1) incomplete statement - When the bank creates new money (its liability to you) it does so because it agreed a loan contract with you (its asset).
The consequences of this are wide ranging, but relevant to this thread, it means a bank does not get richer when creating money, it gets richer when you pay interest in excess of its costs of providing you with money. Although the bank created the loan money from nothing, it still ends up with significant costs to provide that money, for example through capitalisation regulations on the asset.
Another relevant consequence of this is that a bank is not incentivised to have a huge balance sheet - which it would have if it only made loans. Instead these loans made are securitised and removed from the bank’s assets. This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
> it gets richer when you pay interest in excess of its costs of providing you with money.
Apart from the costs of running the bank, any other costs are simply what I would call money laundering (i.e. smoke and mirrors - as I mentioned, we can argue over who exactly receives what proportion of the money, but it doesn't escape the facts that the population is paying interest on trillions and trillions that were created out of thin air by a select few).
> This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
The key words here are "...whoever bought the loan". So someone has paid the bank money (I assume relatively equal to the outstanding balance of the loan) for money (the loan) that the bank printed effortlessly. This is simply more money laundering.
The costs of running the bank include the costs of administering the loans, the cost of the bank paying interest on reserves it needs to borrow and the costs of defaults. No "money laundering" is involved.
Banks are going to earn money on the margin between the rate they can lend at and the rate they need to pay to secure reserves regardless of monetary system. The alternative without Fed access is the population paying much more interest plus random bank busts, and this doesn't seem to be an obvious improvement to anyone except the superrich earning much more interest on the money they can offer long term loans on.
There is no real cost of defaults.
The money that wasn't paid back was created out of thin air with no effort from the bank.
Money laundering is taking ill-gotten gains and processing them to make them look legitimate. This is exactly what the central banking system, in partnership with the government, does.
However much you try to justify what they are doing you can't deny that the banking system is charging interest on every unit of currency in existence and they created them all for essentially free.
People absolutely should pay more interest - the free-market rate. It's absolutely wrong that people who get into debt are rewarded for doing so, at the cost of people who don't, who have the value of their savings, wages and pensions stolen.
It's a vicious cycle - lower than free-market interest rates force people to have to borrow money. Look at what it has done to prices of houses relative to wages over the last 50 years. It's reached the point that many people are now forced to take on 35, even 50 year mortgages, just to buy a very modest home.
I'm going to be honest, if you put half as much effort into learning the very, very basics of how the system worked as you did into campaigning against it by furiously incorrecting everyone in this thread, you'd probably feel a bit embarrassed to be posting stuff like "there's no real cost of defaults" .
The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
If you're still struggling to believe there's no real cost of defaults to banks, I invite you to look up bank insolvencies. Perhaps someone could make a wtfhappenedin2007 website.
I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded! For the record, what you're actually advocating for with higher "free-market" interest rates is that poor people pay rich people more over the course of 25 years than they currently do over 35 or even 50 years to secure a house, which is less likely to appreciate in value. US home ownership rates were down at 40% before governments got involved in the mortgage market. It's impossible to pretend that anyone benefits from such a system other than people who are much, much richer than average home buyers.
> The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
I think the confusion is down to the fact that I'm looking at the central banking system as a whole, rather than individual banks. You're not looking at the bigger picture.
The point I'm making is that when the loan is made, fresh money is handed to the debtor, at no cost to the banking system (they simply change some electronic digits) and so if it isn't repaid, the banking system is no worse off than it was before. This is something you're blind to. Sometimes it's difficult to see the wood for the trees.
This is the fundamental problem with Keynesian economics as we know it - for all the talk of elasticity of money, human nature determines that the elasticity only goes one way - expansion. The system is incentivised to keep increasing total debt (because of interest payments on money it doesn't really own) and because it doesn't have to work for the money it lends out, it can hold interest rates below the free-market rate, ensuring it has a monopoly on the money lending..
>I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded!
The two are not contradictory.
They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
You're not "looking at the bigger picture", you're just unambiguously and spectacularly wrong.
The banking system is composed of banks, and being insolvent is bad for a bank, for a bank that is owed money by an insolvent bank, and for banks which are owed money by banks which are owed money by insolvent banks, for banks that aren't owed money by banks, and ultimately, for consumers that are owed currency. The fact the bank "freshly created" the IOU doesn't mean they don't owe anyone anything. Perhaps someone really does need to make the wfthappenedin2007 website.
Someone with no understanding of how things works might say "but if it's true that banks can print all the money they like, can't the bank and its creditors just print themselves whole again", but that isn't because they've come up with some great economic insight that has thus far eluded everyone except a few random bloggers, it's because they have no understanding of how things work and what bank credit is (the hint is in the name, it's a debt, not an asset). Delinquent loans are removed as assets from banks' balance sheets, the liabilities they owe to other banks or the Fed remain, and that bank actually needs an external injection of non-"printed" money to make them whole again. Incidentally, this is no different to a "hard money" system, except that "hard money" systems don't have the systemic capacity to meet short term withdrawal rates for solvent banks in the event of a bank run either.
