How much of banking is necessary, how much parasitic?
It seems to me that at the heart of the current situation is the fact that the banking sector (especially the investment banking /Wall Street part) is simply too big relative to the rest of the economic spectrum, but that the banks are refusing to recognise this and to accept necessary change. Everything is being done to prop up the large banks, but if those in power were truly acting for the good of society they would be finding ways to dramatically shrink them.
Given what is now more generally known about the casino type activities the banks have been engaging in, I would guess that the overwhelming majority of their business could be termed parasitic, i.e. feeding off society and not contributing to its well-being.
But this is just a guess. I have no facts or figures to base this on.
Does anybody have any hard information on this – on how much of banking is useful to society and how much is parasitic?
I’m wondering if and when anything becomes too big, say businesses, government, or banking system, is it most likely to falter or fail?
I’m also wondering if there have been reports about any correlation of big business (or money & gov.) and economic/political destructiveness….???
How to regulate the creation of money. That’s the magic question. I have a degree in economics, and am guilty of not thinking through the implications of a debt based money supply until I saw the CC. I live in Minnesota and have watched with great interest and actually read the bills regarding the funding of transportation projects with money we create without debt. Here’s the thing I struggle with:
1. Debt based money creation will always eventually end with an exponentially increasing money supply- wrecking things. It is also incredibly vulnerable to corruption and manipulation, and if you think about it- it is an awkward way to inject money into a system.
2. Another option would be that money gets spent into the system by government agencies- created without debt. I assume that we wouldn’t need to support them with heavy taxation then. Problems with this include tendency for bureaucracies to bloat themselves beyond their useful size- which would happen during times of economic growth when more money in the system is needed. It would collapse government at times of contraction- creating a wholey unreliable entity. The multiplier effect would be a hundred times smaller than debt based money creation, requiring enormous amounts of government spending to inject the required money in to the system- which seems like a recipe for disaster.
3. Money based on a stable commodity. Again- it doesn’t grow and contract well at the global scale in practical ways. With peak everything coming soon- and deflation / inflation it is likely that most commodities will cease to be stable. Personally I use gold in my portfolio, but realistically I don’t see it as being a universal solution.
4. Local currencies- I like this idea, but like it or not we live in a globally connected economy. Without global trade, TSHTF. Catherine Austin Fitts seemed to be the most organized proponent of this with well prepared explanations. Her site is: http://solari.com/
I’m left feeling as if we are stuck. Global currencies will always need to be debt based to keep up with the demand at a global scale. Local currencies provide stability where it matters most, but don’t scale well to global trade. I think realistically it would be best to have both, but we seem to have invested so much in our national dollar based currency that anyone wanting to deviate from it is unpatriotic or some kind of criminal. I’m trying to stay local as much as possible. The more and stronger your local relationships are, the easier it is to ‘make mutually beneficial arrangements’.
As to the question above- if banks were in the business of making loans *as a business* instead of as a front to increase the money supply, then they would serve a good and legitimate function. But as money supply spigots, they aren’t exactly parasites, they are simply the tool used to get money into circulation.
My $.02 for what its worth.
Before the Civil War, the Southern Democratic party of Thomas Jefferson & Andrew Jackson were believers in hard money – gold & silver. Banking was outlawed in some states. They were too against the gov’t running a deficit / having debt. If you are on a gold standard you only need banks to warehouse your gold. Of course, they too make loans or enable you to carry paper gold notes that you can trade instead of gold coins. But it was these paper notes that enabled banks to create more notes than there were gold… creating a fractional reserve system.
Food for thought.
I personally think that Wall-Street has too much control over the US gov’t finances. Tim Geithner… was the head of the NY Fed. Henry Paulson… was the head of Goldman Sachs and had a huge portfolio of their stocks in trust while head of the Treasury. In most of history, the Federal Reserve and Treasury have had strong ties to JP Morgan or Rockerfeller or both. Always. The money powers take care of themselves before the serfs. Why do you think these banks are being bailed out? The gov’t could have easily let them all go bankrupt, threw out all the corrupt bankers and just let FDIC insure all the deposit holdings of all the citizens. But instead, the gov’t destroys the US dollar – but first – funneling the last bit of utility of the dollar through the hands of their banker buddies.
