Here are my Top 10 links from around the Internet at 10 past 7 pm, brought to you in association with New Zealand Mint for your reading pleasure.
I welcome your additions and comments below, or please send suggestions for Monday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.
I'll pop any surplus suggestions I get into the comment stream.
1. Middle of an overvalued pack - Realestate.co.nz CEO Alistair Helm writes here at unconditional about The Economist's latest measures of house prices globally, which he says suggests New Zealand house prices are not out of line with those of other developed Western economies.
I suspect Alistair and I may beg to differ on the interpretation, but the data and charts are interesting.
The over-valuation in Australia is startling.
No wonder the Australian banks are running around arguing to international investors saying their market is not over valued.
Nothing to see here. Move along now.
Please.
The most interesting analysis is undoubtedly the evaluation as to how over priced (or under priced) each countries properties are. New Zealand is judged to have property prices over priced by 20%. This places NZ bang on the median spot on the podium with Australia taking its usual gold medal with property prices accessed as 63.2% over priced.
It is interesting also to see our often comparatively benchmarked country of Ireland being judged as 13.2% overpriced – that after seeing a year on year negative appreciation of 17%. Just shows the extent to which that country’s property market had bubbled up in the past decade.
2. Printing money to buy paper - Bloomberg reported the Bank of Japan is planning to print money to buy corporate bonds only slightly less risky than junk bonds and unit trusts in property companies. This will somehow improve their economy. You couldn't make this stuff up.
This is what happens when America opens the Pandora's box of money printing. Competitive devaluations fueled by quantitative easing.
How long before the Fed and BoJ start giving money away on street corners for people to spend?
The BOJ said it will buy corporate debt with lower credit ratings than it previously purchased, including BBB rated corporate bonds and a-2 commercial paper, according to a statement today in Tokyo.
Board members will meet on Nov. 4-5 to discuss purchases of exchange-traded funds and real-estate investment trusts, more than a week earlier than scheduled.
Governor Masaaki Shirakawa’s decision to change the meeting date to follow the Federal Reserve’s Nov. 2-3 gathering signals he wants scope to react to any Fed easing, said economist Hideo Kumano. New York Fed President William Dudley set expectations of about $500 billion in bond purchases by the U.S. central bank, a step that may spur the yen and pose risks to Japan’s growth.
“The surprise was that the BOJ changed its schedule for the monetary policy meeting to right after the FOMC, indicating they are ready to address any market movements, especially in currencies,” said Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former BOJ official. “They are ready for a currency-devaluation race.”
3. Hike your rates - Bloomberg reported the IMF is recommending the Reserve Bank of Australia lift its interest rates to contain inflationary pressures. We will see whether they've taken the advice come Melbourne Cup day next week.
“With inflation projected to remain close to the top of the 2-3 percent target band, the RBA needs to guard against inflation expectations becoming anchored at too high a level,” the IMF staff report said.
The IMF staff report said that while the mining boom is expected to be “long lived,” it brings vulnerabilities that policy will need to respond to.
“Facilitating a shift of resources to the mining sector without giving rise to inflationary pressures presents a key challenge,” the IMF staff said. “Growing dependence on mining may amplify the business cycle as the economy will be more vulnerable to swings in commodity demand and make government revenue more volatile.”
4. Hunt on for silver conspirators - Reuters reports on the class action lawsuits against HSBC and JP Morgan alleging price fixing in the silver market.
This all resonates, of course, because of the infamous case of the Hunt Brothers in the late 1970s, who managed to corner the silver market. They were later bankrupted by lawsuits and fines. HT Andrew via email.
JPMorgan Chase & Co (JPM.N) and HSBC Holdings Plc (HSBA.L) were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.
The banks, among the world's largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.
5. The Doom Cycle - Former IMF economist Simon Johnson talks here about The Doom Cycle in the global financial markets.
6. Will Obama attack Iran to survive after disastrous mid-terms? - That's the thinking put forward by George Friedman at Stratfor in what he acknowledges is a speculative piece.
Obama will be paralyzed on domestic policies by this election. He can craft a re-election campaign blaming the Republicans for gridlock. This has its advantages and disadvantages; the Republicans, charging that he refused to adjust to the electorate’s wishes, can blame him for the gridlock. It can go either way.
The other option for Obama is to look for triumph in foreign policy where he has a weak hand. The only obvious way to achieve success that would have a positive effect on the U.S. strategic position is to attack Iran. Such an attack would have substantial advantages and very real dangers. It could change the dynamics of the Middle East and it could be a military failure.
I am not claiming that Obama will decide to do this based on politics, although no U.S. president has ever engaged in foreign involvement without political considerations, nor should he. I am saying that, at this moment in history, given the domestic gridlock that appears to be in the offing, a shift to a foreign policy emphasis makes sense, Obama needs to be seen as an effective commander in chief and Iran is the logical target.
7. They're saying it out loud now - Labour Secretary under Clinton Robert Reich talks in this post about the US$4.2 billion spent by lobbyists in Washington and the effect it's having on US democracy.
Anyone who doubts the corrupting effect has not been paying attention. Our elected representatives have been acutely sensitive to the needs of Wall Street bankers, hedge-fund managers, and the executives of big pharma, big oil, and the largest health insurance companies. This is not because these individuals and interests are particularly worthy or specially deserving. It is because they are effectively bribing elected officials with their donations.
Such donations are not made out of charitable impulse. They are calculated investments no less carefully considered than investments in particular shares of stock. They are shares in our democracy. Why $4.2 billion and not ten times that amount? Because the high-rolling political investors don’t need to spend a dollar more in order to exert overwhelming influence. This figure, by the way, leaves out the tens of billions of dollars dedictated to lobbying, lawyering, and public relations — all of which deliver specific legislative outcomes the campaign money fuels. T
he economy of Washington, D.C. depends on this gigantic flow of funds (supporting the polished facades of refurbished hotels, fancy restaurants, trendy bistros, office complexes of glass and polished wood, well-appointed condos, hotels with marble-floored lobbies and thick rugs, restaurants serving $75 steaks and offering $400 magnums of vintage French wine.) Washington’s seven suburban counties are listed by the Census Bureau as among the nation’s twenty with the highest per-capital incomes.
8. German surplus good; Chinese surplus bad - It's every man for themselves. That's clear when listening to Bundesbank President Axel Weber arguing there are good reasons for Germany to run a trade suplus but there are not good reasons for China to a run a surplus.
Weber reckons not all trade surpluses are equal, The Economist's FreeExchange points out.
Mr Weber’s prescription is simple. Within the euro area it is deficit countries that need to undertake the bulk of the adjustment themselves. For China and other emerging surplus countries, the good professor proposes a different medicine.
They should increase domestic demand and allow for more exchange rate flexibility. Such a cure is hard to argue with. Unfortunately it is a pill he does not think Germany should swallow. Steps by euro area countries with surpluses to raise wages or increase government spending would be “neither necessary nor helpful”, he argues.
10. Totally relevant video - Barack Obama talks to Jon Stewart. He's popular with The Daily Show audience...
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Barack Obama Pt. 1 | ||||
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84 Comments
FYI Goldman Sachs thinks the Fed will need to print an awful, awful lot of money to devalue the US dollar by enough to create the necessary inflation...
Parity here we come?
http://ftalphaville.ft.com/blog/2010/10/28/386626/inflation-and-the-usd-qa/
Historically, only a relatively small fraction of a Dollar fall is ‘passed through’ into consumer prices. For example, a paper by researchers at the Fed concludes based on data from 1981 to 2000 that a 10 percent decline in the trade-weighted Dollar boosts inflation by only around 30 bps, a very small effect. The small magnitude of this effect reflects a variety of factors, among which perhaps the most important is the desire of foreign exporters to preserve market share in the US, which means that they tend to react to Dollar falls by accepting smaller profit margins rather than hiking prices.
