Debt

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Most of money in the UK is created by banks when they make loans. The only way to get extra money into the economy is to borrow it from banks, leaving us all trapped under a mountain of personal debt and mortgages.

The Problem

1. Banks create new money when people go into debt

When you take out a loan, new money is created. As people borrow more, more new money comes into the economy. All the extra spending this newly created money funds gives people the impression the economy is doing well, which encourages them to borrow even more. As the debt goes up, so does the amount of money.

2. For every pound of money, there’s a pound of debt

Because banks create money when people borrow, for every pound of money in the economy there will be a pound of debt. If there’s £100 in your bank account, someone else must be £100 in debt. Across the whole economy there will be as much debt as money.1

3. If we want more money in the economy, we have to go further into debt

If we need to get more money into the economy – for example, during a recession – then we have to go further into debt to the banks. This is why the government is desperate to get banks lending again: if banks start lending more, they’ll create more new money in the process, and the people who borrowed will spend this new money.

But if the financial crisis was caused by people having too much debt, how can the solution be for people to take on more debt?

4. If we try to pay off debt, then money disappears

When you pay down your debts, the money that leaves your bank account doesn’t go to anyone else – it just disappears. This is because loan repayments are just the opposite process to money creation: banks create money when they make new loans, and effectively ‘destroy’ money when they repay loans.

So when lots of people try to pay down their debts at the same time, money disappears from the economy. As a result of there being less money and less new lending spending slows down. When this happens, it’s like draining the oil from the engine of a car: pretty soon, everything stops working.

This means that it’s almost impossible to reduce our debts without causing a recession. And you personally can only pay off your debts using money that was created when someone else went into debt. This creates a debt trap, where over time the level of personal debt in the economy has to keep growing.

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  • mitaky

    It is my understanding that money is created as debt by fractional reserve banking where 97% of new money or credit is generated as loan by privatised commercial banking against 3% gold reserve in central bank, IMF, or World Bank. Also when the principal is created the interest is not! This creates artificial scarcity perpetually amid affluence. The interest can exceed actual principal by 150-250% as in 30 year mortgage (means death certificate). This is how wage slavery is created in democratic nations via private corporations tied to big banks. These entitities benefit from big loans and harmful speculative investments (into arms and ammunition, pesticide, tobacco, alchohol, soft drinks, toxic drugs, consumer goods, media, PR, advertisement and entertainment markets). This viscious cycle of greed, war and ignorance can only be broken through developing right understanding of currency.

    http://conscious-capitalism.blogspot.c

    • Ruud Harmsen

      ==
      It is my understanding that money is created as debt by fractional
      reserve banking where 97% of new money or credit is generated as loan by
      privatised commercial banking against 3% gold reserve in central bank,
      IMF, or World Bank.
      ==

      No, that’s not how it works. You are probably confusing up to five totally different things here:

      1) The gold reserves of a central bank, part of its assets (debet, left) it holds to counterweigh its liabilities (credit, right) such as banknotes and claims by non-central banks.

      2) The capital requirements that central banks impose on non-central banks. Not easily captured in a percentage, because there are lots of risk weighing factors involved.

      3) A bank’s actual capital reserves.

      4) The minimum cash requirements that central banks usually impose upon non-central banks. Currently very low, like 1%, 0.5% or even lower. (In reality: more complicated, with weighing factor and tranches etc.)
      (“Cash” = banknotes but also claims on the central bank.)

      5) The actual ratio between a non-central bank’s cash reserves (debit) and its short-term liabilities (money that people can quickly ask back). On average often around 10 percent nowadays, so much higher than the minumum of 1 or almost zero percent. So: banks have plenty of cash reserves and that is not a limit on credit granting in practice.

      The figures 3% and 97% are a myth, only quoted by people who either don’t know or understand, or are deliberately creating a mist. See central banks’ site for real statistical info. But then be prepared for some homework: there is a lot of data and it is rather detailed and complicated. But it’s all there in the open, no secrets.

      • Nick Egnatz

        The 3% and 97% figures are an estimate. The Federal Reserve stopped revealing to the public the M3 figure(total money in the system) in March, 2006. So no one can accurately compute what it is now.

        In 2005 the last year we have official M3 figures, there were $227.5 billion in Federal Reserve Notes (paper money) in U.S. circulation and $993 million in coins. M3 was $9.7 trillion. The dollar bills and coins were only 2.4 percent of this total. Where did the other 97.6 percent (electronic accounting entries) of our money supply come from?

        I did the above exercise and wrote this 3 years ago. However, it gets worse. The paper money is printed by the Treasury and given to the Fed in exchange for the cost of printing the bills (6 cents each). Each one hundred dollar bill is given to the private Federal Reserve for 6 cents.

        Only the coins are real money. Created by the Treasury and given to the Fed for their face value.

        • Ruud Harmsen

          ==
          The paper money is printed by the Treasury and given to the Fed in
          exchange for the cost of printing the bills (6 cents each). Each one
          hundred dollar bill is given to the private Federal Reserve for 6 cents.
          ==

          Banknotes represent a claim on the central bank, just like a bank account balance represents a claim on a non-central bank. Not a principal difference, just a different kind of bank.

          Production cost of banknotes is immaterial for the value they represent.

          • Nick Egnatz

            Wouldn’t we all like to be given a carload of those $100 bills for 6 cents each?
            Why should they be given to the Federal Reserve?
            Why should they not be spent into existence for the needs of the nation and its people, instead of gifted into existence to private banks and their Federal Reserve?

          • Ruud Harmsen

            ==
            Wouldn’t we all like to be given a carload of those $100 bills for 6 cents each? Why should they be given to the Federal Reserve?
            ==

            You’re comparing apples and pears. Banknotes in the central bank’s vault are then still essentially worthless. Once they reach the public, they become money, $100 a piece. But for the central bank, they then represent a DEBT, not something they own. The banknote is proof of YOUR financial claim on the central bank.

            ==
            Why should they not be spent into existence for the needs of the nation and its people, instead of gifted into existence to private banks and their Federal Reserve?
            ==

            They are not gifted into existence to private banks and their Federal Reserve. First, because banknotes in banks’ vaults (central or otherwise) are not money, by definition. Second, because banknotes are not gifted to non-central banks at all, they have to buy them, and pay for them with corresponding amounts on their account with the central bank.

            Third, if it were done that way (if technically possible, which it probably isn’t) it would cause Zimbabwean style hyperinflation.

            Essentially this same discussion about banknotes took place (but in Dutch, no translation available) two years ago at my WordPress blog: http://rudhar.wordpress.com/2012/10/04/geldschepping-en-rente/

            It ended with my discussion partner (just one) getting angry and not wanting to accept my explanations …

          • Nick Egnatz

            I admit ignorance on what the Fed does with the $100 bills and other banknotes that they pay Treasury 6 cents each for. So I’ll accept your explanation that the individual banks that own the Fed purchase them at face value from the Fed. I’m glad that they do this and then the Fed returns this money to Treasury, if I’m not mistaken. So that takes care of at most 3% of the total of what passes for our money supply.

            The banks when they make loans create the other 97% with accounting entries and call it debt. As the loans are paid back the accounting entry deposits created in the borrower’s accounts for the amount of the principal loan are reduced. When the entire loan is repaid the deposit is extinguished and hence the money created is also extinguished.

            The banks charge us interest for these loans. The amount of the interest is not created with the principal. There is then never enough of this debt money in the system to pay off all the loans. It is a perverse system that is designed to put virtually every country in debt that cannot be repaid. Also to put a huge number of individuals in the same situation. In the U.S. one half of the population has no net worth.

            Money should be created debt-free by the sovereign government and spent into existence. The NEED Act in the U.S. would accomplish this. http://www.monetary.org/wp-content/uploads/2013/01/HR-2990.pdf

          • Ruud Harmsen

            Nick Egnatz wrote:
            ==
            I admit ignorance on what the Fed does with the $100 bills and other banknotes that they pay Treasury 6 cents each for. So I’ll accept your explanation that the individual banks that own the Fed purchase them at face value from the Fed. I’m glad that they do this and then the Fed returns this money to Treasury, if I’m not mistaken.
            ==

            I don’t think so. The banks pay for the banknotes in the form of a balance on their account with the central bank. It’s a claim of the central bank on the non-central banks, which the central bank otherwise cannot do much with. The payments just stay there, sitting in that account.

            Just like ‘money’ (M1 etc.) is claim of the public on banks, claims of non-central banks on the central bank are bank money, MB. (But in this example: reversed, so that is not MB.)

            It’s same principle with different parties. And just like in the relation between public and banks, here too, debt is involved: the banknotes are credit on the central bank’s balance sheet, the payment by the non-central banks is debit (meaning, it’s debt).

            Money is claim (= asset), and double bookkeeping dictates that there is always some kind of liability to offset that. Often, that is debt.

