Why do both parents have to work nowadays?

armabelle

KomradeBishop wrote: »

Most economists would be of the opinion, that banks don't create money out of thin air as you say

No but they actually do

armabelle

esforum wrote: »

How do they keep these trillions off the books and wouldnt pumping that much into an economy cause massive inflation?

it does... that is exactly the point. Housing is so expensive (inflated) because of that. According to the first video in this thread housing is between 50% and 100% more expensive than in 1970

armabelle

yqtwqxqm wrote: »

But she says shes much happier now. In fact you can tell just from visiting them, the whole family are much happier than they were.

yes that is because it is normal... a society that has both parents working the whole time is just wrong IMO. Take away all the modernity of our times, we are still mamals

armabelle

KomradeBishop wrote: »

I don't know what the video was referring to, didn't watch it, I was commenting just on the specific part of the post that touched on money creation.

Ok so since you seem informed and knowledgeable about these matters, please will you give us a primer on money creation... I would appreciate that since I desperately don't want to believe the 1hr documentary posted above as it would mean that the world is a dark and scary place for us all

dubrov

Look up the wiki page on fractional reserve banking. It will give you a better idea as to how the monetary system works

ezra_pound

armabelle wrote: »

it does... that is exactly the point. Housing is so expensive (inflated) because of that. According to the first video in this thread housing is between 50% and 100% more expensive than in 1970

The ECB target an interest rate of 2% inflation. It can regulate the amount of money creation in the commercial banking system and believe you me, if there was the slightest risk of inflation surpassing its targets there would be major clampdowns on the banking system.

So... Regardless of any conspiracy theorisation going on in this site the fact remains that money creation is at a level which is resultant in extremely low inflation.

Of more significance is the reluctance of banks in this country in this decade - that is in the here and now- to actually lend money. They're not doing enough of it in general. They're certainly not creating a credit bubble and even more certainly not creating money at levels which the ECB disapprove. Furthermore the Irish CB are placing reasonably strict controls on mortgage lending.

armabelle

ezra_pound wrote: »

The ECB target an interest rate of 2% inflation. It can regulate the amount of money creation in the commercial banking system and believe you me, if there was the slightest risk of inflation surpassing its targets there would be major clampdowns on the banking system.

But housing in Ireland goes up at least 2% every week and has done for the last year.

KomradeBishop

armabelle wrote: »

Ok so since you seem informed and knowledgeable about these matters, please will you give us a primer on money creation... I would appreciate that since I desperately don't want to believe the 1hr documentary posted above as it would mean that the world is a dark and scary place for us all

TLDR - yes, banks create money from nothing - but a more detailed explanation:

Explaining the whole line of money creation through the banking system, and the limits on it, is tricky enough, but the very basics of it are pretty simple - banks use 'double entry bookkeeping' for their accounting, where they list Assets (deposits, money in peoples accounts) and Liabilities (peoples debt) - all Assets have to be matched by Liabilities (so that Assets - Liabilities = 0).

Page 3 here gives a better visualization, but e.g. when somebody takes out a loan of €100, the bank just notes this in their accounting balance sheets (*):
Assets|Liabilities||Sum||Money Created
+€100|-€100||€0||+€100

That's pretty much how money is created - someone at the bank just types in on a computer, +€100 Assets and -€100 liabilities - money is created from thin air.


Rest below is skippable - skip if bored

However, there are restrictions on this - after giving out a loan, banks have to make sure they can meet reserve requirements, and capital requirements - in practice, they can never fail to meet reserve requirements, because the central bank will always act as 'lender of last resort' to help them meet reserve limits - and capital requirements don't really present much of a limit, because a loan on a mortgage is backed by the capital of the house bought.

There are other restrictions on lending too - such as limiting lending to being 3.5x of a persons income - but pre-crisis, such restrictions were either non-existant, too lax, or simply not enforced - which is what led to the housing boom.

When excessive loans/credit are easy to obtain, in a relatively unrestricted lending environment like there was pre-crisis, then this mean there is much more money that can be made available for buying houses - which can quickly bid-up the price of houses citywide or even throughout the country, forcing everybody who wants to buy a house, to either go without (rent), or go into excessive debt to buy one.

This has also created a long-lasting legacy of Private Debt in the economy - which is very destructive, holding back recovery - and you can see how rises in house-prices/private-debt are linked (first chart only goes back so far):




* Simplified. This article explains the whole chain better, but it's complicated. Liabilities listed as minus, so the row sums up more easily.

KomradeBishop

dubrov wrote: »

Look up the wiki page on fractional reserve banking. It will give you a better idea as to how the monetary system works

Fractional reserve isn't actually how it works in the end - both links above (here and here), explain it well.

KomradeBishop

armabelle wrote: »

But housing in Ireland goes up at least 2% every week and has done for the last year.

Ya but the reasons are different now - there aren't enough houses being built now, and government is very sluggish about building social housing (in fact, some private developers are even taking the government to court at an EU level, to try and block some efforts at building social housing, on competition grounds!).

Victor

esforum wrote: »

So what? They get it regardless so its a non runner in this regard.

