Mungo's monetary musings.

[Fletch]

Bankers have done a good job of creating money (2014)

Radical proposals to give sole responsibility to governments for credit and money creation - “100 per cent reserve banking” - are very dangerous

https://www.telegraph.co.uk/finance/new ... money.html

Very dangerous for bankers. For the rest it is beneficial as the following demonstrates.

IMF's epic plan to conjure away debt and dethrone bankers (2012)

So there is a magic wand after all. A revolutionary paper by the International Monetary Fund claims that one could eliminate the net public debt of the US at a stroke, and by implication do the same for Britain, Germany, Italy, or Japan.

One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.

The conjuring trick is to replace our system of private bank-created money -- roughly 97pc of the money supply -- with state-created money. We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.

Specifically, it means an assault on "fractional reserve banking". If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.

The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.

Some readers may already have seen the IMF study, by Jaromir Benes and Michael Kumhof, which came out in August and has begun to acquire a cult following around the world.

https://www.telegraph.co.uk/finance/com ... nkers.html

IMF Working Paper

The Chicago Plan Revisited
Jaromir Benes and Michael Kumhof

http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

Conclusion starts on page 55. It turned out more favourable than expected.

How does that paper change the view of the way in which the sovreign bank manages the money supply?

Expand on what you mean by that please.

[Guest]

It's obvious from Fletches posts, why he is lonely

[Guest]

That's it?
Well I guess you are another one who knows nothing
Just shooting your mouth off

No-one who has actually achieved anything in life would constantly blow smoke up their own arse on a public forum - your ego is your tell, Mungo. Good trolling regardless though - I am a sincere admirer of your work.

Is this why you're constantly on forums then AZ?

[Fletch]

That's got nothing to do with the system of money. You keep on about this as if it's what I am talking about, it's not. The very first time I detailed what I was talking about I said I'm talking about the system not the economics used within the system forced upon us. Why do you think what you're asking is reverent to how and where money comes from and the enslavement that system causes?

Of couse it has
It goes to the very heart of banking
"Banks are risk engines"
Financial Management in Banking Chapter 1; Page 1 Line 1

The way banks trade in financial markets is not relevant to the fractional reserve system they use or where and how money comes in to existence.

The primary issue regarding the economics is that no country can operate like a household budget. Debt is required for there to be money circulating the economy. That's because money is created out of thin air (on a computer) when a loan is made then extinguished when it's repaid. To get that money back in circulation, another debt (loan) has to be taken out.


The problem and risks banks pose to the world is due to the very nature of fractional reserve banking. The multiplying deposits to create new money as debt. Nothing is backed, it's all gambling.

------

You may be objecting at this point: but why does anybody have to be in debt? Why can’t everybody just balance their budgets? Governments, households, corporations … Everyone lives within their means and nobody ends up owing anything. Why can’t we just do that?

Well there’s an answer to that too: then there wouldn’t be any money. This is another thing everybody knows but no one really wants to talk about. Money is debt. Banknotes are just so many circulating IOUs. (If you don’t believe me, look at any banknote in your pocket. It says: “I promise to pay the bearer on demand the sum of five pounds.” See? It’s an IOU.) Pounds are either circulating government debt, or they’re created by banks by making loans. That’s where money comes from. Obviously if nobody took out any loans at all, there wouldn’t be any money. The economy would collapse.

https://www.theguardian.com/commentisfr ... ry-surplus

[MungoBrush]

That's got nothing to do with the system of money. You keep on about this as if it's what I am talking about, it's not. The very first time I detailed what I was talking about I said I'm talking about the system not the economics used within the system forced upon us. Why do you think what you're asking is reverent to how and where money comes from and the enslavement that system causes?

Of couse it has
It goes to the very heart of banking
"Banks are risk engines"
Financial Management in Banking Chapter 1; Page 1 Line 1

The way banks trade in financial markets is not relevant to the fractional reserve system they use or where and how money comes in to existence.

Of course it is.
Every asset that is in the Banks portfolio carries risk
And it is that level of risk that determines the appropriate level of Capital Adequacy reserve
In the old days, a blanket risk level was applied to all financial institutions across all their portfolios
With Basel II of course, banks could vary the risk levels that they had apetite for, and the capital reserve determined accordingly
So institutions whose portfolios carried higher risks were required to carry higher levels of risk capital (and the reverse of course)

This is the core of what you have referrred to as the Fractional Reserve.

[Fletch]

That's got nothing to do with the system of money. You keep on about this as if it's what I am talking about, it's not. The very first time I detailed what I was talking about I said I'm talking about the system not the economics used within the system forced upon us. Why do you think what you're asking is reverent to how and where money comes from and the enslavement that system causes?

Of couse it has
It goes to the very heart of banking
"Banks are risk engines"
Financial Management in Banking Chapter 1; Page 1 Line 1

The way banks trade in financial markets is not relevant to the fractional reserve system they use or where and how money comes in to existence.

Of course it is.
Every asset that is in the Banks portfolio carries risk
And it is that level of risk that determines the appropriate level of Capital Adequacy reserve
In the old days, a blanket risk level was applied to all financial institutions across all their portfolios
With Basel II of course, banks could vary the risk levels that they had apetite for, and the capital reserve determined accordingly
So institutions whose portfolios carried higher risks were required to carry higher levels of risk capital (and the reverse of course)

This is the core of what you have referrred to as the Fractional Reserve.

