Where the banks got the money...

[youngdan]

Originally Posted by Kensington
Worse still, the principle of the loan is created; not the interest.


As pointed out this is the problem. For the fraction system to continue we need the money supply to constantly expand at greater than the interest. Now that the supply is contracting the system can not survive. Therefore 9 trillion has been createdin an attempt to reverse the contraction. Lucky those who benefitted, tough tit to those who can not pay their debts.

[Kensington]

samVimesBoots,

You have it exactly. But, what does happen when the bubble bursts, more money is paid back on loans (disappears), than is loaned out (created)?

The Government takes out a huge loan and increases the money supply. The Government can always get a loan - well, if you are a big state anyway. The United States, for example, could take out a truly huge loan. It issues bonds and these bonds are usually bought directly by banks with money they have created out of thin air. Because a state never dies, it can continue increasing its national debt for eternity. The truth is, and Reagan knew it, a national debt is not a real debt. It never actually has to be paid back. The Government can continue to get new loans to pay for old ones, and so on, so on.

Youngdan,

I agree, but you are missing the fundamental difference between national debt and private debt which i mention above. I am not defending this Government bailout system, but i do realize that it will not necessarily collapse. I also accept that Obama had to do it. If you believe that this debt pyramid system will fall in on itself completely, i think you are wrong. It will limp along, due to this fortunate loophole.

Therefore, the monetary reform proposed cannot be overly disruptive as, in that case, the Government is always likely to go for the deficit spending option. Government created debt-free money is therefore the best alternative and, in fact, the only one that is ever likely to be tried out.

[youngdan]

I will have to read this thread more closely in a while as I only mentioned one aspect and did not comment on public versus private debt.

Government created debt-free money is infinitely better than what we have now.

Did I get the impression that you were against "the greenback" as this was precisely what Lincoln did. Lads like me believe that this crossing of the bankers led to his death.

Kennedy also wanted US Treasury Notes rather than Federal Reserve Notes and they are now collectors items

[Kensington]

Youngdan,

No, sorry, i think that Lincoln's greenbacks and the Colonial scrips were, and still are, the best form of money that has ever been developed. The Nomisma of ancient Rome done more than anything to turn the city into an Empire.

I think hat you may be on to something there. The money supply needs to be taken out of private hands. A return to the Gold Standard would, if any thing, increase the power of the bankers over the economy. It would also lead to horrible economic contraction.

Government issued money has also worked very well in the Channel Islands, particularly Guernsey.

Debt Virus: A Compelling Solution to ... - Google Books

[cactusflower]

The biggest problem here is the mistaken belief that profit = stolen wages. And the fallcy of one pie. That video tells us nothing about the causes of financial crisis. In fact, he could have just stood up and said "crises just happen" and sat back down again. I've made my thoughts on this video clear here: http://www.politics.ie/economy/39706...ml#post1357345

Marx identified profit as coming from embodied labour in excess of the amount paid for in wages.Where in your view does profit come from ?

[cactusflower]

And here is the real answer to the question that has been bugging Lthse!

Lthse, the money created by the original loans (as 97% of all "money" is in fact just debt in our current system) was out there once. But the interest on that loan, where does that come from? In the final analysis, from the sweat of your brow as you do productive work that has value.

If "money" is created in the form of loans and is spent, and the "money" circulates from hand to hand as goods and services are exchanged, then at every step along the way a small percentaqge of it will stop being circulated as people pay it to the banks both in interest and repayment of principal on their loans, which may be different loans to the original loans that created the money in the first place. If you follow. In aggregate everyone has loans, and every time money changes hands the new holder will put a bit aside to pay the interest on their loans, so a smaller amount gets passed on each time.

So the amount of "money" is bleeding away all the time, and the banks have to constantly create ever-more imaginary "money" in form of huge new debts, to keep all the plates spinning. Yes, the system is this insane.

So when the punters are maxed out and can't take on any more loans, and can't afford to repay the loans they took out, and can barely afford to pay the interest, then you get a cascade effect where the amount of "money" very rapidly dries up as debts are paid off or written off and no new loans are given out, and all the time the slow bleed of interest on existing credit extracts "money" from the system. And so we get recessions and depressions.

Barring a global revolution and a new monetary system, then this recession/depression will continue until the aggregate debt burden has been paid off or written off and we reach a point where punters feel comfortable about taking on debts again for current spending.

Most Western Governments simply do not uderstand this and are trying to solve the wrong problem, trying to get everyone loading up on more debt for SUVs and plasma tellys to "get back to normal".

Those that do understand it prepare for default and/or war.

[cd27]

obviously from profits and savings (capital) but also from inflation (low interest rates, money being printed) and rather than going into general inflation going into houses and stock prices...which the central banks thought was okay!!

[Kensington]

Barring a global revolution and a new monetary system, then this recession/depression will continue until the aggregate debt burden has been paid off or written off and we reach a point where punters feel comfortable about taking on debts again for current spending.

Well, the debt burden cannot be paid off. If overall debt is reduced, the total money supply falls and that leads to recession. What can, and is, happening is that private debt is being replaced with public debt.

Governments can always inject more money into the system by increasing the national debt. The system is unlikely to ever completely collapse, but total debt is always going to increase.

cd27,

What exactly do you mean by 'money being printed'?

[20000miles]

Marx identified profit as coming from embodied labour in excess of the amount paid for in wages.Where in your view does profit come from ?

The most general answer to this is: profit arises out of allocating goods away from humans who value them less to those who value them more.

[cd27]

I mean expansion of the money supply and/or low interest rates.