What all this points to is that – in line with the academic literature – the ‘pass-through’ from Dollar declines to US consumer price inflation is small. This in turn means that – if indeed the Fed sees the Dollar as one of its key policy levers for preventing inflation from staying below its mandate for a prolonged period – the Dollar needs to fall a lot further from here.
cheers
FYI here's David Llewellyn Smith on Joe Hockey's call to rein in the Aussie banks. Big topic over the ditch.
http://housesandholes.blogspot.com/2010/10/go-joe.html
The banks are not kidding that their cost of funds has gone up. As each pre-GFC offshore loan becomes due it must be refinanced at a higher rate. The rise in costs is unlikely to have plateaued because APRA is not finished restructuring international bank borrowing. It has yet to impose new international rules called Basel III.
Hockey is right, however, that the banks can pass on these higher costs only because there is no competition. There is nothing to the banks' argument that they must ipso facto pass on their higher funding costs to customers. If there were healthy competition then they would simply have to wear it in lower profits. Sadly, because all of the banks borrowed monstrously offshore there is nobody left to take advantage. This is Australia's version of too-big-to-fail.
Australia desperately needs a new 'son of Wallis' Inquiry. The first question it should ask is what kind of banking system does Australia want not today but in ten years. The current piecemeal approach will only repeat the failures of history.
cheers
Bernard
Bernard - here's a question - do you think Aus has a bubble that is about to burst?
Or do you think they are miraculously immune????
Its a big question for NZ - their housing market collapses, so does ours
Matt: As long as there is someone willing to pay the price there is no bubble, the problem starts when nobody shows up with the money, then, no matter what the price is you have a bubble. And it is going to burst or softly deflate as they like to call it now... burst is a strong word no longer politicaly correct.
It's a bubble when prices have been talked up beyond the ability of the market to pay them, and when financiers cease lending to support the talked-up prices.
That scenario sounds eerily familiar...
I can hear Les screaming from here......dollar parity!!!!! no!!!!!!.........followed by the shakes, twitching, drooling....and cardic arrest...ouch
So since I'd like Les not to have a heart attack anytime what do the do in a practical sense about making sure it doesnt happen? because otherwise that would be the death of our exporters....and in fact our economy.......
Can or will our asian neighbours follow suit? ie not sell to the US?
Print?
Do nothing?
Im all ears.....
regards
Oh dear, they're starting to panic in Dunners. TradeMe was around 700 properties for months, now all of a sudden this week its 750. Oh....and why the sudden influx of Mosgiel properties?........
I have one word for Dunedin....OVERPRICED!
A friend at work constantly "monitors" TM property trends. He reckons the numbers of listings are beginning to spike, while properties already listed are and have been continually relisted with no interest, and asking prices are now falling rapidly.
Where's Alen/alen1? This is the point where (s)he bowls into the thread screeching insanely about how "TM listings prove that investment property is the best idea in the world".
:-D
Iain
On the question of extinguishing fiat currency, we were talking about earlier.
In your link Michael Hudson repeats what he had said before to explain the closing of the Gold window in 1971.
"By August 1971, war spending in Vietnam and other foreign countries forced the United States to suspend gold convertibility of the dollar through sales via the London Gold Pool. But largely by inertia, central banks continued to settle their payments balances in U.S. Treasury securities. After all, there was no other asset in sufficient supply to form the basis for central bank monetary reserves.
But replacing gold – a pure asset – with dollar-denominated U.S. Treasury debt transformed the global financial system. It became debt-based, not asset-based. And geopolitically, the Treasury-bill standard made the United States immune from the traditional balance-of-payments and financial constraints, enabling its capital markets to become more highly debt-leveraged and “innovative.”"
Here in NZ the Yanks built roads (The concrete roads with the the big gaps between each slab) after the war, they even wanted to build transmission gully, but they wouldn't sell any of the war surplus. The Jeeps etc. had to be buried (anyway that's what I heard).
Even today we would be happy for US base to be set up here. Printed US$ would enter our banking system, accepted by our central bank as "reserves" and accepted by oil suppliers to pay for oil. So long as the oil "producers" are happy to buy US treasuries thereby funding the US Govt's deficits the party carries on. The last thing they want is for that money to end up in the hands of a US taxpayer where it would have to be recognised, so the largess is extended on the one hand but not the other.
While we pay for our oil in US$ we fund the party. We are being "taxed" by our protector. We are being forced to prop up the value of the US$ dollar by seeking them in order to provide the necessities for the economy.
If things get tough for the banking system (and we are short of US$) don't worry the Fed will step into the breech and central bank to central bank will swap shell money for stone money and our (well the foreign owned) banks are provided with much needed hard currency to fulfil their obligations, as happened in 2008. It's never called a gift it's a
Why is the US in the middle east? So that this party can continue - for them. I saw a comment along the lines of "Iraq wasn't about oil because we didn't seize the oilfields". It's not about ownership of the oilfields all that's necessary is that the oil is to be paid for in US$ for the flow of money into US treasuries to continue.
Ever wonder why we have a convoluted ETS being proposed as opposed to a simple tax at source? Because it mucks up this scheme, this theft and illegitimate transfer of wealth. A tax at source means that the real powers have to give up some of their gains.
If currency (any form of debt) is issued with no intention of paying it back or taxing and extinguishing it then that's theft. There is no form of debt money that should be considered enduring, it all needs to be "marked to market" (which would happen if sovereigns all converted their debt into printed fiat).
Is fractional reserve banking fraudulent or not?
Buried in this link here in the comments below
http://www.thedailybell.com/1477/Is-the-Elite-Destabilizing-the-World-o…
Is a good debate on the pro's and cons of fractional reserve banking and the question of printing money out of thin air (Andrew in F and GBH).
And back to Michael Hudson
"Speculative credit from U.S., Japanese and British banks to buy bonds, stocks and currencies in the BRIC and Third World countries is a self-feeding expansion, pushing up their currencies as well as their asset prices. Their central banks end up with these dollars, whose value falls as measured in their own local currencies. U.S. officials say that this is all part of the free market. “It is not good for the world for the burden of solving this broader problem …"
This is what happened to us. 9 years of dumb and dumber reserve bank interest rate and bank supervision policy sucked credit from Japan via Uradashi's where it originates at zero cost pumped into a speculative housing bubble here all the while Michael Cullen sits on surpluses thinking that he was doing a good job but in the end all he's doing is riding the crest of a wave, same as any of the other clever finance company/property speculators were.
Thanks for the article and links Fred.
This on Bloomberg (of all places)
"The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications."
"The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, Jean- Claude Trichet and Mervyn King, his counterparts in Europe and the U.K. respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life"
"But whatever the playbook promises, the capacity of financial markets to overshoot can’t be overestimated. The belief among policy makers and financial markets in the possibility of this sort of fine-tuning is preposterous, but it is the slender thread on which remaining investment and business confidence rests.
The breakdown of the monetary system will be chaotic. When inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable."
http://noir.bloomberg.com/apps/news?pid=20601010&sid=aLigPpbxbK24
Fred and Kiwidave
It would be interesting to talk to you two in a forum where our comments are all in one place, It might be then possible to show you why you are wrong.
Essentially the loan account entry is like a zero balance credit card with a 1000 limit. You have 1000 to spend but no debt to the bank.
Andrew
Can money be in two places at once? Yes or no?. I lend you a bar of gold physically and you give me a note. I use your note to buy something. You use the gold to buy something. We both have goods, and two other parties have "money" in their pockets that they consider to have saved, it is debt free money in both cases (as far as they are concerned) and they both own the "money" outright.