And no, the elasticity of the money supply goes both ways. USD M2 went down last year, for example. Again, this isn't a very difficult fact to establish if you're not really, really determined to be wrong.
Nor is it difficult to establish that there is nothing more inherently "market based" about a state arbitrarily tying its money supply to a particular commodity than a state deciding to to tie its money to the amount of lending generated by credit markets at a particular rate.
> The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
As I've seen time and time again from pepple with views like yours, you simply can't see the wood for the trees.
Fact 1: The amount of dollars is continuously increasing, at a rate of ~100% per decade. The amount which it has dropped in the last 2 years is tiny - that you use this as a counter is a simply ridiculous.
https://fred.stlouisfed.org/series/M2SL
Fact 2: The money is created effortlessly.
Fact 3: The banking system is collecting interest on every single dollar in existence.
Assuming 3% average interest, and $100 trillion total, that interest would amount to ~$3,000,000,000,000 per year or * ~15% of the total GDP of the USA*. I'd love to hear your justification for how this is value for money.
It's absolute theft through deception.
> It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
Yes, "saving" is storing your earnings for use later. This is entirely sensible and natural. Most people who are not aware of hard money are forced to either
a) lend their life savings to the stock market for essentially free (7% returns only make up for the 7% devaluation due to money printing).
b) take a house off the market and rent it out to a tenant who is unable to buy due the monetisation of real estate, only making it even harder for the next person to buy.
The only reason this whole scam continues is because the general population has no idea of the rate at which the banking system is stealing value from their money. And people like you only exacerbate the problem.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford
Ultimately digital hard money doesn't care about your Keynesian pseudo-science. Just like the law of gravity and the law of nature, Thier's and Gresham's Laws will prevail and shut the whole central banking scam down.
I assume by "people with views like yours" you mean people who haven't formed their impression of how the financial system works from solely from lists of falsely-attributed pithy quotes
Learning how stuff actually works doesn't mean you can't see woods, but it does save the embarrassment of claiming that the banking system is no worse off if debts aren't repaid. I mean, I've encountered some pretty wild takes on the 2007 financial crisis before, but I've never encountered anyone that thinks it didn't happen!
It also means you can say stuff like "Fact 4: "printing" dollars and bearing the risk of non-repayment of loans represents a cost to banks", and come to the conclusion that seems to give them a pretty good reason to be able to charge interest. And also to suggest that if you think current interest rates aren't "value for money" you should probably rethink your calls for them to go up!
The irony of shilling for "digital hard money" - i.e an ever increasing range of entirely synthetic assets entirely printed in the last 15 years whose demand is driven partly by counterfeit dollars and partly on people borrowing to speculate on other-newly printed entirely synthetic assets... after complaining about expansionary dynamics in M2 (which unlike "digital hard money" sometimes has a downslope) is just chefs kiss.
Once again you're entirely missing the bigger picture. Bank interest rates aren't paying for money - they're just paying for the banking system. The banking system doesn't provide money - it just provides credit, backed by more of their credit, which is all just worthless digits in their database.
I would happily pay higher interest rates on real money, money the banking system can't just magic out of thin air. What a scam it is.
By "people with views like yours", I'm referring to those who are educated in finance, but
a) have sadly been indoctrinated with Keynesian nonsense
Bless, you're still feigning superior understanding.
Hint: if you want to insist that it's other people who "don't understand what money is", it helps for you not to flip from "fresh money is handed to the debtor" to "the banking system doesn't provide money" in mid-argument. And nope, even eliding definitions of money doesn't salvage an argument as hopelessly ignorant as "if it isn't repaid, the banking system is no worse off than before".
(For the record I understand the theory that a "sound" monetary system is ideally based on quantities of a durable commodity of naturally limited supply perfectly well, just like I understand other terrible nineteenth century theories like the idea that value is ideally based on a fixed quantity of labour. Judging by your utterance of the phrase "digital hard money" to refer to digits in a distributed database created out of thin air, I'm not so sure you actually do.)
Ugh, you know, I think what I hate most about the market fundies is that their perception of what interest rates would be is absolutely untethered from any semblance of empirical reality. Like, sure, it would be fucking nice if the long-run equilibrium rate were anywhere near where they think it would be, but believing r* is close to what it was back in the 70s is a bit like believing you can will the economy into having higher productivity growth through the magic power of wishful thinking. But nooo, it's definitely not having enough free market that's the problem, we should just finish what Reagan started, certainly the union busting had no contributions to the declining labour share at all.
It would be funny if it wasn't fucking terrifying.
The consequences of this are wide ranging, but relevant to this thread, it means a bank does not get richer when creating money, it gets richer when you pay interest in excess of its costs of providing you with money. Although the bank created the loan money from nothing, it still ends up with significant costs to provide that money, for example through capitalisation regulations on the asset.
Another relevant consequence of this is that a bank is not incentivised to have a huge balance sheet - which it would have if it only made loans. Instead these loans made are securitised and removed from the bank’s assets. This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.