Where does money come from?

How the money manipulators are ruining you

Part 1

Here’s a full length documentary by Paul Grignon explaining how it’s done. It’s 40+ minutes long, but if you’re pressed for time the first 10 minutes or so will be enough to get you hot under the collar. If you’re not into video, read my summary below.

Money As Debt:

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Feel better now?

I didn’t think so,

Most people have trouble believing this stuff. Here’s a recent brief article in The Guardian lifting the corner to look at the sorry truth. Generally speaking, the news media don’t expose this outrage. Too many big players are reliant on the system to flourish and to maintain themselves in the ranks of the 1%.

The Guardian article refers to this document from the Bank of England which, surprisingly, confesses to the hidden-in-plain-sight dirty secret.

Here it is in a nutshell

Central banks introduce new money into an economy by purchasing financial assets or lending money to financial institutions. Here’s the important—and unbelievable—bit, over-simplified but basically correct:

The new money is multiplied by commercial banks through “fractional reserve banking”. They are allowed to expand the amount of cash plus demand deposits in the economy so that it is a multiple of the amount originally created by the central bank. i.e. They can lend far more than they borrow from you and the government. So they get to make truckloads of interest from free money and you’re the one paying. Not only that, but in most countries they arrange their affairs in crafty ways in order to avoid paying as much tax as you do.

In days of yore that multiplier was about a factor of 10. So, if a bank had assets of $10 million it could lend $100 million. That control, and a requirement for borrowers to have a substantial amount of their own cash meant that if a property bubble burst there was a good likelihood of the backing asset still being worth more than the bank’s investment. Unfortunately, the money manipulators weren’t satisfied with being made rich by leveraging money they didn’t own, they wanted more. In the USA the highly respected Allan Greenspan, persuaded the Clinton administration to allow the banks to lend far more than their deposits warranted.

That relaxation of already generous rules is a big part of the current mess.

We ended up with financial institutions lending 95 – 100% of the value of the mortgaged asset (sometimes 105% and more) and using multipliers of 100 or more. Many informed people sounded the warning but they were scorned, fired, unheeded, and/or mocked. We’re still not listening to them. To compound this criminally reckless behaviour, they knowingly lent this money to people who didn’t have the wherewithal to pay it back. Then they bundled up those crippled loans into toxic assets and sold them on to other institutions ad infinitum.

It all fell apart at the seams, various governments bailed the bastards out and now they’re expecting you, the 99%, to pay the piper. No wonder ordinary people are demanding a pound of flesh on the streets of Athens, Lisbon, New York and Damascus.

Surely this doesn’t happen in little old New Zealand? We’re the good guys!

Sure does. Here’s a document describing the sorry truth: The Reserve Bank, private sector banks and the creation of money and credit . Here’s an extract:

Here in New Zealand

“A private sector institution can also create money by issuing claims on itself …… For that matter, any institution that can maintain the public’s confidence that its liabilities will be generally accepted as means of payment, can create money. …… In practice, by far the largest share of money – 80 percent or more, depending on the measure ….. is created by private sector institutions.”

OK, what should the regulators have done?

Instead of giving truckloads of money to the bastards who created the problem and who have gone on to ever greater heights of rorting the system, the money should have gone to the people who owed the money. It should have gone to all taxpayers: to the mortgage holders to write off some of their debt and to those without debt to squirrel away in their bank accounts. It’s a little more complicated than that, and we’ll look at how it could be done in a future post.

If you want to know more about it do a search for “Steve Keen”. He’s one of the few economists who accurately predicted the current mess. Paul Krugman is another. Krugman and Keen disagree on a lot of the detail but they both have a better idea of reality than the idiots presently in charge.