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comm
Joined: 22 Jun 2010
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 Posted: Wed Oct 05, 2011 4:31 pm Post subject: |
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| Steelrails wrote: |
Not to quibble, but I do believe you mean Franklin D. Roosevelt, not Theodore. |
Indeed! Thanks ^_^ |
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T-J
Joined: 10 Oct 2008
Location: Seoul EunpyungGu Yeonsinnae
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recessiontime
Joined: 21 Jun 2010
Location: Got avatar privileges nyahahaha
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| Posted: Wed Oct 05, 2011 9:52 pm Post subject: |
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I won't lie, this video really messed with my head. It's all explained in a simple and organised way. |
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comm
Joined: 22 Jun 2010
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| Posted: Wed Oct 05, 2011 10:24 pm Post subject: |
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| recessiontime wrote: |
I won't lie, this video really messed with my head. It's all explained in a simple and organised way. |
It is amazingly concise and informative. It's basically a full course on both the history of money AND how f***d we are under the current system. I wish the narrator had gone into more detail on the concept of fully nationalizing the banking system at the end. I wonder if there's an -ism for that... |
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jaykimf
Joined: 24 Apr 2004
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| Posted: Thu Oct 06, 2011 3:26 pm Post subject: |
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| wintermute wrote: |
| jaykimf wrote: |
| How cute! A little teddy bear expert on the FED. Too bad the bear is spouting so much BS. |
Would you kindly condescend to tell us why?
Seriously - let's hear the counter-position. |
I've argued over and over again about the FED in previous threads. The True Believers simply deny the facts and repeat their beliefs. It's a complete waste of time arguing with them. If you are seriously want to hear the counter positions, I suggest you read this: http://home.hiwaay.net/~becraft/FRS-myth.htm It's a much better and more detailed explanation than I can offer. After reading it you should be able to see why the little teddy bear is wrong.[as well as why comm and the video posted by T-J are wrong) |
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comm
Joined: 22 Jun 2010
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| Posted: Thu Oct 06, 2011 6:07 pm Post subject: |
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| jaykimf wrote: |
I've argued over and over again about the FED in previous threads. The True Believers simply deny the facts and repeat their beliefs. It's a complete waste of time arguing with them. If you are seriously want to hear the counter positions, I suggest you read this: http://home.hiwaay.net/~becraft/FRS-myth.htm It's a much better and more detailed explanation than I can offer. After reading it you should be able to see why the little teddy bear is wrong.[as well as why comm and the video posted by T-J are wrong) |
Yay! You finally entered the fray. Your link has some things right and a LOT either wrong or mostly wrong... For example:
| jaykimf's link wrote: |
On top of this, there exist incentives for the government to aim for a money supply that does not hold prices steady. If it issues more money than needed, it is able to purchase more goods and services. The result is inflation. Through fiat money inflation, the government imposes the equivalent of a tax on people's holdings of money because it increases its own buying power while the purchasing power of the public's money holdings decreases. |
Oh, so the government can buy more goods and services? So that means that government contractors, public/private institutions, large firms and other corporations get paid more (and first) with the newly inflated money? It's not just the government that benefits from this. Oh, and the people without inflation-proof wealth such as real estate and gold get royally screwed. It's a hidden tax, yes... but it hits the poor and middle class the hardest, and the benefits go straight to the wealthy who arrange government contracts.
| jaykimf's link wrote: |
The interest earned on the debt held by the Fed is turned over to the Treasury (except for operating costs) |
That -would- make it a non-profit organization, wouldn't it? Too bad it isn't true.
| wikipedia wrote: |
The U.S. Government receives all of the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. In 2010, the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury.[16] |
Huh... so I guess the Federal Reserve actually made MORE PROFIT than it sent back to the treasury? That doesn't sound like it's just covering operating costs...
| jaykimf's link wrote: |
Effectively, it permits the banking system to "create" money. If a given sum of cash is deposited in bank A, and half of it is lent out, whoever borrows it spends it, and the money becomes the deposit in bank B of someone else. Half of that sum is then lent out, spent, and deposited. |
Wow, deceptively almost true? That bit implies that a $1,200 deposit might lead to the lending of $600, a safe loan in the event of default. In fact, under THAT system I doubt a financial bailout would have been necessary for banks. A bank could never lose more money from a default than they had in reserve. But what actually happens is that a $1,200 deposit results in a $10,000 loan in the United States. Uh oh... First, that's an insane amount of profit, isn't it? I get 2% on my $1,200 deposit... the bank gets 5% on its $10,000 loan. More importantly though, if that leads to a default the bank can end up with GALLONS of red ink on their books... and guess who bails them out?