Why should any nation become indebted to banks when they have the power to issue money and to control their monetary policies separate from any bank? Nations do not have to incur private debt – it is an unnecessary parasitic load. Instead of issuing bonds, the United States may issue dollars without debt to any private bank.
We are at a pivotal moment – as Lord Acton said: "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."
[quote=firefly]It seems to me that at the heart of the current situation is the fact that the banking sector (especially the investment banking /Wall Street part) is simply too big relative to the rest of the economic spectrum, but that the banks are refusing to recognise this and to accept necessary change. Everything is being done to prop up the large banks, but if those in power were truly acting for the good of society they would be finding ways to dramatically shrink them.[/quote]
Close, but the real heart of the situation is the Fed, debt-based money, and the huge commercial banks around the Fed (Citi, JPM, BoA…). The investment banks are relatively small in comparison…and actually they don’t exist anymore standalone.
Bigness isn’t the problem as much as it’s the symptom of the problem…ever-inflating debt-based monetary system.
In terms of the powers "finding ways to dramatically shrink them," that’s what would occur in the natural process of creative destruction. Your desire to see "the powers" find a fix for us is a massive part of the problem…we’ve been programmed to look to DC for solutions. If "the powers" would just get out of our business and let the market adjust, we would’ve seen all the Wall St institutions disappear in the massive black hole that is their derivatives exposure. The economy would’ve completely collapsed. But that would’ve been the basis for a new beginning where local banks enable us to move back to a locally-based society where real community and markets can exist, vs. the fake community and illusory markets created by big Wall St institutions. Unfortunately that is not being allowed to happen…instead big govt is stealing from us local folk and propping up the bigness that you correctly see as a problem.
[quote]But this is just a guess. I have no facts or figures to base this on. [/quote]
Don’t play the Wall St game here either. We’ve been programmed to not trust what we know in our souls/guts/hearts and wait for some expert to show us data in a spreadsheet. The problem is, the data is manipulated, and the numbers mean nothing anyway since we know our measure of money is fake (and money is hardly a good measure for true quality of life in the first place), so any financial argument about bigness would indicate that banking and bigness is good, and you’d hear arguments about economies of scale, pareto optimality, gains from trade, and all the other Orwellian lingo that makes you ignore your gut.
In our guts, we feel our hollowness, the stripping of local community, the death of neighborliness, the end of waving at people passing your car on the street, the uselessness of state government, the end of townhalls, the rise of TV programming where we all watch "big" experts tell us what to think, lives that feel more desperate and busy despite our supposed growth in wealth, etc, etc. Listen to that stuff inside you. Don’t wait for data from an expert to prove what you know is true about the damage of huge financial institutions running the world.
"I’m left feeling as if we are stuck. Global currencies will always need
to be debt based to keep up with the demand at a global scale."
What about a fifth way, based on the fact that debt is the flip side of equity, in a way. What we need to do is reverse the situation where the bond market dwarfs the equity market.
5) An economy based on the unitisation of infrastructure. In this scheme, all housing, energy, transport and possibly some basic food infrastructure and perhaps basic healthcare (basically all the non-consumer stuff that society needs to exist) is placed in a series of trusts which is then unitised and can be traded like an ETF. These units could also be used to back currency. Presumably the equity held like this should produce a small dividend – could this dividend somehow replace the concept of interest – i.e. save by taking equity and receiving income, rather than by charging interest.
Chris Cook is a proponent of this type of system and has some very interesting ideas. See here:
This is the same guy who has been instrumental in setting up Irans new petro exchange you may have heard about.
I have not thought through all the implications of this, so would be interested to hear the ideas of others.