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  1. #21
    Whisky Old & Women Young Speed Gavroche's Avatar
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    Quote Originally Posted by entropie View Post
    I am no financial expert, but to those of you who are: what if one would found a central european bank which is political neutral. this bank does give credit to everyone who asks for them of course the investment needs to be analyzed beforehand. the interest rates are then collected and every period given out equally to every state. that makes the bank non-profit.

    this could solve injustice the occupy protester for example are against. its idealistic of course and its suceptible to crime.

    and it wouldnt solve the problem with poorer countries joining the same currency like richer countries. this wont ever be a relationship of mutual benefit financially as long as the poorer ones cant be strenghtened

    whats your take ?
    I'm not a financial expert but

    -a politically neutral central bank is impossible by definition
    -to give credit to anyone who asks had been pretty much the goal of CEB since its creation (wich explains in part the euro crisis)
    -we can't really expect from a central bank to analyse the investment needs since it is protected by the administrations and then not grounded in the necessity to be competitive, (wich explains in part the euro crisis)

    So protesters are right to protest, but what they revendicate has ever happened, and it's the cause of the Euro crisis. Of course, we should'nt put the same currency for countries of unequal wealth. That each country return to golden standard and their original national currency is probably the best thing, i think.

    What I say here can applies to the fed too by the way.
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  2. #22
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    lol gold standard. Why do people keep bringing that up? It should be so obvious why we do not use that outdated crap anymore - it's too inflexible! Thank god you are only a minority, though with what I've seen from the general public recently re: EU misinformation I wouldn't be surprised if they started rambling about gold standard as well.

  3. #23
    resonance entropie's Avatar
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    Yea, a return to old currencies is a bit crazy as well. Export would drop, tho import could raise. Having a strong currency would drastically lower commodity prices but if there is nobody no more who can afford your products this could be a problem.

    Besides that most banks have invested money from savers, from insurances and so on in foreign fonds. If we go back to the D-mark they all would be devalued that would be a disaster. And besides that people who have a lot of money in poorer states would want to place their money in richer states. That would lead to a total imbalance up to the point where you basically can go back to a national state system, close your borders and place tanks on it.

    I dont think that going back to an old currency would either profit a rich nor a poor state. And besides all of that it would basically mean that you doom a lot of poorer states.
    [URL]https://www.youtube.com/watch?v=tEBvftJUwDw&t=0s[/URL]

  4. #24
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    What about the idea of dividing up the Eurozone into different regional currencies, between those countries with more common economic stability and interests, as I suggested? It's a middle-point between trying to maintain one major currency for an entire continent and going back to merely national currencies(which might be a good idea in some cases).

    I'm not competent enough to comment on the gold standard, but I was recently reading about Wilhelm Röpke proposed such an idea for a more stable European currency.

  5. #25
    Senior Member Survive & Stay Free's Avatar
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    Quote Originally Posted by Peguy View Post
    What about the idea of dividing up the Eurozone into different regional currencies, between those countries with more common economic stability and interests, as I suggested? It's a middle-point between trying to maintain one major currency for an entire continent and going back to merely national currencies(which might be a good idea in some cases).

    I'm not competent enough to comment on the gold standard, but I was recently reading about Wilhelm Röpke proposed such an idea for a more stable European currency.
    I dont believe gold standards are a good idea, its a darling idea of the libertarian right because it suits their limited tax and spend agenda but I think the possiblity for government actions or interventions in the economy permitted by commodities backed currencies makes them a must, especially given the evidence there is of privileged people playing class struggles and elite behaviour having such potential to derail and ruin the economy when no government action is possible.

    To be honest I like the fact that the sorts of structures and reform which the EU represents are positively anti-currency speculation and favour much more circumscribed financial sectors and transactions, the world needs an alternative to what has proven unsuccessful in the UK and US but which remains irrationally politically popular.

  6. #26
    pathwise dependent FDG's Avatar
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    Quote Originally Posted by Peguy View Post
    What about the idea of dividing up the Eurozone into different regional currencies, between those countries with more common economic stability and interests, as I suggested? It's a middle-point between trying to maintain one major currency for an entire continent and going back to merely national currencies(which might be a good idea in some cases).
    Could make sense, however the damage would still be quite heavy, since much of the euros invested by the "stronger" nations would be lost when devaluation happens.

