What is money? Where does our money come from?

This is a discussion on What is money? Where does our money come from? within the Home Trader forums, part of the Trading Career category; Originally Posted by darktone Yep, have to agree. The question for me is why do we have to borrow our ...

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Old Oct 31, 2011, 2:49pm   #16
 
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re: What is money? Where does our money come from?

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Yep, have to agree.

The question for me is why do we have to borrow our money into existance at all?
Under our current system debt growth is assured.
Well, we don't really have to borrow our money into existence. You choose to borrow. And debt growth isn't really assured at all, as there have been and always will be periods of significant deleveraging. These sorts of cycles are inevitable and, you could argue, are part of capitalism (this is actually the Austrian view most eloquently described by Schumpeter). The question is all about making these cycles less volatile and socially destructive, i.e. it's not about economics, but rather about politics/sociology.
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Old Oct 31, 2011, 2:50pm   #17
 
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re: What is money? Where does our money come from?

darktone started this thread When you look though history there has been a constant tug of war battle between banks and the people. I think we might be living through another transition of money creation power back to the people. I hope so!
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Old Oct 31, 2011, 2:52pm   #18
 
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re: What is money? Where does our money come from?

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When you look though history there has been a constant tug of war battle between banks and the people. I think we might be living through another transition of money creation power back to the people. I hope so!
How do you envision money creation by the people?
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Old Oct 31, 2011, 3:10pm   #19
 
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re: What is money? Where does our money come from?

darktone started this thread
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Well, we don't really have to borrow our money into existence. You choose to borrow. And debt growth isn't really assured at all, as there have been and always will be periods of significant deleveraging. These sorts of cycles are inevitable and, you could argue, are part of capitalism (this is actually the Austrian view most eloquently described by Schumpeter). The question is all about making these cycles less volatile and socially destructive, i.e. it's not about economics, but rather about politics/sociology.
I dont agree. For the public to have money it has to first be borrowed by somone before it can circulate around the economy (I want to point out im not talking about private debt).
We are all in debt which we service through our taxes.

I would also say that debt growth is assured (as i currently understand it). As money is loaned into existance + interest. Further loans will be always be needed to service the interest.

I also see in a way that economics and monetary theory / policy are two seperate subjects. Monetary theory provides the foundation for economics imo. But im no economist .

Its good to talk about this stuff, i see it as the subject of our time.
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Old Oct 31, 2011, 3:18pm   #20
 
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re: What is money? Where does our money come from?

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How do you envision money creation by the people?
Through the Bank of England under control of the monetary policy commitee. It has to be so that there is no conflict of interest, it would have to transparent and accountable to the public.
I think most people currently think that BOE issues 'our' money anyway lol . I mean, it cant do any worse than the current arrangement.
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Old Oct 31, 2011, 3:30pm   #21
 
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re: What is money? Where does our money come from?

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I would also say that debt growth is assured (as i currently understand it). As money is loaned into existance + interest. Further loans will be always be needed to service the interest.
Let's address this first. I am not sure I understand. As a borrower I would only take a loan out if I know that the return on the project I am intending to finance is sufficient to cover the interest costs. So I really don't see how you come up with this self-perpetuating debt. I don't need more loans to service the interest. If I do, I go bankrupt.
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Old Oct 31, 2011, 3:59pm   #22
 
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re: What is money? Where does our money come from?

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Let's address this first. I am not sure I understand. As a borrower I would only take a loan out if I know that the return on the project I am intending to finance is sufficient to cover the interest costs. So I really don't see how you come up with this self-perpetuating debt. I don't need more loans to service the interest. If I do, I go bankrupt.
Picture it starting from point zero,no money in the system then go from there.if i understand you your talking about taking on a personal debt (which you would be earning money from the existing supply to pay the interest to the bank).

In fact watch the first video i posted as it does explain it. Im not sure i could do a better job.
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Old Oct 31, 2011, 4:33pm   #23
 
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re: What is money? Where does our money come from?