            ==
            So that takes care of at most 3% of the total of what passes for our money supply.
            ==

            I don’t know if that actual figure is correct, but in principle: yes. But as you see above, even those 3% is not debt-free money.

            ==
            The banks when they make loans create the other 97% with accounting entries and call it debt.
            ==

            I don’t know what they call it, but money IS not debt, it is claim: http://rudhar.com/economi/monydebt/en/019claim.htm . The countervalue at the other side of the balance sheet is often debt. So when debt is created, money is created at the same time.

            ==
            As the loans are paid back the accounting entry deposits created in the borrower’s accounts for the amount of the principal loan are reduced. When the entire loan is repaid the deposit is extinguished and hence the money created is also extinguished.
            ==

            True. Paying off a loan means money destruction, because the money passes from the hands of the public (where is counts as money, by definition), to the bank (where it longer counts as monetary value, although it still has value). The net effect is zero in terms of value, but it means money destruction in terms of M1.

            ==
            The banks charge us interest for these loans. The amount of the interest is not created with the principal.
            ==

            Yes, it is, banks do create the interest too: http://rudhar.com/economi/monydebt/en/index.htm#020 .

            ==
            There is then never enough of this debt money in the system to pay off all the loans.
            ==

            Yes, there is: http://rudhar.com/economi/monydebt/en/index.htm#012 .

            ==
            It is a perverse system that is designed to put virtually every country in debt that cannot be repaid. Also to put a huge number of individuals in the same situation. In the U.S. one half of the population has no net worth.
            ==

            Real problems, only they were not caused by money creation and interest. That is a myth. I say: let’s look at the real problems and try to find their real causes, and not waste time complaining about perfectly good mechanisms that ARE NOT the problem.

          • Nick Egnatz

            Ruud you have some knowledge of the banking system and your mind is stuck in the paradigm of that system. You might try getting out of the system and looking for an alternative. The alternative is The NEED Act. You can find it at http://www.monetary.org/

            Can we agree that within the present system virtually every country in the world is in debt in such amounts that within this system it can never be repaid? That many of the people in the most advanced countries are in a like situation? In the U.S. 1/2 of all citizens have no net worth at all? If we stay with the present system of banks creating what is used for money, things will never get any better, either for the balance sheets of the individual countries or the individual people?

          • Ruud Harmsen

            There certainly are problems with indebtedness, but the cause of that IS NOT money creation or interest. If you want to solve problems, it helps nobody to haphazardly change things that have no causal relation with the problem. On the contrary.

          • Nick Egnatz

            We have money being created as the flip side of debt and you cannot see how changing to a system of money created, free and clear of debt, by the state and spent, not loaned into existence might have an effect on drastically lowering the level of indebtedness.

          • Ruud Harmsen

            That’s right.

            Because such money cannot exist (not under the current definition and with the current practical usability and reliability of money), AND because credit without money creation is impossible.

            So money as we know it will remain even if you manage to introduce any new kind of money.

            Might the solution for overindebtedness simply be fewer debt? Just a thought.

          • Ruud Harmsen

            Perusing http://www.monetary.org/intro-to-monetary-reform/faqs :

            ==
            a competitive banking system in the private sector [...] by removing their privilege to create money.”.

            That’s impossible unless we abandon all credit granting or change the definition of money. Both will wreck the economy.

            Money creation is NOT based on any privilege given to banks, but it is an AUTOMATIC and INEVITABLE consequence of credit granting.

            Is it really worth my while to read those other 32 pages of the brochure, if apparently it was written by people who missed this essential point?

            Well, I will, but not now. Noted in todo file.

          • Ruud Harmsen

            “Banks should act as intermediaries for their clients who want to get a
            return on a deposit or similar investment; and their clients who are
            willing to pay for the use of that money.”

            That is what they already do now, and the INEVITABLE consequence of that is that money creation takes place. So what these FAQ writers propose, is impossible. They could only propose it, because they don’t understand the existing system.

            It’s dangerous to have a mechanic change the basics of your car engine without him understanding how it works, wouldn’t you agree? Better leave that to skilled people.

      • Nick Egnatz

        It is best not to get bogged down by attempting to decipher the banker’s system of money creation. They will always move the goalpost when you pin them down on the facts.

        The facts are clear that they create money out of thin air when they make a loan and we are expected to pay it back, plus interest. And now you in the UK are given a breath of fresh air and honesty by the inner sanctum of the system.

        Money Creation in the Modern Economy
        Quarterly Bulletin, 2014, Q1
        Bank of England
        Overview
        “This article explains how the majority of money in the modern economy is created by commercial banks making loans……Whenever a bank makes a loan, it simultaneously
        creates a matching deposit in the borrower’s bank account, thereby creating new money.
        The reality of how money is created today differs from the description found in some economics textbooks:

        Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.”
        (Emphasis Bank of England)
        http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

        Martin Wolf’s column in the Financial Times entitled
        “Strip private banks of their power to create money”

        It begins
        “Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.”

        http://www.ft.com/intl/cms/s/0/7f000b18-ca44-11e3-bb92-00144feabdc0.html#axzz30U8koSRr

        • Ruud Harmsen

          ==
          Martin Wolf’s column in the Financial Times entitled “Strip private banks of their power to create money”

          It begins
          “Printing counterfeit banknotes is illegal, but creating private money is not.
          The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.”
          ==

          Sorry, that is stupid talk that springs from a lack of understanding of money creation. I repeat: money creation is real but does not make a bank richer. Counterfeiting banknotes does make the counterfeiting richer (if he manages to spend them before getting caught). Uncomparable.

          • Chris Killer

            Money creation does make a bank richer.

          • Ruud Harmsen

            Indirectly, yes, by earning more interest. I never denied that.

            But directly, as a result of credit granting: no. Both the debit side AND the credit side of the balance sheet are increased by the same amount. The banks owns more AND owes more. Net effect: zero. None the richer, none the poorer.

            http://rudhar.com/economi/monydebt/en/011clfnd.htm

          • Chris Killer

            Totally untrue. Do your homework and watch some +ve money videos.

          • Ruud Harmsen

            Not untrue, but factually accurate. Do your homework, read my explanations and check the figures in the examples. rudhar.com/economi/monydebt/en

            I did watch the videos by Positive Money. In fact, their facts are largely the same as mine (which means they too contradict your statement “Totally untrue”!), except that PM representx the facts in slightly misleading ways, so the message is distorted.

          • Ruud Harmsen

            Please come up with verifiable, concrete figures, that show where my figures, my bookkeeping, is inaccurate or untrue. I dare you. Just saying “Totally untrue” just isn’t enough.

  • Vitor Fernandez

    The big question is this: can the government create money without increasing inflation? Are the politics serious persons to be entrusted with money creation?

    • Simon Thorpe

      Well, one thing that could be done with central bank created debt free money with no risk of inflation would be to use the money to pay off debts to the banking sector. For example, the UK government currently owes £1.36 trillion. Any of that money owed to banks could be paid off without increasing the money supply at all, because the banks would just have to cancel out the debt. Apart from anything else, this could save UK taxpayers at least part of the £46 billion in interest charges they paid on government debt in 2012.

    • Mike Dimmick

      Inflation is the devaluation of money, with respect to what you can buy with it. If it does indeed follow the theories of supply and demand, then the way to avoid inflation is to ensure that the supply of money is just sufficient to match the demand for spending money. But as this article notes, just as banks create money by creating loans, money is destroyed when debts are repaid. Similarly, if money is created by government spending, money is destroyed by tax collection. The key is the NET amount of money in the economy.
      I would rather trust politicians, who can at least be kicked out of office (although possibly replaced by another face effectively from the same governing class), than banks who seem to be completely out of control.

    • PFReilly

      If the money created exceeds the value of wealth created at
      current prices, then inflation could occur whether the money is created by the banks or the government.
      If the money is created by the government , debt free and interest free, to finance public investment (e.g. infrastructure, housing, green energy) it will not cause inflation.
      If money is created by the banks and it is used for speculative loans, then inflation will occur.
      If the banks create money and loan it to the government at interest,
      more money would have to e created to pay the interest. As this money is not matched by an increase in real wealth (goods and services) this will cause inflation.

  • http://www.facebook.com/virginiahammon Virginia Hammon

    I’m hoping you or someone on the blog can help with a US question.
    I’ve taken 2 spreadsheets from the FED: Money_Stock M3-(available from
    1958-2006, when it was discontinued) and compared the numbers from the
    FED’s “Total outstanding debt by sector,”(which includes a breakdown
    into financial and nonfinancial sectors).

    For the years available for M3, the ratio of debt to M3 ranges from 24.3% to
    46.4%, with an average of 36%. What does this mean? How can there be
    roughly 3 times as much debt as money, if money is created by debt?

    I’m working on some teaching materials, so clarity would be enormously helpful. Thanks.

    • http://www.facebook.com/virginiahammon Virginia Hammon

      Is it possible that the difference is the money lent/created for the derivatives market?

