75 Billion Quid Pumped Into The Economy By The Bank Of England. What If...

[cunning fergus]

He might have inherited a benefits system that is soaking up money and a bloated public sector but you can't blame brown or labour for the world economy. In fact New Labour mearly took over from thatcher and major in getting in deeper with the bankers and the world banks which led to the failure of global economics. If the euro and other currencies fall and the European banks start to crash taking out your savings and pensions how will you blame brown for that after 2 years of Osbourne and cameron

I wont blame them for the world economy but will hold them accountable for their incompetence and handling this countries finances and encouraging a credit bubble that was always destined to burst. The fact that other countries acted recklessly as well does not get them off the hook. Bradford and Bingley (like Northern Rock) collapsed because its managment were "all in" on property, over 60% of their mortgage book was self certified. The FSA knew this but sat on their hands because the tax money was rolling into treasury coffers. Beggars belief that some people think it was all down to "global" factors.

 

[vegster]

Give me the money and I will sort things out by squandering it all.

So it's either you or Cunning Fergus ? well I can't go all Daily Mail so its got be your George Best policy...... I'm in !

 

[Albion Dan]

Well, how about when Labour printed money it was as a consequence of failures in the financial system that had been caused directly as a consequence of Labour policy, hence the recent apology by Balls. .

So the entite collapse of the western worlds financial system was the fault of Labour. And the tories would have managed that pre cursory period diffirently would they? That argument is now wearing so thin if it was ice a falling piece of paper would crack it.

Oh i know lets hark on about some gold shall we.

 

[Albion Dan]

I wont blame them for the world economy but will hold them accountable for their incompetence and handling this countries finances and encouraging a credit bubble that was always destined to burst.

But it was undeniably the tory government pre labour that encouraged people to buy goods that where beyond them on credit that started this cycle. The whole culture of selfish capitalism is grounded right at the feet of the tory governments of the 80s and 90s.

Lets face it the labour policies of the last government of investing in growth were turning the economy into positive growth. Essential for recovery. The cuts are killing spend and sending us into a one way road of recession. The tories havent a clue what to do now

 

[beorhthelm]

Beggars belief that some people think it was all down to "global" factors.

well, it was global in the sence that everyone had their fingers in the till. lots of cheap money, who's going to turn it down? but yeah, we got hit hard first time round because our regulation was poor. problem now is the european regulations (must hold bonds) turn out to be just as poor once you realise the countries were mortgaged to the hilt as well as the people.

 

[dingodan]

only utterly wrong. this obsession in certain quarters about debt and banks "inventing" money ignores the very issue presenting the banks today. when you take out a loan, the bank has to have the cash on their balance sheet, it doesnt appear because you signed up to the loan. the whole credit problem is because they dont have enough cash on the balance sheet to cover all their liabilities, so have to themselves borrow from another bank. yes, its a massive carousel, passing the money round the room to cover the debts for the day, but thats a whole different issue to what that video claims at the outset.

Not so. The bank only needs to meet fractional reserve requirements. It needs some money on deposit in order to lend money. But the money it lends is not the money it has on deposit. It is brand new money created out of nothing.

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"Each and every time a bank makes a loan (or purchases securities), new bank credit is created — new deposits — brand new money."

Graham F. Towers, Director, Bank of Canada
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“When banks make loans, they create additonal [bank] deposits for those that have borrowed the money”

Bank of England 2007 Q3 Quarterly Bulletin, p377
http://www.bankofengland.co.uk/publications/quarterlybulletin/qb0703.pdf
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"...banks extend credit [i.e. make loans] by simpy increasing the borrowing customer's current account...That is, banks extend credit [i.e. make loans] by creatng money."

Paul Tucker, Deputy Governor of the Bank of England, Speech on 13th December 2007, p9.
http://www.bankofengland.co.uk/publications/speeches/2007/speech331.pdf
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"The essence of the contemporary monetary system is creation of money, out of nothing, by private banks often foolish lending."

Martin Wolf, The Financial Times' Chief Economics Commentator, member of the national Independent Commission on Banking (ICB)
FT.com / Columnists / Martin Wolf - The Fed is right to turn on the tap
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"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented."

Sir Josiah Stamp, former director of the Bank of England.
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In a letter to the Bank of England:

Question: "When a commerical bank makes a loan to a borrower, does the commerical bank in effect create new money? In other words, when a bank makes a loan to a borrower, is that "money" just created out of thin air?"

In a response from the Bank of England

Answer: "When banks make loans, commercial banks do indeed create much of the money in the economy."

This letter is available here: http://www.onegoodcut.org/wp-content/uploads/2011/02/BankOfEngland-MoneyCreation.jpg
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Again, I would encourage people to watch this.

