Writing the unthinkable in the Telegraph

[Catweazle]

One thing that many don't seem to understand is that GNP stands for "gross national product" "per Year". It is not the sum total of a countries assets it is the sum total of one years production.

A headline figure we often see on our news is GDP, Gross Domestic Product. Our media seem to think it's an indicator of the state of our economy and get very excited when it goes up. Sadly they are missing the point. For example, the GDP went up recently because gas prices rose.

I believe the figure we should be looking at is the export / import ratio, balance of payments, because that's the indicator of whether we are earning our place in the world or just surviving by selling the family silver.

The GDP figure already includes the balance of imports and exports. One of the formulae for it is:

GDP = private consumption + gross investment + government spending + (exports − imports)


Peter.

Indeed, but in my opinion the {exports − imports} is the figure we really need to look at. If increasing gas prices can raise our GDP ( and be considered by the media to be a good thing ) then the formula obviously isn't well balanced.

[Little John]

So does the loan borrowed by the bank that records it as a deposit never have to pay that loan back? It does have to one presumes and pay interest on whatever is outstanding on day 2.

However, it is indeed true that at some point whilst I was a nipper, possibly slightly earlier than that, our culture changed to one where we would borrow money for anything instead of save up. Borrow now off access, your flexible friend and pay a higher price for your purchase later. This lead to a situation a (once) young couple I know got into. They would buy a sofa, a big tv, new cooker etc all on debt, once the balance was paid off they'd throw it all out and "buy" new stuff, on debt and the cycle repeated forever. I don't know them any more but I doubt anything has changed. To me it was like they never actually owned anything, but they seemed perfectly happy.

It didn't change when you were lad. It's been like this for centuries.

All that has happened in the last few decades is that the process has accelerated.

[extractorfan]

All that has happened in the last few decades is that the process has accelerated.

My dad, and his dad never paid for anything other than a house on credit. I have used credit in the past for a car (although I wouldn't now). I am more frugal than most of my peers by an Irish Mile though, I know loads of people who borrow for holidays or even christmas presents! I can't believe it was always so, most people just didn't have holidays or lavish christmases if they couldn't afford it.

[Little John]

All that has happened in the last few decades is that the process has accelerated.

My dad, and his dad never paid for anything other than a house on credit. I have used credit in the past for a car (although I wouldn't now). I am more frugal than most of my peers by an Irish Mile though, I know loads of people who borrow for holidays or even christmas presents! I can't believe it was always so, most people just didn't have holidays or lavish christmases if they couldn't afford it.

No, I haven't explained myself properly. What I am getting at is that the vast proportion of money that you or I would ordinarily think of as CB base-money is nothing of the sort. It is bank-created debt-money. When you get paid your salary (or pension) at the end of this month, over 75% of it will indirectly be in the form of the debts of other people Only a small fraction of it is paid in actual CB base money.

It's been that way for ages to a greater or lesser extent. Right now just happens to be to a greater extent.

[extractorfan]

All that has happened in the last few decades is that the process has accelerated.

My dad, and his dad never paid for anything other than a house on credit. I have used credit in the past for a car (although I wouldn't now). I am more frugal than most of my peers by an Irish Mile though, I know loads of people who borrow for holidays or even christmas presents! I can't believe it was always so, most people just didn't have holidays or lavish christmases if they couldn't afford it.

No, I haven't explained myself properly. What I am getting at is that the vast proportion of money that you or I would ordinarily think of as CB base-money is nothing of the sort. It is bank-created debt-money. When you get paid your salary (or pension) at the end of this month, over 75% of it will indirectly be in the form of the debts of other people Only a small fraction of it is paid in actual CB base money.

It's been that way for ages to a greater or lesser extent. Right now just happens to be to a greater extent.

Yes, I do agree with that. I do understand that our economy has been borrowing from the future for a long time. I'm still not on board with some of the definitions of fractional reserve banking that I've seen on this thread but I don't disagree with a lot of what has been said.

[kenneal - lagger]

So does the loan borrowed by the bank that records it as a deposit never have to pay that loan back? It does have to one presumes and pay interest on whatever is outstanding on day 2.

As you pay back the loan the bank's asset diminishes so they have
have to write off the asset. The money simply disappears. There's no real paper money involved, it's just a couple of entries on a computer. That's one of the reasons that we have a financial problem at the moment. Because the banks aren't making many new loans and people are paying back all that they can we have a diminishing money supply.

However, it is indeed true that at some point whilst I was a nipper, possibly slightly earlier than that, our culture changed to one where we would borrow money for anything instead of save up. Borrow now off access, your flexible friend and pay a higher price for your purchase later. This lead to a situation a (once) young couple I know got into. They would buy a sofa, a big tv, new cooker etc all on debt, once the balance was paid off they'd throw it all out and "buy" new stuff, on debt and the cycle repeated forever. I don't know them any more but I doubt anything has changed. To me it was like they never actually owned anything, but they seemed perfectly happy.

