Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
“Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.”
Wolf highlights the fact that the ability of banks to create money requires governments and taxpayers to underwrite the banking system:
“Banking is therefore not a normal market activity, because it provides two linked public goods: money and the payments network. On one side of banks’ balance sheets lie risky assets; on the other lie liabilities the public thinks safe. This is why central banks act as lenders of last resort and governments provide deposit insurance and equity injections. It is also why banking is heavily regulated. Yet credit cycles are still hugely destabilising.”
“What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. … A maximum response would be to give the state a monopoly on money creation.”
Yeah Money should be banned. There shouldn’t be any, right, right..
No one said that Daryl. Did you read and understand the article / comments? Do you understand how money is created in our banking system? If not, I think it’s worth educating yourself.
I have a book written by the Federal Reserve Bank of Chicago describing money creation. I am not in favor of limiting bank’s abilities to create money in the least. I’d be in favor of me becoming capable of creating Money virtually out of thin air like they do, however.
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
Yea, good luck with all that. It is true few people understand the money supply. If people really understood it, they likely would not approve. From a certain point of view, its ingenious. From another point of view, its a form of slavery. From all points of view, its design flaw is that it will crash every so often. The smarty people can predict when this will happen and make out like the bandits they are when it does.
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
Money, especially fiat money of the type we have today is simply a private contract between the lender (depositor) and the borrower...(bank). Previously in history banks had the ability to issue their own currency. There is no inherent advantage to giving the State the sole power to create money. Especially when it is not tethered to a recognized natural store of value like gold.
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
Money, especially fiat money of the type we have today is simply a private contract between the lender (depositor) and the borrower...(bank). Previously in history banks had the ability to issue their own currency. There is no inherent advantage to giving the State the sole power to create money. Especially when it is not tethered to a recognized natural store of value like gold.
True. There is no inherent advantage of allowing anyone or any entity to print money not tied to a natural store of value. That is the problem.
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
Money, especially fiat money of the type we have today is simply a private contract between the lender (depositor) and the borrower...(bank). Previously in history banks had the ability to issue their own currency. There is no inherent advantage to giving the State the sole power to create money. Especially when it is not tethered to a recognized natural store of value like gold.
True. There is no inherent advantage of allowing anyone or any entity to print money not tied to a natural store of value. That is the problem.
Unless I misunderstand the system (entirely possible and maybe even probable), our supply is backed to labor, which is far from being nothing. You say "natural store", which implies matter, such as gold or oil or whatever. Labor is tangible however, you just cant touch and feel it the way you can with matter. The bet is that the people will continue to rise every day and go to work, which we will, so long as we are poor enough. But that last bit is really the kicker isn't it. In order for the system to continue to function, the people must never become wealthy enough to start taking too many days off, at least not on a macro scale. I see this as more of a moral question than anything else, but quite a large one that obviously is going to affect all sorts of decisions about all sorts of other things too.
Its the interest charged that makes the whole thing crash every so often. I agree they are charging interest on something they never owned or possessed. Of course there will be some sort of cost associated with actually printing the money, which ought to come off the top from the front end in my opinion. Charging interest is a deliberate design, where the design is periodic systemic failure. Like I said, those in the know can predict these events, go to cash right before it happens and buy up the devalued assets right after the crash. Its similar to insider trading, except with currency and much harder to prove anyone did anything illegal, which they likely did not.
Crypto currencies are interesting, but I don't trust them either, as they are also not backed by anything other than faith. The other part that worries me, is that banks appear to love the idea of crypto technology and are working hard to design their own. The only thing banks don't like about crypto are the currencies they don't control.
None of us want to return to trading the actual goods, so currency is here to stay. Keeping the corruption out of the supply has always and will always continue to be a tough challenge. Greed is a powerful thing.
@Jon Q. do you think the loans on your SFRs in Austin are risky.. I would bet you would think they are not. dual source of repayment.. you and the tenant..
the risk in money comes when the fed's require banks to make loans to those that do not qualify under normal circumstances.. the CRA really hammered banks and lenders..
It is an argument against fractional reserve banking (FRB). People who support this argument also support eliminating the Federal Reserve and/or using the gold standard. They all link together. The basic premise is that the money supply should be fixed and no agency should be able to manipulate the money supply.
They ignore the 100% failure rate for these system. Every gold standard has failed and/or was eliminated. For all the risks that FRB and manipulation of the money supply has, and it has risks, they pale in comparison to the risks of a fixed money supply. In the real world, FRB won. If full reserve/fixed money systems worked they would be prevalent.
@Jon Q. do you think the loans on your SFRs in Austin are risky.. I would bet you would think they are not. dual source of repayment.. you and the tenant..
the risk in money comes when the fed's require banks to make loans to those that do not qualify under normal circumstances.. the CRA really hammered banks and lenders..
Yes, even the loans I have on properties in Austin are a source of risk. Though I feel it would be very unlikely that this market would be significantly impacted if the U.S. were to go into a long recession, it could happen. And I assume it WILL happen when I’m negotiating my purchase price, loan terms etc. I prepare and protect against the works case scanario. The rest is upside.