      The US derivatives market risk exposure is $.569 Trillion, and notional value $222 Trillion….(OCC, 2nd Q 2012)….(Curiously, with global estimates of a $1,300 Trillion derivatives marketplace, that must mean you British are doing a bang up job creating play money!….and, I’m going to ignore the Value at Risk measure, because it seems to be BS…pretending that risk nets out, when that’s just not what’s likely to happen..)

      So, $222 Trillion in US derivative notional value….how much was borrowed/created to bring those derivatives into being? Is that a reasonable question?

      Last measured in 2006, US M3 was $10.2 Trillion to outstanding debt of $42.2T (24.3%). 2012 outstanding debt was $56.3 Trillion…at same ratio, say 25%, that would mean M3 would be about $14T, with a difference of $42.2 Trillion.

      Is it possible/probable that at least $42 Trillion was created by debt and put on the balance sheet of Big US banks to make the creation of $222 Trillion in derivatives possible —roughly 20% created for gambling/speculative purposes?…and it is all off balance sheet, so it does not appear in the FED calculations of financial market’s outstanding debt?

      • Andrew Chalkley

        Money is created as debt under the private corporate banking system.

        For easy maths let’s assume interest at 10%.

        So $1000 of money is created by $1000 debt.

        After one year, there is still $1000 of money but there is $1100 debt.

        After two years, there is still $1000 of money but there is $1210 debt.

        Ho hum and we didn’t notice.

        National Debt arrived with Central Banks.

        If the entity that collects the taxes is different to the entity issuing the money, an imbalance will occur. That imbalance is called National Debt. National Debt cannot exist without private banks. International Debt arrived with international banks. International Debt would not exist if we had direct barter trade between nations. However it is not recommended as you will go the way of Sadam and Hitler and Ghadafi, if you try.

    • http://www.facebook.com/virginiahammon Virginia Hammon

      Is it possible the difference is because the debt is counted multiple times?….the financial sector borrows and it’s counted on their tab….then they loan it to consumers and it’s counted on their tab? If so, then, is it accurate to say that the money supply carries an interest burden of triple the average interest rates? What data did you use to figure out how much it costs in interest to have a money system that creates money via interest bearing debt?

      • Ruud Harmsen

        ==

        the financial sector borrows and it’s counted on their tab….then they loan it to consumers and it’s counted on their tab?

        ==

        Yes and no. In a sense, that is the multiplication factor of fractional banking. But: “money” is always at the credit side of bank balance sheets, and debt to the left (debit side).

        Well, let me admit it: your questions are quite smart and justified, too smart and detailed for me to provide a good answer to.

    • Kyle

      Maybe compare private debt outstanding to bank deposit liabilities? M3 also includes M0 (base money) which has skyrocketed due to QE, yet M0 does not come into existence via private debt.

    • Kyle

      Hi, Virginia. Private debt, as referenced by PM and also Steve Keen, for the US comes from the Flow of Funds table L.1.
      See here: http://www.federalreserve.gov/apps/fof/DisplayTable.aspx?t=l.1

    • Ruud Harmsen

      What kind of debt. There short term, medium term and long term bank debt. The same is true of deposits of various kinds. Not all kinds count towards the same categories. The rules can be different in different countries. The details are rather complicated.

  • PFReilly

    The Bank of England was set up in 1694 to provide a loan money to the government. It was allowed to print £1.2 million paper money, not backed by gold, which it lent to the government at 8% plus £4000 administration fee.

    This is what founder, William Paterson, boasted: “The bank hath benefit of interest on all moneys which it creates out of nothing”.
    This is the crux of the problem. Money is created out of thin air, then lent to the government at interest.

    • Ruud Harmsen

      ==
      This is the crux of the problem. Money is created out of thin air, then lent to the government at interest.
      ==

      I wrote this about this or a similar problem. Conclusion: it doesn’t really make a difference, it’s not a problem.

      http://rudhar.com/economi/monydebt/en/022cengo.htm

      • Graham

        “Credit granting by the bank effectively duplicates a large proportion of the originally deposited amount. However, what the bank passes to the borrower actually came from the original depositor. The bank does not cheat in any way. No money suddenly appears out of the blue.”

        This statement is ridiculous. If the depositor A wants his money back to spend. The bank has only $10 left. So in that case Money in circulation is $190, which the bank would have created out of thin air.

        • Ruud Harmsen

          Graham wrote: “This statement is ridiculous.”

          I reread my statement carefully (it’s from http://rudhar.com/economi/monydebt/en/001creat.htm) along with the whole article. It is factually correct and not ridiculous.

          ” If the depositor A wants his money back to spend. The bank has only $10
          left.”

          Yes, and that is a problem for the bank in this tiny example. But in the real world, after A spends it by paying it to C, C usually quickly puts it in a bank account too, often even with the same bank. So the bank (or the banking system as a whole) gets the cash back soon, and therefore only a small cash reserve is enough and in practice there are no problems with not having full reserves.

          “So in that case Money in circulation is $190, which the bank
          would have created out of thin air.”

          The bank did not deliberately create anything, it granted a credit because society has a need for that, and _as a result of that_, mathematically money creation can be shown to have taken place. That is a very different situation.

  • PFReilly

    More revealing quotes from the bankers:

    “I care not what puppet is placed on the throne of England to rule the Empire. The man who controls Britain’s money supply controls the British Empire and I control the British money supply.” – Nathan Rothschild

    ………………………………….

    “Let me issue and control a nation’s money and I care not who writes the laws.”
    Mayer Amschel Rothschild, 1790.
    (Pronounced in his private central bank in Frankfurt, before The First Bank of the United States (a private bank) was founded in 1790).

  • SarahHague

    Have you seen the new law passed on Aug 1 about the EU bail-in where bank customers are no longer customers but creditors and will be liable for bank debt.

    http://hat4uk.wordpress.com/2013/08/09/global-looting-the-new-eu-bailin-law-was-passed-8-days-ago-did-you-notice/

    • Paul

      That’s scary, but so typical of these criminals in power.

  • Michael Sommers

    Two quick questions. I am currently an expat living in Australia and would like to know if Australia uses this same fractional reserve banking system, used by the rest of the world?

    And what if any differences are there between the UK and Australian monitory process? I’m just curious as to how, if Australia does use the FRB system, everyone is saying Australia came out of the GFC reasonably unscathed.

    Also will there be a Positive Money Australia starting up anytime soon?

    • DB

      It does. I don’t know what the reserve percentage is, but it does. Every advanced economy uses fractional reserve banking, because fundamentally it is an entirely sensible system of letting those with excess money lend it to those who need it. This whole positive money idea is basically medieval in that it will make credit more expensive. The whole debt free money idea is largely smoke and mirrors.

      • PJM

        DB — you’ve just demonstrated that when it comes to understanding how banking works, you’re an absolute ignoramus! I suggest that you read, on this website, a synopsis of the book “Modernising Money”.

        • Michael Sommers

          DB/PJM – Thanks for both your replies. However DB, there is far to much factual information for me to just dismiss as smoke and mirrors.
          PJM, not sure if you are a part of Positive Money, but I’d appreciate an answer from someone involved with this site. Thanks

    • richard322

      There are (hardly) any banks that use full reserve banking. They are all fractional reserve. Also “sustainable banks” like Triodos Bank.

      • Eli Gabay

        EuroPacBank was set up by Peter Schiff in response to the crisis to have a bank that doesn’t use Fractional Reserve Banking. They make no loans at all.

        • graphite

          Also the Swedish JAK bank operates on a full reserve, zero interest basis. It offers loans at zero percent, but requires you as a lender to save into your account after the loan is paid off, to provide a pool of capital for future borrowers. Mainstream banksters will tell you that this is a tragic flaw in the JAK model, because you cannot be more aggresively investing your money while you are ‘after saving’ with JAK. But this ignores that (1) you saved on the interest payments on your original loan, probably to the tune of far more than you’d earn investing elsewhere, (2) you get back your after savings at the end of the contracted loan period (you don’t get that with interest) and (3) most money invested in standard Australian savings accounts earns a fraction of 1% interest. No great loss, really.

      • Suma

        I think that fractional reserve banking is almost irrelevant. Like limit of amount of loans to grant, and per extension create money, is more relevant the thecnical reserve of each bank have in your balance sheet to stay “solvent”. Moreover, the perception of the creditworthiness of credit applicants also acts to limit ‘ lending / money creation ‘ . Remember that at this moment the ECB is conducting a strong analysis of banks. It aims, i think, above all to calm people insecurity regarding bank deposits (Cyprus did much damage ) .

        The legal reserve requirements set by the ECB is currently at 1%. This limit is not operating to limit lending, not reached. The reciprocal of the reserve requirement, called the money multiplier, dont limit actually the size to which the money supply may grow for a given level of reserves in the banking system

        Anyway the banks creat money of nothing, because they can lend more money than they have in your customers deposits, simply taping in the keyboard.

        Excuse my english.