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Picture it starting from point zero,no money in the system then go from there.if i understand you your talking about taking on a personal debt (which you would be earning money from the existing supply to pay the interest to the bank).

In fact watch the first video i posted as it does explain it. Im not sure i could do a better job.
OKI-DOKI, lemme go watch the ole video...
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Old Oct 31, 2011, 8:18pm   #24
 
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re: What is money? Where does our money come from?

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Picture it starting from point zero,no money in the system then go from there.if i understand you your talking about taking on a personal debt (which you would be earning money from the existing supply to pay the interest to the bank).

In fact watch the first video i posted as it does explain it. Im not sure i could do a better job.
I am afraid the video is silly... Are they seriously advocating that the Bank of England makes decisions that determine whether and to whom to lend money? That's absurd. As I said before, isn't it the whole point of capitalist society that capital allocation decsisions are supposed to be made by the free private market, which, in this case, is a bunch of banks? A private bank lends money to individuals and firms. If this bank makes poor decisions (i.e. lends money to individuals/firms who are already overly indebted), this bank, as a private institution, goes bankrupt. In theory, the private credit system works and it doesn't matter what you're lending and where the money comes from.

So I'm afraid it's a rather silly video that betrays a glaring lack of understanding of how the system actually operates, in spite of them, supposedly, going through all these BoE docs.
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Old Oct 31, 2011, 9:57pm   #25
 
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re: What is money? Where does our money come from?

darktone started this thread
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Originally Posted by Martinghoul View Post
I am afraid the video is silly... Are they seriously advocating that the Bank of England makes decisions that determine whether and to whom to lend money? That's absurd. As I said before, isn't it the whole point of capitalist society that capital allocation decsisions are supposed to be made by the free private market, which, in this case, is a bunch of banks? A private bank lends money to individuals and firms. If this bank makes poor decisions (i.e. lends money to individuals/firms who are already overly indebted), this bank, as a private institution, goes bankrupt. In theory, the private credit system works and it doesn't matter what you're lending and where the money comes from.

So I'm afraid it's a rather silly video that betrays a glaring lack of understanding of how the system actually operates, in spite of them, supposedly, going through all these BoE docs.
With all respect, I think it might be you who doesnt understand things fully.
What they are suggesting is nothing new, Bill Stills work will show you that, the 1844 bank charter act that restricted private banks issuing their own notes, (Banks found a way around this via personnal cheques and later with electronic money creation)
Credit creation and 'lending' are two seperate subjects imo, banks engage in the former.



In the above video by the new economics foundation, the book detailed at the end was co authored by one of the guys from positive money. I cant imagine Prof Charles Goodhart (17 years teaching at LSE / 3 years on BoE monetary policy commitee) would have written the foreword if the contents were nonsense! I mean, he is a respected man in the field to say the very least!

Ive recently been to a conference on the subject with Michael Meacher mp /Steve Baker mp speaking. Both applaude the efforts of the above.

Here is their draft proposal, you might wana read it before calling it stupid:-
Our Proposals | Positive Money

I havent come here for a verbal punch up, i dont have the energy. i just wanna create some debate and awareness of the unfarirness of our current system. I believe its the subject of our time.
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Old Nov 2, 2011, 1:13pm   #26
 
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Re: What is money? Where does our money come from?

darktone started this thread Interview with Bill starts at 13,00.

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Old Nov 2, 2011, 1:45pm   #27
 
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Re: What is money? Where does our money come from?

First of all, I don't think it makes a difference which particular "authority figure" endorses it. These people are not infallible and, in fact, are known to be often wrong. So, without any name-dropping, can you pls talk me through in detail how you envision "money creation" as implemented by the central bank? Also, pls tell me how "credit creation" differs from "lending".