The parts of that link that are true support my assertion that fractional reserve banking and the Federal Reserve are destroying the lower and middle classes AND putting us on the path to monetary apocalypse. The parts of the link that are false are easily demonstrated as such. I do hope jaykimf continues to participate in the discussion though. Finding a person who has yet to be convinced that fractional reserve banking and the Federal Reserve are bad is exceedingly rare! |
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Privateer
Joined: 31 Aug 2005
Location: Easy Street.
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| Posted: Fri Oct 07, 2011 1:34 am Post subject: |
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| recessiontime wrote: |
I won't lie, this video really messed with my head. It's all explained in a simple and organised way. |
It says, accurately, that the bank doesn't lend money out that depositors have actually placed in its vaults. But the borrowers are still going to be depositing the full amount of money, plus interest, over a period of time, and if they default their collateral will be seized. So what's wrong with that? Everything balances out in the end.
The video is continually using words like 'duplicity' to describe bankers and the whole concept of banking, but without justification in my view. It's not objective.
The point about lending out money that not only isn't in the vault but isn't based on what someone else pledged to be paid in future either is fair enough, but it still all works out - so long as commerce keeps flowing and the commercial ventures it lends to turn out to be successful. The money is created out of pure debt, based on nothing but the bank's confidence in the lender's ability to pay. Again, this still works out because commerce never does stop flowing and commercial ventures work out on average.
The issue I have with the banks and financial systems today is not the basic process of creating money out of debt. That seems to me sound. Money = my confidence in your ability to pay, and there's nothing wrong with that. The issue is that money is being lent out on high risk schemes based not upon confidence in the borrower's ability to pay but on confidence in the government's assurance that it will pay on behalf of defaulters - using taxpayers' money. That is, the burden of repayment is shifted from the commercial enterprises directly involved to the public: *us*. That is fundamentally unfair, unjust, and unsound. |
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comm
Joined: 22 Jun 2010
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| Posted: Fri Oct 07, 2011 3:12 am Post subject: |
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| Privateer wrote: |
It says, accurately, that the bank doesn't lend money out that depositors have actually placed in its vaults. But the borrowers are still going to be depositing the full amount of money, plus interest, over a period of time, and if they default their collateral will be seized. So what's wrong with that? Everything balances out in the end.. |
The recent banking crisis is direct proof that that's not true. Let me give you an example:
I deposit $33,000 and this represents the bank's entire holdings.
The bank makes a home loan for $300,000.
The borrower defaults and the housing market now values the home at $200,000.
IF the bank is able to sell the home, it has still lost $100,000.
This leaves it with a balance of negative $67,000.
A quick example to illustrate the unsustainability of the current fractional reserve system:
You borrow $10,000 to buy a car.
You have to pay $12,000 over the period of the loan.
Where does the extra $2,000 come from? It -must- come from another loan from another bank. That's the only possible source of money to pay the interest.
If you expand this out to every active loan in the country, you find that there is NEVER ENOUGH money to pay off everyone's loan. But if interest-bearing loans are the only source of money to pay for existing loans, what happens when growth slows below the rate of interest? What if people aren't borrowing enough to pay for other people's existing loans?
^ That's when you have a crash. And it's not just a rare and preventable occurrence. It will happen EVERY TIME growth slows below the rate of interest on current loans. Under a fractional reserve banking system, crashes are inevitable and the longer the system goes without a crash, the bigger the inevitable crash will be. |
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Privateer
Joined: 31 Aug 2005
Location: Easy Street.
