The book the 1% don't want you to read

[Katatonic]

It's not creating additional money, they have loaned your money out. When that money goes to Simon it is still nominally your money. However you are reliant on Simon paying you back to get access to it. That number on your bank account and mine is indicative of how much you should expect to get rather than what you already have. It's very deceptive because it is called a deposit and every step of the way the bank makes it seem like they are just holding it for you, when in actuality you are loaning out your money and assuming the risks that come along with it.

I believe you're getting it mixed up a little. If I go deposit $100 today and then decide I want to withdraw that $100 tomorrow, is the bank going to tell me "sorry, we've loaned your money to this dipshit over here, and you have to wait until he pays us back to get your money."? Obviously not, or nobody would ever deposit a fucking dime in a bank.


What happens is I go and deposit $100. The bank understands that they only have to keep 10% of my deposit on hand so they loan $90 to someone else, then that person deposits their $90 and the bank only has to keep $9 of that deposit on hand and loans out $81. Then when the person with $81 deposits that money, the bank holds $8.10 and loans out $72.90, and this process can repeat until $100 turns into $900. Now if all the people were to go withdraw their money, the bank would be forced to hand over $800 that they don't fucking have.

It gets even shadier when it's a mortgage loan the bank is handling. Now they only have to hold 5% of the value of the loan on hand, and again the process repeats itself.

 

[Simeon_Strangelight]

Currently our economic system is so fucked up that it does not really matter whether the banks, the corporations or the governments act - they are already ONE in reality. Government bodies and their armies are used for the goals of the banks and the corporations while the soldiers are given bogus reasons to risk their lives.

There are so many scams going on in our world, that it would take a real Superman without any Kryptonite-weaknesses to really change it. Most people are not even aware of how intricate the control-web is put up. They consider it sort of going on willy-nilly with just interest-groups pushing a few strings. NO!

The biggest scams of our world:

1. Useless debt of all States - Governments can create money without debt
2. Total money volume control of banks via fractional reserve banking
3. Mostly private Central Banks or central banks under control of certain groups
4. unhealthy concentration of most industries and finance institutions in the world - we are already governed by cartels in practically all branches of economic activity
5. Deep connection between all banks, corporations and governments - there are no seperate entities - banks own corporations, finance governments and the governments do the biddings of both while giving fake reasons to the "voters"

And those scams are the main economic ones. Nevermind the equally grand technological and medical scams - mostly the technologies suppressed which would have already freed us from the oil-economy and given enormous freedom to most people.

 

[Lufty]

It's not creating additional money, they have loaned your money out. When that money goes to Simon it is still nominally your money. However you are reliant on Simon paying you back to get access to it. That number on your bank account and mine is indicative of how much you should expect to get rather than what you already have. It's very deceptive because it is called a deposit and every step of the way the bank makes it seem like they are just holding it for you, when in actuality you are loaning out your money and assuming the risks that come along with it.

I believe you're getting it mixed up a little. If I go deposit $100 today and then decide I want to withdraw that $100 tomorrow, is the bank going to tell me "sorry, we've loaned your money to this dipshit over here, and you have to wait until he pays us back to get your money."? Obviously not, or nobody would ever deposit a fucking dime in a bank.


What happens is I go and deposit $100. The bank understands that they only have to keep 10% of my deposit on hand so they loan $90 to someone else, then that person deposits their $90 and the bank only has to keep $9 of that deposit on hand and loans out $81. Then when the person with $81 deposits that money, the bank holds $8.10 and loans out $72.90, and this process can repeat until $100 turns into $900. Now if all the people were to go withdraw their money, the bank would be forced to hand over $800 that they don't fucking have.

It gets even shadier when it's a mortgage loan the bank is handling. Now they only have to hold 5% of the value of the loan on hand, and again the process repeats itself.