In the context of the tax system taking about €9,000 off someone, it is incredibly important.

armabelle wrote: »

it does... that is exactly the point. Housing is so expensive (inflated) because of that. According to the first video in this thread housing is between 50% and 100% more expensive than in 1970

But the interest rates are 3% instead of 15%, so for the vast majority of people things are balanced out.

Carlos Orange

armabelle wrote: »

But housing in Ireland goes up at least 2% every week and has done for the last year.

Who says housing goes up 2% a week?

KomradeBishop

Victor wrote: »

In the context of the tax system taking about €9,000 off someone, it is incredibly important.

But the interest rates are 3% instead of 15%, so for the vast majority of people things are balanced out.

Well, when the interest rate was 15%, inflation was also really high - here are the real inflation-adjusted interest rates:


If you average that out over a long time, considering we're talking about decades-long mortgages, then (after some back of the envelope estimates) the drop in compounded interest costs don't make up for the increased cost of houses now - things haven't really balanced out, they've gone way out of balance.

Wanderer78

armabelle, apologies but im a little busy at the moment to respond to some of your posts but KomradeBishop is doing a fantastic job of explaining whats going on with our banking system, better than i would anyway.

id recommend this irish documentary on our boom and bust. it came recommended to me by stephen kinsella himself(hes in it), and does a great job of explaining the whole thing.

i really would recommend ellen browns work on money creation. her main book is called web of debt.

best of luck with researching this subject matter. its great to see people doing it.

KomradeBishop, can you recommend others i should be researching regarding these subject matters? ive looked into ellen brown, bill black, ha-joon chang and michael hudson so far. thank you

KomradeBishop

Wanderer78 wrote: »

armabelle, apologies but im a little busy at the moment to respond to some of your posts but KomradeBishop is doing a fantastic job of explaining whats going on with our banking system, better than i would anyway.

id recommend this irish documentary on our boom and bust. it came recommended to me by stephen kinsella himself(hes in it), and does a great job of explaining the whole thing.

https://www.youtube.com/watch?v=ZSeJITHmDWQ&list=PLT6_eR0Q7wYr3hM7buPNP1YILVvY3Vhjf

i really would recommend ellen browns work on money creation. her main book is called web of debt.

best of luck with researching this subject matter. its great to see people doing it.

KomradeBishop, can you recommend others i should be researching regarding these subject matters? ive looked into ellen brown, bill black, ha-joon chang and michael hudson so far. thank you

Steve Keen (an article of his linked above) has provided the best analysis of the economic crisis that I've seen (he predicted, modelled and warned about the crisis long in advance of it happening), where he emphasised the role of Private Debt (very relevant to homeowners and how dual incomes have been eaten up) as being the most important element and predictor of the crisis (you can see the link in the graphs I post above).

He has a full explanation of the entire cycle of economic crisis, based on Minsky's Debt Deflation explanations of economic crisis - as well as many ideas of how to recover from crisis, with a 'debt jubilee' being one of the more original ideas I've seen - good intro post, plus his blog in general:
http://www.debtdeflation.com/blogs/manifesto/

He is Post-Keynesian, which Bill Black and Michael Hudson are also as well, Stephen Kinsella even identifies as PK too.

I sourced pretty much every one of these people originally, from the Naked Capitalism site - it's the best hub for economic info I know of.

esforum

armabelle wrote: »

it does... that is exactly the point. Housing is so expensive (inflated) because of that. According to the first video in this thread housing is between 50% and 100% more expensive than in 1970

I dont think you can introduce that much funding into an economy and only effect a specific area.

I also dont see how the banking sector making up funds would suddenly result in more people being able to buy higher priced housing but not effect wages and goods pricing either directly of via inflation

andrew

Please keep the thread on topic - that is, about changes to household income - as opposed to about how banks do, or do not, create money. Any posts about the latter are off topic, have generally not been of the standard expected on this forum, and from here on out will be deleted

armabelle

esforum wrote: »

I dont think you can introduce that much funding into an economy and only effect a specific area.

That is exactly what happened in Ireland in 2007 though. THat is why people called it the "property boom"

armabelle

KomradeBishop wrote: »

Steve Keen (an article of his linked above) has provided the best analysis of the economic crisis that I've seen (he predicted, modelled and warned about the crisis long in advance of it happening), where he emphasised the role of Private Debt (very relevant to homeowners and how dual incomes have been eaten up) as being the most important element and predictor of the crisis (you can see the link in the graphs I post above).

He has a full explanation of the entire cycle of economic crisis, based on Minsky's Debt Deflation explanations of economic crisis - as well as many ideas of how to recover from crisis, with a 'debt jubilee' being one of the more original ideas I've seen - good intro post, plus his blog in general:
http://www.debtdeflation.com/blogs/manifesto/

He is Post-Keynesian, which Bill Black and Michael Hudson are also as well, Stephen Kinsella even identifies as PK too.

I sourced pretty much every one of these people originally, from the Naked Capitalism site - it's the best hub for economic info I know of.

