Our monetary system

[JG4_Helofly]

Hi,

Since this is the off topic section, I thought that it might be interesting to discuss something which is not well known, but which has big consequences in our world.
So I would like to discuss the monetary system we currently have. That's something everyone of us deals with every day, but not many people really know how it works.

The most important aspect of it is the money creation. So the question how money is created. Most people think, that money is created by the central bank which prints the banknotes. Well, that's no exactly true. In fact, money is created by commercial banks. They create money by lending a certain amount of money to somebody. The money they lend did not existed before. This sounds strange, but it's reallity. This way, any bank can create money from thin air and they make a profit with the interest people have to pay. If the debt is repayed after some time, the money disappears again (not the interest of course).
I know, that's not very precise and really just a summary, but generally speaking it's how it works.

Now, what consequences does this have? Know that we know that money is only created by taking a credit in a bank X, it becomes clear that every cent which exists is also a debt on the other side. Every Euro, Dollar, CHF, ... you have on your bank account or in your wallet is a debt for someone else. Simply because someone had to borrow this money to give it to you, or someone borrowed it and gave it to the guy who gave it to you etc.
Interesting I would say :)
This also means that it's not possible to repay a debt in such a system. Because if you want to eliminate a debt, money must be eliminated too. Money = debt. If someone has 1 billion debt, someone else has a 1 billion entitlement to it. If you simply "repay" the debt by taking money from the money you put aside, then the debt has not been eliminated. It has just been transferd to another place.

But What about the interest? Well, since money is only created by borrowing, the interest must also be borrowed. And it continuesly grows for that reason.

So what is the big problem with all that? When money = debt, then some people will have very much money and some people will have the debt. And the guys with the debt have to pay the interest. The more money there is in the system, the more interest you must pay.
This would not be a problem if the money would be spread evenly, but that's not the case. I read a statistic which indicated that about 10% of the richest people owns more money combined than the bottom 90%. So who must pay for the money of the rich?...

Please note that this is not a conspirative theorie, but the basics of our monetary system.
I am very interested in it and I would like to know if some people have ever heard about it and what you have to say.

[5./JG27.Farber]

Wanna know why the worlds economy is in a mess? Its worse than you discribed.

This is what happened in America with derivatives:

http://www.youtube.com/watch?v=vhe_mQVIWVI

[pupo162]

this is hard to understand and even harder to explain. there are some good videos on youtube who explain it quite well. Its disgustign to say the least, yet while it work(ed) it had some balance, now its startign too fall apart quite rapidly, and a new default is coming i guess...

unfortunatly thsi forum as a no politics policy, and this will fall under the close banner soon.

[Wolf_Rider]

Hi,

The most important aspect of it is the money creation. So the question how money is created. Most people think, that money is created by the central bank which prints the banknotes. Well, that's no exactly true. In fact, money is created by commercial banks. They create money by lending a certain amount of money to somebody. The money they lend did not existed before. This sounds strange, but it's reallity. This way, any bank can create money from thin air and they make a profit with the interest people have to pay. If the debt is repayed after some time, the money disappears again (not the interest of course).
I know, that's not very precise and really just a summary, but generally speaking it's how it works.

Now, what consequences does this have?


Hyperinflation is the consequence.


"Cash" used to be backed by gold... so in effect, if a country had $1b they had to have $1b worth of gold in the coffers to back it. Why did it have to be backed? because the banknote (cash) isn't worth the money it is printed on (unlike coins, which btw, have also been reduced in content as to be not worth the amount printed on them) Coins, could at one time be melted down and the gold/ silver/ etc could be reclaimed.

The US has an uneveniable position of running two economies... the offshore oil economy (in which the US prints notes) and the home economy, in which the US prints notes (Quantative Easing). If the US oil economy (Reserve Currency/ FIAT) collapsed, for example by the trade in oil being done in Euro (like it was done with the USD) all those petro $'s would go back to the home economy and that economy would crash overnight (more like crash in the time it takes to run the evening news). This is why the US debased cash from gold in the early 70's... just so they could print.

Cash is just a piece of paper now, with a value printed on it

[JG4_Helofly]

this is hard to understand and even harder to explain. there are some good videos on youtube who explain it quite well. Its disgustign to say the least, yet while it work(ed) it had some balance, now its startign too fall apart quite rapidly, and a new default is coming i guess...

unfortunatly thsi forum as a no politics policy, and this will fall under the close banner soon.

Why should it be closed? It's not about politics, but about an aspect of our economy. And a very important one. No need to go into the politics corner from here.

[arthursmedley]

Hi,


I am very interested in it and I would like to know if some people have ever heard about it and what you have to say.

Er...your idea of how banking works is false. Commercial banks do not create credit out of thin air. I think you may be confusing the idea of "quantitative easing" whereby central banks have electronically created credit they transfer to commercial banks to facilitate lending (or create asset bubbles).

[JG4_Helofly]

Er...your idea of how banking works is false. Commercial banks do not create credit out of thin air. I think you may be confusing the idea of "quantitative easing" whereby central banks have electronically created credit they transfer to commercial banks to facilitate lending (or create asset bubbles).

No. It's not false. The money which is lend by a bank did not exist before. It's true that initialy a relatively small amount of money comes from the central bank and goes to the commercial banks, but the commercial banks can lend more money then they get from the CB. Otherwise every bank would have a 100% backed reserve and that's not the case. The min. reserve must be around 7%.