Now, is the money in two places at once, or not? See what a "note" does? It's like electrons and holes, they can both flow . . . I think . . . . not 100% sure of that analogy.
We all get together and "settle up", "what" disappears.
What's missing in the economy is the settlement process.
A note expands the money supply by the value of the note.
Fred
Not sure what your point is. Banks are not allowed to issue notes that circulate outside of the bank. Their deposit 'notes' only circulate inside the one bank between the one banks customers.
If the bank creates a deposit 'note' it is useless to you unless you spend it. When you spend the deposit 'note' it either passes to another customer who is a creditor of the bank or if there is no other creditor then the deposit 'note' is destroyed.
The bank does not create something out of nothing. It absolutely requires creditors or there was nothing anyway - just like a credit card with no debt and a spending limit.
You say there is no settlement process but this is obviously not true. Maybe you are just unaware of it?
And the note only expands the available means of exchange between that banks customers. Where M3 is the total of each banks means of exchange between each banks customers only. By definition the means of exchange is money but this means of exchange can only be spent if each bank can 'find' creditors.
The way you describe the process, you create meaning that does not exist . The bank cannot create something that is powerful. All it can do is create a means whereby there can be an exchange. Big difference.
I'm sticking to my world view.
In my example above where did I mention a bank? I had some money and I loaned it to you. You gave me a note. Your good standing means I can trade that note. I'm not a bank unless I ask for two bars of gold in return for lending you one.
We both spent the same money, you spent the electron, I spent the hole. At some point someone out there is going to knock on your door asking "where's the gold?", you haven't got it then they come and see me. Then we settle somehow. . . . more debt. . . . but it's marked to market. Marking to market in the end can't be a paper exercise. That's what's wrong with the "stress tests".
I just do not get your point.
If you have some gold and i have a farm then you lend me the gold because the gold is the means of exchange for me to buy something and if i do not repay then you take the farm.
As you say, because i am of good standing in the community then the community will take my note as the means of exchange.
If you borrowed the gold and the lender wants it back then you have to foreclose on me or you borrow some more gold or we come up with something that works for all parties.
Then you begin talking about inadequate bank stress tests.
What is your point?
My point is that banks have an accounting method. In the method they record the means whereby they enabled customers of the same bank only to have a 'means of exchange'. This method always involves creditors if there was an exchange, so that if no creditors are involved, the created means of exchange is destroyed as if it never existed in the first place.
A bank can do nothing that a private citizen living in a community can do.
What is your point however? Do you agree that banks just have a book of accounts or do you think they have some kind of special power? Are you saying that private citizens or governments can have the special powers??
Well to summarise;
- I say that when a loan is extended the money supply increases by the amount of the loan.
- That is the assets of the bank increase and the deposits of the bank increase by the value of the loan (assuming that the proceeds of the loan are not drawn out as cash and treating all banks as one entity).
- It can be seen here http://econviz.com/balance-sheet-visualizer.html.
The standard explanation for money supply growth goes like this:
- Government runs a deficit. This leaves a deposit of money in someone's account, it had to come from somewhere.
- Bank takes this money and lends it out less what it has to keep in "reserve" and so on multiplying this initial seed by whatever.
- Steve Keen says that in fact banks may not even need this base money injection. That they can lend and worry about reserves later.
The point of my example where money is loaned from one person to another is to show that if I lend you money the total amount of money in circulation increases by the amount of the loan. It was a verbal description of what is decribed in the above visualiser.
For some reason you say this is wrong.
Of course the fundamental question, I believe, that we are both trying to explain is why does the money supply increase exponentially, and is this a good thing, and if it isn't what could be done to avoid this, in the interests of stability.
When you understand the above (loans create money out of nothing, repaying loans make them and the note in circulation disappear), then it's clear. An asset bubble can easily form as new loans create new deposits which feedback into loans again.
If this is wrong how would you explain the current situation.
Addressing the point above.
"If you have some gold and i have a farm then you lend me the gold because the gold is the means of exchange for me to buy something and if i do not repay then you take the farm."
I was trying to make the point that the value to the saver of the banknotes created by being borrowed into existence are only worth face value when the borrower can settle. Of course in the real world the notes aren't specific to the loan and aren't tied to a specific settlement time. Just an example.
Fred
I did not say your example was wrong. I just added the part about why a person would lend gold to another person. Ie they take security. And then emphasised your point that the note can be used because it comes from a person of good standing the community.
You said:
"When you understand the above (loans create money out of nothing, repaying loans make them and the note in circulation disappear), then it's clear. "
You are incorrect, in many cases, to say that loan money dissapears when the loan is repaid. Often the loan money dissapears almost immediately and yet the loan still exists. Which is why banks need creditors when the loan money does not dissapear after a purchase has been made.
This is the area we need to focus on and the rest is just noise and distraction from the basics.
Hey Andrew, I'm muddled? might be but I like to think not. Oh well never mind. But double entry bookkeeping and legal fictional people do the the damndest things.
First of all, we are trying to explain a complex situation using little snippets of logic and small working models eg. the example of a cascading multiplying loans as they are recycled through the bank starting with the "power money". It's been done many times but the best I've seen is Steve Keen's Roving Cavaliers of debt post. http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredi… I'm sure you have read it but have a read again. We agree here right.
Then there's FOA and FOFOA, have a read of the stuff where he says the physical plane and the imaginary plane touch through gold, have you read this, sounds pretty far fetched.
Picture this. There's a hall full of people, a kitchen out back and some gardens. Everyone is trading, they have coins in their pockets and little balance sheets on their backs. They trade amongst each other, physical goods for physical coin. What makes the individual balance sheets change? Profits and losses. A "normal" trade would leave each party's balance sheet unchanged. Profits are created when value is added, value can be added by processing work or even just a rearrangement of things or even just a change of perception. One party buys something and then markets it to create a demand, that balance sheet went up in value. Stuff is grown in the gardens taken to the kitchen cooked up sold, prices are set an economy hums along. All is well in this happy little land.
OK now what happens to two of those balance sheets when one party extends to the other a loan and by my example a physical coin for a note in return. You have a coin, I have a note. It's a personal loan, and to be honest I don't see why you can't accept that the "money supply" in this little imaginary economy didn't go up. I'll grant you that someone has to accept the "note". Now when I've traded the note for real goods it has to find you and another coin for it to "collapse" the money supply down to the level it was before the note was created. The credit note was created out of nothing but the two parties agreeing to create it.
Now say I'm a bank, because you say in reality (unlike a single creditor trying to palm off someone elses note a bank does not do this). You say the notes circulate behind the walls of the bank, and they couldn't be spent as per my earlier example. Yes this is true but there are other things that can happen. The note can be securitised and this puts cash in the hands of the originator. The other thing that is different if I'm a bank is that the coin I lend out to you could end up back with me via interest or because it's a safe place to leave it. If I am able to apply leverage to that coin deposit (fractional reserve, as opposed to it being is a safety deposit box) a portion of it's loaned out again (see Steve Keen above).
There's absolutely no doubt new lending creates money and the new money created is backed by the strength of the borrower to pay it back. The soundness of this money is determined by the soundness of the underwiting. If the underwriting is fraudulent money has been effectively counterfeited and the value of the currency in circulation diminishes. Inflation is the result. Inflation is theft from savers. When the principle is paid of the new money printed is extinguished.
Now add to this little scene, a whole lot of fictional balance sheets floating in the air above the people in the room going about their business. These are trusts, companies banks and corporations. They are connected to the physical people below them by shareholding, all the things we are used to to bind us to them.
What happens when loans are extended to people by these fictional legal entities.
There's a whole imaginary plane of debt, and it's derivatives. The graphs you see of the total "money supply" are just the sum of figures in computers. They touch at the physical at certain points. FOFOA says that it touches through/at gold, but it's certainly not just that.
