simondv
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I have had a brief read of the web page above. Cooperation is generally better than competition, but competition has at times driven technical progress through necessity. For example, the need to get the upper hand in war probably led to the development of gun powder, which could then be put to a practical use in mining and quarrying.A piece of waste land near where I live could be put into practical use by becoming allotments, or a communal garden. However, in many communal activities, there are often those who do all the work, and others who want a free ride, so there is a need to encourage all to contribute. At the moment, the need to have money provides a strong incentive even for the lazy to do something, granted at times wasteful or criminal. At the other extreme, how is a person who contributes much more than others to be rewarded ? This is also a problem with the Capitalist system, because greed and laziness are very strong drivers of human behavour, and Socialism would have the same problems in trying to overcome them. In fact greed is the main driving force in Capitalism. I will re-read it when I have more time.
"(In fact we now have Corporatism where most markets are dominated by a few very large businesses and cartels and they have the politicians in their pockets).Isn’t this demonstrating a failing of a historical perspective on your part. Isn’t blaming trusts and advocating anti-trust legislation simply just an echo of the early 20thC dead-end solutions to the boom/slump problem." I object to this, and I am doing no such thing. I am sympathetic to your ideas, but you need to be less arrogant, more encouraging of potential supporters and less adverserial, and assuming certain things of me. If you are to encourage more people to follow your cause, you need to provide real world examples on the web site (I have read the the Object and Principles on the site), otherwise the casual observer may think that you are advocating committee style economic planning. I will try and read the other links you have provided when I get time.
To ALB and Alan Johnstone. I agree that monetary reform is only one part of reforming the system. Land value tax for example may have a part to play. I also agree that there are many flaws with Capitalism, and that it needs constant intervention by regulators in many cases, so consumers don't get a raw deal. The trend is always towards more wealth being concentrated in fewer hands, whether it is banking, supermarkets, or energy companies.ALB wrote"In the ensuing slump, the demand for bank loans falls off and interest rates fall. As long as it remains unprofitable to invest as much as before, the government can encourage banks to make loans as much as it likes but this won't have any effect. Nor is there any way that the banks can force businesses to take out loans they don't want. The initiative for a recovery has to come from profitability being restored by events in the real economy (such as the clearance of unsold stocks, the decline in real wages due to increased unemployment, the weeding-out of unprofitable firms which their assets passing cheaply to their rivals)." I don't disagree with this ALB, however easy credit in the boom years magnified the boom with banks being over confident, and the reverse is true today.If we move entirely away from a market orientated, profit motive economy, how do we ensure that the correct goods and services are supplied to meet the needs of society, and that technological progress is made ? We cannot have a situation as existed in Soviet Russia where there is a shortage of bread production for example, but an over production of refrigerators. Not everything about Soviet Russia was bad, for example the Moscow metro was superb. The Soviet Union had to devote a large part of it's resources and energy to it's armed forces during the "Cold War", when the society there could have been so much better if this had not been the case. I remember in the late 1970s when BT only supplied 3 types of phone, and they would take 4 weeks or more to install a phone line. British Road Services were the only show in town for getting a parcel delivered, and both BT and BRS were expensive, slow and inefficient. I accept that the Capitalist economy does the same in being wasteful, in that there is no shortage of places to buy a car, eat out, or buy almost any product or service. Items are not made to last because there is usually no profit in it. The other problem with Capitalism is that it undervalues useful activities like nursing or social care, and overvalues frivolous activities like playing football. Like you, I have devoted much time in recent years thinking how we move to something better beyond Capitalism (In fact we now have Corporatism where most markets are dominated by a few very large businesses and cartels and they have the politicians in their pockets). Technical advance, and the infrastructure built up by our ancestors should mean we all have to work very much less. Instead society is becoming more unequal, with more wealth than ever concentrated in fewer hands, and computing and technical progress have accelerated this problem as fewer workers are required to be employed in the business, and the owners can cut costs and increase profits. However, I am not entirely convinced that a committee can best decide which products and services are needed to serve the needs of society, unless producers are incentivised in some way. I imagine that Tescos for example, if it was publically owned, could still use the marketing data it uses now to provide the wide range of items in the required quantities,and on time.
