Need help in this argument

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  • Sun, Jan 24, 2010 - 02:30am

    #11
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    Re: Need help in this argument

OK. From what I’ve read in your friends post I would say he is defending the current economic system which means fractional reserve banking, Keynesian economics and so forth. Most of his argument centers around the fact that if you don’t support the mechanisms then the system will fail. Which is correct.

The gov’ts only real source of income is interest on money it prints?  Interesting, pretty sure I pay a hell of a lot of income taxes.

The government gets money form taxes, bonds and of course just printing it.

As for banks,  I will make this simple.  By definition a BANK is a levered entity.

Yes. In a Keynesian world this is true. Replace this with a debt free note (greenback) and the problem vanishes. So why is it still here? Bankers and their paid politicians.

That is what the federal reserve is there for, if it isn’t or some other type of organization, then the banking system doesn’t work, and the economy gets stuck in the mud, never moving us forward.

Yes. In a Keynesian world this is true. Which proves that it doesn’t work.

the root of the problem was the american consumer, and the loosening credit standards put in place by our congress in the 1990’s that forced freddie and fannie to give mortgages to people that had no chance of paying it back.

Yep. Heard this argument a lot and it is naive. Do you really think a banker would put themselves in jeopardy of taking a huge loss because the government told them to do this or that. No way in h*ll. The truth is the bankers thought that housing prices were going to continue to soar. So you give anyone a loan that will take it. When they default, and you know they will, then you keep what they have put into and then but the house back on the market at its assumed higher value price. That is why the bankers did it. Pure greed.

The Fed and the FDIC, without their intervention, the financial system would have collapsed.  These entities have to exist to supply order in the system.

Again. The great keynesian lie that bankers love sooo much. It really amounts to extortion. Give us your lunch money or we’ll beat you up. Or in this case crash your economy.

If they are so damn brilliant, where are their great ideas on how to better handle the situation?  Haven’t heard one yet.

Of course not because they are in the pocket of the bankers.

Look. His whole argument revovles around supporting a system that cleary only works for the top 2% were debt goes to the poor gain goes to the wealthy. The Keynesian system, by design, is in play because it benefits those in power. Period.

  • Sun, Jan 24, 2010 - 02:38am

    #12
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    Re: Need help in this argument

Wow….  only just picked this thread up…  talk about believing your own BS!

Tell him to do the CC.

Mike

  • Sun, Jan 24, 2010 - 04:18am

    #13
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    +1 on Steve Keen

This 50 minute lecture by Steve Keen should provide some insight.

  • Sun, Jan 24, 2010 - 08:14am

    #14
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    Re: Need help in this argument

Hi

Nice to read about people that work for big banks haven’t a clue what their employers business is. I have come across a few myself, but they where very receptive to arguments since we are experiencing a financial crisis. I must admit not being aware of fractional reserve banking myself before september 2008. A collegue had told me about it before that but it just didn’t get it (so unbelieveable?)

Of course the (big) banks played a huge part in the mortgage mess. They sold the mortgages to anyone who wanted them (really anyone) and then insured themselves with CDSs at AIG and friends. There was no way to loose as long as the insurance companies would pay up in case of a default. The funny thing is that nobody expected to get 100cents on the dollar with their CDSs, but that is what mr Geithner took care of.

Edwin

  • Sun, Jan 24, 2010 - 10:37am

    #15
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    Re: Need help in this argument

It is not widely understood that politicians were at the root of the housing debacle. As far back as 1977 Congress passed the Community Reinvestment Act which pressured banks to make the loans to those who didn’t meet the ordinary criteria whose use excluded such poor risks. The banks would be graded and in order to avoid an unsatisfactory grade had to increase the volume of loans made to poor risk applicants. Those who pleased the govt regulators got an AAA rating!

The impetus for this government intervention in the banking mortgage industry was the desire on the part of lobbyists, ACORN being a major one, to enable poor people to realize the American Dream of home ownership. 

Yes the banks made the loans under duress. The mortgage loans were then passed on to entities like Fannie Mae or Freddie Mac which bundled them mixed in a few better quality loans and passed them still further to hedge funds. 

Sure people seeking a certain amount of money were encouraged to believe they could afford still higher amounts, and a larger home!

Naturally government officials at the highest level now claim that government was not responsible for the debacle which ensued, blamed the banks instead, and claimed that only the government could resolve the crisis if it only had more power!

Also notice that the Federal Reserve System “created” the funds, coupled with the Fractional Reserve Banking Policy, to provide the banks with the paper currency necessary to make those mortgages possible.

If you would like a few links I suggest: 

Ayn Rand’s Atlas Shrugged, a novel from 1957 dramatizing timeless principles and getting to the philosophical basis for our troubles. Capitalism: The Unknown Ideal and The Virtue Of Selfishness and For The New Intellectual. Also The Objectivist Newsletter 1962-65

http://www.atlassociety.com http://www.fff.org http://www.mises.org http://www.cafehayek.com http://www.aynrand.org http://www.fee.org http://www.YALiberty.org http://www.campaignforliberty.com

 

  • Sun, Jan 24, 2010 - 12:30pm

    #16
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    Re: Need help in this argument

Hi Castlewp

Your friend’s email seems flawed from the very beginning and starting with a flawed premise, and therefore impacts most everything else.