Iain says the banking system is a con, a deliberate act of deception and theft. When he says lets use this thing the banks do for the people it's knocked down by people like yourself who say "money out of thin air" it's ridiculous, when at the same time you seem to be able to get what I'm saying above. That's why he's annoyed with you.
By the way Iain here's why sovereign money/social credit won't work http://www.thedailybell.com/1485/Debriefing-a-Sovereign-Money-Hater.html
Fred
Do you agree or not agree that the bank is only able to do what any person in a community can do? What is there to be harnessed for the community good??
Yes loan creation increases the money supply. I never said otherwise. But money creation out of thin air by private banks is not what you think it is. It is not something that can be harnessed by the community unless the community wants to pay interest on loans and be prepared to be punished if it does not repay loans - ie the community runs a sound bank.
Fred
"There's absolutely no doubt new lending creates money and the new money created is backed by the strength of the borrower to pay it back. The soundness of this money is determined by the soundness of the underwiting. If the underwriting is fraudulent money has been effectively counterfeited and the value of the currency in circulation diminishes. Inflation is the result. Inflation is theft from savers. When the principle is paid of the new money printed is extinguished."
You cannot say that a person can be strong to repay a loan and that is what backs the money creation unless you see also that a person has to be strong to be owed. For example a father could be strong to be owed money when he sells his house to his son for 400,000 to his unemployed son. The solicitor then creates a loan account entry for 100,000 for the son to sign for and agree and transfers that 400,000 to the father who now has the deposit iou. The son pays the interest and the principal to the father to repay the loan and if he does not repay the loan the solicitor forecloses the house in favour of the father.
The way you describe it the solicitor could write up a loan agreement to enable the unemployed man to buy another persons house just because the son gets a good job and wants to repay the loan and pay the interest. It is much more complicated than you are describing it to create money. The last line is also more or less wrong. In many loans the created money dissapears long before the debt is paid off. You consistantly appear to create meaning from bank credit that does not exist.
Err Andrew, you try to make it sound more complicated than it is.
In your example, I think you mean a $400,000 loan, and it's difficult to follow.
The son either owes the money to his father (in which the father doesn't have $400,000 in his pocket but he has the son's IOU), or the son owes the money to a bank in which case the would have $400,000 in cash and the bank has an IOU as an asset on it's books. The father will have nothing to do with the son or his house (of the security is transferred as well). The father could then deposit the $400,000 at the bank, in which case the bank has it's $400,000 back and is square.
The $400,000 has been created out of nothing but the son's signature.
What has the son going off to buy another house got to do with it, he could (if he found someone to lend him the money).
In simple terms, bank loans circuit back to banks, no 'money' about them.
A home-wanter borrows, 'pays a builder, he puts it in his bank. The system is equal, no real wealth moved anywhere,
The problem comes where the builder charges a profit, as does the bank (usury).
Both forms of profit are a call on the future to underwrite, and by their compound nature, the system has to keep getting bigger.
That's OK while the future can underwrite, physically. When you hit it's limit to do so (and exponential growth in a finite system ramps a vertical graph sooner or later from any standing start) you're in trouble.
The underwriting ability isn't there, and that's at peak flow/supply rates. As the rates decline, it very quickly turns to custard. Energy has essentially flat-lined since 2005, and nothing whatever happens without energy.
Economists and 'pollies have had to be in denial of the limits to growth, or they'd have had to accept that their system was temporary, and doomed. And denial, funded, is a powerful propaganda weapon, as we've seem with Climate Change. Not that it can change reality one jot. As Canute pointer out to the believer/worshipper rabble.
Anyone wondering how Goebbels could get away with his stuff, only has to look at the folk who swallow the 'growth forever' nonsense, hook, lone and sinker.
Fred
The 400,000 loan money created by the solicitor is a simple example. The loan is not only created by the strength of the borrower to repay but also the strength of person prepared to be owed 400,000.
The way you describe banking, the solicitor can create the 400,000 to enable the son to buy a house from anybody. Obviously he cannot. The solicitor needs a house owner willing to be his creditor until the loan is paid off. The banks need creditors or they have to pay out central bank money.
Consistantly your answers show that you believe the created credit is the engine that drives this process. Instead somebody somewhere has to be prepared to be owed money. There is nothing the community can benefit from here if banking is abolished. They could only do what the bank is doing which is just debits and credits. The very idea that there can be an easy way to get money is what is behind this crisis. It amounts to 'I am entitled'. 'I am entitled to cheap affordable housing'. These beliefs are why in the USA huge organisations were created to provide finance to poor people. Yes their is rottenness in the system but if you take the bad apples out you wont get some magic community solution. Far from it.
You still there?
"Instead somebody somewhere has to be prepared to be owed money."
And that is precisely my point. The borrowing comes first. The someone who is prepared to be owed the money is the person selling the thing to the borrower, are you telling me that they are not going to be prepared to be owed that money, the father that ends up with the $400,000 deposit at the bank is owed the money.
The second point I make is what if the house had been bought in 1965 for $8,000 and it's now "worth" $400,000 and the father gets this. What does that do to the person who has put x% of their income away over the same period an has saved up $400,000. What is actually happening is that person is being ripped off.
"The very idea that there can be an easy way to get money is what is behind this crisis. It amounts to 'I am entitled'. 'I am entitled to cheap affordable housing'."
Now where have I ever said that. I do say that the "natural rate of interest is zero (in a sustainable economy) and that the central bank should have no part to play in setting interest rates, interest rates should be determined by the person taking the risk.
But what I will say is this. Take $15,000,000 in retail mortgages at 7% over 30 years. These bring in $99,000 per month. Sell 5,000,000 at 2.5% and 5,000,000 at 3.5% and $5,000,000 at 4.5% and this costs you $43,000 per month leaving $56,000 per month to play around with and over 30 years to come up with the original face value of the notes.
A guy called Fink came up with this scheme, look it up.
Now I don't know if that's exactly what happens and how the securities are actually priced, but remember that when the interest rate goes down there's a capital gain in the bond market. Now these are called "bonds" is it not reasonable to assume that they act like bonds. When you have a central bank spitting out money at zero percent is it not reasonable to assume that this creates a "margin" as described above.
Yes their is rottenness in the system but if you take the bad apples out you wont get some magic community solution.
I am not a person who advocates sovereign money, or social credit or what very you call it but I think it could be used to assist start up banks. Warren Buffet called them Weapons of Mass Financial destruction. Like all weapons they are a force of evil in the wrong hands and a force of good in the right hands. Right?
However what do you think is actually happening with TARP who do you think ends up owning the mortgages. The central bank. Now what if that very central bank is privately owned? What if it is Government owned. What do you think "Sovereign credit" would look like if a Government decided to implement it?" If the Government's central bank says to it's banks "I'll buy MBS from at 1% where those mortgages have been applied to loans for social housing". I'd probably call this Social Credit.
And guess what? The RBNZ has already done it too, they bought MBS's from the banks after the 2008 crisis, and therefore the Government owns the loans. The banks sold the loans clipped the ticket and flipped them off to the central bank, because a crisis came along.
Hmmmm what a coincidence . . . . free money . . . . now tell me who actually pays.
People like you who appear to understand the situation yet twist the facts, or refuse to see things the way they are is why Iain gets riled up. Why do I spend the time on it? Because I actually think that it's important that people can see what actually is going on.
It's a scandal, you know it, and it can't be defended, but carry on trying.
"And that is precisely my point. The borrowing comes first. "
Nothing is borrowed and there is no debt until the money is spent.
So are we there yet?
The money is created out of nothing but the borrowers signature, the note flies away to one side of the ledger and the corresponding liability to the other.
Who is worse? the borrower who flips the house or the lender who flips the note and collects the difference in the interest.
