Sound of the Suburbs
6 hours ago
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How do banks really work?
That’s a hard one.
Global policymakers don’t even know.
Every effort has gone into hiding what is going on in the banking system.
This hasn’t been doing global policymakers any favours
Even the basic things you take for granted aren't what they seem.
Banks don’t take deposits; you are lending them the money to do as they please. This is
why they can do bail-ins; it isn’t your money once it goes into the bank. (This is your
problem)
Banks are not lending you money; they are purchasing a security off you with money
they create out of nothing. This is the loan agreement.
This is how things are seen in the eyes of the law.
This is how it really is.
Our knowledge of banking has been going backwards since 1856.
Credit creation theory -> fractional reserve theory -> financial intermediation theory
“A lost century in economics: Three theories of banking and the conclusive evidence”
Richard A. Werner
http://www.sciencedirect.com/science/article/pii/S1057521915001477
Richard Werner was the first person in the 5,000 year history of banking to
produce an empirical study proving banks create money.
This got central banks to start revealing the truth in 2014.
https://www.bankofengland.co.uk/-/media/boe/files/quarterlybulletin/2014/money-creation-in-the-modern-economy.pdf
Understanding the mechanics of the monetary system isn’t easy as there are no
books on the subject, as I discovered after 2008.
I eventually found one book that wasn’t widely available at the time.
“Where does money come from?”
This introduced me to Richard Werner, who has been looking into this since the
Japanese financial crisis of 1991.
The neoliberals have been making the same mistakes globally for forty years.
This has been the ideal opportunity to find out how the banking system really works;
despite their best efforts at hiding the truth and a few on the fringes have cracked it.
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Sound of the Suburbs
6 hours ago
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What have global policymakers been getting wrong?
Let’s have a look.
Sustainable growth.
So easy to say, but so hard for global policymakers to achieve.
Private banks create the money supply.
https://www.bankofengland.co.uk/-/media/boe/files/quarterlybulletin/2014/money-creation-in-the-modern-economy.pdf
Money and debt come into existence together and disappear together like matter and
anti-matter.
Bank loans create money and debt repayments to banks destroy money.
Bank loans create 97% of the money supply
What confuses global policymakers so much?
The banks create the money first, and then they have to get it back again.
Global policymakers don’t notice the claim on future spending power piling up in the
banking system.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiF
gZYldtoCR-R&index=6
Global policymakers used an unsuitable, debt fuelled growth model that had no
long term future.
It’s now reached the end of the line in China too.
They use the money creation of bank credit to drive the economy, but have no idea how
the capitalist system actually works.
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Sound of the Suburbs
6 hours ago
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“Tell us how it works” global policymakers.
Hiding how banks work hasn’t done them any favours.
Where the idea banks are financial intermediaries came from is anyone’s guess, but this
is what policymakers were lead to believe.
The Holy Trinity of Economics.
Wealth, money and debt.
How do the basic elements of the system fit together?
Wealth, money and debt.
It’s all got very confused.
GDP measures the new goods and services being produced in the economy every
year.
This is where the real wealth in the economy lies.
Private banks create the money supply.
https://www.bankofengland.co.uk/-/media/boe/files/quarterlybulletin/2014/money-creation-in-the-modern-economy.pdf
Money and debt come into existence together and disappear together like matter and
anti-matter.
Bank loans create money and debt repayments to banks destroy money.
Bank loans create 97% of the money supply
The money supply should grow with the economy, i.e. GDP.
More goods and services in the economy require more money in the economy.
It’s a debt based monetary system.
You want the debt to stay at a level where it will not adversely affect the economy.
You want GDP, the money supply and debt to grow together so the economy is not held
back by the debt contained within it.
How do you achieve this?
The idea is that banks lend into business and industry to increase the productive
capacity of the economy.
Business and industry don’t have to wait until they have the money to expand. They can
borrow the money, and use it to expand today, and then pay that money back in the
future.
The economy can then grow more rapidly than it would without banks.
Debt grows with GDP and there are no problems
The banks create money and use it to create real wealth
Real wealth creation takes place in the real economy.
The illusory gains of finance rely on you not looking at the claims on future spending
power piling up in the banking system. (This is what catches global policymakers out)
When the banking system is not full of volatile financial assets you can achieve financial
stability.
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Sound of the Suburbs
6 hours ago
(Edited)
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I see.
No one knows what wealth is.
Yes, that’s another part of the problem.
I got there the hard way.
Join me on the road to enlightenment.
Financial crises are the keys to unlock the secrets of the monetary system.
The Japanese financial crisis in 1991 was a very significant key.
Richard Werner realised banks must create money, and this had allowed Japanese real
estate valuations to rise to stratospheric levels.
He eventually produced empirical evidence that banks do create money and this got the
central banks to start revealing the truth in 2014.
https://www.bankofengland.co.uk/-/media/boe/files/quarterlybulletin/2014/money-creation-in-the-modern-economy.pdf
If banks create money out of nothing, which they do, what is wealth?
Eventually I realised this is what we measure with GDP.
They obviously went through this after they used neoclassical economics last
time.
It’s a lot easier second time around.
With some firm foundations in economic reality, I was away.
Understanding the relationship between wealth and money is the first step in
understanding any monetary system.
In no time at all I understood the debt based monetary system where private banks
create the money supply and could see where global policymakers had been going
wrong.
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Sound of the Suburbs
6 hours ago
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Why do they corrupt everything?
It’s silly really.
They’ve ended up confusing themselves.
Old muggins here has had to sort out the mess.