    Besides that most banks have invested money from savers, from insurances and so on in foreign fonds. If we go back to the D-mark they all would be devalued that would be a disaster. And besides that people who have a lot of money in poorer states would want to place their money in richer states. That would lead to a total imbalance up to the point where you basically can go back to a national state system, close your borders and place tanks on it.
    Well, if a peaceful return to national currencies were to happen, pension funds and banks in - say - Germany would have to be recapitalized by the Bundesbank. As a side effect, the new D-mark would depreciate, and thus partially counteract the appreciation due to "flight to quality", which you correctly identified (and which was happening for the Swiss Mark since not long ago, before they implemented a fixed bottom of 1,20 marks-per-euro).

    To be honest I like the fact that the sorts of structures and reform which the EU represents are positively anti-currency speculation and favour much more circumscribed financial sectors and transactions, the world needs an alternative to what has proven unsuccessful in the UK and US but which remains irrationally politically popular.
    You might ideologically enjoy a financial transactions tax, yet both thorough theoretical analyses and attempts at implementation have shown its complete lack of effectiveness. Financial services are highly mobile, thus they will just move somewhere else and you will still be subject to the turbulence, but lose any potential positive effect (say, job creation).
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  7. #27
    Senior Member Eckhart's Avatar
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    Quote Originally Posted by entropie View Post
    I am no financial expert, but to those of you who are: what if one would found a central european bank which is political neutral. this bank does give credit to everyone who asks for them of course the investment needs to be analyzed beforehand. the interest rates are then collected and every period given out equally to every state. that makes the bank non-profit.
    I didn't read the rest of the thread, but you are not the first one to mention that or similar ideas. There are several individual people and some politicians who said that the private banks are not needed / should be get rid of, but most of them don't get enough attention.

    People just have to understand how money is created right now. The central bank gives money to private banks which then again give it to the governments and private people. The central bank creates this money out of nothing. Now, the private banks get this money out of nothing for a small interest rate. This interest rate is for preventing unlimited amounts of money being created to avoid too high inflation rates. So far so good.

    Now, those private banks give away that money out again, but for far higher interest rates, to make profits itself. Already here you have to ask, what for do those private banks exist? The money could have given directly from the central bank for the cheap interest rates that they give the private banks. The only one who profits from it is the private banks, and they get this money from doing nothing.

    Now, another way how money is created is by the private banks itself. Banks take money from customers on their bank accounts for a small interest rate and give it away to other people with high interest rates to make profit. Let's say someone has 100 Euro in his bank. Now, per law a bank has to only keep a small percentage of this money as a reserve. I don't know how much that is exactly here, for making it easier let's assume it is 10%, but I think in EU it is actually even lower. That means that the bank with this 100 Euro as a reserve can give away credits in worth of 1000 Euro. So the bank creates tons of money out of nothing. This is no printed money, but book money. But you can pay everywhere with book money in the same way as you can with printed money so that means no difference. Again, who profits from that? On the one hand the private banks, on the other hand the economy you could say, since economy can get more credits. However, the central bank could instead just have printed more money and give it out itself without the private banks itself, and since it wouldn't be profit driven, it would mean lower interest rates for the economy, because there would be no need to finance private banks for no reason.

    The question now is why are the politicians not doing anything against it? It is simple. The big political parties are financed by those banks as well. They lack the courage to make such big changes, most people don't understand this system and are afraid of it. Politicians which want to change it are being held down by media and people in power as well.

    There is also though an importance to understand that this system as we have it now also means, no matter if there are private banks inbetween or not, that it is a debt system. All money gets created by giving out credits. Because of the interest rates, it is per definition impossible that debts get paid back fully without taking up new credits, because there is less money given out than the bank wants back. Those debts can only get rid off totally when the bank forgoes their demands. This is why it is nonsense that they want to force now every government to make no new debts. When they don't take new debts, then someone else in the world has to eventually. Even if every person and every government in the world would work just as hard as the others and would do the exact same, the debts will always increase. That has nothing to do with responsibility of the governments and people. There are only differences in how the debts are distributed around the world.

    So the aim is not to make no debts, but to make relatively less debts than the others to be better in a competitive world. But then in a competitive world, when some are better than the others and banks do want their money back and don't want to give new credits, then it is normal that a state like Greece eventually goes bankrupt. But they won't be saved by telling them to cut their spendings as the EU is telling them.