In this case I was simplifying it. You aren't actually lending it to a single person but rather a diverse list of clientele that together provide provide the cash flow needed to meet depositors needs. Wikipedia has a good article describing the money multiplier effect. Interested parties should check it out. The money multiplier is funky at first look but once you look at the assets vs liabilities on the balance sheet it works out.

 

[Katatonic]

Of course it's going to work out on a balance sheet. Even using my example the bank has equal liabilities and assets, not counting interest. The bank may owe $100 to the original depositor and a little less than $800 to all the people who borrowed, but in their minds the $900 they loaned out is an asset they will be paid back, with interest.

I have also oversimplified the whole process. Banks generally buy government debt with their depositors money in the form of bonds. I believe it's a small percentage that actually gets loaned out in the manner I referred to. I was using that example to show how banks create money out of thin air with the governments blessing.

 

[LeBeau]

I get the sense that Krugman believes that only the "right sort of people" like himself (elite liberal types) are really "enlightened" enough to decide where to spend the money.

Krugman's academic arrogance is brutal, that's why I enjoy it when guys like James Rickards, Kyle Bass, etc. demolish his arguments and burn him on top of it.

 

[Samseau]

Fraction reserve banking is indeed a scam. However, loans lent out properly by banks can increase the economy.

If I were king, I'd put the amount of money a bank can loan out at a very small number - say no more than 5% of their total deposits. The other 95% must remain untouched. This would make banks much less riskier, and bailouts (if necessary) much cheaper.

 

[...]

I don't get the title of this thread.

The top 1% are not trying to ban this book or censor it. It's an Amazon top seller.

Sounds like an attention-whoring title.

 

[marksoc]

I'd put the amount of money a bank can loan out at a very small number - say no more than 5% of their total deposits. The other 95% must remain untouched. This would make banks much less riskier, and bailouts (if necessary) much cheaper.

It is called the "multiplier" and without it the world economy would crash instantly.

Don´t believe everything that is spewed out of right-wing websites. No, the Government is not going away. Yes, most countries have a Central Bank (and not a Fed). Yes, debt is useful. Yes, the American bailout was straight robbery of your money. Yes, part of your taxes are mis-allocated. And no, you can´t live in a civilization without State or taxes, and don´t think that you could live alone either.

And finally, in simple Marxist terms (don´t enter into anaphilactic shock), Yes, value comes from the production of socially needed good and services. Gold does not produce value, neither sand nor bitcoins. Work do. Only work.

 

[KorbenDallas]

Gold doesn't produce value, but it is valuable. If only for its electrical uses. The fact that it has been used as money for 6000 years is also a track record that is hard to deny.

 

[Samseau]

I'd put the amount of money a bank can loan out at a very small number - say no more than 5% of their total deposits. The other 95% must remain untouched. This would make banks much less riskier, and bailouts (if necessary) much cheaper.

It is called the "multiplier" and without it the world economy would crash instantly.

The question you neglect is whether or not debt makes things better in the long run, say, over 500 years or so. I think debt doesn't help things much at all, because debt always produces an inevitable crash.

This is the lesson Austrian economists try to teach us, but most people are unable to understand.

I am unconvinced that the multiplier is necessary or useful for the long-term health of a society.

Christian societies existed for hundreds of years without usury and were remarkable stable and prosperous.

And finally, in simple Marxist terms (don´t enter into anaphilactic shock), Yes, value comes from the production of socially needed good and services. Gold does not produce value, neither sand nor bitcoins. Work do. Only work.

You're not quoting Marxism. Marxism believed that some people did not need to work, hence, "Each according to his ability, and each according to his need."

The ones who believed the labor theory of value were the Lockeans.

However, is the labor theory of value true? How do you value a man's labor? Isn't some labor more valuable than others? If I piss on a tree, is the tree mine?

So obviously value is much more fluid and complex than mere labor.

 

[cardguy]

Marx developed the Labor Theory of Value (which was not his) and added the concept of 'socially necessary labor time'.

