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

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Old Nov 3, 2011, 10:32pm   #33
 
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Re: What is money? Where does our money come from?

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Originally Posted by VielGeld View Post
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.
Yep i get the general jist of what your saying. Im pretty sure a bank doesnt need 'money deposited' to create bank credit though.
When a bank makes a loan (creates credit) it effectively prints money (allbeit a theoretical limited amount), this is certainly inflationary.
Agreed that bank loans create new deposits.
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Old Nov 3, 2011, 10:53pm   #34
 
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Re: What is money? Where does our money come from?

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Why shouldn't I call it silly if, in my view, it's silly?
Hey i never said you couldnt but if I think its not silly expect some serious 'name dropping'!

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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?
Id call that lending because the money he lent me would have come from 'inside' the existing money supply. Unless my mate had a money printing machine then i would call it mate credit!Or 15 years!

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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.
Im about 99% sure that is not the case.

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I don't really understand what this means.
I take it to mean "If you let me control the money supply i dont give a monkeys about who is power because i control all! Mess with me and the people will starve!" Lol, a poor effort i know, but its late.

Edit:- Ooo how did you get on with the proposals btw?
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Old Nov 3, 2011, 11:01pm   #35
 
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Re: What is money? Where does our money come from?

darktone started this thread In this video series Milton Friedman tells of how the money supply declined by 1/3 during the great depression and how preventable the situation was. He also makes reference to the fact that banks can create money (credit) despite most bankers do so unknowingly. He goes on the describe future problems (the one we have now),,, Infation!







The picture below charts the decline in buying power of the since 1987. Some 60%!. To make that a bit more meaningfull, 100 worth of bricks bought in 87 would cost 250 in todays money!
Attached Thumbnails
british-pound-value.jpg  
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Old Nov 3, 2011, 11:06pm   #36
 
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Re: What is money? Where does our money come from?

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Originally Posted by Club View Post
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!
Hey all is possible, i dont think i know enough to have a view tbh. Maybe one day we wont even need credits. We just help eachother out!... Yeah, about those credits!?
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Old Nov 4, 2011, 6:41pm   #37
 
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Re: What is money? Where does our money come from?

darktone started this thread This is part of one of the zietgeist films. Its based on the US system which is slightly different to the UK system (In the UK its less regulated and the expansion method is different to that shown in the clip)
All the same i include it because as far as im aware this is the textbook method in the UK! .. And i kinda like the clip.



Below is a couple of links to the modern money mechanics booklet. Pages 3 and 12 are of interest.
(reader friendly version)
http://www.rayservers.com/images/Mod...yMechanics.pdf

(the original booklet)
http://upload.wikimedia.org/wikipedi..._Mechanics.pdf
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Old Nov 4, 2011, 7:17pm   #38
 
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Re: What is money? Where does our money come from?

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Originally Posted by darktone View Post
Id call that lending because the money he lent me would have come from 'inside' the existing money supply. Unless my mate had a money printing machine then i would call it mate credit!Or 15 years!
Well, there suppose it's a mate who had the money lent to him by another mate, etc... The last mate in the chain actually has a printing press. Are all the links in the chain "credit creation" or are they all "lending" or is it some mixture?
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Im about 99% sure that is not the case.
Well, you're 100% incorrect. You can see the relevant numbers on the balance sheet statements of the Fed balance sheet, the ECB, the BoE, to name a few. Or maybe you're referring to something else being not the case.

I haven't yet had a chance to go through the proposals, as it's been a very busy week.

Anyways, I think it's going to be difficult for us to continue this discussion, given that you always respond by posting what other people say and argue. With all the respect I have for Milton Friedman, a) I am not discussing the issue with him; b) the videos aren't exactly offering an interactive medium; c) the videos etc are edited products, with a lot of stuff taken out of context. I would very much prefer to have a discussion with you, a live person, in an interactive manner, rather than with a bunch of funny videos.
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Old Nov 5, 2011, 11:16am   #39
 
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Re: What is money? Where does our money come from?

darktone started this thread
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Well, there suppose it's a mate who had the money lent to him by another mate, etc... The last mate in the chain actually has a printing press. Are all the links in the chain "credit creation" or are they all "lending" or is it some mixture?
In this example id say that everyone is lending apart from the guy with the printing press who is creating credit/money.As I currently understand it thats not how our current monetary system works, the system we have is two stage. Central banks create the initial (base money), private commercial banks expand this money (create broad money).
Quote:
Well, you're 100% incorrect.
Im always willing to be proved wrong. If we take the BoE sheet.
http://www.bankofengland.co.uk/publi...1/111102cs.pdf
It shows a total balance of near 261billion. The government figure for our National debt is around 980billion atm (this doesnt include the bank bailouts which takes it well over 2 trillion)
Could you tell me where the other money came from to back this debt?

Quote:
Anyways, I think it's going to be difficult for us to continue this discussion, given that you always respond by posting what other people say and argue. With all the respect I have for Milton Friedman, a) I am not discussing the issue with him; b) the videos aren't exactly offering an interactive medium; c) the videos etc are edited products, with a lot of stuff taken out of context. I would very much prefer to have a discussion with you, a live person, in an interactive manner, rather than with a bunch of funny videos.
I have my own view for sure, id argue that ive added a little more to this thread than just 'bunch of funny videos' and opinions of others.
Videos are great for folks new to the subject imo and are far more engaging than reading page after page of text. I also dont see the the harm of backing my view with reference to other material.
But thats just me.
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Old Nov 6, 2011, 12:09pm   #40
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Re: What is money? Where does our money come from?

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Yep i get the general jist of what your saying. Im pretty sure a bank doesnt need 'money deposited' to create bank credit though.
When a bank makes a loan (creates credit) it effectively prints money (allbeit a theoretical limited amount), this is certainly inflationary.
Agreed that bank loans create new deposits.
I think that you are right but it should not be like that, should it? I do not want to see the end of capitalism because I cannot envisage life without it. Perhaps this is a way to make sure that we keep it and regulate it, at the same time.

Loans should only be made with deposit money and the banks own capital and assets. It, certainly, seems logical when one comes to think of it but I have the inpression that, in recent years, the banks have avoided this

If this rule had been followed it would not have been possible to get mortgages of more than 30% (?) because there would not have been enough money to go round.

Policing this would be controlled by the centrral banks or some other authority.

I do not profess to be an authority on this but the idea is a start, surely, and can be improved upon?

Last edited by Splitlink; Nov 6, 2011 at 1:09pm.
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