  8. #28
    pathwise dependent FDG's Avatar
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    People just have to understand how money is created right now. The central bank gives money to private banks which then again give it to the governments and private people.
    That's not really true. In a healthy economy (such as was the european economy before 2008), banks don't really need to use the marginal lending facility provided by the ECB. They have their own liquidity reserves to settle bank-to-bank payments, they can use the interbank market when they don't have enough liquidity, etc. - of course, if the interbank market freezes due to lack of transparency in the balance sheet, then banks will have to use the marginal lending facility.

    However, it's not true that money is created "out of nothing", because banks have to give collateral, which is usually in the forum of bonds which had to be previously acquired by banks by spending their "own" money.

    Now, those private banks give away that money out again, but for far higher interest rates, to make profits itself. Already here you have to ask, what for do those private banks exist? The money could have given directly from the central bank for the cheap interest rates that they give the private banks. The only one who profits from it is the private banks, and they get this money from doing nothing.
    Well banks don't live in a vacuum, they often operate in a given geographical space. So, in order to give loans, they need to understand how a firm that is receiving such loan operates, thus they need to analyze its balance sheet, they need to know if its business is sustainable and legal, etc. etc.

    All this apparatus is expensive, so the interest rate has to be higher than the minimum even for "cooperative" banks (Genossenschaftbanken in Germany), which are required by law to use a large part of their profits for socially beneficial aims.

    Technically, you could have local branch of the ECB doing exactly the same thing. For example, banks used to be completely nationalized here in Italy, up to the 1980s. What was the problem? It's simple, nationalized banks end up providing funds on the basis of political sympathy, rather than profitability and sustainability of a given business. Larger public banks are bullied by the treasury and forced to buy state bonds, a mechanism which has a tendency to quickly increase inflation in the economy as a whole.

    I'm not willing to analyze the last part of your post because its inexactitude is even more striking and borders on paranoia, frankly.
    ENTj 7-3-8 sx/sp

  9. #29
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    Based on my limited knowledge..
    The problem with not having a standard is that things become too flexible. When things are good, they're great. But when things start sucking, they start sucking hard. Having a standard like gold tempers both extremes.

    But gold is hardly the only standard with which you can base currency on. Indeed, if having a standard is ultimately arbitrary, you could theoretically base it off of anything..and change the standard when you see fit. Perhaps, then, what is necessary is a currency that is based on a standard that will produce the ideal amount flexibility without sacrificing stability. Other than gold, I've always thought basing a currency off of the amount of land a country owns would be the most "fair", though certainly not equal. Besides land, there are various other assets that tend to hold value...the question then becomes one of "how flexible/inflexible do you want your currency/economy to be, and which standards would do that for you?"

    I'm guessing countries targeting high growth would base their currencies on more risky assets. Countries targeting stability would base their currencies on low risk assets.

  10. #30
    Senior Member reason's Avatar
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    Quote Originally Posted by Eckhart View Post
    I didn't read the rest of the thread, but you are not the first one to mention that or similar ideas. There are several individual people and some politicians who said that the private banks are not needed / should be get rid of, but most of them don't get enough attention.
    It's fortunate they do not get much attention, because it's a dangerously stupid idea. In any case, sadly, it's not too far from our current predicament. The financial sector is already among the most highly regulated and more regulation is promised. Under the mantra of 'too big to fail', taxpayers are already picking up the bill for losses in the financial sector. In fact, it's getting to be the worst of all possible worlds: a mere facade of private ownership and market competition.

    Who are in charge? Do politicians control the banks or the banks control politicians? They're so intermingled, it's hard to see where governments end and the financial sector begins. It's no secret, for example, that politicians leveraged their power over the financial sector to encourage the housing bubble. We have a symbiotic relationship between two parasites, each helping the other to better exploit the host.

    Long ago, politicians realised that if they could control the monetary system and financial sector, then they could exploit that power for seignoirage and easier credit. Financial firms were not altogether disagreeable, because political power is itself an exploitable resource, especially in something as esoteric as finance. Back scratching commences. Banks get protection from competition and taxpayer bailouts, while politicians dabble in pet projects and get favourable credit ratings. This is nothing new; for example, it's how the original central bank, The Bank of England, got its start.

    Central banks are, perhaps, the best demonstration of this blurring between public and private. They're creations of government, but usually privately owned; they're run by bankers, but their boards are appointed by politicians. They've enormous power over their monetary and financial systems, yet are neither completely answerable to the marketplace nor political authorities. Central banks exist in a kind of limbo between both worlds. In my opinion, this is the best we should hope for short of not having a central bank at all, since the compromise is probably better for the masses than if either side ran the whole show.