 

[beorhthelm]

But it was undeniably the tory government pre labour that encouraged people to buy goods that where beyond them on credit that started this cycle. The whole culture of selfish capitalism is grounded right at the feet of the tory governments of the 80s and 90s.

Lets face it the labour policies of the last government of investing in growth were turning the economy into positive growth. Essential for recovery. The cuts are killing spend and sending us into a one way road of recession. The tories havent a clue what to do now

yes, the addiction to credit started under the 80's tories. but Labour of the 00's are guilty of two things. firstly breaking their own rules. Browns cycle, not spending in total more over the economic cycle was a good ideam but when the cycle looked like it wouldnt end he believed his own hype of ending boom and bust and kept going. secondly, all too much of the spending was in public sector which does not create economic growth. it grows the state, and certainly is good for employment and services, but its a facade in the long term as real productivity doesnt go up. see Greece, who did exactly the same on steroids, alas without the tax revenue to even keep up the pretense.

 

[DerbyGull]

I blame that clown Gordon Brown. When is this country going to get rid of the incompetent fool. A Tory government would make it a priority to balance the books and sort this mess out.

Sent from my HTC Wildfire using Tapatalk

 

[beorhthelm]

Not so. The bank only needs to meet fractional reserve requirements. It needs some money on deposit in order to lend money. But the money it lends is not the money it has on deposit. It is brand new money created out of nothing.

you can quote mine all day long, it wont change the facts. fractional reserve is one thing, but that video holds that $1000 in a bank will create $100000 money. well, go and find the money supply figures, its nearer the 9:1, not 99:1. its using a misconception of where the cycle starts to create a false impression of the system. which came first, the money or the debt? well the money of course, its just been grown/inflated and each year it increases again. but the deposit of real money *must* come first (as it does in the tale of the goldsmith, the video is another great one for internal inconsistancy and contradiction).

a bank cannot lend 100000 against 1000, nor can the overall system, if it has a reserve of 9:1 - as soon as you buy your car from the foreign car company you've removed from the economy 10x the reserve and you are bust. maybe things are different in the US where all these ideas come from. of course they dont, its just a misrepresentation. another thing, we actually have net savings iirc, which rather spoils the narrative.

what "creates" money, is of course interest, without which there would be no growth (see stagnant arabic economies pre-oil), but thats turned into evil usury by anti-bank idealists.

 

[cunning fergus]

So the entite collapse of the western worlds financial system was the fault of Labour. And the tories would have managed that pre cursory period diffirently would they? That argument is now wearing so thin if it was ice a falling piece of paper would crack it.

Oh i know lets hark on about some gold shall we.

Ed Balls has apologised for Labour's failings and the part it played in the wider global economy, in his own words to Parliament a couple of weeks ago................... "For the part that I and the last Labour government played in the global regulatory failure, I am deeply sorry."

If that doesn't do it for you, in 2007 less than a year before some parts of the global economy collapsed Gordon Brown in his Mansion House speech said:

The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success.

As far as I'm concerned I would put them all in the oven tory, labour and liberal. You keep choking down the bullshit though sunshine.....................f**king quisling.

 

[Chicken Runner61]

I wont blame them for the world economy but will hold them accountable for their incompetence and handling this countries finances and encouraging a credit bubble that was always destined to burst. The fact that other countries acted recklessly as well does not get them off the hook. Bradford and Bingley (like Northern Rock) collapsed because its managment were "all in" on property, over 60% of their mortgage book was self certified. The FSA knew this but sat on their hands because the tax money was rolling into treasury coffers. Beggars belief that some people think it was all down to "global" factors.

Northern Rock failed because it relied on wholesale markets rather than retail deposits to fund its operations. Its had very little to do with self cert mortgages and in fact it was making loads of money by packaging up those self cert mortgages and selling them to institutions abroad. It failed when the global market began to implode and Northern Rock found itself having to borrow money at higher interest rates than it had already promised to lend out at.

Global funds dried up interest rates went up as the Libor rate went up and that caused NR to issue a profits warning.This along with a drop in NR's share price led to further worries about the bank and THEN as you say the FSA sat on their hands. As interest rates went up those self cert mortgages together with everyone drawing their money out put the final nails in NR's coffin but it was GLOBAL factors that led to it.

It was Thatcherism that created your banking systems that created your relaxed credit restrictions and Thatcherism that lost control of the money supply and became obsessed with a global banking system. The fact that Major, Brown and now Osborne and Cameron continues with these policies is what beggars belief.

