Inflation, Banks & oil price as I understand it as a layman

[mairteenpak]

Rising oil prices feed through to the cost of many goods and services. Suppliers of goods and services pass on the additional costs and sometimes a little more. Everyone decides to pass on the additional costs to their consumption by way of seeking higher prices and wages.

Now as I understand the banking system there are X billions of euros printed or in the banking system. If no more are authorized or issued by the ECB the same amount of money will be in circulation and if people consume the same amount of an oil based commodity , at a higher price, then they will have to cut back on some other area.

Can the ECB control inflation by simply not printing any more money or have I got it wrong?

Do Governments try to fool the market and maintain the illusion of prosperity by printing more money and letting everyone have a little of it?

I am aware that the issue is complex ant that it is related to trade surpluses.

[rockyracoon]

Governments do not simply print money. Very simply put (and I mean very), money supply is increased when a person, business or government goes to a lending institution and takes out a loan. This money is put into circulation for the purchase of goods and services and has a multiplier affect through its redistribution throughout the economy. If governments were simply to print more money, the money would have no value since the mere printing of money doesn't reflect economic activity.

[mairteenpak]

Surely the ECB must authorise the issue of more money, and must know how much euros are in the banking system. What happens if the value of property that mortgages are secured on falls by 33%?
Does someone tell the ECB?

[ivnryn]

Surely the ECB must authorise the issue of more money, and must know how much euros are in the banking system. What happen if the value of property that mortgages are secured on falls by 33%

The banks would take a major hit if the loan wasn't paid back.

The ECB lends money to banks (or in effect gives them an overdraft with the condition that they can only take money out of it if it is secured by property worth say 112% of the loan amount) and the banks lend it to the public. More money is put into the system by reducing the interest rates, so more people/businesses take out loans.

[rockyracoon]

Surely the ECB must authorise the issue of more money, and must know how much euros are in the banking system. What happens if the value of property that mortgages are secured on falls by 33%?
Does someone tell the ECB?

A central bank keeps account of the amount of money being lent out. Really, it only prints money as a mean of facilitating small transactions between individuals; individuals and companies, etc. Many transactions today involve no money at all. How many peope have their wages electronically put into a bank account and have it taken out again through direct debit to pay bills, never seeing or handleing a chunk of "their" money during the process.

Central banks have a general idea of how much currency is in circulation but are never sure of the exact amount. Hell, it took the US years to determine how much counterfeit money the Iranians had printed in the 1990's.

[mairteenpak]

Are we dependent on the "Expertise" of the Auctioneering Community to let us know how much the National property portfolio is worth? :mrgreen:

So How do I get a Banking licence?

[rockyracoon]

Are we dependent on the "Expertise" of the Auctioneering Community to let us know how much the National property portfolio is worth? :mrgreen:

So How do I get a Banking licence?

'Tis not easy. You need deep pockets and I believe you need quantifiable banking experience. I'm always remined of a Monty Python sketch whereby one customer comes in a gives the teller money and the teller puts the money in a shoe box. The next customer comes in and asks for a loan and the teller takes the money out of the shoe box and gives it to him in front of the first customer. The first customer is not too impressed. If only it were so easy.

And, yes, the property market is essentially one big auction although estate agents act a brokers between parties during the auction.

[mairteenpak]

If Auctioneers mistakenly reported sale prices as larger than actuality would the banks be decieved as to the general level of value of the market?

How much money do you need to get a banking licence?
Would a large property portfolio be safisfactory?
Does a bank have to charge more than the ECB rate?

[cHeal]

Governments can't make money, it is created through fractional reserve banking and the National Bank.

[rockyracoon]

If Auctioneers mistakenly reported sale prices as larger than actuality would the banks be decieved as to the general level of value of the market?

How much money do you need to get a banking licence?
Would a large property portfolio be safisfactory?
Does a bank have to charge more than the ECB rate?

No. When the mortgage settlement is being signed the check from the bank is already cut and just waiting to be handed over as long as all legal formalities are correct and in order. The bank has already done its due diligence with regards to the credit worthiness of the borrower and has an estimate of the home's value. The bank I worked for had its own valuer and shared the information with other banks, etc. Where banks get caught out is in over estimating the price direction during market price volatility and in lowering their lending criteria during "boom" times.

Forget about starting your own bank. There are various levels of compliance you would have to meet depending on the type of bsuiness you set up and, anyway, the established banks would eat any unexperienced new comer alive. Sorry