    Ridding ourselves of commercial banks is not the solution to this problem. The vestigial remains of private ownership and market competition are very important. Whatever politicians' spurious promises of financial stability, the cost of fully socialising the banking system would be enormous. The political process cares nothing for the efficiency of capital allocation; the cost would be paid by future generations in terms of negligible or non-existent economic growth. There is quite enough corruption without increasing the concentration of power: winners and losers would be decided by political prejudices and expediencies.

    I was hardly joking when I said that I'd rather nuke Paris than put this idea into action. Over decades, the cost to human life and well-being would probably be comparable. If I were a pure utilitarian, I would consider this idea on par with suggesting that we try out a second Holocaust. Unfortunately, it's beginning to look more and more like reality, even while everyone still calls reality by the opposite name.

    People just have to understand how money is created right now. The central bank gives money to private banks which then again give it to the governments and private people. The central bank creates this money out of nothing. Now, the private banks get this money out of nothing for a small interest rate. This interest rate is for preventing unlimited amounts of money being created to avoid too high inflation rates. So far so good.
    I'm sorry, but you do not understand how money is created.

    Now, those private banks give away that money out again, but for far higher interest rates, to make profits itself. Already here you have to ask, what for do those private banks exist? The money could have given directly from the central bank for the cheap interest rates that they give the private banks. The only one who profits from it is the private banks, and they get this money from doing nothing.
    The service banks provide is called financial intermediation. That's how they make profit. In principle, it's no different than how any investment firm makes profit. If banks didn't do anything, then how could they ever fail? Where does the risk come from?

    Now, another way how money is created is by the private banks itself. Banks take money from customers on their bank accounts for a small interest rate and give it away to other people with high interest rates to make profit. Let's say someone has 100 Euro in his bank. Now, per law a bank has to only keep a small percentage of this money as a reserve. I don't know how much that is exactly here, for making it easier let's assume it is 10%, but I think in EU it is actually even lower. That means that the bank with this 100 Euro as a reserve can give away credits in worth of 1000 Euro. So the bank creates tons of money out of nothing. This is no printed money, but book money. But you can pay everywhere with book money in the same way as you can with printed money so that means no difference. Again, who profits from that? On the one hand the private banks, on the other hand the economy you could say, since economy can get more credits. However, the central bank could instead just have printed more money and give it out itself without the private banks itself, and since it wouldn't be profit driven, it would mean lower interest rates for the economy, because there would be no need to finance private banks for no reason.
    Again, you don't understand how fractional reserve banking works. You are actually describing the so-called multiplier process. In short, no, a bank cannot lend out $1000 for every $100 deposited. With a ten percent reserve ratio, each bank can only lend $90 for every $100 deposited, otherwise they'd go bust in less than a week.

    There is also though an importance to understand that this system as we have it now also means, no matter if there are private banks inbetween or not, that it is a debt system. All money gets created by giving out credits. Because of the interest rates, it is per definition impossible that debts get paid back fully without taking up new credits, because there is less money given out than the bank wants back. Those debts can only get rid off totally when the bank forgoes their demands. This is why it is nonsense that they want to force now every government to make no new debts. When they don't take new debts, then someone else in the world has to eventually. Even if every person and every government in the world would work just as hard as the others and would do the exact same, the debts will always increase. That has nothing to do with responsibility of the governments and people. There are only differences in how the debts are distributed around the world.
    For every debtor, there is a creditor: that's a fundamental truth of double-entry bookkeeping. The ability of central or commercial banks to create money does not change that. The only complication is central banks. A commercial bank cannot sustainably issue credit that is not backed by real savings, since withdrawals would quickly drain its reserves and leave it unable to meet its obligations. However, a central bank, with a fiat money system, has no such discipline. It can, in principle, indefinitely issue credit not backed by real savings. The result will be capital malinvestment and, eventually, price inflation.

    To say 'money is debt' is grossly misleading. Since debits equal credits, one could equally say 'money is credit'. While those two statements seem different, even opposites, they actually mean the same thing. In any case, money is not debt, even though the creation of money is often accompanied by the issuance of debt. For example, if central banks, instead of buying financial assets like government bonds, performed monetary policy through the purchase and sale of bricks, then one might misleadingly say 'money is bricks'. That would be precisely as pointless.

    Money is a generally accepted medium of exchange. It can take many forms, but debt, per se, is not one of them.
    A criticism that can be brought against everything ought not to be brought against anything.

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