Conference “Fixing the Banking System for Good” – Video

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A very interesting conference took place on 17th April 2013 in Philadelphia, USA.  Big senior figures in the economic, monetary, and financial worlds, including Adair Turner, Laurence Kotlikoff, Michael Kumhof and Jeffrey Sachs were discussing fundamental solutions to current global monetary and banking problems.

This was probably the first conference ever where the top academics were seriously discussing ending fractional reserve banking.

Now you can watch the recording of their presentations, highly recommended:

 

If the video doesn’t play on your browser, please click here

Michael Kumhof, Deputy Division Chief, Modeling Unit, Research Department, International Monetary Fund, explained in very clear and straightforward way how exactly banks work and presented the Chicago Plan proposal.

“The key function of banks is money creation, not intermediation. And if you tell that to a mainstream economist, that’s already provocative, even though it’s hundred percent correct.”

His presentation starts at 1:02:12

The slides of his presentation are here: The Chicago Plan Revisited

 

Adair Turner, Former Chairman of the UK Financial Services Authority and Senior Fellow at the Institute for New Economic Thinking, gave a noteworthy presentation on “Money and Debt: Radical Solutions to the Challenge of Deleveraging”

“Fractional reserve banks create whole new level of danger. Because the fundamental fact is, that when people say  “banks take savings and intermediate it to loans” – that’s not true.

One of the most fundamental insight is that banks simultaneously create new credit and new money ex nihilo.

And that is one of the most fundamental, important things for people to be taught, which economics undergraduates should be taught about the nature of how monetary economy with banks works.”

His presentation starts at 4:06:07

 

Laurence Kotlikoff, William Fairfield Warren Distinguished Professor at Boston University, on Limited Purpose Banking

His presentation starts at 1:49:42

 

Jeffrey Sachs, Director of The Earth Institute, Quetelet Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, on Implications for Global Development 

“Could we really have liquidity without fractional reserve banking? If we could, we might be able to address another degree of this problem.”

His presentation starts at 2:35:08

 

 

 

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  • Anthony

    Great, but I had to go to the Vimeo site to watch it, the page’s embedded video just wouldn’t start (Firefox 20).

  • http://www.facebook.com/profile.php?id=1548586294 Lena Andrews

    This page doesn’t play the video in Safari 5.0.6 either.

  • Albert

    Does not play in either Chrome or IE ?

  • Albert

    Video does no play in either IE or Google Chrome

  • montmorency

    Coincidentally, I’ve just been watching Bill Still’s recording of part of Professor Jeffrey Sachs of Columbia University’s contribution. Listen to it all, but especially the last 5 minutes or so.

    http://www.youtube.com/watch?v=7VOWnnEphjI

    • nomiso

      Thanks for that Montmorency. Bill Still sums it up well, “Explosive”. Especially when you remember who Jeffrey Sachs is or, maybe should I now say, was; a leading mainstream neoliberal economist.

  • Brad W

    No play for me either :-(

  • ETNIKS

    Adair Turner is an extremely smart salesman, the kind that comes in very articulate making you feel he agrees with you, but after 30 minutes of lavishing you with prize, then he starts moving on the other direction for the “kill”.

    He becomes the perfect SPIN operator who ends up attempting to convince you all the facts you have amazed on your side, are only half true, and he splashes by saying he wouldn’t see anything wrong with having 25 to 30 times leverage!!

    Something nobody talks openly about is WHO is benefiting with Fractional Reserve Banking forcing governments, businesses and individuals to be in debt in order to have the currency we need to trade? These bankers would be the biggest losers if the current fraudulent monetary system is ditched and instead an asset-based money system controlled by elected officials is established.

    Of course the financial elite will have an army of smart, well connected apologist of the system to find ways to keep the foot on the door, so they can keep using the money-machine and always come back to keep on sucking the entrepreneurs and the working people’s blood, like vampires.