This was an important addition for him. As he needed to update the labour theory of value to prevent people from saying well if labor creates value - why are my mud pies (or - as above - urine soaked trees) of no value?

Marx makes use of the concept of a marketplace to help define what is valuable labor and what is not.

The major split in economics from his time onwards - was between the Marxists who claimed that labor ultimately created value. And the marginalists (the mainstream branch of economics of today) who claim that exchange creates value.

This idea lives on today - with the bankers believing they create value for society by continually swapping and selling debt and derivatives.

Whilst the rest of us feel that any value they free up is still ultimately created by the people who go to work each day to create the good and services that underpin society.

It might seem like an arcane debate from the nineteenth century. But it is the basis for bankers being able to claim they are worth hundreds of billions of dollars thanks to the service they provide to society.

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.

Indeed the world is ruled by little else.

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." - John Maynard Keynes

 

[Samseau]

Marx developed the Labor Theory of Value (which was not his) and added the concept of 'socially necessary labor time'.

This was an important addition for him. As he needed to update the labour theory of value to prevent people from saying well if labor creates value - why are my mud pies (or - as above - urine soaked trees) of no value?

Marx makes use of the concept of a marketplace to help define what is valuable labor and what is not.

The major split in economics from his time onwards - was between the Marxists who claimed that labor ultimately created value. And the marginalists (the mainstream branch of economics of today) who claim that exchange creates value.

This idea lives on today - with the bankers believing they create value for society by continually swapping and selling debt and derivatives.

Whilst the rest of us feel that any value they free up is still ultimately created by the people who go to work each day to create the good and services that underpin society.

It might seem like an arcane debate from the nineteenth century. But it is the basis for bankers being able to claim they are worth hundreds of billions of dollars thanks to the service they provide to society.

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.

Indeed the world is ruled by little else.

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." - John Maynard Keynes

I couldn't agree more about the importance of ideas. I live for the idea.

However, I like what the Austrians believe - the exchange theory of value, undisturbed by government intervention, is the only accurate measure of value.

 

[ElBorrachoInfamoso]

Even if governments refrained from perverting the money supply and there was a free market in currency production, fractional reserve banking would still exist. What would not exist is an institution that could continuously print new money and force you to use it.

 

[cardguy]

Is there an economic reason why fractional reserve banking has to exist?

Just wondering what the benefits are?

 

[Lufty]

Is there an economic reason why fractional reserve banking has to exist?

Just wondering what the benefits are?

Has to exist no. Does exist yes. Modern economies are about cash flow. Everything is tied to the question "is the cash flowing" if yes the stock market will be stable or going up, people will have jobs, times will be cheery for all. But if not then we fall into a recession. The money multiplier effect keeps the cash flowing from savers to spenders. Spenders create jobs, which keeps times good.

You start getting economic problems when people stop spending, which leads to layoffs and what not, which prevents people from spending. This is why some politicians go for the bailout strategy, to break the vicious cycle. For the great depression we had WWII to spark the spending, but for 2008 we needed to arbitrarily create spending because of differing circumstances.

 

[Alpha_Romeo]

It always struck me as curious as to why the US had such an irrational, if not overreactionary, fear of communism. Not that communism isn't a crap economic model--it is. But if there is any force that is capable of overwhelming and disempowering the wealthy elite, communism is the one. Unfortunately, communism is just an extreme solution (massive wealth distribution) to an extreme problem (massive wealth imbalance), where everyone thinks that they've won (disempowered the wealthy), but really they've lost (replaced one elite with another).

Just some thoughts. I have not read the book yet, but I am very interested in these things.

 

[cardguy]

Is there an economic reason why fractional reserve banking has to exist?

Just wondering what the benefits are?

Has to exist no. Does exist yes. Modern economies are about cash flow. Everything is tied to the question "is the cash flowing" if yes the stock market will be stable or going up, people will have jobs, times will be cheery for all. But if not then we fall into a recession. The money multiplier effect keeps the cash flowing from savers to spenders. Spenders create jobs, which keeps times good.