If the market does plung into recession, I’m confident that the properties I own in the markets I do will perform better than most and therefore I’ll have staying power.
All loans involve risk, so I select debt products and terms that I feel minimize my risk and are commensurate with the return i think I’ll be able to generate.
I have fixed low interest, 30 year debt on all my SFR properties. They are all in stable neighborhoods composed of primary owner/occupiers in markets with strong 30 year population + job growth forecasts.
Sources of risk come from a variety of sources, starting with (1) the market, (2) the property and location, (3) price you pay, (4) management strategy, (5) rental rate you set, (6) rehab budget, (7) service provided to your tenants and how strict you are with them, (8) your ability to attract and retain high quality brokers, leasing agents, inspectors, handyman/contractors/agents, etc, etc., (9) level of investment experience you have, (10) familiarity of the market, etc.
As an investor, one of my primary responsibilities is risk management... my ability to fully understand all of the risks that I am taking and put processes/structures in place to minimize or control these risks.
And if you are a successful risk manager, i have found that in REI you are able to mitigate the downside and generate returns that ARE NOT commensurate with the risks you are taking and do so by providing a triple win to your investors, your tenants, and yourself!
This is one of the reasons that I love real estate investing. As compared to stock investing, there are many more variables that you are able to control.
@Jon Q. do you think the loans on your SFRs in Austin are risky.. I would bet you would think they are not. dual source of repayment.. you and the tenant..
the risk in money comes when the fed's require banks to make loans to those that do not qualify under normal circumstances.. the CRA really hammered banks and lenders..
Feds didn’t require it. Securitizers/bankers/lenders greed and everyone down the chain is what caused money to be lent to those who shouldn’t have been able to qualify otherwise.
Then, as always, none of these people went to prison. They American people paid for it.
As I understanding it, the reserve requirement for large banks is still just 3%. Why are banks allowed to retain just 3%/borrow 97% when the average business or American looking to borrow funds is unable to borrow more than 80%. That is ludicrous and unsafe.
And the entire banking system and structure is continuing to reward risky behavior. Not much has change since 2007.
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
Money, especially fiat money of the type we have today is simply a private contract between the lender (depositor) and the borrower...(bank). Previously in history banks had the ability to issue their own currency. There is no inherent advantage to giving the State the sole power to create money. Especially when it is not tethered to a recognized natural store of value like gold.
True. There is no inherent advantage of allowing anyone or any entity to print money not tied to a natural store of value. That is the problem.
Unless I misunderstand the system (entirely possible and maybe even probable), our supply is backed to labor, which is far from being nothing. You say "natural store", which implies matter, such as gold or oil or whatever. Labor is tangible however, you just cant touch and feel it the way you can with matter. The bet is that the people will continue to rise every day and go to work, which we will, so long as we are poor enough. But that last bit is really the kicker isn't it. In order for the system to continue to function, the people must never become wealthy enough to start taking too many days off, at least not on a macro scale. I see this as more of a moral question than anything else, but quite a large one that obviously is going to affect all sorts of decisions about all sorts of other things too.
Its the interest charged that makes the whole thing crash every so often. I agree they are charging interest on something they never owned or possessed. Of course there will be some sort of cost associated with actually printing the money, which ought to come off the top from the front end in my opinion. Charging interest is a deliberate design, where the design is periodic systemic failure. Like I said, those in the know can predict these events, go to cash right before it happens and buy up the devalued assets right after the crash. Its similar to insider trading, except with currency and much harder to prove anyone did anything illegal, which they likely did not.
Crypto currencies are interesting, but I don't trust them either, as they are also not backed by anything other than faith. The other part that worries me, is that banks appear to love the idea of crypto technology and are working hard to design their own. The only thing banks don't like about crypto are the currencies they don't control.
None of us want to return to trading the actual goods, so currency is here to stay. Keeping the corruption out of the supply has always and will always continue to be a tough challenge. Greed is a powerful thing.
True! It reminds me of George Carlin piece. Check it out:
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
Money, especially fiat money of the type we have today is simply a private contract between the lender (depositor) and the borrower...(bank). Previously in history banks had the ability to issue their own currency. There is no inherent advantage to giving the State the sole power to create money. Especially when it is not tethered to a recognized natural store of value like gold.
True. There is no inherent advantage of allowing anyone or any entity to print money not tied to a natural store of value. That is the problem.
Unless I misunderstand the system (entirely possible and maybe even probable), our supply is backed to labor, which is far from being nothing. You say "natural store", which implies matter, such as gold or oil or whatever. Labor is tangible however, you just cant touch and feel it the way you can with matter. The bet is that the people will continue to rise every day and go to work, which we will, so long as we are poor enough. But that last bit is really the kicker isn't it. In order for the system to continue to function, the people must never become wealthy enough to start taking too many days off, at least not on a macro scale. I see this as more of a moral question than anything else, but quite a large one that obviously is going to affect all sorts of decisions about all sorts of other things too.