That's the throw away society for you. Make rubbish that only last for five or maybe ten years so that people keep coming back for more! Even top of the range stuff has a use life: they don't make stuff like Chippendale any more unless you buy it from an artisan furniture maker. Chippendale was mass produced at the time which is why there is so much of it still around now, That and the quality of course.

We only buy solid pine furniture and because it's out of fashion we get most of it second hand very cheaply.

[Little John]

So does the loan borrowed by the bank that records it as a deposit never have to pay that loan back? It does have to one presumes and pay interest on whatever is outstanding on day 2.

As you pay back the loan the bank's asset diminishes so they have
have to write off the asset. The money simply disappears. There's no real paper money involved, it's just a couple of entries on a computer. That's one of the reasons that we have a financial problem at the moment. Because the banks aren't making many new loans and people are paying back all that they can we have a diminishing money supply.

However, it is indeed true that at some point whilst I was a nipper, possibly slightly earlier than that, our culture changed to one where we would borrow money for anything instead of save up. Borrow now off access, your flexible friend and pay a higher price for your purchase later. This lead to a situation a (once) young couple I know got into. They would buy a sofa, a big tv, new cooker etc all on debt, once the balance was paid off they'd throw it all out and "buy" new stuff, on debt and the cycle repeated forever. I don't know them any more but I doubt anything has changed. To me it was like they never actually owned anything, but they seemed perfectly happy.

That's the throw away society for you. Make rubbish that only last for five or maybe ten years so that people keep coming back for more! Even top of the range stuff has a use life: they don't make stuff like Chippendale any more unless you buy it from an artisan furniture maker. Chippendale was mass produced at the time which is why there is so much of it still around now, That and the quality of course.

We only buy solid pine furniture and because it's out of fashion we get most of it second hand very cheaply.

In a system of FRB, the debt-monster inevitably gets larger over time as more and more debt-money is pushed into the system to cover the interest payments on existing loans. This means there has to be a perpetually increasing demand for money by the people. Shorter lifespans, albeit with higher standards of production, on products is part of the process whereby that demand is kept at the artificially high level required to keep the system from collapsing.

In short, stuff that is built to last does not facilitate growth and our monetary system requires growth at all costs. Indeed, the system has precisely two modus-operandi; growth or collapse. That is all. To get a different outcome, we need a different system. It can't be reformed. It must be smashed. The problem, of course, is that those for whose benefit the current system is run are both unimaginably powerful and will no doubt wield that power in every way possible to maintain their position.

This system will not be overturned without blood being spilt.

[jonny2mad]

This system will not be overturned without blood being spilt.

in 1940 we had conditions the german resistance to hitler were given for ending the war they were

1 get rid of hitler and the nazi party well thats understandable .

Condition 2 germany must return to the gold standard

So if the krauts had got rid of hitler and the nazis in 1940, the world war would still continue if they remained outside the debt usury system .

I think that shows how important it was to the allies or the people who ran the allies, to keep this system we have now.

Try overturning the present financial system hmmm well the last people in a major country that I know that did that were german, and it was successful pulled them out of a terrible economic position, but they ended badly .

So you need to be clear about the level of bloodshed and how far the people who run the present system are likely to go.

Someone may well try it again be interesting to watch what happens

[Little John]

This system will not be overturned without blood being spilt.

in 1940 we had conditions the german resistance to hitler were given for ending the war they were

1 get rid of hitler and the nazi party well thats understandable .

Condition 2 germany must return to the gold standard

So if the krauts had got rid of hitler and the nazis in 1940, the world war would still continue if they remained outside the debt usury system .

I think that shows how important it was to the allies or the people who ran the allies, to keep this system we have now.

Try overturning the present financial system hmmm well the last people in a major country that I know that did that were german, and it was successful pulled them out of a terrible economic position, but they ended badly .

So you need to be clear about the level of bloodshed and how far the people who run the present system are likely to go.

Someone may well try it again be interesting to watch what happens

The level of bloodshed would be enormous. We both know they would sooner send us all to perpetual war with one another before giving up their power.

[RogueMale]

This system will not be overturned without blood being spilt.

in 1940 we had conditions the german resistance to hitler were given for ending the war they were

1 get rid of hitler and the nazi party well thats understandable .

Condition 2 germany must return to the gold standard

I'm unaware of any contact or discussions with the German Restistance, and the only condition that was ever on offer for ending the war was unconditional surrender AFAIK. Do you have a source for that?

[UndercoverElephant]

We both know they would sooner send us all to perpetual war with one another before giving up their power.

They'd do that just to make money out of it. War is big business, provided you're in the right sort of business.

