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-- anyone can comment this theory?
anyone can comment this theory?
its about the banking system and money creation.
this comic talks about it with a canadian pov but it applies to almost every country:
http://www.canadianactionparty.ca/M...anguage=English
anyone ever heard of these theories, anyone can refute them? I am really curious!
1. if there was interest-free money, there would be no incentive to limit borrowing. investment would increase, possibly causing output to rise over full-employment and thus cause inflation. governments would increase spending through deficit, possibly causing output to rise over full-employment and thus cause inflation. lower (or 0%) interest-rate would depreciate our currency, net exports would increase, possibly causing output to rise over full-employment and thus cause inflation. as output rises, incomes rises, consumption rises, increasing output further, possibly over full-employment and thus cause inflation. inflation, probably moderate or high, is the likely outcome in the short-run.
2. money is neutral in the long-run, meaning that prices adjust to reflect real values in the long-run. business cycles are fluctuations in real output, and while they can somewhat stabilized through monetary policy in the short-run, they cannot be eliminated through monetary policy in the long-run.
3. banks don't just create money, they are part of the multiple-deposit creation process. although there is no reserve requiremnet in canada, banks must hold reserves in order to meet their clearing requirements with other commercial banks and the bank of canada at the end of each business day. in fact, banks often hold more reserves than are required anyway, to avoid paying the overnight interest rate. therefore deposit creation is not, and will never be, infinite.
there are many other problems with this theory that i can't be bothered with at the moment... what does this have to do with adopting the u.s. dollar anyway?
here is a fairly quick explanation of multiple-deposit creation: http://www.oswego.edu/~edunne/340chapter15.html
I don't like reading links.
get to the point....
[[[smoke]]]
| quote: |
| Originally posted by smokeape I don't like reading links. get to the point.... [[[smoke]]] |
Additionally I don't quite understand what the cartoon means by creating "interest free" money. Regardless of whether the government is "creating" monye or the banking industry, the money is still going to be loaned out as an interest bearing asset. Does this political party even understand the nature of assets and liabilities?
| quote: |
| Originally posted by .montecarlo. huh? what's the difference if it's posted here or on another site? although in this case, it was annoying to read it in comic form lol. |
| quote: |
| Originally posted by .montecarlo. 1. if there was interest-free money, there would be no incentive to limit borrowing. investment would increase, possibly causing output to rise over full-employment and thus cause inflation. governments would increase spending through deficit, possibly causing output to rise over full-employment and thus cause inflation. lower (or 0%) interest-rate would depreciate our currency, net exports would increase, possibly causing output to rise over full-employment and thus cause inflation. as output rises, incomes rises, consumption rises, increasing output further, possibly over full-employment and thus cause inflation. inflation, probably moderate or high, is the likely outcome in the short-run. 2. money is neutral in the long-run, meaning that prices adjust to reflect real values in the long-run. business cycles are fluctuations in real output, and while they can somewhat stabilized through monetary policy in the short-run, they cannot be eliminated through monetary policy in the long-run. 3. banks don't just create money, they are part of the multiple-deposit creation process. although there is no reserve requiremnet in canada, banks must hold reserves in order to meet their clearing requirements with other commercial banks and the bank of canada at the end of each business day. in fact, banks often hold more reserves than are required anyway, to avoid paying the overnight interest rate. therefore deposit creation is not, and will never be, infinite. there are many other problems with this theory that i can't be bothered with at the moment... what does this have to do with adopting the u.s. dollar anyway? |
So banking is a scam?? What a laugh. I'm half way through reading this crock of sh*t and i've laughed several times at the inaccuracies. 
People complain so much about banks making so much money etc etc, but they still take out stupid amounts on their loans and complain when they cant pay it back. If you cant pay it back, dont take out the loan. Simple...
The whole idea of paying interest rates on loans is pretty much the "cost" of money. In other words if you're buying an investment property with your loan money (and paying, say, 5% p.a.) this should be taken into account when assesing your investment returns. If your return from your investment is less than 5% then you have no incentive to take out the loan and buy the property.
This is what people dont understand. They take out loans of 5% p.a. and only receive a <5% return on the investment. And they wonder why they get screwed.
And interest free money?? wtf?? A good point was mentioned by .montecarlo. about investment rates going crazy but i think theres another side to it. Theres no incentive to save money when you get no return from it, and without savings accounts in banks they have no money to loan out to investors. So investment actually drops. Plus, foreign investment will basically drop to near zero.
Milton Friedman and his Uni of Chicago buddies are the best economists in the world. Without Friedmans economics we wouldnt be dealing with recessions, we'll be again dealing with depressions.
No argument, this comic is completely wrong, and there is a multitude of literature proving it undeniably wrong.
wtf am i doing anyway, I just walked out the last of my 4 economics exam today.. why the hell am i still thinking about this sh*t...? Fcuk it, I'm going clubbin.
basically its just pointing out financial incompetency.
money is money, everywhere and anywere - but the S Korean slump is evidence you cant be too sure|
The concept of credit creation is nothing new. If everyone on the planet went to draw out their money from the banks right now, the banks could only ever fund about 3-4% of it just because of the way they've handed out loans. It's the same world-wide, and it's factored into all economic theory.
Put simply, you can't just generate money out of thin air. If the banks start handing out money they don't physically possess, then there needs to be a counteracting weight - in this case, inflation. If money is just created (either by banks or by mint) then it - in the absence of any other factors - reduces the value of the money (simple supply and demand - the more of something that exists relative to supply, the less it is worth) next to another currency. So while the banks are technically creating money out of nothing, the value of the total amount of money in an economy is reduced proportionately. This is why fast economies (where lots of people are confident enough to take out lots of loans from the banks to buy expensive things like cars and property and so on) need to be kept in check, because otherwise you get left with a weak currency and high inflation. Of course the way to avoid this is to raise interest rates, which discourages borrowing (and thus the creation of money) and slows the economy - in other words, a "recession". Recessions aren't necessary (theoretically at least) so long as the economy is not allowed to speed out of control.
Hopefully that makes sense (and is right). As for the shared credit creation thing, I think montecarlo hit it in his first point: 0% interest borrowing is a recipe for economic disaster. :-/
Look up fiat money and fractional (reserve) banking.
What one of the things the comic book is saying is that money printed is created out of debt. It is also at a higher repayment. Also too much printed money creates inflation. Fiat money has no gold standard or reserves, that's why it's called fiat money. It is only worth what people agree to it being worth. That's where inflation comes in.
Also a bank can create money by issuing out loans. You want to borrow 10,000 for XYZ. 1st Nationwide Bank has 100 or even 1,000,000 in it's books. But as far as you know you need 10,000. They cut you a check for 10,000 and you have to repay at 5% over any given timeframe. They now just made 10,500 off of your promissory note on the loan. They can call this loan at anytime.
Math makes my head hurt. Just hand over the cash!
That's how the money system works. By people ignoring the obvious.
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