) the interest on that money is payable to the bank. The interest must be paid from the real productive economy. This is why the banks are true leeches on society and fractional reserve banking is the most vicious form of usury.

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  27. “Steve, you’ve obviously missed my point in its entirety. ”

    “Steve!” recognise your fault! You are in the uncaring world of the “Rational”? ( Completely skewed by some cobbled together notion of what differentiates what “agendas” might mean)…

    Whoops! Make sense of “The Market” by connecting stuff wile my ego ferments money making wars!

    Heaven forbid…

    (Boot me out when you wish JW, I’ve listened to all of this before, you too I suspect. )

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  28. Waldgaenger, the topic at hand was money printing, not mortgages. When a bank creates money, it does so by creating a credit contract and a debit contract. Naturally, they cancel each other out; however, the bank has to pay the Central bank interest on the amount stated on the debit contract, be it dollars or pounds.

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  29. Getting there Robin (There is a much missed ship story about GR & D in there too, enough to spike a shallow ego in to much spite. ) some misplaced, wrongly trained, neurones need shepherding first Martin… Contentedness lies in the middle. Were is that?

    “Real World?” in the “Going Forward” anybody?

    Fat chance too much deceit, everywhere. The game of, simplistic antithetical, life or death goes on.

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  30. When even Prof Krugman calls it, (Krugman NYT 9 February):
    “While we obsess over domestic politics — not that there’s anything wrong with that, since a lot depends on whether the next leader of the world’s most powerful nation is a racist xenophobe, a sinister theocrat, an empty suit, or all of the above — something scary is going on in financial markets, where bond prices in particular are indicating near-panic.

    well now you know the bust is on and you know its chaotic, because when an arch conservative econocrat calls fire, fire it is! The following is the Prof’s concluding remarks:

    “Among other things, such a world [a crashed world and local economy] would be a very bad place into which to elect a member of a party that has spent the past 7 years inveighing against both fiscal and monetary stimulus, and has learned nothing from the utter failure of its predictions to come true.”

    Ditto for Cameron, ditto for the rest of the neoconservatives. JW has been spot on, if not prescient.

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  31. Thank you Canexpat that is the bulletin I referred to but did not have the link to. Private banks create the vast majority, about 97% of the money supply as debt when they make loans and create a deposit in the lenders account. When the lender pays off this debt the new money is destroyed. In the meantime the banks extract interest from the lender on the money they created from nothing. I didn’t read that this interest is payed to the central bank, this interest on money created from nothing is the bank profit and the basis of the whole FR banking scam. The BoE is fine with this (headed up by an ex Goldman Sachs employee) and explains how they can ensure that this money creation doesn’t get out of control. Trouble is it does not seem to have been too efficient in the run up to Crash 1 and looks pretty powerless in the run up to Crash 2. Reform of money creation is urgently needed. This was debated in the House of Commons last year the first time for about 150 years. About 18 MP’s turned up.

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  32. I do apologise to everyone. Some days I do get a bit argumentative and feisty. I will go to the library and swat up on the banking department so that I know what I’m talking about next time. Usually I just wing it after a few large brandies with a double HRT chaser, but I got it wrong today. Goodnight all.

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  33. @Wald

    Thank you for reminding me of it :-)

    It’s amazing to re-read that article. It occurs to me that the limits to lending that constrain the private banks are mainly predicated on the concept of the ‘rational consumer’. When the MSM pushes continual consumption now, rather than the deferred gratification preached by our forebears, and real earnings are progressively squeezed as jobs are offshored, many people are induced to borrow unsustainable and irrational amounts. The main restraint on bank lending cited by the Bank of England in the article becomes moot in such conditions.

    Bernays understood a hundred years ago that human beings are anything but rational, and as the entire ediface of ‘free market’ economics is erected on the idea of rational actors in the marketplace it is flawed at its very root. Advertising would not exist if this were not so. The banks make their obscene profits through predatory lending to the desperate, the system becomes more and more unstable and the banks divert a greater and greater share of the productive wealth of the economy into their shareholders’ accounts offshore. There was a very good reason for banking jubilees in ancient times as they understood the danger of compound interest.

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  34. I’m not worried at all!!!!The CEO of Deutsche Bank has jut announced that the bank is as solid as a rock! There you are, no problems at all.Those who are still not convinced are bedwetters! Now where did I put those diapers…..

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  35. TROLL WARNING

    The Slog is well known for its trolls, and the last instance of a “Gemma” was naturally a fake.

    Please disregard this statement as it is from a man who likes gadding about in high heels – but only with the privacy of the internet to shield him from his silliness:

    I do apologise to everyone. Some days I do get a bit argumentative and feisty. I will go to the library and swat up on the banking department so that I know what I’m talking about next time. Usually I just wing it after a few large brandies with a double HRT chaser, but I got it wrong today. Goodnight all.

    https://gemmasponderings.wordpress.com/2013/08/09/why-trannies-wear-heels/

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  36. Canexpat

    Well there was not one whiff of the word ‘derivative’, was there? Which is, after all, where the profits are to be made!

