Not OP, but some relevant content from /ck/ here.
Economics thread
Cameron Edwards
Nolan Parker
Proof that banks destroy money
This is an article from the Quarterly Bulletin 2014 Q1 | Volume 54 No. 1, by the Bank of England
Just as taking out a new loan creates money, the repayment of bank loans destroys money. For example, suppose a consumer has spent money in the supermarket throughout the month by using a credit card. Each purchase made using the credit card will have increased the outstanding loans on the consumer’s balance sheet and the deposits on the supermarket’s balance sheet. … If the consumer were then to pay their credit card bill in full at the end of the month, its bank would reduce the amount of deposits in the consumer’s account by the value of the credit card bill, thus destroying all of the newly created money. Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.
Luke Jenkins
How is this legal?
positivemoney.org
Summary of article:
-Banks invent paper that represents metal coins
-Banks loan out more of this paper than they have of actual coins in their vaults
-Banks just figured out a way to create money
- In 1844, the government of the day, led by Sir Robert Peel, realised that they had allowed the power to create money to slip into the hands of banks. They passed a law to take back control over the creation of bank notes. This law, the Bank Charter Act, prohibited the private sector from (literally) printing money, transferring this power to the Bank of England.
-This has now happened again with bank deposits. Banks have once again found a way to create money in a new form, and the law hasn’t caught up. And we all know it won’t catch up anytime soon.
Henry Kelly
The promissory note theory
The theory that what gives the bank the authority to issue money is your signature on a loan agreement, which then becomes a legal bill of exchange according to the decades old bills of exchange act, and therefore anyone can create money simply by issuing a promissory note. South African Michael Tellinger apparently payed off his mortgage with a promissory note.
youtube.com
Obviously this is not a good monetary system, ordinary people should not be able to create their own money, and I highly doubt you would get away with this. But they got one thing right, banks need a signature to create credit.
Pic related from Web of Debt is insightful
Dominic Butler
P + i > P
This is an excerpt from The Creature from Jekyll Island, and relates to the picture above, by explaining that debts can technically be paid through the price of labour.
''One of the most perplexing questions associated with this process is “Where does the money come from to pay the interest?” If you borrow $10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures $10,000 for the loan. It would seem, therefore, that there is no way that you – and all others with similar loans – can possibly pay off your indebtedness. The amount of money put into circulation just isn’t enough to cover the total debt, including interest. This has led some to the conclusion that it is necessary for you to borrow the $900 for interest, and that, in turn, leads to still more interest. The assumption is that, the more we borrow, the more we have to borrow, and that debt based on fiat money is a never ending spiral leading inexorably to more and more debt.
This is a partial truth. It is true that there is not enough money created to include the interest, but it is a fallacy that the only way to pay it back is to borrow still more. The assumption fails to take into account the exchange value of labor. Let us assume that you pay back your $10,000 loan at the rate of approximately $900 per month and that about $80 of that represents interest. You realize you are hard pressed to make your payments so you decide to take on a part-time job.''
Samuel Rivera
P + i > P continued
''The bank, on the other hand, is now making $80 profit each month on your loan. Since this amount is classified as “interest,” it is not extinguished as is the larger portion which is a return of the loan itself. So this remains as spendable money in the account of the bank. The decision then is made to have the bank’s floors waxed once a week. You respond to the ad in the paper and are hired at $80 per month to do the job.
The result is that you earn the money to pay the interest on your loan, and – this is the point – the money you receive is the same money which you previously had paid. As long as you perform labor for the bank each month, the same dollars go into the bank as interest, then out of the revolving door as your wages, and then back into the bank as loan repayment.
It is not necessary that you work directly for the bank. No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort. And the significance of that fact is even more startling than the assumption that not enough money is created to pay back the interest. It is that the total of this human effort ultimately is for the benefit of those who create fiat money.
It is a form of modern serfdom in which the great mass of society works as indentured servants to a ruling class of financial nobility.''