    • Ralph Musgrave

      Re leverage of 30:1, Martin Wolf criticised this dodgy practice in the Financial Times recently. He said, “If you think that running banks with so little loss-absorbing equity is crazy, you are right…..It makes no sense to build either bridges or banks sure to collapse in the first big storm.” See:

      http://www.ft.com/cms/s/2/39c38b74-715d-11e2-9b5c-00144feab49a.html#axzz2S2vPsAJh

      Instead, Wolf advocated a ratio of about 4:1. And that’s a flagrant contradiction of the Vickers Commission on which Martin Wolf served!!! Nice to see the – er – “authorities” disagreeing with each other!!

      • ETNIKS

        As Larry Kotlikoff mentioned “you can’t be half pregnant” , either you do it or you don’t. This half ass approach of merely reducing the amount of leverage is BS.

        On this I also disagree with Kumhof if, as I understood it, he’s for allowing some investment banks to be allowed to leverage.

        NO LEVERAGE BY ANY PRIVATE BANKERS, period.

        • http://fishwickmains.com Peter Wilson Close

          We’re flogging a dead horse if we try to make a such a big jump! there’s got to be realism as to what is achievable! Manic righteousness won’t get us anywhere.

          • ETNIKS

            We don’t have to wait for the corrupt politicians to do it for us. We can start our own local currencies and begin the process of stepping out of the control exerted by the debt-based currency.

            Once you watch the following 9 minute video, there will be NO doubt as to why Debt-based money is FRAUD, and why it is being imposed on us. It is not a “conspiracy theory”, it is a conspiracy fact. This is how it works.

            Debunking Money – 1 Myth and Machiavelli – 9 minutes
            http://www.youtube.com/watch?v=5iBSBVew-3Y

            And check this too:
            Greek Town VOLO Develops Credit System Without Euro
            http://www.youtube.com/watch?v=9y9R0v96K48

            Read the book THE END OF MONEY AND THE FUTURE OF CIVILIZATION by Thomas Greco – It is fantastic!!

          • nomiso

            Thanks for the links ETINKS, love the Debunking Money video, nicely done. Like how he touches on education, which for me is one of the keys issues. Once enough people understand the money system from which we have been deliberately schooled not to question, then we the people will have the power to bring about meaningful change.

          • http://fishwickmains.com Peter Wilson Close

            In advance of viewing your videos [haven’t time probably until Monday] are you accepting that the problems in the economy are lack of demand as well as and because of lack of money? We cannot function without fiat money but it doesn’t have to be debt-based.

          • ETNIKS

            It’s imperative you watch those videos because they explain it much better than what I can tell you in a few words.

            The economy was trucking along fine, although awash with too much cash in the process of building the bubble, until the credit markets froze when the bubble burst.

            For that the Real Economy is not at fault. Suddenly we are told the banks have put a gun to the congress’ head demanding 750 billion, otherwise the whole world’s economy is gonna go down the drain.

            The term TOO BIG TO FAIL is splashed over all the Media and even I believed it at the time.

            So then the banksters started getting not only the 750 billion but later we found out several trillion dollars were given to banks all over the world by the FED.

            At the same time they came out with the BS it was the borrowers fault for getting the Liar’s Loans, which is total crap. I personally know it’s a lie.

            So then they started restricting credit to the Real Economy while the financial sector has been getting trillions that do not produce any wealth, it’s all speculation.

            You are right about the crisis being the lack of currency in circulation, but once you understand how debt-based money works (which by the way most governments behave shows they don’t) then you understand that in this debt-based money system when you pay back your debts and don’t borrow any new loans, you are in fact taking out money from circulation.

            This is why countries like Ireland, Spain and Greece who are following the Troika’s STUPID directives, are the worst off.

            It’s the same as in the middle ages when QUACK DOCTORS used to bleed sick people thinking their blood was bad, but in fact they were making them weaker and less likely to survive.

            Today we have QUACK GOVERNMENTS who are attacking their own citizens with idiotic policies, restricting the money in circulation and they wonder why things don’t get better!!!

            The lack of demand is directly related to the lack of cash. People want to work, businesses want to sell and grow, but the banks are sucking all the money for themselves with imbecile politicians who have no idea what money is. They either know and go along with the squeeze in purpose, or are too stupid to understand what they are doing.