[arthursmedley]

No. It's not false. The money which is lend by a bank did not exist before. It's true that initialy a relatively small amount of money comes from the central bank and goes to the commercial banks, but the commercial banks can lend more money then they get from the CB. Otherwise every bank would have a 100% backed reserve and that's not the case. The min. reserve must be around 7%.

They borrow these funds from other commercial banks and re-lend at higher rates of interest. Thats one of the reasons our banking systems are in big trouble.

Think hard about this. Do you really think banks just 'magic' up money out of nowhere? If they did no one would have any confidence in paper money at all. We'd be exchanging lumps of gold again.

[JG4_Helofly]

They borrow these funds from other commercial banks and re-lend at higher rates of interest. Thats one of the reasons our banking systems are in big trouble.

Think hard about this. Do you really think banks just 'magic' up money out of nowhere? If they did no one would have any confidence in paper money at all. We'd be exchanging lumps of gold again.

So how is money created then? Does all the money come from the central bank in your view?
The reality is that commercial bank can lend more money then they have (central money from the central bank) that's why there is a cash reserve ratio which limits the amount of money a bank can lend.
As said earlier, there are some good videos in the internet about all this. Maybe you should look this up. I just know some in german and french, so probably not usefull for you?

[MD_Titus]

pushing digits round spreadsheets.

[MadBlaster]

There's more to it than that. America made a contract with God. That is why dollar is the reserve currency. That is also why it says "In God We Trust" on the money. God talks to Bernanke each morning over coffee and donuts and decides how much money to print each day.

[arthursmedley]

God talks to Bernanke each morning over coffee and donuts and decides how much money to print each day.

Now this could be true.

[pupo162]

Why should it be closed? It's not about politics, but about an aspect of our economy. And a very important one. No need to go into the politics corner from here.

Well usually similar threads get closed down... unfornatly i must say. Not talking about it wont make it any better, and in the Old ubi forum i learned a lot about (there were some news posted and commented there before they hitted my local news source)

OT

Of what i understood banks are obliged to only backup 10% (!!!!!) of what they lease.

meaning, that if a bank HAS 10 dolars worth of gold in its deposits, (wich might not even belong to him, lets say it belongs to helofly.) the bank can lease me 9 bucks, yet Helofly still owns that initial 10 bucks.

And so voila, out of tin air, the 10 bucks worth of gold Helofly placed on the bank, are now worth 19 dolars on the street. This can spiral even more given that the banks can bacckup with debit from the gouvernment and even other banks.

SO, if the bank where Helofly placed the money leases me 9 bucks, i can eventually myself ( i am now a bank lol), lease some of it too (lets say 5 dolars)

so now we have 24 dolares out of 10 real dolars.

and on and on on.


The most redicolous thing, Atleast in portugal, but seems global, is this is not public knowledge. Never in my mandatory studies ( not even my 5 current extra studies years), was this and other monetary rules and works explained.

[JG52Krupi]

At the end of the day its time for another revolution, down with the "economy" we need to find something better than the turd we currently use!

[JG4_Helofly]

Well usually similar threads get closed down... unfornatly i must say. Not talking about it wont make it any better, and in the Old ubi forum i learned a lot about (there were some news posted and commented there before they hitted my local news source)

OT

Of what i understood banks are obliged to only backup 10% (!!!!!) of what they lease.

meaning, that if a bank HAS 10 dolars worth of gold in its deposits, (wich might not even belong to him, lets say it belongs to helofly.) the bank can lease me 9 bucks, yet Helofly still owns that initial 10 bucks.

And so voila, out of tin air, the 10 bucks worth of gold Helofly placed on the bank, are now worth 19 dolars on the street. This can spiral even more given that the banks can bacckup with debit from the gouvernment and even other banks.

SO, if the bank where Helofly placed the money leases me 9 bucks, i can eventually myself ( i am now a bank lol), lease some of it too (lets say 5 dolars)

so now we have 24 dolares out of 10 real dolars.

and on and on on.


The most redicolous thing, Atleast in portugal, but seems global, is this is not public knowledge. Never in my mandatory studies ( not even my 5 current extra studies years), was this and other monetary rules and works explained.

It's even worse. 10% reserve means that if there is a real value like gold or central bank money in the bank (lets say 10 dollars), the bank can make 10 times as much. So with 10.- they make 100.-. Because only 10% must be backed.
But this would be ok If there wasn't the interest you have to pay. That's the real problem.

I just found this excellent video: http://www.youtube.com/watch?v=PlxKtDOkEj4

Very well explaned!

[Les]

'Fractional Reserve Banking' is the name for it, where a bank only has to have a fraction of their wealth in actual reserve, but are able to lend more than that.

Here's a long video in two parts that explains some things about the banking/monetary system.

http://www.youtube.com/watch?v=svly7TJMtzw

http://www.youtube.com/watch?v=g3t7jW6IAoI&feature=relmfu

[chantaje]

imo a great ponzi scheme.
i found a great doc about this some time ago.
http://www.youtube.com/watch?v=5K41O2QfpjA

There's more to it than that. America made a contract with God. That is why dollar is the reserve currency. That is also why it says "In God We Trust" on the money. God talks to Bernanke each morning over coffee and donuts and decides how much money to print each day.

LOL that might have a better logic than the one they use now.

[MD_Titus]

There's more to it than that. America made a contract with God. That is why dollar is the reserve currency. That is also why it says "In God We Trust" on the money. God talks to Bernanke each morning over coffee and donuts and decides how much money to print each day.

sure it was god?