You start getting economic problems when people stop spending, which leads to layoffs and what not, which prevents people from spending. This is why some politicians go for the bailout strategy, to break the vicious cycle. For the great depression we had WWII to spark the spending, but for 2008 we needed to arbitrarily create spending because of differing circumstances.

Brings to mind an economic parable I mentioned on the forum:

http://www.rooshvforum.com/thread-26172-post-613281.html#pid613281

 

[Lufty]

Is there an economic reason why fractional reserve banking has to exist?

Just wondering what the benefits are?

Has to exist no. Does exist yes. Modern economies are about cash flow. Everything is tied to the question "is the cash flowing" if yes the stock market will be stable or going up, people will have jobs, times will be cheery for all. But if not then we fall into a recession. The money multiplier effect keeps the cash flowing from savers to spenders. Spenders create jobs, which keeps times good.

You start getting economic problems when people stop spending, which leads to layoffs and what not, which prevents people from spending. This is why some politicians go for the bailout strategy, to break the vicious cycle. For the great depression we had WWII to spark the spending, but for 2008 we needed to arbitrarily create spending because of differing circumstances.

Brings to mind an economic parable I mentioned on the forum:

http://www.rooshvforum.com/thread-26172-post-613281.html#pid613281

As that parable is spot on. Silly thing is you can spend years studying economics and finance, understand how it works but still not quite know why it works.

 

[Samseau]

Is there an economic reason why fractional reserve banking has to exist?

Just wondering what the benefits are?

Has to exist no. Does exist yes. Modern economies are about cash flow. Everything is tied to the question "is the cash flowing" if yes the stock market will be stable or going up, people will have jobs, times will be cheery for all. But if not then we fall into a recession. The money multiplier effect keeps the cash flowing from savers to spenders. Spenders create jobs, which keeps times good.

You start getting economic problems when people stop spending, which leads to layoffs and what not, which prevents people from spending. This is why some politicians go for the bailout strategy, to break the vicious cycle. For the great depression we had WWII to spark the spending, but for 2008 we needed to arbitrarily create spending because of differing circumstances.

Right, so the better answer is never to create the vicious cycle in the first place.

Also WW2 did not start spending again, most of the world was in ruins after the fighting stopped and stayed in a depression for almost 20 years.

It was only the USA which made out like a bandit, being the victor and getting all of the spoils. USA's exports went up almost 10 fold after 1944, you can look this up on one of the .gov sites.

War is one of the best ways to make money - if you're a winner.

 

[Lufty]

Is there an economic reason why fractional reserve banking has to exist?

Just wondering what the benefits are?

Has to exist no. Does exist yes. Modern economies are about cash flow. Everything is tied to the question "is the cash flowing" if yes the stock market will be stable or going up, people will have jobs, times will be cheery for all. But if not then we fall into a recession. The money multiplier effect keeps the cash flowing from savers to spenders. Spenders create jobs, which keeps times good.

You start getting economic problems when people stop spending, which leads to layoffs and what not, which prevents people from spending. This is why some politicians go for the bailout strategy, to break the vicious cycle. For the great depression we had WWII to spark the spending, but for 2008 we needed to arbitrarily create spending because of differing circumstances.

Right, so the better answer is never to create the vicious cycle in the first place.

Also WW2 did not start spending again, most of the world was in ruins after the fighting stopped and stayed in a depression for almost 20 years.

It was only the USA which made out like a bandit, being the victor and getting all of the spoils. USA's exports went up almost 10 fold after 1944, you can look this up on one of the .gov sites.

War is one of the best ways to make money - if you're a winner.

I was using we in an American context, sorry if I was being unclear. The US came out ahead because by the time the war was over many people had some money in their pocket from working(as a solider or in a factory etc) and because every other industrialized nation has been bombed/invaded into oblivion, making the US practically the only place to go for lots of goods.