          • http://fishwickmains.com Peter Wilson Close

            You are telling it as it is but then jumping to the wrong conclusion/solution. As we know the crisis arose – as it always will with FRB – because the banks binge on creating money and then try to claw back liquidity/reduce leverage when it all goes pear-shaped. However eliminating FRB sucks even more money out of circulation – actually 97.5% of M4 in the case of the UK! It is not remotely feasible to replace all of this fiat money with debt free BOE money in one fell swoop. So the solution has to be progressive castration of the banks, progressive purchase and cancellation of gilts to eliminate Treasury debt and progressive injection of debt free money into the economy – capital projects, tax reductions and budget deficits. I cannot conceive of any other way to do it. If you know better please update me – but perhaps it’s in the videos? Leaving this a.m. with trailer load of longhorn heifers for cattle sale at Stirling – back tomorrow night! P.S. I post elsewhere as “PharmaC” as in Farmer C!

          • ETNIKS

            Bill Still has a plan to go through the process of exchanging debt-based currency for asset-based fiat currency in one year, but Michael Kumhof also has his plan presented in this video.

            Here is the PDF of his plan. Go to page 49 where he explains the transition.
            “The Chicago Plan Revisited”,
            http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

            You assume incorrectly the economy will suffer during the transition from debt-based money to Asset-based fiat currency and that it should take many years to achieve it.

            All government debts could be paid back instantly with newly created interest-free Greenback type dollars, while replacing the debt-based phony money with real asset fiat currency. The quantity in circulation will be the same, therefore it shouldn’t be inflationary, At the same time banks stop creating money out of nothing and this time really compete for people’s funds so they can lend out 100% funded loans.

            The way private banks function today in the US, are a drain and a drag on the Real Economy,

          • montmorency

            “However eliminating FRB sucks even more money out of circulation – actually 97.5% of M4 in the case of the UK! It is not remotely feasible to replace all of this fiat money with debt free BOE money in one fell swoop. So the solution has to be progressive castration of the banks, progressive purchase and cancellation of gilts to eliminate Treasury debt and progressive injection of debt free money into the economy – capital projects, tax reductions and budget deficits. I cannot conceive of any other way to do it. If you know better please update me – but perhaps it’s in the videos?”

            I haven’t seen those videos (or if I have, not recently), but if I understand them correctly, Positive Money’s proposals do in fact convert all commercial bank demand deposits to BoE money. I’d need to go back and check on the implementation detail.

            But from the point of implementation onwards, (the “switchover date”) there would only be one sort of money – state-issued electronic money, held at the BoE. This would include (as I understand it) all previous central bank reserves, and also all previous commercial bank demand-deposits.

            This is not to say that the national debt would all be paid off at once. In fact the PM proposals leave this matter open. But one possibility is to pay them off gradually, in a manner quite similar to what you describe above, and that seems pretty sensible to me.

            Far from sucking money out of the economy, PM are actually worried that initially, there may be too much, and talk somewhere of taking precautions regarding this.

            My worry about the INET group is that they want reform, but they don’t really want it to be too radical, for reasons we can probably make good guesses at.

          • ETNIKS

            What is RADICAL is how the Fractional Reserve Banking System works
            today, allowing for-profit banks to decide the amount of the money
            supply for the whole of society.

            But what it’s an scandal and
            truly radical is to accept as “normal” to have a type of currency that
            marries the issuance of credit with the issuance of money. This forces
            all economic agents to be in perpetual debt in order to have the means
            to exchange goods and services.

            THIS IS TOTALLY UNACCEPTABLE
            and yet this is the RADICAL FACT those who ironically call “radical” our
            plans to end an outrageous mechanism of perpetual THEFT by those who
            control this particular system (The ECB, the Bank of England and the
            Federal Reserve Board) conveniently forget to mention.

            REASON IS EFFECTIVE ONLY, WHEN THE ART OF FRAMING THE ISSUES IS IN CONJUNCTION WITH JUSTICE AND FAIRNESS.