Thanks, will check him out

Wanderer78

might interest some round here, live interview with ellen brown:

http://amm.streamon.fm/

ezra_pound

armabelle wrote: »

Yes that is a good point but banks haven't always created money this way have they? Before, money was worth its weight in gold and even in the late 20th century wasn't there a fractional reserve banking system in most 1st world countries? From what I understand, now we don't have that system in place and the amount of speculation is huge... much bigger than before which, if I am not mistaken, is what led to the crisis didn't it?

I also want to add that even if the banking system had not changed since the 60s (an era in which many households had one parent working), debt as a result of the banking system and money creation by the banks has quite substantially. I found data that says in the 60's in the USA the total debt was $5 trillion dollars.... in 2006 it was $45 trillion. So with so much debt, could that be why nowadays both parents have to work?

Of course there's a relationship between debt levels and aggregate income, because bank lending levels are partly gaged by capacity to repay. So credit levels are partly a function of numbers of workers x average income.

This doesn't address causality however. One could equally ask :
With all these families with both parents working, is that the reason why there is so much debt?

armabelle

ezra_pound wrote: »

This doesn't address causality however. One could equally ask :
With all these families with both parents working, is that the reason why there is so much debt?

I don't follow you here. Are you suggesting that because both parents work they will want to put themselves more into debt?

andrew

Please don't question mod instructions on thread. If you have an issue with a mod decision, a PM is the way to go

OttoPilot

armabelle wrote: »

I don't follow you here. Are you suggesting that because both parents work they will want to put themselves more into debt?

If people can borrow more, for a bigger house, a nicer car etc, are you saying they won't?

ezra_pound

armabelle wrote: »

I don't follow you here. Are you suggesting that because both parents work they will want to put themselves more into debt?

That is precisely what I am suggesting.

armabelle

ezra_pound wrote: »

That is precisely what I am suggesting.

Why should there be more debt just because both parents are working, I can't understand you here. Please explain.

armabelle

OttoPilot wrote: »

If people can borrow more, for a bigger house, a nicer car etc, are you saying they won't?

Depends...most people might but my point is that maybe they shouldn't have to borrow so much that both parents will have to put themselves in debt to be able to pay it off. It seems clear to me that income relative to housing which is between 50% - 100% more expensive (adjusted for inflation) is the cause of this. But why is it that way? This is what I am still unclear about. The theory that the banks are responsible is very good one but I am not closed minded about other explanations

KomradeBishop

armabelle wrote: »

Depends...most people might but my point is that maybe they shouldn't have to borrow so much that both parents will have to put themselves in debt to be able to pay it off. It seems clear to me that income relative to housing which is between 50% - 100% more expensive (adjusted for inflation) is the cause of this. But why is it that way? This is what I am still unclear about. The theory that the banks are responsible is very good one but I am not closed minded about other explanations

Well it's a mix of responsibilities - homeowners for taking out the debt, banks for recklessly lending and in some cases ignoring regulations, policymakers/regulators for inadequate regulations and lack of enforcement of existing regulations, banking/financial/developer industry for pursuing a speculative property boom (driving up housing prices and living costs, forcing people into more debt if they want to own a home rather than rent in a dysfunctional rental market).

The link to remember is that the more credit/debt that is easily available, the higher house prices will be driven up - and the greater house prices and mortgage repayments will eat into peoples lifetime income.

CelticRambler

armabelle wrote: »

Depends...most people might but my point is that maybe they shouldn't have to borrow so much that both parents will have to put themselves in debt to be able to pay it off. It seems clear to me that income relative to housing which is between 50% - 100% more expensive (adjusted for inflation) is the cause of this. But why is it that way? This is what I am still unclear about. The theory that the banks are responsible is very good one but I am not closed minded about other explanations

I'm one of the few who doesn't blame the banks/bankers for the crash of 2008 (but neither would I have bailed them out). When I went for a mortgage, the bank offered me 3 times my salary as a single guy for a 90% LTV; I did my own calculations and opted for 2 times. When the girl who would become MrsCR applied for a mortgage, the bank offered her a 100% mortgage based on 3 times her salary, including all her benefits in kind. She took it and lost everything.

People will spend beyond their means, and there are plenty of marketing departments out there urging us to continue doing so. In most countries, housing has become a consumer product like any other, with people "upgrading" far more frequently now than they used to, and if they've got two incomes and can draw on that to buy a bigger/better/newer house, they do. Savings are put on hold for short-term advantage.

Unfortunately, these are the same people who vote for politicians, who promise them exactly what they need to get the votes. Remember the fuss when the central bank decided to impose a LTV cap? Imagine the uproar if they said mortgages had to be based on one salary alone, and all other household debt had to be assigned to that same salary?

regi3457

CelticRambler wrote: »

People will spend beyond their means, and there are plenty of marketing departments out there urging us to continue doing so.

Yes, this is because the economy works on perpetual debt...no debt = no growth.

I don't feel people are responsible at all. How can the average person on the street know what is reckless lending? They don't. They expect the banks and the financial regulations to be reliable.

I do agree that living below your means is always best but if people were that smart, the whole economy would collapse...as I said before. The debt is what they need and the promise to repay is what people give and this drives the economy.