    • Veri Tas

      In Australia while there are no reserve requirements, there are a variety of requirements to ensure the banks have a stabilising ratio of liquid assets, such as deposits held with local banks.(WikiPedia)

      The Australian Prime Minister announced on October 12, 2008 that, in response to the Economic crisis of 2008, 100% of all deposits would be protected over the subsequent three-year period. This was subsequently reduced to a maximum of $1 million per customer per institution. This measure comes on top of existing mandates of APRA and ASIC to monitor Australian banks and deposit taking authorities to ensure that their risks do not compromise the safety of depositors funds. On 11 September 2011, it was announced that the guarantee would fall to $250,000, effective 1 February 2012.[47] (Wikipedia)

      Do you wonder why the depositors’ guarantee has been reduced to $ 250,000???

      The International Monetary Fund has just warned (Oct 2013)
      that advanced economies with a high national debt level, which fail to aggressively “mobilize domestic revenue,” require drastic measures, such as hikes in income and consumption taxes plus a direct confiscation of assets (“capital levy”), in order to – wait for it – “restore debt sustainability.”

      You thought the 2008 GFC was bad…. The proverbial x hasn’t even hit the fan yet!

  • renzocarioca
  • mat

    The one thing I object to in that statement is that when debt is paid off the money isn’t destroyed, it doesn’t just disappear, it goes bank onto the banks balance sheet digitally or bank into it’s vault physically…
    correct me if I am wrong please…

    • richard322

      It’s true; just like lending creates new bookkeeping entries, bookkeeping entries are also removed when loans are repayed. Whether you object or not. ;-)

    • lyserg

      when a loan is paid off:
      - the bank balance sheet remains (though real money replaces debt).
      - Out of this bank, some real money no longer exists. !!

  • Talamos

    Interesting law about bank bail-ins. It will hopefully make people
    more aware of the risk they face when putting money in a private bank. Hopefully it will lead to some bank bankruptcies in the future.

    As
    we have seen in Iceland, can the bankruptcy of banks free many skilled
    workers, which are forced to find another job, which is most likely more
    useful…

    Also it can motivate people in the future to demand a safe account for their savings, e.g. an account at the national bank.

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  • Alejandro

    Totally agree with what the video states, loanings, morgages, etc should be received from the goverment and the benefits reinvested in the country, this would finished with the crisis, however, at least in spain, the meaning of nationalise a bank is to give it public money and receive nothing…

  • Danny

    Illuminati is behind it all.

  • Kaspar

    Is it just me, or aren’t there any references or further reading suggestions for any of the 8 issues that are described (If I click on the buttons nothing happens)? I would very much like to have some, so that’s why I’m asking…

    • Mira Tekelova

      Hi,

      It works fine here. Which browser are you using?

    • Ruud Harmsen

      The Wikipedia is quite good on this. In English, and if you can read it, in German. Maybe French too.

  • Jitesh

    am not quite sure about how credit is created out of nothing for something like mortgages. For example, i want to buy a house from “A” for $1M. For the same, I approach my local bank for a loan. “A” will transfer the title of the house only on receipt of the $1M. In this case, the money will come from the bank, isn’t it? actual money which needs to be paid to “A”. So, how is it just created out of nothing…? unless, it is created out of nothing for local bank to lend to me (by the central bank), is it so ?

    • Eli Gabay

      The answer to your question is that the bank is not lending you $1M that it possesses or that savers invested with it. This $1M is created by typing the numbers into the computer and transferring those numbers to your account – which you then transfer to the seller of the house.

      • Ruud Harmsen

        “The answer to your question is that the bank is not lending you $1M that it possesses”

        Of course. Banks by definition never own (monetary) money. Money = what banks owe the public. They owe money, they don’t possess it.

        “or that savers invested with it.”

        Yes it does. That too. But usually it does not need that, because the granted loan itself is immediately deposited again too, which means it funds the loan that made it available! More here:

        http://rudhar.com/economi/monydebt/en/010slfnd.htm .

    • Benj Clarke

      I see your question; I wondered the same thing. Finally realized that “A” will most likely deposit his $1mil check, and the banks simply reconcile the numbers. If “A” were to cash the check, then the banking system would have to cough up the funds in actual cash money (and they must retain this ability by holding funds; indeed i’ts the only way to maintain their scam). But if “A” simply makes his deposit, the banks simply agree about the movement of numbers, and credit each other appropriately.

  • Eli Gabay

    The above article is quite ignorant of common-sense Economics (often called “The Austrian School”).

    Point 3 says – “If we need to get more money into the economy…” – We NEVER need to get more money into the economy – the whole reason why Gold-Backed money worked for thousands of years is because we never had the ability to create money.

    Then it says “the people who borrowed will spend this new money” – as if spending money creates growth and jobs. NO WAY! Saving is what provides funds for investment to create growth and jobs. Consumption/Spending (especially when financed by debt) prevents an economy from growing.

    • Nick Egnatz

      Hi again Eli,
      “Saving is what provides funds for investment to create growth and jobs.”
      Well yes this is what we have all been led to believe is the case, but it simply is not true.
      In the U.S. the private bank that makes a loan does not use depositors savings to make the loan. It makes the loan first and simultaneously creates a deposit of equal amount to balance the books. As the loan is repaid the deposit is extinguished and the money vanishes. The interest that the bank charges is not created and this is why there is never enough money in the system to pay off the debt and interest.
      Since our Federal Reserve System is patterned after your Bank of England, I am quite sure it works the same on your side of the pond.
      But really, forget all this information and logical arguments. Why do you think literally every country in the world is on a path to bankruptcy. Why is each U.S. citizen now responsible on average for more than $100,000 in debt (roughly half government and half individual)? Do you really think it is because we are what? Lazy and don’t want to work? Or is it just possible because the system of debt money creation by private banking corporations is designed to make debt slaves of us all?
      I’m assuming that you are doing well financially and I am happy for you. But do you want to live in a country, world were the vast majority of your brothers and sisters are debt slaves to a banking class that never had to work a day in their lives?

    • Ruud Harmsen

      “We NEVER need to get more money into the economy”

      We do. One likely theory is that the 1929 crisis was aggrevated, and became a real crisis, because the FED then did it the wrong way round: reducing the money supply in times of recession. Just not a good idea. In our day and age they don’t make that mistake again, fortunately.

  • Eli Gabay

    Ignorance is shown again in Point 4:
    “When money disappears from an economy….everything stops working.”
    –If all the debt was repaid we wouldn’t suddenly have no money left. The money left would be what represented the real value of goods and services in the economy.

    Granted there would be a recession if this happened quickly, but that recession is part of the cure for the cancer of the debt. Recessions are times when economies reorganise and clean up the mess left during the debt-fueled booms.

    • Nick Egnatz

      “–If all the debt was repaid we wouldn’t suddenly have no money left.
      The money left would be what represented the real value of goods and
      services in the economy.”

      This explanation of what happens when a country stops allowing the creation of money as debt (a good thing), but neglects to create debt-free ‘money as law’ spent into circulation.

      In the 1830s Presidents Andrew Jackson and Martin Van Buren defeated the private Second Bank of the U.S.in a monumental struggle, ending the corrupt bank’s creation of debt money. This was a good thing, but because they both had an incomplete understanding of the nature of money, they
      neglected to create and spend into existence the money by law that was necessary for the economic lifeblood ofour country. As a result of the lack of money, the country was plunged into the terrible Panic of 1837-43. Those individuals that think a return to the gold standard of money as a commodity would solve our problems, need to study the results of Jackson and Van Buren’s efforts doing exactly this.
      http://www.intrepidreport.com/archives/11626

      So if all the debt was repaid, our societies would be left with a handful of coins and paper money representing less than 3% of today’s total money supply. How much would you crop of wheat be worth in this scenario?

      • http://goodworld.lightnet.co.uk/ Janos Abel

        Would not it just mean that one hundredth of a pound (1 penny) would buy as much wheat (or whatever) as a pound buys now, or a weekly wage would be 500 pence instead of 500 pounds?
        An other, just as important, question is “who would be holding most of that money?”

    • Ruud Harmsen

      “The money left would be what represented the real value of goods and services in the economy.”

      Money does not have to represent anything. I believe that is yet another myth and misconception.
      Money is a temporary thing that has a value of its own, independent of goods and services in the economy.

      More on this here: http://rudhar.com/economi/monydebt/en/2130608.htm

  • Eli Gabay

    Point 4 again:

    “you personally can only pay off your debts using money that was created when someone else went into debt”

    Have you never heard of the concept of “EARNING MONEY” by creating something of value to the economy? Can’t I pay off my debts with money I EARNED?

    Let’s say I grew some wheat in my field, and the bank owner would accept wheat as payment instead of money. Aren’t I paying the bank in a way not linked to debt? And doesn’t money represent the value of things like wheat that are real items that exist in an economy?