    Although commercial banks create money through their lending behaviour, they cannot in practice do so without limit. In particular, the price of loans — that is, the interest rate (plus any fees) charged by banks — determines the amount that households and companies will want to borrow.

    … if they’re given a chance to borrow, that is. After all, if a bank is going to make a profit, lending to a household or a company is pretty meagre stuff. Create money, pay the dues on the debit side, and use the created side to throw a few pot-shots at a rising market and you have a real profit!!

    After all, when a bank faces competition, they need to make a profit, don’t they? And once one bank can buck their profits by gambling on the stockmarket, they all need to… because otherwise their profits would be dire, and their stock price would be hammered.

    In short, they sealed their own doom. Plus, as you mention, they create their own debt spiral.

    It’s all the standard cart-before-the-horse economics!

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  37. @Gemma

    No, I didn’t mention derivatives as I did not want to further muddy pretty turbid waters. Stevie’s point was that with fractional reserve banking, commercial banks can create money out of thin air with the stroke of a pen (or the pressing of a few buttons on a keyboard). He is right in this as is confirmed by the BoE report and is probably owed an apology. Even without the various extra frauds dreamt up by such luminaries as Blythe Masters, modern banking is a fraud on the public as the banks purport to loan (and charge interest on) wealth that does not exist.

    You speak of ‘paying dues on the debit side’. I can find no reference to the report of a bank having to pay interest on the money they lend, just on the deposits that are lodged with them although it is quite possible that I have misunderstood this aspect.

    Incidentally, Canada had its most successful years when the Bank of Canada had a mandate to lend money for infrastructure projects at nominal interest. Both the St. Lawrence Seaway and the Trans Canada Highway were financed in this way. An independent, (and probably illegal), decision by the Bank of Canada governor in 1974 changed this and the Bank of Canada signed up to the Bank of International Settlements. Interest on the Canadian currency is now paid to private banks and Canada has continued to slide into unsustainable debt. This was a fraud on the Canadian taxpayer that has only recently been addressed in the COMA lawsuit currently languishing in the courts. Interestingly, there has been almost zero coverage in the Canadian press.

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  38. CanExpat

    “Stevie’s point was that with fractional reserve banking, commercial banks can create money out of thin air with the stroke of a pen (or the pressing of a few buttons on a keyboard). He is right in this as is confirmed by the BoE report and is probably owed an apology.”

    My point was the one that you could not answer, (and was not answered in the report you quoted from the BoE). Namely that whilst it is possible for a bank or corporation holding a banker’s licence, it is possible to print money at the flick of a switch – the important thing to note is that whislst unspoken by Britain’s central bank, it is still necessary to pay interest on the money that was created as the debt half of the deal.

    Were it not so, banks would create money literally out of nothing, and have nothing to restrain them. An interest rate of 0,5% is as near to this as needs be.

    This means that any derivatives produced under such a low-interest regime need bear only a minute increment in value to be profitable (that is to say, the incremental increase minus the costs of servicing the debt part of the contract is the profit). The only problem here is that if interet rates do go up, these derivatives will need to be dumped onto banks held by the taxpayer.

    It’s not so muddy if you realize what’s actually going on ;-)

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  39. Gemma, I think I preferred your alter ego who admitted to the hissy fit.

    You still haven’t comprehend the discussion. Your comments about the commercial relationship between banks and a central bank ARE NOT pertinent to this discussion.

    i would now like to look at your comments on derivatives. The problem here is NOT one of interest rates going up but one of basic lack of understanding.

    A derivative in its most simple terms is a security with a price that is dependent upon or derived from one or more underlying assets and its value is determined by fluctuations in the underlying assets. It is nothing more than a bet between parties that at some time in the future the value of the assets will that which was agreed. The problems arise when party A is forced to pay for the security and the value of the underlying assets are £0.00. Think mortgage-backed securities.

    You still haven’t seen the big picture have you?

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  40. Surely all this debate about Bank lending would be clearer if the protagonists who use the general term of “money” and be more specific. Banks do not give money when someone gets a loan, the banks give credit (an electronic commodity) which only becomes monetary when the loan is used for some transaction of equivalent value for goods or services at the market price. When the borrower repays the loan and interest in money, this is real money having been earned or worked for in some way, in any case the borrower’s real WEALTH (a result of his labour or luck) is depleted by the value expressed in monetary terms (currency) and transferred to the bank who did next to nothing other than provide a financial lubricant for a specific period of time having done one would imagine due diligence.
    In simpler terms:the banks only give credit (notional money) but are always repaid by a transfer of wealth which explains of course why they are so wealthy.

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  41. Stevie, “Your comments about the commercial relationship between banks and a central bank ARE NOT pertinent to this discussion.”

    Then you cannot speak of printing money, or bank lending. In our modern world, both require a relationship to a central bank. Be it commercial or otherwise.

    I’m sorry that you haven’t penetrated this deep yet.

