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Originally Posted by Tchocky
If everyone got into a car accident on the same day then insurance companies would collapse.
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But if a meteor hits Earth, they would not need to care.
Serious, you get the very same reply by me that you have already gotten from me some weeks ago on the same issue. I just edited the typos out of it, and changed a phrase here and there.
Quote:
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Originally Posted by Skybird
When you have a person going to the bank and paying in 1000 bucks, and the bank is allowed to hold only one tenth of that in real reserves, and pay out the other 9/10 as new credit, then you create more money, new money, from nothing. Which devalues the money in circulation. Which essentially is inflation. Because: the bank gives that money as a credit to a new debtor, who uses it to invest into something, do usual bank deals, and pays at least major parts of it to other banks - who again hand out most of that money to other debtors, because it must hold only one tenth of that sum as reserve.
If you do not see that as an essential and vital problem, then nothing will ever make you waking up: Somebody paid 1000 bucks to bank as credit, and the bank uses that to increase the amount of money in existence - WITHOUT THAT NEW ADDITIONAL MONEY REPRESENTING ANY NEWLY CREATED MATERIAL VALUE. And the ratio is intimidating:
After the first paying-in (forgive my probably inapt English here, I am not familiar with precise business English and the German terminology probably would not help here) by a customer of let'S say 1000 bucks, the bank can hand out nine tenths of that money to other customers, as new credit, because it must hold only a fractional reserve. That would be new money worth 900 bucks. Comparing assets and liabilities, the amount of money in circulation (digitally or paper, it does not matter), has grown by 900 bucks.
But it does not end here. The debtor of the bank who has taken those 900 bucks as a credit, uses it to mind his businesses and in the end the money ends on banking accounts of other banks, employees he paid, bills he paid, and so forth. These banks again can use this money they got to just keep one tenth in reserve, and hand out nine tenths of it again. From 900 bucks, the bank hands out 810 bucks, and only keeps 90 bucks in reserve. Adding together the increase in money from the first (900) and second (810) iteration of this game, the original, materialistically value-covered 1000 bucks, have grown to a total of 2710 bucks. But only 1000 bucks of that sum is real value. The remaining 1710 bucks are - "uncovered", value-less. They are FIAT indeed. 1000 bucks have been blown up to 2710 bucks. And that devaluation of money. And we have had just two iterations here! In reality, things do not stop here.
So now go to the next iteration, and do your math.
I do not think you know what fractional reserve banking really means in its desastrous consequences, since you ignore all its destructive implications that some wiser men have warned of already 50, 70 years ago, and earlier. And the basis of these men'S thinking already has been laid out decades before them. What you know is the colour of sand when the head sticks deep in it. One should rememeber that none of the established economic schools was able to warn in time of the fiscal disaster becoming apparent in 2007, and that none of these schools has forseen and predicted correctly the general trend of the erosion of the currency and economy from the 1970s on - none except one, the so-called "Austrians". And not only did modern Austrians almost completely rang the alarm bells before 2007, but earlier Austrians predicted these developments already in the 1930s and 40s - and explained clear and straight why these developments would be unavoidable. It seems that is more competence and healthy reason and insight into human psychology, than any of the recent years' and decades' Nobel prize winners in economics can show up with. The only Austrian ever given the Nobel, was Hayek - and to minimize that recognition for highly unpopular, reasonable concepts at the same time and to give politics an alibi for why to ignore him after that like they ignored him before the Nobel,, he had to share it with another guy, a socialist, who represented exactly the opposite in thinking and argument than Hayek, and supported insane spending frenzies and money devaluation.
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In 2009, Germany was close to a bank run, and Merkel had to tell a now famous lie: that the state would guarantee all private savings on bank accounts, of all people in Germany. That there simply is not sufficient "money"to allow the paying out of all savers who want their "value" back from the bank that just a tiny fraction of savings could be payed back to their former owner, she did not say. Savers do not know the contexts and backgrounds, and believed it. The mioeny was left were it was. Cold progression in 2013 costed German private citizens 53 billions of their total savings, money that was stolen from them intentionally by and deliberately by the state, by implementing according policies via the ECB.
And it does not stop there.
What we see with in this precious paper money and fractional reserve system today - in reality simply is the biggest predatory raid in the history of mankind. In its dimension, it is without precedence in human history.
And what is all that paper money, in the end? Only a very tiny fraction of it still represents a material value. The lions share of it, the overwhelmingly biggest share of it: is debts, Value that is not there. Is nothing. And this tiny remains of real value, gets constantly eroded further. By printing more money.
Brilliant.
At the same time, due to the Cantillon effect, real property and value gets constantly transferred from the bottom to the top of the communal hierarchy. Here is where Penguin and me maybe would meet and share the same opinion in our criticism (saying that by the image I have of him). In a nutshell, the Cantillon effect means that new printed money that gets injected into the system, gets injected at the top of the banking industry. The first hands using it have a price advantage in using it to buy stuff, becasue when there now is more money, that money ciruclating is devalued accordingly, and prices will adapt by rising. But that takes time, and in the beginning, the first hands can buy with devalued money - but for the old prices. The next hands using that money, already have to deal with slightly adapted prices, and ther third hands will deal with a market where prices have adapted even more. And so the effect tickels through the hierarchic pyramide, from top to bottom. When the new money reaches the level of the ordinary man in the street, prices have adapte din full, and Jiohn Smith has slightly more money, but also has to pay for higher prices, nullifying the effect for private consummation. At the top of the pyrmade however, real material welath and püroperty has been added to the already existing ones, for the firts buyers were able to avoid the effects of rising prices and thus for some time had more buying power than by the monbey'S value they indeed had. It is a time-limited money cheat, so to speak. It erxplains why all these fincial stimulus programs to stimulate porivate consumeerism by injecting newly printed money into the system, have so little and most of the time no lasting effects.