I am not here for a verbal punch up either. I like to engage in a sensible debate on these matters. My view is certainly that the current system is flawed in a variety of important ways. However, I am yet to hear anyone come up with a logical framework that offers anything better.
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Old Nov 2, 2011, 2:58pm   #28
 
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Re: What is money? Where does our money come from?

darktone started this thread
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First of all, I don't think it makes a difference which particular "authority figure" endorses it. These people are not infallible and, in fact, are known to be often wrong. So, without any name-dropping, can you pls talk me through in detail how you envision "money creation" as implemented by the central bank? Also, pls tell me how "credit creation" differs from "lending".
Well if you dont want 'name dropping' then please do some research before you dismiss something as "silly" and undermine the work of others. Deal?

I dont think im qualified to talk you through in detail. I have a good basic understanding of how our money is currently created and im aware of what it costs the majority. Obviously there is more than one solution to any problem.
FYI
Our Proposals | Positive Money
The Money Masters
The most important point in both Is who gets to control the quantity of our money!

The difference imo between credit creation and lending is simple.
If I were to lend a friend 20, most folks would rightly think that i had the 20 to lend in the first place. This 20 loan would come from the existing money supply as would the repayment / interest. The money supply remains unchanged.

If i were to 'lend' (create credit) as banks currently do i would create this 20 from nothing (outside of the existing supply). Whilst the loan is outstanding the money supply has been increased by 20.

Even though this as a direct quote has been proved bogus, its no less potent imo.
Give me control of a nation's money and I care not who makes her laws!
Mayer Amschel Rothschild
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Old Nov 2, 2011, 3:25pm   #29
 
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Re: What is money? Where does our money come from?

Think of it this way. Money deposited into banks = margin (they call it capital requirements).

From this margin they leverage loans. These loans create the money you see today. Of course, they can also just print money, but that devalues the currency.

The reason this technically works is that everyone who loans money will put this money into their own bank account. So money always gets back into the system in good times and refills the margin.

One reason for the collapse of banks in 2008 was that they leveraged too much as said earlier. Pushing for higher capital requirements reduces the leverage, but there's more assurance that banks have enough capital to fulfill their obligation of giving customers back their money.
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Old Nov 2, 2011, 3:35pm   #30
 
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Re: What is money? Where does our money come from?

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Well if you dont want 'name dropping' then please do some research before you dismiss something as "silly" and undermine the work of others. Deal?
Why shouldn't I call it silly if, in my view, it's silly? I have done a lot of research and I have thought a lot on the subject. In my view, all the proposed alternatives I have seen so far are heavy on the slogans and very light on relevant detail. And the devil is in the details, as usual.
Quote:
I dont think im qualified to talk you through in detail. I have a good basic understanding of how our money is currently created and im aware of what it costs the majority. Obviously there is more than one solution to any problem.
FYI
Our Proposals | Positive Money
The Money Masters
The most important point in both Is who gets to control the quantity of our money!
Let me watch this video as well and see if there's more substance there.
Quote:
The difference imo between credit creation and lending is simple.
If I were to lend a friend 20, most folks would rightly think that i had the 20 to lend in the first place. This 20 loan would come from the existing money supply as would the repayment / interest. The money supply remains unchanged.

If i were to 'lend' (create credit) as banks currently do i would create this 20 from nothing (outside of the existing supply). Whilst the loan is outstanding the money supply has been increased by 20.
Well, how about if you borrow the 20 from another friend and you now "have it" to lend. Does that qualify as credit creation or lending? 'Cause that's actually what happens in the modern economy. The money that the commerical banks "lend" doesn't actually get created out of thin air. It's, effectively, lent to them by the central bank and show up on the CB's balance sheet. This way the central bank controls (or tries to, at any rate) the total amount of "wide money" in the system.
Quote:
Even though this as a direct quote has been proved bogus, its no less potent imo.
Give me control of a nation's money and I care not who makes her laws!
Mayer Amschel Rothschild
I don't really understand what this means.
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