Where did all the money go.

MungBean

zenno wrote: »

This is the truth... Thrive..

The ECB isnt privately owned though is it ? So if you were to draw up a pyramid similar to whats in the video you'd find the member states themselves at the top controlling the Central bank wouldnt you ?

Making a circular flow of money through the system in order to create growth right ? All well and good to say banks control money so whoever owns the banks are gonna get rich but they provide a service like anything else. That service is allowing access to credit that wouldnt otherwise be available to people and promoting growth in an economy and with it rising standards of living.

davoxx

MungBean wrote: »

The ECB isnt privately owned though is it ? So if you were to draw up a pyramid similar to whats in the video you'd find the member states themselves at the top controlling the Central bank wouldnt you ?

Making a circular flow of money through the system in order to create growth right ? All well and good to say banks control money so whoever owns the banks are gonna get rich but they provide a service like anything else. That service is allowing access to credit that wouldnt otherwise be available to people and promoting growth in an economy and with it rising standards of living.

i thought it was, in a sense ...

from wiki ...

Although the ECB is governed by European law directly and thus not by corporate law applying to private law companies, its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital.

and a linky
http://endtheecb.ning.com/forum/topics/behind-the-private-central

MungBean

davoxx wrote: »

i thought it was, in a sense ...

from wiki ...


and a linky
http://endtheecb.ning.com/forum/topics/behind-the-private-central

The shareholders are the central banks of the member states though which I assume are not private but state owned ?

So although its set-up resembles that of a corporation it is not nessessarily privatly owned as the shareholders are the member states right ?

recedite

Good loser wrote: »

You don't appear to have learned anything from the thread. Your mind is closed to reason.

You take Scofflaw's farmer and speculate that he used his money to build two houses for €1m which increased to €2m and are now worth €1m.
This trite example then supports your theory ......
For the fairies!

I won't bore people with a neverending tit for tat exchange of comments. But in a way, the patronising nature of your posts, combined with their lack of substance, is an apt metaphor of "the bankers" and their attitude towards the public. This idea that we should all roll over and do as we are told.

Now, if you recall the original example

Scofflaw wrote: »

Farmer A and Developer B did well. But - and I don't think this is unrealistic - Farmer A used his €1m to build a really fancy house on his land plus another house for his daughter, which together are now worth only €400k........
Bizarre, right? Everyone has lost out.

You will note that I didn't "speculate" that the €1m was used to build 2 houses. It was stated in the example.
Also note my contribution; I pointed out that the finished house value would have been at least twice the construction costs. Even allowing for a 50% reduction in house prices subsequently, the farmer still has his €1m asset.

Scofflaw

recedite wrote: »

Scofflaw was trying to make out that the farmer in his example lost €600,000 and I pointed out that;


You are confusing the issue again by differentiating between money and wealth.
You're saying the farmer spent the money on 2 luxury houses. Ergo, the money is gone. If the money is gone, then he has gained nothing.
But this is false logic. Money is simply credit, and the farmer converted his credit into bricks and mortar.

But not as much in bricks and mortar value as there was originally money in the system, because the valuation of bricks and mortar has changed dramatically.

Also note my contribution; I pointed out that the finished house value would have been at least twice the construction costs. Even allowing for a 50% reduction in house prices subsequently, the farmer still has his €1m asset.

Which he almost certainly cannot now sell. The property hasn't really, therefore, much in the way of asset value in the present market - it has only utility value. In the long term, of course, it may well recover somewhat in value - the argument behind NAMA.

cordially,
Scofflaw

recedite

Scofflaw wrote: »

But not as much in bricks and mortar value as there was originally money in the system, because the valuation of bricks and mortar has changed dramatically.

The only money in the system backed up by assets or collateral was the €1 million (the bank held onto the deeds of the land), and I showed you where it ended up. All other money was conjured up out of thin air by the banks, using the fractional reserve scam. The sole purpose of this scam is to earn extra interest for the banks. But its a risky strategy, because there is no real asset to act as collateral; nothing at all backing up the extra credit or money being issued. Just trust. And trust can be betrayed very easily, especially by a limited company, when the owner can default and not be personally liable for anything.
So in the end, the banks are collecting the interest payments on the fictional money, but the taxpayer indemnifying the banks is carrying all the risk.
We would all be better off in a system where the State issued the money directly, and either collected the interest on loans and mortgages for itself, or waived most of it, thus ensuring a plentiful supply of cheap credit for all viable businesses out there.

