Conspiracy Theory Banking and how it actually works ...

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MaddAdam

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Banks, banksters, central banks, privately owned central banks, fiat money, gold standards, manipulation of the money "supply" et al are a common theme on this board.

This is good article on some of this, could be a fitting kick off for a thread dedicated to this kind:

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. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.
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http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity
 
Smiling Buddha said:
No interest in this thread?

Most in our society waste their days and lives toiling away at meaningless tasks in exchange for money, but so few seem to care to look into what money is or how it works.

Perplexing.
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Only just found it SB.

Yes the Proles have to work to earn it , yet it part of it can be glommed of them at the stoke of a pen by TPTB creating more literally out of thin air.

I never knew until the GFC hit that there were multiple economic theories and whatever way you look at it moniterism is a ponzi. That is probably the reason that FIAT currencies have historically only had a shelf life of around 40 years before they fail.

Nixon closed the gold window in 1971 effectively defaulting on payment to France who wanted to be paid in Gold , not paper , so we are plus 40 years now.
 

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Currently reading Web of Debt by Ellen Brown.

The sleight of hand perpetrated by banking elite on the proletariat is quite astounding. I try and talk about this money creation system to the average prole on the street and all I get is glazed eyes and people trying to change the subject. It is so far over the average debt slaves head that their brains almost explode.

There was once the case of an American lawyer (whose name escapes me) who took a bank to court to fight the repossession of his house, on the basis that the bank in the loan transaction did not provide any consideration (or in laymans, bring something of value to the table). All the bank did was basically open an account in the clients name and the man then had to start paying the bank interest on "credit money" created by the bank, that never existed before the transaction occurred. From memory he actually won the case.

This quote sums up the system as it is:
"Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits"

Why are private banking institutions allowed the privilege to create this IOU money?
 
Smiling Buddha said:
And why does our 'education system' not spend one day of the thirteen years it customarily takes from a person's life informing them of these basic facts?

I used to put it down to well-meaning incompetence.

Until I wisened up.
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Exactly because the people who fund the education system and the 'curriculum' were the same that own the banking corporations and major industries (or they at least understood the game). They know that a well educated, thinking populace that can figure out that 2+2=4 are not likely to stand there and take it up the Khyber Pass like most people currently do and allow further concentration of wealth in the hands of a select few.

The reaction I get when talking about this corporatocracy in place is "well that's just the way it is". But it doesn't have to be this way, that's the whole point. We can have a system of money creation that benefits everyone, instead of the current one that only benefits a select few. Occupy Wallstreet was on the right track.

Here is the late great George Carlin to sum it up for us:

 
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Showbags said:
The sleight of hand perpetrated by banking elite on the proletariat is quite astounding. I try and talk about this money creation system to the average prole on the street and all I get is glazed eyes and people trying to change the subject. It is so far over the average debt slaves head that their brains almost explode.
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I always find people more receptive to political discussion over a quiet beer. Not drunken piss-talk mind you, but a beer or two.

Economic theory has always been the weakest string in my bow. I know of its sheer importance but I struggle a bit once I get below the superficial workings of it all. Tex_21 would be interested in this thread though.
 
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Reading the article about how physical currency is essentially an IOU;

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...
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British banknotes actually STATE their nature as IOUs at the top of the note:
_45399009_notebearer.jpg
 
Geelong_Sicko said:
Reading the article about how physical currency is essentially an IOU;



British banknotes actually STATE their nature as IOUs at the top of the note:
_45399009_notebearer.jpg
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What you are citing though is 'paper money' which makes up about 3% of most of the currency in circulation. Private Banks can't print actual physical money.

The rest of the money supply is "bank credit money" which is the other 97% of the money in circulation. This is just basically "figures on a computer screen" that people use as currency to exchange (credit cards/bank accounts etc). The governments legitimize this form of money by accepting it as payments for taxation.

When you go to the bank for a loan. Banks do not lend you the deposits of another thrifty saver . They do a double entry book keeping method of accepting the loan agreement (or your promise to pay/promissory note) as an Asset on their books, they then create a matching Liability (their promise to pay you) to offset the Asset.

Now say you borrowed the money to buy a car. You would go to the car salesman and agree to transfer the amount for the purchase of a car to his bank. No actual physical money changes hands at all, it is all just IOU's changing hands. All of this IOU money created by private banking institutions.