See my reply to Andyh.
Well done guys – solved the problem - no wonder the bar is getting smaller and smaller !
I give up
I haven't
If you carried on a little further you would realise that what you are trying to say is that if the the son wants to pay off the mortgage and the father wants be remain a saver then another saver needs to give up their savings. This is the paradox of thrift.
Through the magic of the table mortgage, the day when savers willing to spend become scarce is always futher down the track soon after an inflationary expansion of lending.
Money is created out of thin air on the strength of the borrowers signature. Aye GBH? The corollary of this is that money is extingished when debt is paid off.
You dont seem to have thought it thru
Only if the solicitor can find an existing saver with him who has at least 400,000 savings, can this person buy the house off the son to pay off the sons 400,000 mortgage, so that the house passes debt free to the previous saver who is now a home owner and mortgage free.
As described by me the saver with 400,000 is the father.
There is no magic. It is just debits and credits. Money multiplier theory while strictly wrong, is not totally inadequate to explain the complex realities of most parts of the realities of banking.
Your borrowers signature theory totally distorts the realities if you ignore the complex processes that go on behind the scenes which are reflected in money multiplier theory.
It is a common mistake of the logical mind to take a detail, like money creation by banks, and expand it to create a whole conceptualisation that is totally wrong and does not fit the bigger picture realities at all.
Lending does not begin with a borrower. The bank has to know it has creditors willing to wait to be paid. But you ignore creditors. You ignore securitization and you ignore the complexity of Eastern creditors. The logical minds view is a half wits view if you cannot see the big picture also..
Ha ha Andrew, Ad hom your last resort. There's none so blind as the wilfully blind. You pass it off as something more mysteriously complicated, something that the ordinary person cannot possibly understand. What I understand is that loan is converted into a negative ledger entry that is then traded "as if" it was money. It's a number in a ledger, the "money" used to make the loan is back in the vault and replaced with a negative number in a ledger. A number that can go to infinity, a number that now must be kept away from the original note.
The note can be flipped all the way to the central bank. It can print and end up owning every single note out there. This is happening right now before our eyes. The Federal Reserve but for the MERS ****up could own every note, paid for at face value. Explain that, where's the valid creditor. There's none! Wake up.
Fred
What I understand is that loan is converted into a negative ledger entry that is then traded "as if" it was money. It's a number in a ledger, the "money" used to make the loan is back in the vault and replaced with a negative number in a ledger. A number that can go to infinity, a number that now must be kept away from the original note.
The loan is the money paid to the borrower. The mortgage is an interest and repayment paying 'bond', which is valueable and it is tradeable. But other than that i cannot follow what you are saying.
Humans are effectively people with two minds. One logical detailed verbal and one intuitive wholistic and sensing.
Have you read of "My Stroke of Insight" by Jill Taylor?
I have absolutely no idea what you are talking about. . . . I struggle to understand you as well.
The solicitor creating money so one client could buy the others house was very simple. You said it was too complicated. I kept asking you to focus on the creditors. But you dont want to because you dont need them with your stroke of the pen theory.
Our $ got wings last night,more pain for exporters as the season gets under way.
http://market-ticker.org/akcs-www?post=170681
I clicked on the Whalen article then China
Total Chinese money supply is up over 4 times since '03, a 17%/yr. rate at a doubling time of just 4 years; up 66% since Jan. '08, a 19%/yr. rate at a doubling time of 43 months; and up 40% since Jan. '09, a 20%/yr. rate at a doubling time of 40 months. http://globaleconomicanalysis.blogspot.com/2010/10/misguided-love-affai…
Steven - your 9.43pm yesterday, thanks for the thought.
Hot off the NZMEA presses (yesterday) enjoy.
Open up on policy options - 29 October
It is time for the Government and Reserve Bank to open up on monetary and fiscal policy options say the New Zealand Manufacturers and Exporters Association (NZMEA). The Government and its officials should be working harder to encourage a more balanced economy and should be opening up debate rather than shutting it down.
It is well recognised that our tax system skews investment towards assets rather than activity, and that interest rates control inflation via the negative impact on the tradeable sector rather than acting directly on the source of inflation in the non-traded sector. Our politicians and officials are well aware of these points and their consequences.
NZMEA Chief Executive John Walley says, “The trade offs in the economy need to be discussed. We need to open up about whether we want a high wage economy based on elaborately transformed exports, or low wage asset based economy exporting raw materials to the world.”
“Only one will deliver high living standards.”
“One of the competitive advantages a small country has is the capacity to change and adapt faster than larger economies, but we will only see this benefit if we open up to new initiatives. Even large institutions like the International Monetary Fund have begun to review their stance on economic best practice, it is time our political leaders and officials did the same.”
http://www.realeconomy.co.nz/124-open_up_on_policy_options.aspx
What do farmers think?
http://www.nzfarmersweekly.co.nz/article/8567.html
There are a good few ideas that could help, not even going near scarey Muldoon'esque options, but we are stuck in an ideological/political cul-de-sac, it appears. Sad really, everyone is the worse off for it.
Cheers, Les.
I looked at the farmers piece and see nothing but whinning Les.....not one idea but "its tough out there"......
One reason for it being tough is they paid too much for their land so their mortgage is crippling them....if that's the case Im sorry but I have little care......
Re: Comment on making $9k per annum, is that net profit? or total income? or what? Now if thats net profit after all the bills are paid and they have food on the table, yes thats a poor year....but they didnt make a loss.......
Now one piece I saw suggested meat farmers do as per Fonterra....ie band together as a collective, now that seemed sensible. Now as a consumer I assume my prices will rise....but someone is always neg effected....
Which is the present Govn's quandry one person's gain anther may lose....Labour for 9 years just sailed along and lets face it when farmers seem to jerk reaction vote National that isnt too surprising you dont engage a Govn like that. To an extent a poorly managed country by Labour, sure....but in that 9 years Labour was unwilling to correct the PI bias thats certainly a big mark against them in my eyes....
Other things are they talk about NZ being one (9th?) heavily traded currencies, so OK lets reduce that with atobin tax....
gtg
regards
Not bad for a sheety !
Considering the current economic circumstances and the enormous pressure for exporters - what I miss by the NZMEA is striving for a comprehensive change in problem solving. In that context you couldn’t even answer my earlier questions.
Wow - 20 years - growing roots only in stead of red fruits. ! http://www.rbnz.govt.nz/keygraphs/Fig6.html
Another member just commented about our importing culture – huuuuu ! The current economic model - I think we don’t even have one - is a complete failure.
I called the "NZpatchworkeconomy"
Patchwork or "pieced work" is a form of needlework that involves sewing together pieces of houses and NZdairy farmers fabric into Fonterra & Property Ltd. designs. The larger design is usually based on repeat patterns built up with different colored shapes and sold to Asians.
Re. overpriced housing markets. In a way, NZ is fortunate so far, not to have a WORSE bubble. The heat came off ours quicker thanks to "doom and gloom" setting in earlier. The Aussies really DO think they are different, invulnerable, bombproof. When K Rudd introduced a $15,000 handout to first home buyers as his "solution" to them being priced out of the market, prices hiked $100,000 immediately, leaving any suckers who still took his offer up, $85,000 WORSE off.
The OECD said exactly what I have been banging on about for years, in this report:
http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT00000AFA/$FILE/JT03277653.PDF
Para 1. Over the past decade, the world has experienced an unprecedented house price boom in terms of magnitude and duration, but also of synchronisation across countries. During the 2001 recession, house prices disconnected from the business cycle......