Which he almost certainly cannot now sell. The property hasn't really, therefore, much in the way of asset value in the present market

Every house will sell at the market price, which is defined as the highest price a buyer will pay. In a rising market there are always some people reluctant to pay that price, and in a falling market there are sellers reluctant to accept it. But there are never any houses that "just won't sell".

323

recedite wrote: »

The only money in the system backed up by assets or collateral was the €1 million (the bank held onto the deeds of the land), and I showed you where it ended up. All other money was conjured up out of thin air by the banks, using the fractional reserve scam. The sole purpose of this scam is to earn extra interest for the banks. But its a risky strategy, because there is no real asset to act as collateral; nothing at all backing up the extra credit or money being issued. Just trust. And trust can be betrayed very easily, especially by a limited company, when the owner can default and not be personally liable for anything.
So in the end, the banks are collecting the interest payments on the fictional money, but the taxpayer indemnifying the banks is carrying all the risk.
We would all be better off in a system where the State issued the money directly, and either collected the interest on loans and mortgages for itself, or waived most of it, thus ensuring a plentiful supply of cheap credit for all viable businesses out there.

More or less the same answer I was given by a friend who'd spent his life in the financial industry in New York, when I asked the same question as the OP.

He just used the term synthetic securities for these non existing assets that all the financial industry was merrily passing around.

Scofflaw

recedite wrote: »

The only money in the system backed up by assets or collateral was the €1 million (the bank held onto the deeds of the land), and I showed you where it ended up. All other money was conjured up out of thin air by the banks, using the fractional reserve scam. The sole purpose of this scam is to earn extra interest for the banks. But its a risky strategy, because there is no real asset to act as collateral; nothing at all backing up the extra credit or money being issued. Just trust. And trust can be betrayed very easily, especially by a limited company, when the owner can default and not be personally liable for anything.
So in the end, the banks are collecting the interest payments on the fictional money, but the taxpayer indemnifying the banks is carrying all the risk.
We would all be better off in a system where the State issued the money directly, and either collected the interest on loans and mortgages for itself, or waived most of it, thus ensuring a plentiful supply of cheap credit for all viable businesses out there.


Every house will sell at the market price, which is defined as the highest price a buyer will pay. In a rising market there are always some people reluctant to pay that price, and in a falling market there are sellers reluctant to accept it. But there are never any houses that "just won't sell".

Ah..."fractional reserve scam". Ah well.

wearily,
Scofflaw

recedite

^^^ The classic exit strategy, employed when an argument collapses.
The enigmatic rolleyes, followed by a quick exit, stage left.

Scofflaw

recedite wrote: »

^^^ The classic exit strategy, employed when an argument collapses.
The enigmatic rolleyes, followed by a quick exit, stage left.

Not really, but when it becomes clear that someone you're discussing economics with has a deep level ideological position, the outcome becomes more or less immediately predictable. The discussion can, of course, continue, but it does mean that you're likely to bend everything round to fit your pre-conceived notions - and I don't discuss economics in order to win, as such, so it's much less interesting. Describing something like fractional reserve banking as a 'scam' suggests that you've pre-picked your villain - in that sense, it's similar to the use of "fiat money" as an indicator of bias.

But what with one thing and another, I'm hardly likely not to be around...

cordially,
Scofflaw

recedite

Interesting to see how all this affects the Euro debt crisis.
The Germans, Dutch and Finns would like to see people paying off their debts before getting issued with more credit.

The PIGGs favour monetisation of their debts, ie the printing of more money/credit, leading to inflation, which in turn dilutes the value of said credit already issued. The small amount of assets which were backing up the original credit, gradually start to match the nominal amount of the loans, as the asset price increases.

Either way amounts to a de-leveraging of debt; the reverse of fractional reserve lending.
In the first method, only the debtors pay, but in the second method, everybody in the system pays.

So Jurgen Stark resurfaces in Dublin today, harping on about the importance of price stability, and the ECB's central function to keep inflation below 2%, as opposed to using it to just conjure up more "money".

davoxx

xkcd explains it all ...

http://xkcd.com/980/