            Examples of how deceit and lies have been used to perpetuate injustice and despair by FRAMING the issues using SPIN are:

            “TOO BIG TO FAIL” – “THE FINANCIAL CLIFF”
            “THE EVIL EMPIRE” – “HOMELAND SECURITY”

          • DozyHole

            I watched the first video, it is a little inaccurate in my opinion.
            He puts all assets on the side of the banks and all liabilities on the side of ‘people’. This is not how it works, when I take out a loan and buy something it is the seller(car dealer, whatever) that gains the asset, not the bank, while I correctly hold the liability. The only asset the bank holds is my promise to pay back with interest.
            The bank does benefit greatly of course from overseeing the creation and allocation of money, and collecting interest on every penny, and the bank can also use this money to buy assets for itself and pay its workers, so I agree with his conclusions but the video is a little misleading.

      • http://fishwickmains.com Peter Wilson Close

        Copied from reply to ETNIKS : Turner didn’t suggest 25 -30% leverage – he proposed suggested 25 – 30% reserves. I was so excited because after 5 years research that was the figure I had come up with on the assumption it would be too big a step to get rid of F.R.B. – at least at this stage. 25 – 30% reserves is leverage of between 3:1 or 4:1. We could live with that if it means change as against no change!

    • http://fishwickmains.com Peter Wilson Close

      No! Turner didn’t suggest 25 -30% leverage – he proposed suggested 25 – 30% reserves. I was so excited because after 5 years research that was the figure I had come up with on the assumption it would be too big a step to get rid of F.R.B. – at least at this stage. 25 – 30% reserves is leverage of between 3:1 or 4:1. We could live with that if it means change as against no change!

      • ETNIKS

        Peter Wilson

        You are right, I went back to watch it again and I misunderstood initially what he stated. He proposed to rise the reserves to 25-30% but still way short from 100%.

        Ultimately anything under 100% means Fractional Reserve is still allowing banks to create money out of nothing. Reducing the multiples today leaves them with a foot on the door to expand it again later, as it has been done many times before.

        The warning below says it clearly:

        =======

        “The bankers own the earth. Take it away from them, but leave them the power to create money, and with a flick of the pen they will create enough money to buy it back again.
        However, take away from them the power to create money, and all the great fortunes like mine will disappear, for this would be a happier and better world to live in.

        But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.”

        -Sir Josiah Stamp
        Former Director of the Bank of England

        WE NEED 100% BANK FUNDING FOR LOANS

        • http://fishwickmains.com Peter Wilson Close

          I agree with you but it’s case of pushing for what might realistically be achieved INITIALLY. I said above in reply to Harry White: “That Turner suggests modification of the status quo, to me suggested a realism that appreciated change would not be easy – if even possible. He is not going to self-destruct by going too far out on a limb which might snap off!”
          It needs to be game of “Slowly, slowly, catchee monkey”!

          • http://fishwickmains.com Peter Wilson Close

            The UK and indeed Global economies cannot function without fiat money. To abolish FRB in one fell swoop puts a huge onus on getting the creation of debt free central bank money absolutely right – without undue interference from political vested interests let alone the banking brigade. A “fiscal brake” of some sort will be certainly be needed but this will also need careful handling.

          • ETNIKS

            There is a common misconception stating ALL Fiat currencies are bad.

            Not so.

            There are different types of Fiat moneys. Debt-based Fiat money is very different from Asset-based Fiat money. They may look the same but their behavior is totally different.

            Gold backed currency is an anachronism, a vestige of the past with no elasticity and also dangerously susceptible to being misused and abused by those who hoard the metal, as it is happening now.

            China is rumored, is in the process of offering its currency as an alternative to the US dollar to be used as an international exchange medium. According to Max Keiser and others, China is the largest producer of gold and yet all of it is being kept in, plus China is purchasing gold from others big time.

            The writing is on the wall for any one who wants to see it regarding the end of times for the US currency as an international currency.