Compared with previous house price cycles going back to the seventies, the latest expansion has been truly exceptional in three respects:
* Real house price have soared. During the recent boom, house prices rose by 120% on average. The average real price increase during earlier expansions had been around 45% (Girouard et al., 2006a). In only two previous expansions did real prices more than double: in Finland in the eighties, with an acceleration of the rate of price increase towards the end of the decade, when the economy was undergoing sweeping transformations; and in Spain immediately after it joined the European Community in 1986. In three other episodes, prices came close to doubling: in Italy and the Netherlands in the seventies and in the United Kingdom in the eighties (Table 1).
*The expansion has been exceptionally long. Historically, the duration of the house price cycle has been around 10 years, roughly similar to that of the business cycle, with which it used to be synchronised. The average expansion phase has lasted around six years. In contrast, the latest upturn went on for about twelve years on average across countries. The exceptional length of the latest expansion means that the house price cycle has become disconnected from the business cycle. In previous cycles, peaks in house prices approximately coincided with peaks in the business cycle, as measured by the output gap (Figure 2). Remarkably, the turnaround in the business cycle at the beginning of the current decade was not matched by a slowdown of house prices.
*Most countries in the sample experienced a house price boom simultaneously. If one defines a boom as an increase in real house prices of 25% or more over five years,6 more than three-fourths of the countries in the sample (thirteen out of seventeen) experienced a boom in recent years. This proportion significantly exceeds that of roughly half of the sample (nine countries out of seventeen) observed during the previous upswing which reached its peak around 1989-90. Synchronised booms were even more uncommon in the seventies when the proportion of countries in a boom never reached a third of the sample.
So what we have is an iNTERNATIONAL phenomenon that is unprecedented both in the magnitude of EACH BUBBLE, AND in the NUMBER of simultaneous bubbles, AND the fact that they are ALL de-linked from the rest of the economy.
The only factor that explains this, is that all these countries went nuts at the same time, imposing "anti sprawl" urban planning. Global Warming is a truly international hysteria.
And the OECD Report touches on the real problem:
Para 33. "The factors driving housing supply are much less understood than those driving demand (Gyourko, 2009) as housing supply is driven to a large extent by local conditions, in particular the availability of land for building, infrastructure – especially transport – and building regulations.26
Furthermore, few studies on the behaviour of housing suppliers have been carried out, as micro data are scarce (Di Pasquale, 1999). However, analysing the behaviour of housing supply is crucial to understanding house price dynamics and long-term price levels. Price reactions to demand shocks – such as those produced by shifts in interest rates – fundamentally depend on supply responses. If supply is perfectly elastic, house prices will not durably deviate from marginal production costs, which include construction costs, land costs and a normal profit margin of the homebuilder. If supply is inelastic, demand
shocks generate price increases, which can be amplified by backward-looking expectations and lead to the development of bubbles (Glaeser et al., 2008).27
34. Supply equations at an aggregate level – e.g. national – are generally based on a measure of profitability. They include house prices and indicators of housing production costs, such as wage and capital cost (e.g. Di Pasquale, 1999; Swank et al., 2002). Expectations of future house prices are also likely to play an important role in building decisions, as developers can make significant holding gains on land when prices are rising. Unfortunately, not much is known about the behaviour of homebuilders.
Altogether, aggregate level equations are often not doing a very good job at explaining housing supply developments. This probably results both from data availability and quality problems and from the importance of local factors in determining housing supply, which makes modelling it at an aggregate level
difficult.
35. At the metropolitan level, additional supply determinants include the population of the city, its growth, density and transportation costs (Capozza and Helsley, 1989). Green et al. (2005) have estimated housing supply elasticities for forty five US Metropolitan Statistical Areas (MSAs). They find that elasticities vary widely across MSAs, ranging from around zero to more than ten. They also find that heavily regulated MSAs always exhibit low elasticities. These results are in line with those of Glaeser et al. (2005), who argue that since 1970, the rise in house prices in the United States “reflects the increasing
difficulty of obtaining regulatory approval for building new homes”, rather than fundamental geographic limitations to increasing supply. There is also evidence of regulation-induced supply rigidities in the United Kingdom (Barker, 2006; Muellbauer and Murphy, 2008) and other countries – e.g. Denmark, Finland and the Netherlands (Hoeller and Rae, 2007).
Is anybody out there listening? Do all those overpaid bureaucrats around the world even read ANY useful reports like the OECD one on housing markets?
Lastly, they SURE SAY IT here about monetary policy:
PARA 55. "Another concern is about the ability of monetary policy to thwart the development of a housing bubble without causing widespread damage to the rest of the economy. In a house price boom, prices increase strongly – often at double digit rates – and expectations of future prices are similarly upbeat. Under these conditions, large policy rate hikes would be necessary to cool housing markets. High interest rates would crowd out sound and socially useful investments (Kohn, 2006). An additional difficulty for large countries and monetary unions is that housing market developments usually differ across regions or member countries. For example, during the latest housing boom, while prices were soaring in States like Florida or California, they were stagnating in many other parts of the United States. In the euro area, prices were skyrocketing in Spain and Ireland, but declining in Germany.47 Devising an appropriate monetary policy response to asset price developments under these conditions is not easy."
Here's the link once again:
http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT00000AFA/$FILE/JT03277653.PDF
"High interest rates would crowd out sound and socially useful investments (Kohn, 2006)"
Phil it's because of the flawed reasoning used to arrive the conclusion that the money supply should be controlled by interest rates. The bubble would be stopped dead in it's tracks if, for example, loans were only available once in the lifetime of the house and there was a strict LVR applied. New money loaned on an existing house IS inflation but it's not measured as such. New money loaned in an existing house is malinvestment.
It's hard to explain things when you start form the wrong end of the stick, eh PB?
Why dont you start again from scratch, without all the preconcieved notions?
Mankind ran into the physical limits of the planet, whilst worshippping a man-constructed fiscal system based on growth - ie only useful on the way up.
It was always, mathematically, going to hit the wall bigger than it had ever hithertofore been, and more in debt that it had ever been.
Given the Hubbert Curve generally applying to all finite reources, the downside doesn't fund either the debt or growth.
Plus which we ripped into the better-quality resources first - the worst are left. Deep-water oil, shale for gods sake, so it's not even a level horizontal axis.
If you prolong the plateau of a Hubbert Curve, the drop-off (rather logically) becomes steeper. This is because the total area under the curve is the total URR. You can'nae have your cake and eat it too.
Oh no, that's right, it's all bureaucrats making land expensive.........
Come on, PB, you can do better than that.
No he cant because his ideaology is that blinkered and fixed. He has to throw away his entire political and life outlook...instead he will spend his entire time looking for props for it or someone(s) else to blame (its thse damn socialists, or those central planners)...you can clearly see this in his protracted ramblings.
Dropping off the plateau.....this is one that has me scratching my head.....I believe its probably correct, ie that there should be a large drop initially and possibly until we re-meet the bell curve however there is a suggestion that the drop will be as shallow as 2% maybe 4%... Of course those are the doomsayers, the optimists seem to think the plateau will last for ever....at least in that they imply as they dont address that drop off aspects %.......
It is interesting that there seems to be an expectation (by some) that improved technology will improve the final extractable amount. However there seems to be a more powerful argument that what will actually happen with improved technology is the final amount will climb a little but what actually will happen is as per our debt, where we borrow from the future earnings all we really do to an oil field is extract the oil sooner, hence at some point the collapse in its producution will be steeper....
So far Im favouring the latter, I have always liked experiments this time however wish I could say it will be "fun" to see who is right....
regards
"New money loaned in an existing house is malinvestment."
Fred, surely the use of the funds, rather than the collateral should determine whether or not it qualifies as malinvestment . Borrowing against home equity for investment in productive enterprise = good: borrowing for frivolity and toys = bad.