    • Nick Egnatz

      Eli no one is saying that you or anyone else doesn’t earn money. What is being said is that the money you earn was created by a bank making a loan to someone, thus putting that person into debt.
      I live in the U.S. our banking corporations do not accept wheat as a payment for anything, do yours? What a bank officer will be delighted to do with your wheat crop is make you a loan on it until it is harvested or you can sell it to someone else.
      With our present monetary system of “debt money created by private banking corporations”, both in the U.S. and U.K. what does money represent other than debt?

      • Apollocreed

        So that’s the only way central banks put money into an economy? By loans? (sorry for the late reply)

        • Ruud Harmsen

          No, not only and not usually. Central banks usually don’t create money, but normal banks. Read MMM (Modern Modern Mechanics.) It’s all explained there in great detail.

      • Ruud Harmsen

        “what does money represent other than debt?”

        Claim. Just the opposite of debt.

  • Thetaxpayer

    Could Positivemoney please change focus from just looking at the UK to looking at the Euro zone as a whole? I assume the problems are exactly the same, just change the Money to Euro.

  • Graham

    To put the UK right will bring every bank in every country in all the world against us. 85 people own as much as three and a half billion people, and they aren’t going to give that up without a fight to the death. Watch the money masters on YouTube to see how they have been robbing us over the passed hundred or so years.

    • Ruud Harmsen

      Money masters and such videos are misinformation that mix facts and myths in a way that average people can’t disentangle. Don’t let them fool you. Read my explanations instead, they are honest, factual and logical.

      http://rudhar.com/economi/monydebt/index.htm

      • Graham

        I wouldn’t disagree with you but they don’t need $10 in reserve. I think is about $1.25 to $100 at the moment. But why do we let private companies (Banks) electronically create our money. Banks aren’t interested in investing in SMEs to create jobs and growth, all they went to do is put money into housing. That way if it crashes they can reposes people’s homes. And Martin Wolfe of London, what a dick. Too complicated, he muses on the problem of why there was a crash, my ass. Take the power of creating our money away from the banks. Why are our countries in so much debt. Who to. The bloody banks of course. It’s a joke. If we had an independent agency to print and distribute our money through loans and support. We could use the interest on what we pay banks, which makes up their profit, and channel it back into our communities. STOP THE BANKS PRINTING AND CONTROLLING OUR MONEY AND LIVES.

        • Ruud Harmsen

          “But why do we let private companies (Banks) electronically create our money.”

          Because money creation is an automatic and inevitable side effect of credit granting. Credit is needed, if it were only because a shop first has to buy product and set up an attractive looking shop, and THEN perhaps sells and earns something. In the meantime they need credit. From a bank.

          If you want to move money creation away from banks, you must move credit granting (and its funding: savings account and on demand accounts) elsewhere too. Where to? The government? Then you have the same thing you have now, only run and owned by different people. What’s the advantage?

          • Graham

            What makes the system bad is that the only real thing that controls the bank’s electronic printing of credit/money for loans etc, is their confidence that the customer can pay it back. (High street banks not central banks.) Fraction Reserve Banking enables banks to loan with hardly any reserves. i.e they only need to hold £5000 when electronically placing £200,000, for a mortgage, into that customer’s account.
            This £195,000 isn’t all from other customer’s savings, (there aren’t enough savings in the world to cause such boom and busts in the property market) it’s created out of nothing. Although it returns back to nothing when it is repaid, but it is the interest that the banks get from this, that’s the problem. Money for nothing, except putting created money into that customer’s account. (When I say printing money, i am referring to the 97% of electronically created credit and not the 3% of notes and coinage the royal mint produces, which is controlled.) And of course when this created credit, which is used as money, reaches other banks it becomes their reserves to create more credit/money, and yet more free interest. And it is this interest, and other things, that has brought Greece, Ireland, Spain, Portugal to their knees. If this interest could be funneled back into society, it would be a fairer place with a lesser gap between rich and poor. The UK is reluctant to raise interest rates as it is already struggling to pay interest to banks as it is.

          • Graham

            I pay over 70% of my wages to the bank for my mortgage. It is only so high because of the housing boom created by the banks. This kind of controls my eating habits, the holidays I can’t afford to take and this is my life. Is this not a kind of control?

          • Ruud Harmsen

            > I pay over 70% of my wages to the bank for my mortgage.

            I don’t. Somehow your financial history has been different from mine, perhaps you took more risks and I was more careful? Or in hindsight you happen to have bought at an unfortunate moment and I was lucky? (Without both of us knowing it then.)

            Probably not your fault, but does that make it the banks’ fault?

          • Graham

            In Holland, it sounds like the housing problems (Bank asset fueled, speculative bubbles) doesn’t happen, like it does here in the UK and America. It seems it me that the 2008 crash skipped you by that you still have a positive view of banks. In the UK our banks acted very badly and should have been done for fraud.

            (Barclay’s): the Libor rate fixing scandal AND the dark pool HFT trading.
            (HSCB) for money laundering for the Hasbillah

            (Lloyds) taking money during the crash when they shouldn’t done.
            (RBS) for stripping assets from good viable companies.

            I am glad you have such a good Dutch banking system. I know the Germans and the French as well as many other European countries have problems. But hats off to the Dutch, you are a very lucky people to have such a good caring banking system.

          • Ruud Harmsen

            ==
            In Holland, it sounds like the housing problems (Bank asset fueled, speculative bubbles)
            ==

            Here in the Netherlands there were times when house prices went up to rather extreme levels. Later (like: in recent years) they gradually moved back to more realistic figures. Of course, that hurts for people who bought near the top and get problems with the mortgage (caused by maybe any combination of reckless overspending; unemployment; divorce, etc. etc.) in times of more normal house prices.

            Is that the banks’ fault? Perhaps to some extent it is. They should have been more careful and reluctant. But that’s a wholly different discussion than “is money creation bad? is interest theft?”.

          • Graham

            A very small amount of interest goes back into the economy to pay builders etc through loans. BUT Banks aren’t very good at channeling money into Small Medium Sized businesses. It’s less risk to fuel assets bubbles, like housing. This has been such a problem in many countries. In the UK and the US the governments are using Quantitative easing, printing money, in a desperate bid to get the banks leaning to businesses (i.e. to pay builders, create jobs, etc. )

            And why should there be a wrong time to buy a house? This can go on for years. I have children and I can’t see them even being able to buy a house, or even rent one. People see house prices going way out of their ability to afford one. Banks should not be allowed to create money to speculate in assets bubbles by giving out mortgage to people who can’t afford them. There’s no risk to banks as they just repossess assets. And after all the QE, it’s all happening again. If we stop the banks from creating a debt based currency, intentionally or not, then it would be best for society.
            Wrong time to buy a house? before we came off the gold standard 60s and 70s house prices where more constant. There is no need for there to be a wrong time to buy a house. It’s not natural except the banks make it so.
            Thank you for this conversation as your comments help to me to better formulate, crystallize and strengthen my own arguments against the banks’ inappropriate use of newly created money. Perhaps we need some kind of decentralized from of currency. bitcoin or such like. regards.

          • La Vaca

            ”Ik geloof in de goede bedoelingen van mensen, tenzij en totdat duidelijk blijkt van het tegendeel.”

            ”I believe in people’s good intentions, unless its proven otherwise”

            Well Ruud, haven’t you seen enough yet? I smell some framing here…of course there are good bankers (like there are good people). The system is corrupt. There is enough evidence you have to admit that. You are also one of those guys that believe that the democracy in Brussels works perfectly, there is no inbalance in the lobby and the term technocracy is something for populists?

          • Ruud Harmsen

            ==
            If this interest could be funneled back into society, [...]
            ==

            Interest IS funneled back into society! Among other things, a lot of the Dutch pensions are paid from it (don’t about the situation in other countries).

          • Graham

            In the UK and the US most of the bank’s profits, if not paid out in bonuses, finds itself creating asset bubbles, and not used for the good of society. Obviously the Dutch banking system is very different from the rest of the world. I envy you.

          • Graham

            Interest could be used for society and not the bank profits. MSE would get more support that would create jobs, real universal wealth, not just speculative wealth enjoyed by the very few. Banks should be administrators only.

          • Ruud Harmsen

            “Interest could be used for society and not the bank profits.”

            It already is. Even if the bank profits and managers’ bonuses are used for things you and I don’t approve of, like outrageous real estate that nobody needs, the money is still spent into the economy, like for paying builders and contractors and material suppliers. The money has not magically disappeared somewhere just because at some point in time it was a bank profit.

          • Chris Killer

            If money is in the hands of the rich and those serving the rich it is out of the hands of poorer communities. Trickle-down effect has been disproved.

          • Ruud Harmsen

            1) So what do the rich do with their money? I would think they either save it or spend it. In both cases it arrives with other people.

            2) Distribution of wealth, income, taxation schemes etc. is politics, and has NOTHING to do with money creation or interest. It is a completely different subject.

          • Chris Killer

            Your richness is defined by the control you have over the direction of money flowing through you.