I'm talking about the basic system of banking, not trading in financial markets. That is what governs countries, and holds them to ransom, and is why the notion of 'living within your means' as a country's economic policy is impossible.

You seem hung up on regulation to try and stop banks gambling too much and losing rather than the actual system that enables that to happen.

[MungoBrush]

That's got nothing to do with the system of money. You keep on about this as if it's what I am talking about, it's not. The very first time I detailed what I was talking about I said I'm talking about the system not the economics used within the system forced upon us. Why do you think what you're asking is reverent to how and where money comes from and the enslavement that system causes?

Of couse it has
It goes to the very heart of banking
"Banks are risk engines"
Financial Management in Banking Chapter 1; Page 1 Line 1

The way banks trade in financial markets is not relevant to the fractional reserve system they use or where and how money comes in to existence.

Of course it is.
Every asset that is in the Banks portfolio carries risk
And it is that level of risk that determines the appropriate level of Capital Adequacy reserve
In the old days, a blanket risk level was applied to all financial institutions across all their portfolios
With Basel II of course, banks could vary the risk levels that they had apetite for, and the capital reserve determined accordingly
So institutions whose portfolios carried higher risks were required to carry higher levels of risk capital (and the reverse of course)

This is the core of what you have referrred to as the Fractional Reserve.

I'm talking about the basic system of banking, not trading in financial markets. That is what governs countries, and holds them to ransom, and is why the notion of 'living within your means' as a country's economic policy is impossible.

You seem hung up on regulation to try and stop banks gambling too much and losing rather than the actual system that enables that to happen.

I'm not talking about trading systems either
Just the basic level of banking

Banks accept deposits on which they may have to pay interest
Banks can lend some of that money to customers
But not the whole lot
They have to keep in reserve a % to cover liquidity risk
They collect interest (and fees) on money they lend

So if they have say £1,000 in deposits, they can only lend up to £880 in loans leaving £120 for their capital reserve.
That reserve is pre-determined by the regulatory authorities and has to be reported to them on a daily basis (in some countries, more frequently)

[Rolluplostinspace]

The truth is out: money is just an IOU, and the banks are rolling in it

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning".

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct.

To get a sense of how radical the Bank's new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don't suffice, private banks can seek to borrow more from the central bank.
What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" … "In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money 'multiplied up' into more loans and deposits."
In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They wi>>>>>>>>>>>>>>> https://www.theguardian.com/commentisfr ... -austerity

[Lady Murasaki]

Copying and pasting reams of text from obscure websites doesn’t help your cause.

[MungoBrush]

IMF Working Paper

The Chicago Plan Revisited
Jaromir Benes and Michael Kumhof

http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

Conclusion starts on page 55. It turned out more favourable than expected.

That paper is about monetary policy in the 1930's when the western world moved away from the Gold Standard
Britain in 1931 and the USA in 1933

Is anyone suggesting that we revert to the gold standard?

[Fletch]

I'm not talking about trading systems either
Just the basic level of banking

Banks accept deposits on which they may have to pay interest
Banks can lend some of that money to customers
But not the whole lot
They have to keep in reserve a % to cover liquidity risk
They collect interest (and fees) on money they lend

So if they have say £1,000 in deposits, they can only lend up to £880 in loans leaving £120 for their capital reserve.
That reserve is pre-determined by the regulatory authorities and has to be reported to them on a daily basis (in some countries, more frequently)

Money creation in the modern economy

By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

This article explains how the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

http://www.bankofengland.co.uk/publicat ... b14q1.aspx

Which takes us right back to my very first comment in another thread which kicked this off:

The referendum was not along party lines and nor was the campaigning.

Mungo seems to know as much about that as he does the system of money and fractional reserve banking.

[Guest]

I'm not talking about trading systems either
Just the basic level of banking

Banks accept deposits on which they may have to pay interest
Banks can lend some of that money to customers
But not the whole lot
They have to keep in reserve a % to cover liquidity risk
They collect interest (and fees) on money they lend

So if they have say £1,000 in deposits, they can only lend up to £880 in loans leaving £120 for their capital reserve.
That reserve is pre-determined by the regulatory authorities and has to be reported to them on a daily basis (in some countries, more frequently)

Money creation in the modern economy

By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

This article explains how the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

http://www.bankofengland.co.uk/publicat ... b14q1.aspx

Which takes us right back to my very first comment in another thread which kicked this off:

The referendum was not along party lines and nor was the campaigning.

Mungo seems to know as much about that as he does the system of money and fractional reserve banking.

Mungo is a Tory voter. Does that explain things?

[Fletch]

Copying and pasting reams of text from obscure websites doesn’t help your cause.

Best stick to the shallow end then.

[MungoBrush]

Which takes us right back to my very first comment in another thread which kicked this off:

No it doesn't.
That paper confirms everything that I have been posting
Did you actually read it?

"Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system. Prudential regulation also acts as a constraint on banks’ activities in order to maintain the resilience of the financial system."

[Gigabit]

Mungo aren't you anti banking regulation?