Share prices with fractional reserve banking
29 July, 2014The popular explanation of share prices is that its all determined by “supply and demand”. If the price of something has gone up it must mean that either its supply has diminished, or its demand has increased. It’s all part of a natural stable system. Wise investors are carefully evaluating companies and buying and selling [...]
Why our monetary system contributes to the gap between rich and poor
31 December, 2013We have a monetary system in which loans create money and repayments destroy money. So at any one time the amount of money in the economy is approximately equal to the amount of outstanding loans. Most (90% ish) of the outstanding loans in the economy have been for the purposes of buying assets (mostly housing, [...]
End fractional reserve banking and fix the economy
17 September, 2013When you ask the man in the street how money works, they will suggest that it’s a system of tokens that circulate forever. That system is called full reserve banking. Money could work like that. Money should work like that… but money doesn’t work like that. To be more accurate, a tiny slither (3%) of [...]
Senior economists queue up to dismiss textbook explanations of our monetary system
27 August, 2013For decades now, the major economic textbooks have been teaching an explanation which is not just wrong, but back to front. The textbook explanation involves the assumption that banks repeatedly lend and re-lend deposits up to a limit determined by the “reserve ratio”. This explanation is known as the “money multiplier model”, a model in [...]
Banks don’t lend money
24 June, 2013Professor Hyman Minsky once wrote “Banking is not money lending; to lend, a money lender must have money. The fundamental banking activity is accepting, that is, guaranteeing that some party is creditworthy. A bank, by accepting a debt instrument, agrees to make specified payments if the debtor will not or cannot”. “Banking is not money [...]
Economists prove that the earth is flat
10 March, 2013...and in doing so, miss important factors affecting unemployment. Consider the curve in the diagram below: Now imagine a man traversing this curve from left to right in small steps of width W. Let us label the exact height (Y) of each foot as YL and YT (L stands for “leading” T stands for “trailing”). [...]
Money… how it works (video)
10 January, 2013The reason the workings of our monetary system are taught incorrectly is that the details of how it operates in practice are too complex for students to study in a reasonable period as part of an undergraduate course. Instead they learn an oversimplified cartoon version of reality. Teaching simplified models is not necessarily a bad thing so [...]
How the media is misleading the public about the financial crisis
7 August, 2012More than 99% of the general public think that money works as a system of tokens (real or electronic) that get passed from person to person as trade is carried out. They assume that the total amount of it would remain constant were it not for occasional money printing by government. Money could indeed work [...]
Banks Behaving Better Shrinks the Money Supply
18 July, 2012The population at large are demanding that banks behave better. In turn, this is encouraging some politicians to demand that banks behave better. So presumably a raft of strict new rules and regulations will swiftly be put in to place to control the banks… won’t they? Well not as long as we keep hold of [...]