Yes true, the assumption I was making was that the seller walking away with the extra cash, or the owner leveraging up was not investing in productive enterprise, because the collateral has gone up in price it shields the investor from having any skin in the game. It reduces the need for the banks to really get involved in productive investment and turns them into mortgage flippers which is the problem right? The objective is to improve the soundness of new money entering the system.
Fred
Again, when you talk about new money being used to buy houses - and yet you refuse to see the reality of creditors - it shows you are just muddled up. Securitization was a big factor behind the easy credit of the past 10 years or so. Securitization became a way to attract creditors into risky lending because it apparently offered risk averse investors the opportunity to get safe investments due to the way the buckets of risk were divided.
Now that securitization is more or less dead the banks are reduced to creating a new class of depositor who buys covered bonds to attract these deposits or creditors. This solves nothing however because it just transfers the risk to the existing unsecured depositors or taxpayers.
Why was their an explosion in lending you asked? Because demand for credit leads to money creation if the bank can find creditors. A few years ago there was 'a wall of liquidity out there' just looking for somewhere to go. And the banks themselves can be creditors for other banks. So if the interbank market sees there is no risk in lending to banks creating credit then it will act as the lending banks creditor. Once risk returns to the market nobody wants to lend and the delevering begins.
And Steve Keen is correct. if the regulators turn a blind eye to excessive investments in property and the measure of inflation is fudged then any new central bank money that is required to keep interest rates at the target will be supplied to feed the orgy after the lending has happened. But in all cases the lending required creditors who were happy to be creditors for that rate of interest. The issue is really that interest rates were too low because the people and politicians wanted it to be easier to borrow money so that everybody could live happy lives. And as we know reality is creeping back into the fantasy.
But it seems you want to throw the baby out with the bath water.
Thanks Andrew, I see your point.
Interesting how the need for some one to hold the note (creditors) is backed up by governments. Many countries (US, Australia etc) have instituted compulsory super funds. The insurance "industry" is another big holder, by government mandate, of debt (so called "reserves") and of course there's the plethora of exotic debt instruments.
My concern is more about trying to understand what happens next. Your comment : "Once risk returns to the market nobody wants to lend and the delevering begins".
I can see that Governments and central banks are desperately trying to take the risk factor away with various bailouts and guarantees. The trouble is; many of the countries themselves now have a high risk profile - Greece, Ireland etc so the risk has just been transferred. Meanwhile the prices of precious metals and other commodities climb as faith in paper assets erodes. A fascinating battle.
I think it could turn into complete loss of faith and a hyperinflation with little warning like an earthquake throwing out the baby and the bathwater and breaking the bath as well for good measure.
Property prices to the moon overnight without warning then?? :-)
and yet you refuse to see the reality of creditors - it shows you are just muddled up
Is a depositer not a creditor. When a bank lends money it ends up as a deposit somewhere. I see that but you say I don't.
This saga between you and I began because you challenged the idea that banks needed creditors to create credit money loans out of thin air. Of course they can in principal give you a deposit no problem at all, but if you want to spend it then the bank can have major headaches if it cannot locate a creditor. In practice the bank has to have creditors available on standby in advance by having prearranged lines of credit from other banks. When one bank has a draw down on its line of credit then it cannot itself lend much money and has to wait for payments to flow to the bank to repay the money paid to the borrowing bank.
Taken in isolation, money out of thin air via credit creation, implies something that does not exist in reality.
Tell you what Andrew....why don't you walk us through the entire process from the 'open window' at the Fed...all the way down to Noddy Kiwi borrowing $300ooo to buy a property priced at $330ooo.
Wolly, can you please send me an email. (last try)
Roamer Watch are looking into your case, but need more infos. Photo and Ref. Number of your watch.
Für eine genaue Abklärung, ob die Pusher noch erhältlich sind, bitten wir Sie, uns die genaue Referenz-Nummer der Uhr mitzuteilen. Oder ev. ein Foto würde uns zusätzlich dienen.
Credit first or loan first, it's a chicken and egg situation.
I'm not talking about the first day a bank is set up or a set of banks are set up, I'm talking about the accumulated years of interest payments and accumulation of credit over time.
The inherent Ponzi nature of the system as a whole.
So that's your point, sorry I'm slow, of course if one bank lends faster than the others it will (tend to) need lines of credit with the others for it's notes to be accepted by the other banks, if newly created credit money is to be spent elsewhere (the expansionary bank either has to have a sufficient settlement balance at the central bank or arrange a direct line of credit with the others, or hand the cash over). This is why free banking would be better, each bank's notes would be continually tested as opposed to fiat money where every bank's credit money is put on the same footing as the rest when in reality it's not.
But if all banks are engaging in the same credit expansion mode, and they all compete vigourously to grow (bonused lending managers, contracted mortgage agents, who don't get paid unless loans are extended), there is less need for interbank lines of credit, and you have the necessary ingredients for bubble creation and consequent disaster in a deflationary collapse.
Extending loans still increases the money in circulation.
Fred
The banks do not accept each others created money 'notes'. The created money deposits are not going down the wire to the other bank. If bank B customer sells something to bank A customer then Bank B wants central money from Bank A unless Bank B is happy to be owed the money by bank A. Each bank knows what the other is doing - more or less.
much of what you say is true but you seem to be completely ignoring the willingness of investors to buy the banks mortgages, and you are in effect describing the final days of the mania where banks were inadequately supervised.
Austerity is the new word in town. Banks are not going to go back to the crazy days for a while to come. Only government life support is enabling them to maintain the current lending.
Steve Keens demolition of the money multiplier theory is not very accurate. Banks do not go creating credit without being mindful of their likely receipt of central bank money from the economy. Money multiplier is fundamental wrong but there is a reality there of the importance of continual receipt of central bank money because all lending inevitably leads to a call for central bank money where many created money loans result almost immediately in the created money being destroyed while the debt remains - meaning the bank had to pay out central bank money. Crazy banks like northern rock were selling their loans. As were all of the australasian banks. Only if the creditors get hungry again will the old days return. They might not return for generations.
Once inflation begins to pick up as it must do i guess, then a whole new thing is going to happen and i dont buy into the idea governments are going to willingly destroy each other to satisfy the anarchists on the internet by continuing to print when that happens.
Duplicate post
system duplicated post?
Quite right, Vera.
To Fred, I say that even a gold standard would not prevent a bubble in the price of ANY commodity that is subjected to oligopoly behaviour, even if it is regulators who are responsible for the oligopoly behaviour. Investment would simply be diverted from other uses. "Malinvestment" is certainly the result.
Didn't some of the historic bubbles take place while a gold standard still existed?
I believe that a gold standard is a good idea, but believers in it need to grasp that there are other potential economic problems that it is necessary to know about, too. THIS time, the problem is land supply.
Phil
Agreed, a gold standard hasn't prevented bubbles in the past. Free gold isn't a gold standard though from what I have read. I asked the other day whether it can be explained in more detail - no replies.
PS/Edit . . . When you pin problems on land supply THIS time what do you mean?
http://fofoa.blogspot.com/2009/07/bondage-or-freegold.html
Snip (see below - I'm trying to understand it . . . I think the key difference is in the past gold standards have been about TRYING to ensure that the currency is as "good as gold" whereas what freegold is - don't lie, mark your currency to your gold reserve and let the currency float and trade freely with whoever rolls up to your gold window. Subtle difference. The Euro is partially backed by gold. 15%)
"Ender says it well
If you and I are allowed to buy gold with our currency, we have settled other's debts to us. On a personal level, acquiring gold allows you to settle other's debt to you. This act of settling others debt to me (as the case may be) does not destroy any currency nor relieve those that are still in debt to others of any burden. What it does offer is a means for me to buy a wealth reserve that stands on its own merit.