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  42. Dear Gemma,

    You really are a gem. Commercial Relationship refers to the agreements between two entities who engage in commerce. Or to put it simply for you, the charges levied by one bank to another.

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  43. Indeed so! I was wondering how a bank could create money without that, but you seem to have it nailed – but can’t put it in words.

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  44. Gemma (the real one) private banks do not pay interest to central banks on the money they create from nothing by advancing credit/debt. As David Hale says this electronic money only becomes real when it is used to make purchases in the real economy like buying a house. In the run up to Crash1 the majority of bank lending in the uk was into the property sector (mostly private). The interest paid to the banks is derived from the real economy. What the banks then do is bundle up mortgages good and bad (securitisation) and sell them on as derivatives (double usury). I don’t recall being a party to this when I took out my last mortgage so I don’t see how it can be even a legal contract.

    The point is; who creates money. It is not even something discussed in most economics courses at university and many prominent economist – see Robert Peston don’t seem to be aware. I am glad to see that students at some uk universities have staged revolts in order to get the subject at least discussed. The FR banking scam has been known about but hushed up for a long time, even Henry Ford 1 said “if people knew how the financial system really worked there would be revolution”

    Governments or even other institutions could create their own money ( Bishops issued money in certain post conquest region sof the uk). The argument against allowing this is that they might overdo it and cause inflation. Money creation by private banks has not prevented inflation. Also let us not forget that private banks who create 97% of the money supply as debt can also shrink the money supply and cause deflation/slump. There are then plenty of opportunities for those with wealth to make money by buying depreciated assets.

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  45. I really wonder if the Central Banks would allow a private institution to create money without paying their dues. This isn’t a game where we sit on the lawn and make daisy chains: Central banks have made a very hard world where people who do not do as they’re told get put in prison (like DSK). Or become a suicide… or worse.

    Perhaps you even believed that PDF you posted from the BoE… it’s why it was there ;-)

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  46. “As David Hale says this electronic money only becomes real when it is used to make purchases in the real economy like buying a house”

    This is nonsense. Our real money is bank credit. It isn’t not real and then suddenly becomes real. The banks and treasuries money is bank reserves. Whoever controls BoE reserves effectively controls the country. Notes and coins are no more than a token for bank credit / our money.

    Banks create 100% of our money. Either by loaning money (DR Loan CR bank credit). Or by accepting BoE reserves to support the bank credit liability when the UK Govt pays an entity (DR BoE reserves CR bank credit)

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  47. “I really wonder if the Central Banks would allow a private institution”

    Because the central bank didn’t want the hassle. The Govt / central bank has all the power (but pretend otherwise) without the hassle of dealing with the small stuff. So banks are set up to do this. And charge interest to cover their expenses. While the central bank creates money via the banks as they see fit (by creating new BoE reserves).

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  48. Amusing conversation in the responses, Gemma, Stevie and all.

    Philosophicallly without the artificial inflation of value by the banksters the economic system would have ground to a halt a long time ago. Call it Keynes if you want, money creation etc. the principle that has been broken is that those in the highest level with all the power now only use it to serve themselves and not the population. Sure they would still be king of the pile but the lives for the majority would likely be better.

    Not a chance, bankster greed won out and they now use the banking system for self enrichment.

    The artificial inflation of value a neat trick but it should not have been allowed out of control and used solely for self enrichment and that is where the battle lines are nicely drawn once the economy collapses.

    Be hell to pay for those in charge…

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  49. RJ

    Because the central bank didn’t want the hassle. The Govt / central bank has all the power (but pretend otherwise) without the hassle of dealing with the small stuff. So banks are set up to do this.

    The Government only has the power because the government (in the US and UK at least) do as the banks and other powerful corporations tell it to do.

    As to the central bank not wanting the hassle, that the amounts payable on Morgan Stanley’s $1500 trillion stash of derivatives istn’t worth the hassle. It is next to nothing, isn’t it? And when people are all reading the news and hearing about Deutsche Bank’s $75 trillion… this is the free media we’re talking about, the “little is more” media that focusses on things German. Rather than the nice, well dressed men on Wall Street who are shown to be above reproach because the spotlight of the headlines shows Germany’s glaring errors for all to gloat on. By the way, Wall Street is where many of Deutsche’s derivatives are actually held… not that this is news, of course. They want people to believe this, just read the comments on this blog if you don’t believe me!!

    Never mind the details! You’ll never hear them spoken of in the Mainstream Media: it’s what it’s there for.

    And it’s why people have all these daft ideas about central banks…

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  50. Gemma

    Derivatives aren’t money. Money is either central bank reserves (the banks and treasuries money) , bank credit (our money) or notes and coins (a token for bank credit).

    And whoever controls the central bank reserves has the real power (but the confuse public are mislead to believe its the banks). That’s why the Euro took it from governments and gave it to a small ruling elite. The public willingly gave away without a peep the most valuable asset a country has. And will pay a very heavy price for this.

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