The Money Multiplier FableThe money multiplier story – a fable really – claims that banks expand loans and deposits on the basis of a central bank function that gradually feeds reserves to banks, allowing them to expand their balance sheets with new loans and reservable deposits – according to reserve ratios that bind the pace of that expansion according to the reserves supplied. This is entirely wrong, of course. In fact, bank balance sheet expansion occurs largely through the endogenous process whereby loans create deposits. And central banks that impose reserve requirements provide the required reserve levels as a matter of automatic operational response – after the loan and deposit expansion that generates the requirement has occurred. The multiplier fable describes a central bank with direct exogenous control over bank expansion, based on a reserve supply function – which is a fiction. The facts of endogenous money creation have been demonstrated by empirical studies going back decades. Moreover, the facts are obvious to anybody who has actually been involved with or closely studied the actual reserve management operations of either a commercial bank or a central bank. In truth, no empirical ‘study’ is required – the banking world operates this way on a daily basis – and it is absurd that so many economics textbooks make up stories to the contrary. The truth of the ‘loans creates deposits’ meme is pretty well understood now – at least by those who take the time to learn the facts about it.This illustrates what I said earlier abuout the money multiplier, and is taken from this http://monetaryrealism.com/loans-create-deposits-in-context/ which Alan JJohnstone used as a reference in his post above. The authors are actually saying here that loans come before deposits, which I have highlighted in bold, and the same things are said in the book "Where does money come from ?" by NEF
Plenty of inflation with the existing system, a £50,000 house becoming £150,000 in 10 years, mainly caused by bank lending." but from a capitalist point of view is unnecessary as bank lending depends on the state of the economy and it is this that governs the demand for bank loans." I disagree, the state of the economy depends on bank lending, that is why the government is desperate for the banks to increase "credit" which becomes money, but again this is another chicken and egg argument.
This link shows some notable people who think that banks create money. http://www.positivemoney.org/how-money-works/proof-that-banks-create-money/ I am less concerned that loans come before deposits, or the other way around, more that private banks have the ability to create money and debt through the act of lending. The money supply tripled in 10 years in the UK from 1997, mainly through banks increasing lending, and one third of this new money went on commercial and private property. Bank were able to lend more in this period because the reserve requirement was very low, interest rates were too low for too long, and banks were going out of their way to lend more, much of it to unsuitable borrowers including my friend on benefits. The expansion of the money supply must have been caused by lending increasing first, and if it increased at a rate of 10% a year for 10 years, this would enable the money supply to triple in that period. The banks increased their lending, and in doing so they could seek extra reserves as well, because more money had been created. This is explained in the book "Where does money come from ?" by the New economics Foundation.All new money should be created by the central bank, free from debt and interest, and free from political influence, to be spent into the economy. The present system is manic depressive, more lending encouraging a boom, a bust occurring when banks lend less and people try to pay down debt because there is less money.M0 is a very small part of the money supply, M4 is much the biggest component.