Doing a little calculus, if you sum an infinite number of little gold buying transactions you end up with a means of settlement for economies as all the little gold bugs enter the market and buy wealth reserve with their surplus currency. The currency remains in circulation and gold moves into its settlement role. 'Nations' and 'States' worth of people may be seen as settling, but the Nation and State still have the same amount of currency in circulation.
Independent of the nation state, those with surpluses that are currently held in currencies may find that the nation state is placed in a position to create MORE currency rather than less. That design in the system will always, over time, create a situation where more currency will be available to chase items that work as wealth reserve.
Now, back to the Freegold concept. Because gold is a wealth reserve, it will work just as well for a person as it will a nation state. In the marketplace, if gold is plentiful, its 'price' will be low. Likewise, if it is scarce its price will be high. If a nation state marks its gold to market and thins the gold market, it may find a high 'price' for all the nuggets the nation holds on reserve. This implies that if the nation state does NOT SELL gold in the open public market, all us little gold bugs (advocates) will be the ones that offer up our gold (in exchange for currency) that helps settle the imbalances that occur in global/national/local trade. If 60 billion needs to be settled every month and only a few ounces are available, those few ounces may absorb the imbalance."
No the problem is cheap and easy credit...
regards
The word is Gerry Brownlee is to be a Hobbit in this new film...anyone have the gossip on this?
The national union of hobbits have threatened to strike if GB is in it because he will make hobbits a laughing stock.
That's so unfair..Gerry would make a great Hobbit and Peter could play with software to shrink Gerry down to size...something the entire Labour opposition would gladly fund....even with their own money for a change!
GB is like that guy in Monty Python who exploded when he ate too much.
Bad news for most.
An offshore exploratory well has tapped into a huge new field that could hold up to 15 billion barrels of recoverable oil, although the amount is likely about half that, Brazil's National Petroleum Agency said Friday.
The agency said in an e-mailed statement that the Santos Basin formation reached by the Libra well has the potential to hold between 3.7 billion and 15 billion barrels. However, it said, the field most probably has 7.5 billion barrels.
7.5 billion barrels will keep us chugging along for another 3 months at current usage. Damn good news for Brazil, though. The street urchins in Rio will be dancing in the streets knowing they are all about to become Jed Clampetts.
Of what it holds ie original oil in place, you need to consider what % of that you can extract, it could be as little as 25% or as high as 75%....so if it holds, 7, the extractable amount is probably 50% or 3.5.....still a good find....however on top of that you have to consider the daily extraction rate....maybe 50,000 bpd....where we use 86Million bpd. If we are dropping say 4% per annum or 5mpbd globally......you need 100 such finds just to stay even per year...how mnay have we found this year? ho hum...
regards
The banks have been aided at every turn by the useless govts in this country to establish a firm grip on the throat of the economy. Farmers by and large are now the livestock in the rural regions....haaahaaaaa...the banks are farming the farmers.
The govt is doing flipflops to allow the RE liars a doorway to flog the rural land to foreign buyers for one reason only.....it is the only way the banks can keep some gas in the rural land bubble......BUT....word is out that the rubber band has snapped....some sales are in process that will cut the bloody bubble in half. The banks are at each others throats...Rabo has the worst balance sheet position...guess what's coming!
In the residential sector the bubble scam is now dependent on sales in Auckland. The regions are in crisis. Building anything new is now a "why should we" moment for those with the cash to do so. Land remains at bloated prices...and remains unsold. The regional economies are on life support. Each passing month brings another drop.
Everyone knows they will be on the hook to pay the higher insurance premiums that will be sucked out of the economy by the industry to pay for the quake fixups and fill up the EQ govt fund. So any BS about a GDP boost from the building must be countered by the impact of higher premiums across the country. Nothing comes for free...
But taxes are lower...you should be building...don't worry about paying the 15%gst...."yeah sure....sod off" is the reply and the building sector sinks because demand has been bashed down. How long does it take the average low paid Kiwi to save the tax reduction to be able to pay the extra gst on the new house which they are expected to build on the price bloated plot of clay.
That be, Mr. Creosote..... reply to Magnum PI @ 10.42am.
Japan: America's Lost Decade
Take a look at this one, Lucky Basket:
"Muslim Demography"
and so?
Link explaining freegold concisely.
http://fofofoa.blogspot.com/2010/10/clearer-view.html
A snip
"No matter what is used as money, if savers are saving the same thing that is used for lending, collapse is inevitable. Lending increases the money supply, diluting the savings. The savings are in effect not really there, as multiples of banked savings have been lent out, spent, and in many cases redeposited as some one else’s savings, over and over."
True or not true?
Banks drip-feed mortgagee sales to prop security
http://www.stuff.co.nz/business/4291388/Banks-drip-feed-mortgagee-sales-to-prop-security
Fred - your attempts to educate are worthy of praise but I doubt you will be able to enlighten this particular protaganist - he has a long track record of failing to understand.
Andy, thanks. It's actually been useful for me as every path seems to lead to the same conclusion(s).
Once the note and it's matching liability have sprung into life out of nothing but the signature of the borrower, the banking/financial pension fund system's next objective is to keep them apart so that they can never be truly settled. How? by demanding growth, and universal acceptance of the growth is good mantra. This is at the crux of the of the con.
Gonzalo Lira has a really good post here http://gonzalolira.blogspot.com/2010/10/our-god-is-money-economics-isnt…
Still need to convince GBH though :) hows the watch repair business going there in paradise?
Hmm not sure if thats truly accurate, ie the way it is structured growth is essential to have a chance of paying down the debt....now if you cant get income to increase to pay down the debt, get the asset to appreciate....ppl think they are better off.....and take on more debt....so a higher rate of growth becomes essential....at some point of course if the debt isnt growing and growing at an accelerated rate then we get a correction even a collapse......its the delta of debt that is important....at least if I am following Steve keen's work correctly....
I do agree its the goal of a banker and/or investor to never see the money paid back just get interest in perpertuity and in fact if at the same time you can make the debt grow then the chances of it ever being paid off becoems remote....possibly even across generations.....the true wage slave....ppl drawing down on their house is a case in point, its worked well for the banks....
Growth of course is finished, without being able to increase cheap energy supply in step with growing GDP there wont be growing GDP...
The only conclusion I can see then is for assets to decline in value....and eventally default...I cannot see any alternative.
regards
"ie the way it is structured growth is essential to have a chance of paying down the debt."
If every $ loaned by a bank was truly at the risk of it's shareholders and creditors then growth would not be a necessary thing in order to pay down the debt. To me it's not the fractional reserve thing, that's fine, fractional reserve is essential for banking to work properly.
If every loan was made on a productive asset that generated income then the money it generated would pay down the debt. If it isn't then the originator and it's creditors should take the hit.
The honest way to value the money that is created when a bankloan is issues would be for that bank's credit money to circulate as that particular bank's notes. However, in a fiat money system the government steps in and puts them all on an equal footing, hiding the bad credit money with the good credit money.
By doing this the Government is then responsible for making sure that every bank credit note in circulation is sound. The only way to do this is at the instant the loan is extended. It's either a good loan and leads to productive investment or it's not.
It hasn't done this, by sticking to a dumb dumb dumb idea of controlling "the money supply" via interest rates they are failing in their duty. The idea of controlling the money supply via interest is promoted by economists who have no clue whatsover or are in the pockets of the banking system where there are people who surely understand this but it's in their own greedy self interest to shut up about it.
Banks cannot handle deleveraging, but because of the way they all link arms via the central bank and the fiat money connection, big banks absorb smaler ones and then they then claim systemic risk. The Government steps in and protects the "savers" deposits. The reality is that the saver was ripped off the day the loan was extended and the banker flipped the loan or "managed the risk" in an underhanded way. Where managing the risk = keeping the note and the negative ledger entry as far apart from each other as possible.
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