 

[Chicken Runner61]

Ed Balls has apologised for Labour's failings and the part it played in the wider global economy, in his own words to Parliament a couple of weeks ago................... "For the part that I and the last Labour government played in the global regulatory failure, I am deeply sorry."

If that doesn't do it for you, in 2007 less than a year before some parts of the global economy collapsed Gordon Brown in his Mansion House speech said:

The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success.

As far as I'm concerned I would put them all in the oven tory, labour and liberal. You keep choking down the bullshit though sunshine.....................f**king quisling.

Thats because New Labour had more in common with conservative economic policy than both Labour and the tories like to admit. The fact that Brown invited Thatcher to tea says it all.

 

[dingodan]

you can quote mine all day long, it wont change the facts. fractional reserve is one thing, but that video holds that $1000 in a bank will create $100000 money. well, go and find the money supply figures, its nearer the 9:1, not 99:1. its using a misconception of where the cycle starts to create a false impression of the system. which came first, the money or the debt? well the money of course, its just been grown/inflated and each year it increases again. but the deposit of real money *must* come first (as it does in the tale of the goldsmith, the video is another great one for internal inconsistancy and contradiction). a bank cannot lend 100000 against 1000, nor can the overall system, if it has a reserve of 9:1. maybe things are different in the US where all these ideas come from. of course they dont. and we actually have net savings iirc. what "creates" money, is of course interest, without which there would be no growth (see stagnant arabic economies pre-oil), but thats turned into evil usury by anti-bank idealists.

Can you provide any sources? I have sourced the BoE stating that Banks create money. Why do you always pick a fight with me? I am just trying to be helpful.

The £100,000 was not created at one bank. It was based on a loan being created and then deposited at another bank. With that deposit being used as the basis for a new loan by this second bank. This new loan can then be deposited at another bank, and from this new deposit a new loan can be created. Because the banking system is a closed loop the end result is £100,000 in the system when only £1,000 of actual money was originally deposited. The example given in the video is of those russian dolls, each one containing a smaller version of itself inside.

The first bank could not create £100,000 from £1,000, but it was able to create £10,000 from the original £1,000. This £10,000 (which has never existed as actual money, only as credit, debt), can now be the basis for a further loan, the total potential money which can be created this way, from the original £1,000, is £100,000. It doesnt happen in one go and it doesnt happen at the same place, but the end result is the same. We start with £1,000 and we end up with loans of up to £100,000.

As for which comes first, the money or the loan, the loan is the money. Clearly you did not watch the entire video as it explains that the goldsmith originally lent out gold he had on deposit, before realising that he could infact lend out gold that was not there, because people were trading the reciepts and never came to get the actual gold. The legalisation of this practice is what became fractional reserve banking. Money is created as a loan (debt), that is where new money comes from. What you are saying is logical and sounds like that is how it should work, but it is not. The whole point is that this process is crazy as bat shit, but it really is that crazy.

“The process by which banks create money is so simple that the mind is repelled.”
John Kenneth Galbraith, Canadian-American economist.

 

[Biscuit]

Wasn't it only a couple of days ago that our Chancellor, Mr Osborne berated the last Labour government for spending more money than they had yet...... Under a Tory government they just create money that never existed ?

But once it's been created and given to the bank as a debt, it suddenly exists. Debt can create wealth in a wibbly wobbly kind of way.

 

[dingodan]

Debt can create wealth.

 

[beorhthelm]

Can you provide any sources? I have sourced the BoE stating that Banks create money. Why do you always pick a fight with me? I am just trying to be helpful.

here's a good source. you watch youtube and dont even follow them. it claims the bank starts with $1111, lends $10000 against that (the 9:1), which then gets deposited and recycled to $100000 (9:1). it has double counted the reserve ratio! its turned $1111 reserve into a money supply of $100000, thats clearly 99:1.

the bank has to have the 10k to loan originally, albeit built up from years or generations of loan/deposit cycles, otherwise you buy a 10k car, crash, no insurance, bankruptcy, and the bank has a writedown to the tune of 10x its assets. with the stated 9:1 ratio, a new bank with 1000 to start can only lend out 900 and maintain its 10% reserve (though the total banking system might cycle that to 10k).

you're not being helpfull, you are perpetuating a myth. as i say earlier, if it were so simple they wouldnt be having such prblems lending to each other, would they?

 

[Chicken Runner61]

That video is spot on.

In the report into the banking crisis someone provided a simple example of how £1 deposited into a bank could be lent out again and again creating thousands of £s of debt and why the system must eventually fail.

You can see why they got rid of the gold standard and why they don't want gold back and why Brown was probably ordered to sell ours by the world banks.

