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 Martinghoul I am afraid the video is silly... Are they seriously advocating that the Bank of England ...

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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?

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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?

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Originally Posted by Martinghoul View Post
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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Originally Posted by darktone View Post
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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Old Nov 3, 2011, 9:55pm   #31
 
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Re: What is money? Where does our money come from?

In some years time (10, 20, 30 or whatever) we wont have "money" as we know it.

PayPal, Google or some other large institution will create their own "money" and we will need little else, the company will be worldwide and we will all hold "money" in that company. "Money" will become international and a standard, you will be paid in "money" that will be knowns as "paypal credit or credits". All people will be paid the same rate for the same job type around the world, there will be no international rates, different currencies or exchange.

For the rest of this example we will use the company PayPal and the number of credits are numbers just as an example.

You will be paid for work in PayPal credits, 1 hour for your job will pay you 10 credits, if you do a more skilled / harder job you will be paid more hourly credits.

Things cost credits, not "money", credits are worldwide and universal. A Chocolate bar costs 1 credit, to pay for that chocolate bar you swipe your phone across the payment device and the 1 credit is deducted from your PayPal account.

Want to lend your friend some "money", you tap the number of credits into your phone and you transfer the credits by touching phones.

You house rent costs 200 credits a month and can be paid for by Direct Debit from your paypal account.

A chocolate bar costs the same in Sudan as it does in the USA.

People "trade" credits to make money, but not against other credits (as the old style foreign exchange) but they trade credits against physical goods / equities. Today 1 tonne of coal costs 20 credits, buy and sell later for 22 credits (standard supply demand trading)

Anyway, I'm just rambling...but is the world of foreign exchange slowly coming to an end?

Quick...you only have X amount of years to make your millions!
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Old Nov 3, 2011, 10:26pm   #32
 
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Re: What is money? Where does our money come from?

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Anyway, I'm just rambling...but is the world of foreign exchange slowly coming to an end?
Umm... no? Interesting ideas in there, but it's all utopian hogwash for the most part. Why would countries abandon their currencies to trade in one company's vision of its currency?

Holding a currency means you hold power over the flow and amount of said capital. Your scenario implies countries would accept to hand over control to single (American, to boot) entities. While I'm all for globalization and can see the world eventually unifying into one "world government", the matter of merging currencies is still very touchy.
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