Hunter Perez
Gold Standard, Fiat money, and inflation
Money today is treated as if we are still on the gold standard. When Trump says he will get Mexico to pay for the wall, that just doesn’t make any sense. Are they going to pay American workers with Mexican currency? They could pay the workers with Dollars they have in their reserves. But the USA could just as easily pay the workers since they can just create the money. There is no real problem.
A typical argument at this point is inflation. You can’t just print money you’ll end up like Zimbabwe etc etc. The fact is, there is nothing inherently wrong with inflation. Inflation is a general increase in prices and fall in the purchasing value of money. This is caused purely by an increase in money supply. When bread used to cost 4 cents a loaf, and now it costs $4, that’s inflation. This happened because over a few decades the money supply increased 100 times, not because the demand for bread increased 10 000%. There is nothing inherently wrong with inflation, it’s just inefficient because prices must be constantly adjusted.
Similarly there is nothing inherently wrong with fiat money either. Fiat money is generally backed by taxes that are payable only in that particular currency. Fiat money can definitely work, it allows for flexibility and more control over the economy. Inflation is tied in to a nations floating exchange rate - the more money created then the less $1 will be worth in your own country and also outside of it – on the foreign exchange market.
Historically nations suspend their gold standards in times of war, when they need their economies to function to the max. If a gold standard was so good for an economy, why suspend it when you need max economic performance? Obviously because it is not conducive of maximum real output.
Crypto-currencies can work, but like gold, Bitcoin is limited to a finite amount of units
Mason Davis
Trade deficits
This is mentioned in 7 Deadly Frauds. Mosler explains that a trade deficit is really just an exchange between electronic digits and real world goods. We get Chinese goods, and China gets American reserves. The only way for China to get rid of those dollars is to spend it back into the American economy for other goods, or to pass it on to other countries who may do the same.
Mosler neglects to mention that the Chinese are sub-human barbarians and cannot produce any quality goods and there is no point buying their stuff at all.
Quantitative easing
Quantitative easing in America has not been what many think it is. They have not been printing money and just putting it into circulation. Instead what they did was create new bank reserves in the hope that this will lead to increased lending because of the way they believe lending actually works (the money multiplier). So we had huge increases in BASE money, and obviously it had little to no effect on lending because that’s just not how it works.
In UK QE is slightly different I think but similar in that it does not simply add more money into circulation.
Nicholas Wood
Interest rates – the price of money
It is thought that lowering interest rates should stimulate the economy, and raising them will slow it down if it gets too ‘hot’. Werner shows us that interest rates follow the economy, not the other way around. Pic related. This is why all interest rates around the world are basically at their minimum, because economies worldwide are stretched to their limit-due to unpayable levels of interest bearing private debt.
Negative interest rates
Werner describes what they are and what they mean and the connection with the goal to eliminate cash.
professorwerner.wordpress.com
Summary of article:
-Negative rates are imposed by the central bank on the banks – not the borrowing public
-Negative rates raise banks costs of doing business
-Deposit rates already minimal, therefore banks raise lending rates
-Simply an agenda to drive small community banks (there are many of these in Germany) out of business and increase control of the banking industry in the hands of a few.
Adrian Lewis
Money supply vs share market vs GDP
Now this is a very interesting area. It seemed to me that these areas may all be related, and in fact dependent on each other. It kind of relates to this Monetarism approach to economics.
en.wikipedia.org
I believe that the Share market follows the money supply, in most if not all countries. Pic of DJIA. Im not so sure about whether GDP follows the money supply.
Financially, if somebody gets richer, then someone else has to get poorer. That’s how money works. Similarly, for one company to get more profits, another company must forego profits or potential; profits. It seems intuitive to me that the only way for all companies profits to be recorded as increasing (higher share price), is for the money supply to be increasing.
I haven’t found a paper that shows me that GDP is dependent on the money supply, however, when measuring the data of these areas from the Reserve Bank of Australia, I find that these 3 areas all line up pretty well, just like bank loans did.
I think that these areas generally do line up, but they are not necessarily dependent on each other.
It would be great if other anons could look at their own countries GDP and money supply relationships.