[JavaScriptDonkey]

JSD's problem is that the system we, and Money As Debt, have described is so fantastical and unbelievable that he thinks it can't be true. He doesn't want to believe.

My problem is that you are all confused.

One last time,

1. Banks can only lend out up to the value of the money and assets they have on deposit. They cannot lend out more money than they have assets.

2. These assets can be in the form of bonds or stocks or loans from other banks.

3. All banks always borrow all their money from their creditors and owe it to them.

4. Calculations of who owes what to whom are only valid if you remember that debts must be repaid.

5. Banks must retain a fraction of their total liabilities in liquid assets & cash to satisfy the law.

6. If the value of a bank's assets suddenly fall then they will fail the fractional reserve tests are become bankrupt.

7. A failing bank cannot simply lend money in to existence because IT CANNOT LEND MORE MONEY THAN IT HAS VALUE OF ASSETS.

In your world Lehmans would just have written billions in cheap loans and use the fantasy money to pay its debts. It couldn't do that because of the limits of fractional reserve banking that insist that a bank cannot lend more money out than it has available.

Now for the bit that I think is confusing you - sometimes not only do assets go down in value but also an asset might be just a potential line of credit from another institution. In a sudden crisis these sources of capital will dry up at exactly the moment that asset values are falling and depositors are demanding their cash back to pay off their own debts.

That a £20 note in the coffers of bank Z was part of a loan from bank A 6 months ago is completely irrelevant.

[jonny2mad]

This system will not be overturned without blood being spilt.

in 1940 we had conditions the german resistance to hitler were given for ending the war they were

1 get rid of hitler and the nazi party well thats understandable .

Condition 2 germany must return to the gold standard

I'm unaware of any contact or discussions with the German Restistance, and the only condition that was ever on offer for ending the war was unconditional surrender AFAIK. Do you have a source for that?

It was the germans pretending to be the german resistence in the venlo affair

[raspberry-blower]

JSD's problem is that the system we, and Money As Debt, have described is so fantastical and unbelievable that he thinks it can't be true. He doesn't want to believe.

My problem is that you are all confused.

No JSD, YOU are the one who is confused - because you do not understand what is actuallly going on.

1. Banks can only lend out up to the value of the money and assets they have on deposit. They cannot lend out more money than they have assets

This is the basis of your argument - and it is also where you go hopelessly wrong. You clearly have not heard of Rehypothecation because, if you have worked in financial services in the past ten years, then this should sound familiar:

Re-hypothecation occurs when banks or broker-dealers re-use the collateral posted by clients such as hedge funds to back the broker's own trades and borrowing.

In the UK, there is no limit on the amount of a clients assets that can be rehypothecated,[3] except if the client has negotiated an agreement with their broker that includes a limit or prohibition.

Emphasis mine. This undermines your position, JSD, as banks DID over extend themselves. If they hadn't over extended themselves, why did they require a bailout in the first place?

2. These assets can be in the form of bonds or stocks or loans from other banks.

What else, JSD? Clue - derivatives, such as Mortgagae Backed Securities - where ownership was sliced and diced so that no-one had a scooby as to who the legal owner should be. These securities have diddly squat value, yet trillions of these sit in bank vaults, undeclared

3. All banks always borrow all their money from their creditors and owe it to them.

If you owe the bank a thousand pounds, you're in trouble. If you owe the banks a billion, the bank is in trouble

4. Calculations of who owes what to whom are only valid if you remember that debts must be repaid

Banks are more interested in getting interest repayments, rather than having debts paid off

5. Banks must retain a fraction of their total liabilities in liquid assets & cash to satisfy the law.

Herein lies the major faultline of Fractional Reserve Banking. What is your working definition of a fraction in this instance? The Basel 3 regulations go nowhere near far enough to prevent another run on the banks from happening again. Only full fractional reserve banking would stop that

6. If the value of a bank's assets suddenly fall then they will fail the fractional reserve tests are become bankrupt

You clearly were not paying attention when Northern Rock went bust, were you? It was the drying up of the supply of credit that accounted for Northern Rock, which led to the subsequent slump in asset prices - not, as you described it, the drop in asset values resulting in the drying up of credit

7. A failing bank cannot simply lend money in to existence because IT CANNOT LEND MORE MONEY THAN IT HAS VALUE OF ASSETS

The reason why banks won't lend to failing banks is bacause they know everything is interconnected. Would you lend to a company that you know will fail? the banks take a predatory position on this - they'll hedge their bets that said bank WILL fail. Just like they've done with Eurozone countries

[Catweazle]

I'm certain that the banks used contrived "assets" to act as their reserves and hence loaned out all of the actual money they had on deposit, this is effectively creating money. That's why they needed a bailout, and that's why a bank run could sink them tomorrow.