            A possible scenario: The US dollar is being set up to crash by the very FED, and all debts in dollars will be reduced to nothing by the colossal inflation that will descend from the rarity of the shadow financial markets where it is being pumped into by the trillions since 2008, but once it finally hits the Real Economy languishing today, starved for cash, like a Tsunami, dollars will come into the Real Economy, the productive side, all at once, flooding it with too much money. Once all the countries of the world realize they’re holding useless US dollars, they will try to dump them for a new currency and those dollars will run “home” to the US and will create a hyper-inflation.

            The Cabal whose orchestrating all this, have already a “new” debt-based currency, controlled by them to try to convince as many countries in the world they should follow Ecuador and El Salvador who use the US dollar as their national currency, to adopt the new US, Cabal controlled new enslaving tool.

            They create the problem and have the “solution” for it at the ready in the midst of panic. However the BRICS know it, and many others are already moving away from the US dollar and once oil producers stop using US dollars, that will be the end of an era for it.

            Watch This video

            http://www.youtube.com/watch?v=e4f2mgj4UT0&noredirect=1

          • http://fishwickmains.com Peter Wilson Close

            What you appear to say initially about the benefit of debt free fiat money – created by central banks – is in line with what I am emphasising elsewhere on these posts; including the demise of gold. ….. but you seem to be in some confusion where you go on to postulate global financial warfare and hyper inflation. The one thing you seem to forget is that, although debt based fiat money is created out of thin air along with the debt, when that debt is repaid – with inflated cheap currency? – then that money disappears likewise into thin air. This is exactly the problem that creates debt deflation. So to some extent debt based fiat money can be immune to the more extreme problems associated with inflation; but it is rather complex!

          • ETNIKS

            Let’s not mix two issues here. Currency warfare and hyper-inflation.

            Currency warfare is something going on right now for a couple of years regardless of the low inflation miss-recorded in the Real Economy.

            http://www.zerohedge.com/news/2013-03-31/currency-wars-dummies

            I know this is a complex financial sector created so in purpose precisely to hide it as much as possible from people’s view.
            ===========
            ‘The study of Money, is one in which complexity is used to evade truth, not to reveal it”
            John Kenneth Galbraith
            ===========
            According to something I read, the FED has created more US dollars since 2008, than it was created from the foundation of United States to 2008, and all of this has been done to save the corrupt banksters from themselves, transferring their debts to the taxpayers.

            Currently the FED is purchasing 85 billion dollars per month (to infinity) of the bad assets from banks that were sitting in their books at 100% value, when in fact their mark to market should have been a fraction of that. Over a trillion of dollars per year is being moved from private banks supposed “assets” that were truly liabilities, into the balance sheet of the people of US. In this way Bernaky is disappearing the proof banks were bankrupt zombies, and passing the burden on to the taxpayer, killing two birds with one stone.

            What you say about the extinction of money when is paid back is true, but there are limits to that process. That’s why Zimbabwe had to print a one billion dollar bill eventually after having thousands of percent inflation per year.

            The shadow market of derivatives, bonds and other instruments is where all these trillions are being pumped into and little is entering the Real Economy, for if it did, we would be having a frenetic growth with jobs and booming businesses, and much higher inflation.

            One thing we can be sure of. NOTHING IS WHAT IT SEEMS, and as shown by Matt Taibbi’s article, all indicators are rigged by the very regulators in cahoots with the banksters they are supposed to regulate. So how can we know where we’re at? It’s like flying blind, while the only ones knowing what’s happening are the biggest banksters.

          • http://fishwickmains.com Peter Wilson Close

            I broadly agree with what you say but am not so convinced of the “conspiracy” more a case of we are where we are and how to deal with it. I’m also not convinced inflation is likely to be a problem.

  • Ralph Musgrave

    Kumhoff gave a much more detailed exposition of his ideas in Janurary this year here:

    http://www.youtube.com/watch?v=YnAtHbDptj8

    I agree with what he says up to 11mins 50 seconds into the talk: i.e. what he says up to that point is very much Positive Money compliant.

    However he then advocates a HUGE distribution of central bank money to the population (part of which is a debt jubilee). It amounts to 100% of GDP. So everyone gets a cheque for about twice their annual take home pay, far as I can see. The word “inflation” springs to mind.