          • Ruud Harmsen

            Well, a bank doesn’t have such control, its clients decide where the money in their accounts goes. So by your definition, a bank is poor.

        • Ruud Harmsen

          > STOP THE BANKS PRINTING AND CONTROLLING OUR MONEY AND LIVES.

          Banks do not control “printing” the money, because the process of money creation is not a wilfull act, but an automatic side-effect of credit. They do not control our lives, we can do that ourselves. The central banks monitor (oversee, check, control) the overall money creation that happens in non-central banks. In euro countries, the central banks are wholly owned (but independently managed) by the governents of the euro countries.

          • Graham

            “The central banks monitor (oversee, check, control) the overall money creation that happens in non-central banks.”

            This is very interesting statement, but how does this happen exactly? I know interest rate does have an effect on credit creation but most regulating laws/guides have diminished substantially over the past 30 years. The last being with Gordon Brown’s ‘Light Touch’ policy, giving a free hand to the banks.

          • Ruud Harmsen

            ==
            This is very interesting statement, but how does this happen exactly?
            ==

            Read MMM and other policy publications by central banks.

      • Graham

        The Money Masters makes some very good points, but you have to read around to get a proper prospective on it. Try the Kieser Report on Russia Today. Take a note of his guests and read, read their books. Don’t take anything at face value. And just printing money and funding mortgages weren’t enough for these banks. Substandard sub-prime loans was the next step. They didn’t even care that people couldn’t pay them back because they sold these loans on to pension funds, other countries as high end AAA standard. And what do you know. the UK is in another housing bubble and companies are being staved of investment and the ability to produce worth while jobs. Low wages and no pay rises for the foreseeable future.. AND IT’S BUSINESS AS USUAL, and the show goes on.

        • Ruud Harmsen

          “And just printing money and funding mortgages weren’t enough for these banks.”

          “Printing money” is a confusing and incorrect way of describing the existing phenomenon of money creation. It suggests that the money is first willfully created and THEN given to somebody or spent. But that’s not how it works. In reality, when a bank makes money available to someone in the public, the SIDE EFFECT of that is that money creation has taken place. That is the other way around than what “printing money” suggests.

          (My point is not that printing money suggests physical banknote and we are really talking about bank accounts.)

  • Leah H

    Have never heard of one bank destroying money repaid to them, not even the principal amount that was created out of thin air to make a loan. Fractional lending is how the banking sector got to grow so huge and powerful. They keep most of their past and present profits and funds offshore, and not necessarily as numbers on ledgers. It is and never was necessary to bail out banks, they are not in debt, they own the debt. Growing population necessitates an increasing amount of money in circulation, Fractional Banking was the best idea they could come up with, and at the same time They would end up owning all the debt as all money and assets eventually exist as debt.

    • http://goodworld.lightnet.co.uk/ Janos Abel

      It is not clear what you are trying to say here. The Bank of England finally came clean about the fact that money is created when a bank makes a loan (a positive ledger entry) and destroys it when it is repaid by making the corresponding negative entry. It is only the interest they can claim and hide in off-shore accounts—this is how I understand the information available on the issue.

      One more thing. The fractional reserve system does not create circulating money because repayment cancels (destroys/withdraws) it out. The correct concept to apply to debt money is **cycling in and out of existence**. Real **currency** like notes and coins, i.e. **legal tender**, would circulate indefinitely once it gets into the economy (could be called the “bucket system” of money supply).

      • Ruud Harmsen

        ==

        The correct concept to apply to debt money is **cycling in and out of existence**.

        ==

        RIGHT! Yet, the total may vary over time, which is monitored by the central bank. That is what they are for. (Read Modern Money Mechanisc, Chicago Resere Bank, 1961.)

  • johndinfidel

    The problem is well illustrated here, but I am unsettled by the proposed solution. I don’t like the idea of our monetary system totally controlled by government. You see, government derives its power not from the consent of the people but from the business end of a gun. Fiat money is backed by lead. So, in effect the money would be backed-up by lead. This is the case today but the government controls money by proxy through central banks.
    I think our way out is through cryptocurrency which is best represented by Bitcoin, which started it. Cryptocurrency depends on the code and the beauty of it is it is open source so no one entity “owns” it. The state is all but removed from the equation and so too are its bullets. Being an open source code it is open to improvements, and yes open to abuse. So too our current monetary system is open to abuse and I pronounce here that it is slow to correcting any abuse. With cryptocurrencies open source code correction will come quick because the stakeholders will be free to make correction on their own.
    The free market is dynamic, a committee of haughty friends of successful politicians is not.

    • http://goodworld.lightnet.co.uk/ Janos Abel

      The actual problem is that the nation has *no money system* barring the stock of currency (i.e. cash—notes and coins). So stop calling “money” the debt (lyingly called credit) issued by banks.

      The critique in your comment seems to be used to introduce a particular pet solution. Would a state issued debt-free money stock be more harmful than the debt-money stock manufactured by the profit-seeking banking system?

      The government at least *claims* to be serving the people; and claims to be under democratic control. In principle, a government can be shown not to serve the people when they abuse the power bestowed on it by the electorate.

      Join the British Constitution Group in their demand for the institution of a
      “Bradbury Pound” type monetary system—State created national
      currency.

    • http://goodworld.lightnet.co.uk/ Janos Abel

      I think it is an illusion that we can abandon our our national currency to the banking system and an replace it with an alternative like you propose.

      It may seem to be a solution in individual cases but thiking that the same solution can be generalized to work in a macroeconomic context is leaving economic realities behind.

      • johndinfidel

        The change from government to a decentralized, open source monetary system like Bitcoin will take time. In a decade or two will it still be Bitcoin or some derivative thereof? I have no idea but I’d rather go in that direction than in a centralized government direction. Government money is backed by lead, from the business end of a gun, hence it is immoral. The initiation of force is immoral and government cannot exist without a monopoly on the initiation of force. We will not abandon government-backed money, rather we will evolve out of it.

  • Peretz

    “This means that it’s almost impossible to reduce our debts without causing a recession. And you personally can only pay off your debts using money that was created when someone else went into debt.”

    That means that you don’t know there is a big différence beetwen public or particular debt. Unhappily only banks have the right to create money for both. That is the point.

    • Ruud Harmsen

      “Unhappily only banks have the right to create money for both.”

      Wrong, that’s not how it works. Anybody could create money, if only the definition of money were different. But it isn’t for good reason. Money creation by banks is not a right but the consequence of a definition.

      Money creation does not make a bank richer, it is only the result of a calculation model (which makes sense). http://rudhar.com/economi/monydebt/nl/021bacan.htm

      • Graham

        Lloyd Blankfein: some analysts had predicted he would receive $100m. … week had suggested that he might get as much as $100m for 2009

        Goldman Sachs chairman and CEO Lloyd Blankfein, 56, has lost an eye-watering $52million of his personal wealth this month, leaving him with shares worth ‘just’ $232million.

        Please stop peddling you nonsense, Ruud Harmsen. Your “Money creation does not make the Bank rich.” statement, I find particularly distasteful. In many ways your website may be accurate. I just don’t agree with your interpretation. With respect, I shall not comment again.

        • Ruud Harmsen

          Graham wrote:

          ==

          Goldman Sachs chairman and CEO Lloyd Blankfein, 56, has lost an eye-watering $52million of his personal wealth this month, leaving him with shares worth ‘just’ $232million.
          ==

          I’m not saying bankers should received outrageous salaries and bonuses. Rather on the contrary: http://rudhar.com/politics/wmgraair.htm (in Dutch only; the Google Translate translation sometimes even contains halfway understandable sentences, along with some gobbledebook).

          ==
          Please stop peddling you nonsense, Ruud Ha rmsen. Y our “Money creation does not make the Bank rich.” statement, I find particularly distasteful.

          ==

          How can stating a verifiable truth be distasteful? (Note: when saying money creation does not make banks richer I did not refer to interest, but only to the principal. I explicitly stated that somewhere on my site too.)

          ==

          In many ways your website may be accurate. I just don’t agree with your interpretation. With respect, I shall not comment again.
          ==

          OK, it’s a free world, that’s your right.

          But be aware that this is a type of reaction I often encounter when people are close to a point where they would have to admit they have been wrong all that time and I am right. Admitting that isn’t easy, I quite understand that feeling.

  • John

    HELP. A question. If banks can create deposits out of thin are (by agreeing a loan) why do they need wholesale funding. Surely Northern Rock could have continued to create deposits rather than relying on the fickle wholesale market. I know I’m getting confused but someone will spot my obvious error – I hope.

    • https://ibwt.co.uk/ Joel Dalais

      Because you are looking at it wrong.

      Think about it this way – what does ‘wholesale funding’ do to the society it takes it from? Basically, it robs everyone. Banks stay rich, bankers stay rich, or rather, richer.