The multiplier model you describe of re-depositing which is in many text books does not describe correctly how things work in the UK now, and has not applied for many years. See banking 101 videos on the Positive Money site to get a brief overview of how the system works. I have argued with you before ALB, and we claim that new loans generate new deposits in the banking system as a whole, not the other way around. You have not adequately explained how the money supply increased by 3X in the ten years from 1997, it was not increased by an army of grannies finding extra money at the back of the sofa, or by the Bank of England printing it. The banks became much easier with their lending in this period, lending much greater multiples of income for mortgages for example, so increasing the money supply. It could well be that deposits end up in total quantity the same as loans (M4 lending), and the balance sheet of RBS a few years ago at the start of the financial crisis showed it's loans to be around £1700 billion and deposits to be a little less than this. It was the huge expansion of the balance sheet on both sides which was the problem (as much as UK GDP in the case of RBS), in that it held a very small percentage of reserves at the bank of England (as did all the banks). It is those reserves that banks use to settle up with each other, and only a small percentage is usually needed to make payments because banks do not expect all their creditors to arrive at once.If HBOS for example was to give me loan for £100,000, they do not check the total of their deposits, because they know that other banks will be lending as well, and £100,000 or more should come back to them if they are regarded as a "safe" bank. They should be because all accounts are underwritten by the tax payer up to £75,000 .They know they are getting loan repayments as well. The main thing is that the banking system feels confident as a whole, no one bank gets out of step with the others (so it can meet it's immediate payment obligations), and that they have good borrowers to lend to. If a bank is short of money at the end of a given day, it can borrow of others in the clearing system, which is what Northern Rock did in a big way because it was expanding it's loan book to fast relative to the other banks. Other banks, and then ordinary depositors then lost trust in Northern Rock that it would be able to meet it's obligations. In fact the tax payer had to step in to rescue several banks because there were too many bad debts, and the debt load in society and the economy had become too great. However all this lending did create money, and much of it had to be written off when those debts turned bad, including £50,000 lent to my friend (on benefits, no job, no house, and no assets) on his credit cards. I make no claims as to Mervyn King's thoughts on Quantitive Easing, merely that he agrees with our analysis that "banks do create money when they make loans". The Bank of England has created money through QE by buying gilts on the secondary market andcrediting the account holders, and by providing some cheap money through the funding for lending scheme, in the hope the commercial banks will lend it on. QE has not caused inflation because it is replacing money that is lost when existing loans are repaid, replacing money that has been written off through bad lending, and the fact that banks were creating less money in the economy because they were more cautious and lending less. The government is continually encouraging the banks to lend more, especially for business, because they know that this is how new money gets into the system, and they want to get the "feel good" factor of the boom years back. They are going for the folly again of lending huge amounts for housing, and compounding the error by getting the tax payer to underwrite a large part of this lending if it goes bad, rather than letting the price of housing fall naturally and / or increase the supply.We are not "currency cranks" as you describe it, merely describing how the system works now, and not based on wrong or out of date economics text books. The book "Where does money come from ?" published by the New Economics Foundation is based on extensive research and 100s of documents from the Bank of England and other places. The Banking 101 videos on the Positive Money site give a brief overview of it. The description of one bank on its own creating money by the act of lending is a bit simplistic, but the system as a whole does.
Could not get in as previous user Simondav, so created new account.This does not disprove the fact that banks collectively can create money when they lend. I am not sure if Metro Bank is a member of Real Time Gross Settlement (RTGS) yet. As of early 2012, 46 banks were members of this, and Metro bank may be using one of these existing members to process it's payments – in other words it might be like a peer to peer lender (for example Bank on Dave in Burnley) which do not create money. Metro Bank is probably part of the RTGS system, but it's deposits in the short term will have increased much more than other banks, because people have transferred money from the perceived "bad" banks like RBS and Barclays to a fresh, new bank with so called ethics. The above point by ALB only looks at one bank in isolation (Metro in this case), and the big banks that are in the RTGS system (have reserve accounts at the Bank of England which they use to settle immediate payments between themselves) created more than £1 trillion of new money in the ten years from 1997 by lending it into existence. I have described earlier how new lending creates new deposits elsewhere in the banking system, and a given bank needs only enough to meet immediate payments, which is very much less than it's deposits and loans. That is why it is called fractional reserve banking. Banks are now required to hold more capital as a buffer after the financial crisis, and new money (approx £350 billion) has also been created since 2008 by the Bank of England through the process known as quantitive easing, mainly to help repair the banking system after the excessive lending and debt build up in the boom years. If you wish to disagree with notable people like ex Bank of England governor Mervyn King then fine, but I would trust his insight into the workings of the system.