The only reason why the system works is because everyone continues to treat bank credit money as a viable form of currency to exchange. If everyone stopped taking out new loans and decided to withdraw their money into physical cash (which banks are required to keep a very small percentage of physical bank notes) then the system would collapse. The system needs to continually create new loans to stop the whole Ponzi scheme from coming down (why do you think governments are so intent on growth, growth, growth, and high spending/borrowing?) If all debts were paid back tomorrow, there would be a HUGE contraction of the money supply.
 
Showbags said:
The only reason why the system works is because everyone continues to treat bank credit money as a viable form of currency to exchange. If everyone stopped taking out new loans and decided to withdraw their money into physical cash (which banks are required to keep a very small percentage of physical bank notes) then the system would collapse.
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And as you probably know, it wouldn't take for all of us to withdraw our money for the system to collapse. It would only require a small fraction of us to do it, the banks are so highly leveraged. And what most people have no idea about is how close we came in 2008 after Lehman Brothers collapsed.
The man who had just been reassuring everyone there was nothing to worry about went down the street to the ATM and made a sizeable withdrawal to make sure his wife would have enough cash.

All around the country, banks were facing unusual demands for cash. Small businesses in Queensland and Western Australia were switching their deposits from regional banks to accounts with the big four banks.

An elderly woman turned up in the branch of one bank in Queensland with a suitcase and asked to withdraw her term deposits of $100,000 or more. Once filled, she took the suitcase down to the other end of the counter and asked that it be kept in the bank's safe.

A story did the rounds of the regulators about a customer who wanted to withdraw his six-figure savings. The branch manager said he did not have that quantity of cash on hand, but offered a bank cheque, which the customer accepted, apparently unaware that the cheque was no safer than the bank writing it.

It was a silent run, unnoticed by the media. Across the country, at least tens and possibly hundreds of thousands of depositors were withdrawing their funds. Left unchecked, there would soon be queues in the street with police managing crowd control, as occurred in London at the Golders Green branch of Northern Rock a year earlier.
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http://www.theaustralian.com.au/new...were-salted-away/story-e6frg6z6-1225882001496

There is plenty more info, all backed by reputable sources, in the thread linked to in my sig.

People ought to know this stuff.
 
Geelong_Sicko said:
Cheers for that, showbags. As I said, economics aint me strongpoint:p
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I've known you on SRP for several years now, and I know you know a substantial amount about AusPol.

With great respect I put to you that if you don't familiarise yourself with the economic and financial principles which underpin the 'economy', you'll never fully grasp the goings-on in Canberra.
So would alternate currencies like BitCoin be a threat to this as well?
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My opinion, as I've explained in the GD thread on this topic, is a resounding no. The underlying cryptocurrency technology could in theory be used in place of a fiat currency system within a closed community, but anybody buying bitcoins (or similar cryptocurrencies) right now as an attempt to 'safeguard' their assets is going to end up very disappointed.

This is because (a) bitcoin's value is measured entirely in fiat currency and (b) it relies on an electrical-technological platform which will likely disappear if and when the American dollar collapses.

The inherent value in any centralised currency lay in the ability and propensity of the government to enforce its value at gunpoint. The same government which is owned and largely operated by those who own and run the banks. They will never decide to use their guns to enforce the value of a currency which competes with their own, unless they stand to make a net benefit from the action. It is possible that the US government might one day issue its own cryptocurrency, but this won't be a threat to their dollar, it will merely be yet another threat to our liberties - but this is a tangential for another thread.
 

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Pretty sure the schools don't teach you the history of money nor really how it comes to be (in any depth).

Most teach inflation as being the rise of price in goods and services but in reality only really a symptom of money creation (growth )!
 
Currency depends on a collective faith in the medium of exchange, no matter what that medium is. There are no infallible currencies.

Currency has likely always been debt. The author in the OP is an anthropologist at LSE and has long argued that debt was invented by humans before actual physical currency was, and usurped the concept of barter as a means of trade quite quickly.

Please read:

http://www.nakedcapitalism.com/2011...th-economic-anthropologist-david-graeber.html
 
clogged said:
Not really. All transactions depend on implicit trust between the two parties.
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You use the term 'faith', I prefer the terms 'supply' and 'demand'.

People continue to demand fiat notes where they expect there will continue to be demand.

That demand is guaranteed by a government with guns and the propensity to use said guns.

Guaranteed because one must pay the state their taxes in the fiat notes (or digital equivalent) of the state's choosing.

Fiat notes are easy to use and to store, and they have no competition in this regard thanks to the same guys with the guns.

I think framing this reality as a matter of 'faith' reveals something of your motives in these discussions.
 
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