 

[dingodan]

here's a good source. you watch youtube and dont even follow them. it claims the bank starts with $1111, lends $10000 against that (the 9:1), which then gets deposited and recycled to $100000 (9:1). it has double counted the reserve ratio! its turned $1111 reserve into a money supply of $100000, thats clearly 99:1. the bank has to have the 10k to loan originally, albeit built up from years or generations of loan/deposit cycles, otherwise you buy a 10k car, crash, no insurance, bankruptcy, and the bank has a writedown to the tune of 10x its assets. with the stated 9:1 ratio, a new bank with 1000 to start can only lend out 900 and maintain its 10% reserve. you're not being helpfull, you are perpetuating a myth. as i say earlier, if it were so simple they wouldnt be having such prblems lending to each other, would they?

The initial money is deposited with the Central Bank. This is called "high powered money". The £1,111 of "high powered money" can be turned into a new loan of £10,000. This £10,000 is then deposited in a commercial bank, and this deposit is not "high powered money". You are correct that with a 9:1 ratio the new loan amount that can be created from this £10,000 is now £9,000.

One crucial point which I think you are missing is that this new loan of £9,000 does not include £9,000 of the £10,000. I can totally understand why, when a bank has £10,000, is operating at a reserve ratio of 9:1, and is able to lend £9,000 on the basis of a £1,000 reserve, it sounds like £9,000 of the £10,000 is being loaned out. But that is not what is happening. When the bank creates the loan of £9,000 it retains the £10,000. It has to have the reserves, but it does not use those reserves for the loan. So when the bank recieves the deposit of £10,000 its balance sheet says £10,000. But, when it creates a loan for the new £9,000, its balance sheet is now £19,000, the original £10,000 on deposit + the £9,000 out on loan.

The process would then continue when the new £9,000 is deposited at a second bank, the second bank can create a new loan for (approx) £8,000, but again it is not taking the new £8,000 loan out of the £9,000. So the second bank (assuming it only has this £9,000 deposit) will now have a balance sheet of £17,000, its £9,000 deposit (borrowed from the first bank) + the £8,000 out on loan.

For example.

Bank 1 deposits £1,111 at the central bank, being "high powered money" this is used to create a loan of £10,000.

Bank 2 has this £10,000 deposited, and at a fractional reserve ratio of 9:1 creates a loan for £9,000.

Bank 3 has this £9,000 deposited, and again at a 9:1 reserve ratio, creates a loan for (approx) £8,000.

In this way each new deposit is used as the basis for a new loan, but the deposits are not the source of the loan. The presence of the deposit allows for the creation of the new money out of thin air. This is why banks have been so keen to lend over the years, offering cheap credit cards and mortgages. The bank is "lending" money it never had, and its balance sheet increases as a result. You would think that when a bank lends money, its balance sheet would go down, because the money has been lent out. Infact the balance sheet increases. And because when you take out a loan that money will likely eventually end up in a bank as a deposit, every new loan creates the potential for further loans. This system depends on perpetually increasing debt.

So, the "high powered money" allows the central bank deposit to be X by the reserve ratio, This how £1,111 can be turned into £10,000. Once within the commercial banking system the deposit is now / by the reserve ratio, meaning that £10,000 can be turned, not into £100,000 but into £9,000. We get to £100,000 once this process has been repeated a number of times, £100,000 represtenting the exhaustion of the loan potential of the original £1,111.

 

[Half Time Pies]

Although its a good introduction to fractional reserve banking, the video does somewhat simplify what is a complex process however the fact is that the leading up to this crisis the banks were able to double the money supply in this country between 2000 and 2008 from £884 billion to £1674 billion. This is a shocking rate of expansion and it is hardly surprising that this credit bubble burst.

At the time of the financial crisis banks actually held just £1.25 in reserves for every £100 issued as credit.

Rather than attempting to patch up the current system through regulation we really need to start having a proper debate over whether a financial system in which 97% of the money is created as debt by commercial banks is the best way of creating and allocating money within society and what the implications of the current system is for financial stability.

"Of all the many ways of organising banking, the worst is the one that we have today" Mervyn King, Governor of the Bank of England.

 

[beorhthelm]

So when the bank recieves the deposit of £10,000 its balance sheet says £10,000. But, when it creates a loan for the new £9,000, its balance sheet is now £19,000, the original £10,000 on deposit + the £9,000 out on loan.

wow. i really hope these youtube educations are not too widespread. go and look at some real balance sheets, they are all online.

and again pay attention to the news of what the whole credit crisis is about. bank A wont lend to bank B, because they are worried they dont have the cash to cover. so bank B wont/cant lend to company X because they dont have the free cash flow to do so. now why would that be a problem if the bank could just simply magic a billion £ from creating a loan to company X?