      And because the banks ‘need saving’, this excuses them to create (print) more money (from nothing), with ‘government approval’ (banks tell governments to approve them, or else).

      What is really happening? People lose savings, cars, houses, etc, etc.

      And whilst this ‘crash’ing of banks is occuring, e.g. “amagad, we need to print more money and save banks!!” the banks and the governments collude to print more money.

      Forget taxes, inflation is what is really robbing us all.

      ELI5 – Banks do NOT need funding – failure is GOOD, it weeds out corruption and the bad – unlimited funds = no chance of failure – Boom & Bust cycle = banks take ALL your houses until they own EVERYTHING (and they’ve been doing a pretty damn good job over the last few hundred years).

      Fiat failure rate = 100%

      P.s. Wars are a freakin godsend for banks, every war for banks is like Christmas, they get to ‘clean up’ and buy everything up after each war.

      Time for plan B.

    • Ruud Harmsen

      “If banks can create deposits out of thin are (by agreeing a loan) why do they need wholesale funding”

      That is the paradox. An apparent contradition. But it isn;t a contradiction because it is about two different notions of “money”. Distinguish them and everything will become clear. http://rudhar.com/economi/monydebt/en/016money.htm

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  • zaff1

    0:48 ‘But this isn’t some crime of the century. It’s just the way banks work.’ Completely disagree! It is the greatest crime in the history of mankind! To create ‘money’ by typing numbers into a keyboard and then ‘lending’ it out at interest is complete and utter fraud. It is not a loan but is presented as such. Banks are completely and utterly guilty of misrepresenation by non-disclosure (of the fact that they do not lend money) and further deception by generation of the misperception that they actually do lend ‘money’ by using the term ‘loan’. They do not provide any loans at all. They take no risk in these transaction nor is there fair exchange of value. Banks have placed themselves in a no-lose situation. They are guilty of unjust enrichment. Please edit this video accordingly. Thanks!

    • Ruud Harmsen

      “It is the greatest crime in the history of mankind!”

      No it’s not. It looks like a crime only to those who do not understand.

      • zaff1

        “Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits.” — Sir Josiah Stamp, President of the Bank of England in the 1920s, the second
        richest man in Britain.
        “I am afraid the ordinary citizen will not likely to be
        told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.” Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924. Money creation is theft of course. To quote Mike Maloney: “When you think about new currency – it’s theft. They are stealing from all of us every time a new unit of currency is created because there is no economic energy in that currency. The second it gets spent into circulation, it robs all other units of currency…it’s theft.” Mike Maloney. It’s obvious you do not understand.

        • Ruud Harmsen

          > The Bankers own the Earth.

          No, they own financial claims (loans, debit side of their balance sheet) and they have debts towards the public (credit side of the balance sheet). The latter is money, which is useful, because it enables us to make payments and save what we don’t immediately need. http://rudhar.com/economi/monydebt/en/005bnkfn.htm

          • zaff1

            Man you just don’t get it. How can they own financial claims (loans as you put it ) when they don’t lend anything? duh?! What is your understanding of the term ‘loan’?

          • Ruud Harmsen

            http://www.collinsdictionary.com/dictionary/english/loan
            loan = 2a property lent, esp money lent at interest for a period of time

            claim = 5 an assertion of a right; a demand for something as due

            debt = 3 an obligation to pay or perform something; liability

          • zaff1

            I asked you ‘What is your understanding of the term ‘loan’? Can you lend something which doesn’t exist? Can anyone lend anything they don’t possess? You have said ‘Money creation exists because only the credit side is counted as money,
            but the corresponding debit side is also there and contains real value.
            But it’s not money.’ Okay, so according to your definition a loan = 2a property lent, esp money lent at interest for a period of time. Since the debit side is not money according to you let’s leave it out of the equation. As to the money on the credit side, where did it come from?

          • Ruud Harmsen

            ==
            As to the money on the credit side, where did it come from?
            ==

            It was created into existence by the bank, when recognising the claim by the member of the public. In exchange for posting the debt in the bank’s book at the debit side.

            “Where did it come from” suggests that the bank could only give out money it first has itself. But by definition a bank never has any money (in the monetary sense of the word), so that is not a meaningful question.

          • Ruud Harmsen

            ==
            How can they own financial claims (loans as you put it ) when they don’t lend anything?
            ==

            Banks do lend money. They make money available (credit side of the balance sheet, claim of the borrower on the bank, what the bank owes the borrower) in exchange for a debt by the borrower (debet side of the balance, a claim/asset from the point of view of the bank).

            It’s all a matter of double bookkeeping, described already in 1494 by Luca Paciola. http://rudhar.com/economi/boekhoud/prcacten.htm

          • zaff1

            Nope, banks don’t lend money. The evidence is irrefutable. You are actually confused and contradicting yourself. And you are denying the truth when in fact you said ‘My aim certainly is to reveal the truth and not to hide or evade anything.’In fact you even said ‘Money creation exists because only the credit side is counted as money,
            but the corresponding debit side is also there and contains real value. But it’s not money.’ So where did the money on the credit side come from and who created the value on the debit side? It is only If you know the correct answers to these questions and really and truly understand them will you have truly pierced the veils of banking deception. Sadly this is not yet the case. Oh, and by the way please familiarize yourself with the difference between the terms ‘money’ and ‘currency’.

          • Ruud Harmsen

            ==
            So where did the money on the credit side come from and /

            ==

            The bank recognises their debt to the borrower, they admit the borrower now has a claim of 20 dollars on them.

            ==

            / who created the value on the debit side?

            ==

            The borrower recognises his debt to the bank, he admits that he owes them 20 dollars.

            ==
            Oh, and by the way please familiarize yourself with the difference between the terms ‘money’ and ‘currency’.
            ==
            Irrelevant, different discussion.

          • zaff1

            You didn’t answer the question – where did the money come from? How can a simple admission pay for something I want to buy using money I supposedly lend from a bank?” So the bank says to the borrower IOU 20 dollars. Right? Explain to me the exact accounting process by which seller (the person from whom I want to buy the thing) gets paid. Now certainly the borrower recognizes his debt to the bank and admits he owes them 20 dollars. But this is only because he believes the bank actually lent him 20 dollars!! If he knew that the bank did not lend him one blue cent would he admit that he owed them 20 dollars? I bet not! Except you of course, But that’s because you don’t know the truth. You have no idea that the bank uses your signature to create value and then deceive you into believing that it is their value!

            Also how can a request for understanding the difference between the terms ‘money’ and ‘currency’ be irrelevant when the subject under discussion is money itself!!????

        • Ruud Harmsen

          ==
          Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924. Money creation is theft of course.
          ==

          That’s right, the man didn’t know what he was talking about, if he really said this and nothing to add a nuance to it.

          • zaff1

            You need to provide evidence that the man didn’t know what he was talking about. justify your statement please.

        • Ruud Harmsen

          ==
          To quote Mike Maloney:
          “When you think about new currency – it’s theft. They are stealing from all of us every time a new unit of currency is created because there is no economic energy in that currency. The second it gets spent into circulation, it robs all other units of currency…it’s theft.”
          ==

          That too is plain nonsense, by someone who didn’t understand. Granted: it isn’t easy to understand, and there are plenty of opportunities to misunderstand.

          Money creation is not theft because it doesn’t make a bank richer. Money creation exists because only the credit side is counted as money, but the corresponding debit side is also there and contains real value. But it’s not money. That is the crux.

          ==
          JK Galbraith.He also said ‘The study of money, above all other fields of economics, is the one in which complexity is used to disguise the truth, or evade the truth, not to reveal it.’
          ==

          My aim certainly is to reveal the truth and not to hide or evade anything. I’m trying to be as transparent as I possibly can be — a task in which, because I am human and err, I will not always fully succeed, of course.

          • zaff1

            And you have not succeeded here also. I really do not have the time to pursue this discussion since it is futile. You obviously do not understand how banking works. However the solution is simple. Just ask the banks relevant questions relating to how they work. Hopefully you’ll get truthful answers i.e. if they give you any answers in the first place! We’ve asked them all the relevant questions and are still awaiting answers! Nonetheless the Bank of England report (have you actually read it?) has provided some of the answers. In any case the fact that you believe that money creation doesn’t make the bank richer is an indication of either a lack of common sense or a victim of mind control, or more likely, both. If I say to you I am going to lend you 20 dollars but don’t actually lend you one cent. I actually use sleight of hand and monetize your signature to create 20 dollars, lend this to you and then get you to pay it back to me with interest, how does this not unjustly enrich me? Like I said common sense is needed.

          • Ruud Harmsen

            ==
            Just ask the banks relevant questions relating to how they work.
            ==

            I don’t have to, I read Wikipedia and I applied the ever simple rules of double bookkeeping. And I briefly (1979-1982) worked for a bank myself, in the IT department. And I can look at my own bankstatements (of on demand account and mortgage), which show me relevant parts of the bank’s books.

            That together tells me everything I want to know.