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| Posted: Fri Oct 07, 2011 3:26 am Post subject: |
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| comm wrote: |
| Privateer wrote: |
It says, accurately, that the bank doesn't lend money out that depositors have actually placed in its vaults. But the borrowers are still going to be depositing the full amount of money, plus interest, over a period of time, and if they default their collateral will be seized. So what's wrong with that? Everything balances out in the end.. |
The recent banking crisis is direct proof that that's not true. Let me give you an example:
I deposit $33,000 and this represents the bank's entire holdings.
The bank makes a home loan for $300,000.
The borrower defaults and the housing market now values the home at $200,000.
IF the bank is able to sell the home, it has still lost $100,000.
This leaves it with a balance of negative $67,000.
A quick example to illustrate the unsustainability of the current fractional reserve system:
You borrow $10,000 to buy a car.
You have to pay $12,000 over the period of the loan.
Where does the extra $2,000 come from? It -must- come from another loan from another bank. That's the only possible source of money to pay the interest.
If you expand this out to every active loan in the country, you find that there is NEVER ENOUGH money to pay off everyone's loan. But if interest-bearing loans are the only source of money to pay for existing loans, what happens when growth slows below the rate of interest? What if people aren't borrowing enough to pay for other people's existing loans?
^ That's when you have a crash. And it's not just a rare and preventable occurrence. It will happen EVERY TIME growth slows below the rate of interest on current loans. Under a fractional reserve banking system, crashes are inevitable and the longer the system goes without a crash, the bigger the inevitable crash will be. |
There's never enough money to pay off everyone's loan *at any one point in time* but there is always enough money to pay off the debt over a period. Time is always moving and money is always coming back in. So long as every debt is underwritten by a promise to pay the amount, it balances out. Also, your scenario about the house losing value only matters if it's a widespread trend (housing bubble crisis): as I said, if debts are paid off *on average* then the system works, and, similarly, if the value of collateral is sufficient on average to cover the risks of the loan - or at least if the collateral can be used as the basis for further, and this time profitable, loans - then it balances out. |
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comm
Joined: 22 Jun 2010
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| Posted: Fri Oct 07, 2011 3:43 am Post subject: |
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| Privateer wrote: |
| Also, your scenario about the house losing value only matters if it's a widespread trend (housing bubble crisis): as I said, if debts are paid off *on average* then the system works, and, similarly, if the value of collateral is sufficient on average to cover the risks of the loan - or at least if the collateral can be used as the basis for further, and this time profitable, loans - then it balances out. |
It CAN balance out, as long as new loans exceed current loans+interest. If growth is slow, or demand is low, new loans WILL NOT exceed current loans+interest. So though the lenders promised to repay the loans, the money to do so simply does not exist.
When you reach that point, and we inevitably do, a cascade of defaults occurs which leaves banks with collateral which no one wants to buy. The real estate bubble wasn't a fluke of the system but a mathematical inevitability of fractional reserve banking in a contracting economy. |
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jaykimf
Joined: 24 Apr 2004
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| Posted: Fri Oct 07, 2011 2:55 pm Post subject: |
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| comm wrote: |
A quick example to illustrate the unsustainability of the current fractional reserve system:
You borrow $10,000 to buy a car.
You have to pay $12,000 over the period of the loan.
Where does the extra $2,000 come from? It -must- come from another loan from another bank. That's the only possible source of money to pay the interest.
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Wrong. You didn't bother to read the link I posted did you? Obviously you missed the section where the so called Mathematical flaw is debunked. http://home.hiwaay.net/~becraft/FRS-myth.htm#hd25 Why couldn't the money to pay the interest come from the salary someone was paid by the bank for working at the bank? |
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comm
Joined: 22 Jun 2010
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| Posted: Fri Oct 07, 2011 5:01 pm Post subject: |
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| jaykimf wrote: |
| Why couldn't the money to pay the interest come from the salary someone was paid by the bank for working at the bank? |
Oh! So the bank prints the money to pay that person's salary? Or did the bank pay the employee with funds from a previous loan's interest payments?
If the bank is paying the employee with funds from a previous loan's interest payments then the situation hasn't changed. The salary came from interest payments, the interest payments on loan X came from new loan Y. If no one takes out loan Y, there is no money to pay loan X, and no money to pay the salary of the bank worker. I'm not sure that printing money to pay bank workers is the best plan either, by the way. |
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