Its the interest charged that makes the whole thing crash every so often. I agree they are charging interest on something they never owned or possessed. Of course there will be some sort of cost associated with actually printing the money, which ought to come off the top from the front end in my opinion. Charging interest is a deliberate design, where the design is periodic systemic failure. Like I said, those in the know can predict these events, go to cash right before it happens and buy up the devalued assets right after the crash. Its similar to insider trading, except with currency and much harder to prove anyone did anything illegal, which they likely did not.
Crypto currencies are interesting, but I don't trust them either, as they are also not backed by anything other than faith. The other part that worries me, is that banks appear to love the idea of crypto technology and are working hard to design their own. The only thing banks don't like about crypto are the currencies they don't control.
None of us want to return to trading the actual goods, so currency is here to stay. Keeping the corruption out of the supply has always and will always continue to be a tough challenge. Greed is a powerful thing.
Guess what?
The fiat USD in your pocket not backed by anything other than faith and trust in your banking system.
And they’ve gone nearly worthless a few times in U.S. history.
So, after 2007, do you still trust your banking system?
There’s a reason that the the growth of crypto currency occurred after the recession. The reason is because American citizens faith in bankers and our banking system is dwindling. If that continues to happen, and if oil producers switch to crypto or yuan, USD will crash.
I have a book written by the Federal Reserve Bank of Chicago describing money creation. I am not in favor of limiting bank’s abilities to create money in the least. I’d be in favor of me becoming capable of creating Money virtually out of thin air like they do, however.
Become a banker or launch an ICO my friend. But before you do that, build a strong reputation and trust... because you will not succeed without it. All banking systems rely on trust and without it, they collapse.
Trust that your money is in the bank even though it IS NOT.
If just 5% of depositors demanded their money, banks will fail.
Our banking system is based on this illusion:
Banks absolutely rely on your mistaken belief that they are holding your money and it is safe...even though THEY ARE NOT. 97% of it is being loaned out to others to create interest (new money creation).
The U.S. banking system is absolutely depending on keeping America workers unaware of how the system works, uneducated, poor (working paycheck to paycheck), and uninformed. If any of these things change the system would fail.
Our entire banking system relies on the mistaken belief and your trust that your money is in the bank even though it IS NOT.
@Jon Q. no I don't think it was the only thing but it did not help .. it forced banks to make loans in areas that were finanacially unstable to begin with.. ergo guess were all our BP brothers are sisters are buying rental homes ..
@Jon Q. back in the day I actually got a million dollar line of credit in one of those areas and the bank specifically did it because we were doing business in an area they could then book as CRA without the inherent credit risk normally associated with it.. and I paid it all back and all the interest LOL
@Jon Q. back in the day I actually got a million dollar line of credit in one of those areas and the bank specifically did it because we were doing business in an area they could then book as CRA without the inherent credit risk normally associated with it.. and I paid it all back and all the interest LOL
Sounds like a program doomed for failure. Incentivizing investors to invest in high risk areas without having to bear the risk actually involved. Instead the U.S. public bears the risk? Nuts!
This is an argument against fractional reserve banking. The solution to the problem proposed simply moves toward more centralization of power to the State. The beauty of our current Federal Reserve system is that it generally decentralizes the decisions on money creation and risk. The Fed acts as the regulator and sets the broad policy goals with low inflation and full employment as the guiding principles. But it frees the individual decisions about short term credit and reserves to the market, which is infinitely more efficient than some junta of central bankers answerable to the State. ;-)
So, why is the power to create money given to banks that charge interest on money lent that isn’t theirs? And what do you think about money being created with no underlying value?
As others remarked, this banking system will eventually collapse. It has done so in the past several times.
Money, especially fiat money of the type we have today is simply a private contract between the lender (depositor) and the borrower...(bank). Previously in history banks had the ability to issue their own currency. There is no inherent advantage to giving the State the sole power to create money. Especially when it is not tethered to a recognized natural store of value like gold.
True. There is no inherent advantage of allowing anyone or any entity to print money not tied to a natural store of value. That is the problem.
There's no such thing as a "natural store of value". Anything on this earth - and beyond it - is only worth what people agree that it is worth. Just because gold has had a (relatively) long history of staying power, mostly through European/Middle Eastern society, doesn't mean that it is inherently any more or less valuable than a flimsy piece of rag with pictures printed on it. Yes, there are issues of concern with fractional reserve, but that doesn't mean there *aren't* concerns with central standard. Central standard can be anything. You might make a reasonable argument, if you were going to issue currency based on standard, that that standard should be a resource that can be depleted and/or renewed, such that the circulation of fiat at any time was dependent upon the health of that resource.
There was a Twilight Zone episode where these guys rob a bank and horde gold bars, and manage to take a sleeping gas and wake up 100 years later to spend their booty. They all end up dead, and Guy from the Future that stumbles upon the last one wonders why the last guy thought a gold bar was worth a drink of water, since scientists had figured out how to create it from nothing, making it worthless.
Anyway, it's an interesting conversation, but fractional reserve has created the greatest amount of dispersed wealth in the history of the planet. Bring back a standard - any standard - and you'd obliterate most of the poor and middle class.