He is missing the whole reality of ‘fractional reserve banking’, which is the mechanism that causes inflation in the first place.

In his early paragraph he speaks about the widget workers demanding more increases in pay and infers this is the cause of inflation.

Reality is the workers need increases in wages because the cost of living inflates. As the cost of living increases, they need more money just to keep even. The workers do not cause the inflation, the banking system does through ‘fractional reserve lending (or banking).

In his next paragraph he shows that he misunderstands Fractional Reserve Banking. He uses the example of $1,000 in deposits and then incorrectly states that of that amount the bank lends out $800 keeping $200 in reserve. No such thing. The bank keeps the entire $1,000 as a 10% base reserve, for creating out of thin air, a new $9,000 of money that never before existed, and here is the inflation – immediately, as this newly created money comes into existence and on into the economy. The more money chasing the same number of goods and services drives up prices (or actually devalues the purchasing power of existing money).

There is also the point that this newly created $9,000 will be issued as debt and loaned out into the economy (cars, houses, etc). The next problem is that because all previously existing money has also been issued as debt,  the money for the interest payments on this new $9,000 does not exist. Every current dollar in existence is owed to somebody by somebody else. Even the money in our wallet, which we hold for a time-dated period.

The interest payments on newly created money have to be stolen from the existing money supply and out of future fractional reserve debt creation, and this guarantees scarcity, greed and hording as we all fight to make those interest payments. The money creation system of fractional reserve banking by its nature, creates and causes inflation.

We believe when we deposit that $1,000 into the bank, it is our money. Truth is it is not, it becomes the bank’s money. Yes, they have an obligation to return it to us, but legally we have loaned this money to the bank to invest however they see fit. And when they create $9,000 in new money issued as debt, if any or all of those loans default, our initial $1,000 deposit disappears very quickly.

An excellent vid for this is Money as Debt II, Promises Unleashed at:
http://www.youtube.com/watch?v=_doYllBk5No

And some confusing info on Fractional reserve Banking at:
http://en.wikipedia.org/wiki/Fractional Reserve_banking

  • Sun, Jan 24, 2010 - 01:47pm

    #17
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    Re: Need help in this argument

Castle,

Mr. Banker is so deluded he needs several months of financial rehab to hope to begin to cure his ailment.  I am not suggesting my response here will address every point in his post, but I will try to hit the major ones.

Inflation is caused by the growing supply of money and credit, and no other reason.  Workers do not demand higher wages just because they want them.  Maybe in today’s society, due to the fact we have been programmed to assume some amount of inflation every year, some people might believe this is just the way things are, instead of the ways things are caused to be by our banking and monetary system. 

Nowhere does he place any of the blame for the bubble on the Fed’s cheap interest rates.  I agree that some of the villains he points to are real:  Fannie, Freddie, Congress, and to some extent, the consumer.  However, behind all this was cheap money provided by the Fed, without which none of the other “villains” could have done squat.

The Fed, and you friend’s hero, Bernanke, created the bubble which they later and still do claim to have saved us from.  They always cause the financial disasters they later claim make their existence necessary for without them we could not save ourselves from them. 

He also describes the Fed as if it’s some objective, non-profit entity only here to save us from ourselves.  Nothing could be further from the truth!  The Fed is owned by ever bank in America.  Literally every bank, when chartered, has to put up x% (I think it’s 6%) of their net assets for their “Fed membership dues”, and this gives them the right to be bailed out at the taxpayers expense later on.  It’s just a cartel, and the myth that we need the Fed to save us from financial crisis is bunk, since the Fed has precipitated financial crisis after financial crisis ever since it was invented.  In fact, that is what they are best at.  It is a cartel with a monopoly on our money and credit, the ability to create money and credit out of thin air yet charge us interest, topped off with the ability to make us the taxpayers cover for their mistakes when things go wrong under the preposterous notion that we must do so to save ourselves.

There is a conspiracy theory here alright, and it revolves around what the Fed tries and would like for the rest of us to believe about it, it’s members, and their collective cartel of larceny.

 

 

 

 

 

 

  • Sun, Jan 24, 2010 - 01:58pm

    #18
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    Re: Need help in this argument

You might want to email your friend this link and tell him to go to page 94.

One thing I’d also tell them is that Deutche Bank has 31 billion in derivatives in the US, not sure what it has outside, but they are 24 on the list below JPMC, BOA and CITI which have87trillion, 38 trillion and 31 trillion respectively.

Best luck when these blow up.

  • Sun, Jan 24, 2010 - 08:24pm

    #19
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    Re: Need help in this argument

Hey guys you are great!!! Thank you so much for the information. It is really helping and he is actually listening to the points you have all made that I couldn’t articulate.  I have mentioned to him to watch the CC but to no avail,  yet.

Bill 

  • Sun, Jan 24, 2010 - 10:18pm

    #20
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    Re: Need help in this argument

You may want to look at this thread for some great info concerning fractional lending.  Larry (DrKLuv) is the BEST!!!!

https://www.peakprosperity.com/forum/understanding-cc-chapter-7-fractional-reserve-banking/34372

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