          • zaff1

            Have a look at Simon’s video here. He also worked in a bank. If you are still confused contact him. I’m sure he will be willing to assist you. And please do actually watch the video. It will clear up a lot of your misunderstanding http://youtu.be/22K-EUnF9bM

          • Ruud Harmsen

            “Have a look at Simon’s video here. He also worked in a bank.”

            55 minutes, “in a nutshell”??

            I watched 6 minutes so far, and my mind screamed PLEASE COME TO THE POINT all the time, and “why do you forget that debit side all those minutes?”.

            If it goes on like this, it is very easy to refute. I will one day. A badly made video, only confusing people, demagogic propaganda, not providing any real information or insight. That’s my first impression after watching 6 minutes. Perhaps the rest is better, I hope so.

            For real info, I still recommend my own site: rudhar.com/economi/monydebt/ which is text so you can read it fast or slowly as you prefer.

          • Ruud Harmsen

            I have finished watching the whole video now and I made notes. There’s really a lot I could write about this. It’s unbelievable. Almost every other word is untrue and misleading. What a load of crap. Is there a school somewhere where you can learn such misinformation techniques?

            I also wonder, what is the agenda behind this? Do people make such videos out of ignorance, or ill intent? Fascinating but also painfully worrying. Where is the world going with such videos all over the internet?

          • zaff1

            I will await irrefutable evidence from you that ‘Almost every other word is untrue and misleading.’ But then I’m not holding my breath. As David Dunning said ‘If you’re incompetent, you can’t know you’re
            incompetent. […] the skills you need to produce a right answer are
            exactly the skills you need to recognize what a right answer is.’

          • Ruud Harmsen

            I just watched PositiveMoney’s Banking 101, part 1, via http://www.positivemoney.org/how-money-works/banking-101-video-course/ , https://www.youtube.com/watch?v=bE8i-4HpKlM .

            This video too is full of half-truths and suggestive lines that don’t really explain to people what the essential points are. It is a very misleading video. I see it as my moral duty to write about this and refute this. I just cannot let this disinformation pass uncommented.

            Watch my site, It may take a while, but my comments will appear, I promise, http://rhar.info . Meanwhile, http://rhar.info/economi/monydebt/en already contains the real story and better, non-misleading explanations.

          • Ruud Harmsen

            ==
            Hopefully you’ll get truthful answers i.e. if they give you any answers in the first place! We’ve asked them all the relevant questions and are still awaiting answers!
            ==

            Perhaps your questions were so full of misunderstandings, implied wrong answers and reproaches, that the bank people didn’t know where to start, then gave up?

            By the way, I did provide some answers to such questions, but the posers still keep asking them on twitter, ignoring my answers. Is that smart, is that wise?
            http://rudhar.com/economi/monydebt/en/2130619.htm

          • zaff1

            has it occurreed to you that your answers don’t make sense?

          • Ruud Harmsen

            Certainly, often, while writing the articles and doing the research for them. But when I thought I had answers that did make sense, I published them. Look at the publication dates. There are long gaps and jumps.

          • Ruud Harmsen

            ==
            In any case the fact that you believe that money creation doesn’t make the bank richer is an indication of either a lack of common sense or a victim of mind control, or more likely, both.
            ==

            I don’t believe anything, I do a calculation. How much is 20 dollar debit added to 20 dollar credit? I think it’s zero, don’t you agree? So: the bank doesn’t get richer and neither does the borrower.

            ==
            If I say to you I am going to lend you 20 dollars but don’t actually lend you one cent. I actually use sleight of hand and monetize your signature to create 20 dollars, [...]

            ==

            That’s not what they do. What they do is: write in their books, debit side (left) that you owe them 20 dollar, AND they write in their books (credit side, right) that they owe you 20 dollars. Fair enough, isn’t it?

            Those 20 dollars, you can get as cash or use for a payment (with a cheque or whatever). In contrast they can’t demand those 20 dollars back immediately, but only later.

            Why is there money creation? Because ONLY YOUR 20 dollars counts as money (credit side of the balance sheet) and THEIRS DOESN’T!!!! (debit side of the balance sheet). Because that is the definition of money: what banks owe the public. Not what the public owes them.

            So: money creation doesn’t make a bank richer ($20DT + $20CR equals zero), but money creation has really taken place ($20 more money supply, viz. only those dollar the bank made available to you).

          • zaff1

            Like I said this discussion is futile. Not only do you lack the ability to think logically, you are arrogant too. It would be completely foolish on my part to even consider continuing this discussion. In concluding may I suggest you research the meaning and significance of the term ‘teachable’ and also view these videos http://www.davidicke.com/headlines/david-icke-exposes-the-money-system/
            http://youtu.be/47gd_wfsN78
            http://youtu.be/uNNeVu8wUak
            Hopefully one day you will be blessed with an awakening.

          • Ruud Harmsen

            “Not only do you lack the ability to think logically,”

            Thank you. I reply: Dunning-Kruger, so yes, I am arrogant too.

            And David Icke? I cannot take people, who seriously take David Icke seriously, seriously. Come on, he believes in lizards! Do you? I don’t and never will. If that means being ‘unteachable’, I prefer that.

          • zaff1

            To quote David Dunning ‘ If you’re incompetent, you can’t know you’re incompetent. […] the skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.’ Exactly!
            Regarding David Icke’s view on Lizards I am unable to comment on this because I simply have not done any significant research in this area and do not possess sufficient knowledge on the subject to provide a credible opinion. I assume you are highly knowledgeable on this subject which gives you the authority to dismiss Icke’s work out of hand. And I assume your authority is evidenced by relevant publications. Correct? In any case I do absolutely concur with Icke in the many other areas he has researched, this agreement being based on my research in these areas too. The fraudulent financial system and the human mind are two such areas.

          • Ruud Harmsen

            I wrote this http://rudhar.com/politics/intnlgov/klicke.htm (in Dutch) about the would-be Dutch Alex “Infowars” Jones, Micha Kat, and then read http://en.wikipedia.org/wiki/David_Icke . That was clear enough for me. The word lizard occurs in that Wikipedia article several times.

      • zaff1

        The first part of my reply to your above post does not display. So here it is again: I understand all too well. And so did prominent economists. I will quote two of them: ‘Banking is not money lending; to lend, a money lender must have money.’ Hyman Minsky, Professor of Economics.
        ‘The process by which the banks create money is
        so simple that the mind is repelled.’ JK Galbraith.He also said ‘The study of money, above all other fields of economics, is the one in which complexity is used to disguise the truth, or evade the truth, not to reveal it.’

    • Ruud Harmsen

      ==
      To create ‘money’ by typing numbers into a keyboard and then ‘lending’ it out at interest is complete and utter fraud.
      ==

      Wrong order of events. Banks don’t first create money (they can’t) and then lend it out. Instead, they provide a loan, and as a result of that (the definition of money) money creation can be shown to have taken place. Inevitably and automatically. That is essentially different.

    • Ruud Harmsen

      ==
      They do not provide any loans at all.
      ==

      You mean if the bank puts 200,000 pounds in somebody’s account, that is not money, not a loan? The borrower cannot buy a house with that money?

      What is your definition of a loan then?

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    ==
    When you pay down your debts, the money that leaves your bank account doesn’t go to anyone else – it just disappears.
    ==

    Wrong, it does go to somebody else (in one of the word “money”) AND it disappears (in another sense of the word money). Without a strict distinction of what notion of money you are talking about, any discussion will only add to the unclarity.

    http://rudhar.com/economi/monydebt/en/016money.htm

    You really MUST understand this first, or else anything is useless and makes no sense. This is the core of the matter.

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    www.(gregloanoffer@gmail.com)

  • Tim

    Does this mean that for everything we buy, a portion of the money spent goes to the banks?

  • Jay Stacay

    i am dr emua, a spiritualist with AIM spiritualists. i am from Accra, Ghana and studied at Yendi High School & Money Making Secrets Revealed to me. i now lives in Ijebu, Ogun State, i dr emua has been preaching one gospel of ‘get rich quick’ i am flaunting different currencies stashed in fridge, micro wave, suitcase, etc including my
    juju on my Facebook page. Here are some of the pictures i have posted on my Facebook page:
    Never take council from the realm of poverty if you want to live in the realm of wealth. Don’t let poverty take over you, nether your problems say it out and you will get solution for that problems, do you Need lot of money? You are rejected by the Bank and you want money to meet your all your needs? No problem. Regardless of your financial situation. I invoke money for for people who really need it, not people who will waste it, people who need it for the following reasons;

    -Financial help

    -money for Real estate

    -money for Investment

    -money to buy a Car

    -Debt consolidation

    -Redemption of credit

    -Personal money

    -You’re stuck and you need money

    If you’re really in need of a money for the above reasons to try to communicate with my temple and i will invoke money for you to do what ever you want that is good, what is that your problem just call me or add me on what-app +2348163226573 for more information.or email me at dremuahelphome@gmail.com

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