    I’ve sent an article to the London Pos Money folk criticising Kumhoff, so you might be able to read my thoughts on this. Of course its always possible that Kumhoff is right and I’m wrong. In which case I’ll have egg on my face. See what you think.

    • DozyHole

      I think you are right.

      I could be wrong but the way I see it is we have had a massive housing bubble which has not been allowed to correct(low interest rates, various government lending schemes, peoples natural tendency to not want to lower prices).

      I think there will be a constant pressure on prices/wages to rise over the coming years until all wages/prices fall more into line with property. I think if we had a positive money system tomorrow we would still see this inflation but the new system would take the blame, even worse if all this money was created and handed out over night, in essence completely legitimising current house prices(and other toxic debts) but freeing up peoples income from the interest burden, massive inflation perhaps.

      The positive money approach seems much more sensible.

      • montmorency

        Doesn’t Steve keen advocate something like this also? (May not be as much as 100% GDP though). On condition that anyone with debts puts their cheque towards repaying their debt. (But anyone else just gets free money to spend…).

      • http://fishwickmains.com Peter Wilson Close

        I’m not convinced of the housing bubble [I’m a farmer with planning permission for 6 big houses with 2 acres each! – and another story how we got it!] but I do believe prices haven’t dropped any further from the 20 -30% drop we have seen because of the cost of building new. So that implies no bubble but to get the economy back on track we do need some wage inflation – and chopping benefits will be counter-productive as far as the economy is concerned. So it’s back to getting rid of – or realistically: severely scaling back fractional reserve banking – over quite a long time-span, and taking up the slack with debt free BOE money. It’s simple enough getting rid of Government debt by progressively buying back bonds with new money but the private debt [credit cards etc.] is not so simple inflation-wise.

        • DozyHole

          But surly the biggest cost of building new is the price of the land, this price is high because of the price the house will fetch once it is built. Land without planning permission is almost worthless by comparison.
          Even a modest house with two acres of land will surly fetch close to 800,000 each? What will they cost to build since you already have the land, I would guess 100,000?
          The 30% drop you mention is more evidence of a bubble, although I take it you are saying houses are about right at current prices.
          I say houses are too high since my friends have 35 year mortgages for very modest houses. On the news right now there are many people with interest only mortgages and a massive shortfall, this is because they can’t afford a proper mortgage. Shops and businesses are struggling, it’s inevitable as the next generation are working more and more hours to pay for a house plus interest they have less and less to spend in shops, perversely, this probably helps keep inflation under control. The government have low interest rates for this very reason also, watch the defaults if interest rates have to rise.
          For me, the housing bubble is all too obvious.

          • http://fishwickmains.com Peter Wilson Close

            Traditionally the plot has been 1/3 of the cost with build costs 2/3. In 2007 at the peak of the market these 4000 sq ft houses were making c. 700k [Scottish Borders] – 2 acre plot price c.150k, build cost 350k – 400k: developer/self builder margin 150k – 200k.
            Completed houses are now struggling to get above 500k as there is a psychological block where the stamp duty rises to 3%. Build costs are still the same so the market has stagnated since plot prices cannot drop to 100k as this includes c. 50k service costs [roads drains electricity sewerage water landscaping etc.]
            Your suggestion that you can build a large house for 100k puzzles me. The average UK house price I think is c.165k and the average build cost will not be much less than say 130k or the builders wouldn’t be struggling. I’m afraid I think we need some wage inflation to help sort out the lack of demand in the economy!

          • DozyHole

            Thanks for the stats. I was working off build costs for a modest house since this is the only area I have any experience. Of course, building a large house to match a 2 acre plot size and all the furnishings is different.

            My experience is only working on new builds and talking to the project managers, so I don’t have direct experience, hence my rough/wrong guesses.
            I am interested in build costs, since house prices doubled over just a few years, did build costs also double over the same period? The people I worked with certainly were not earning double, and snow some of them are working for less. Have materials increased so much in price? The size and quality of modern houses(in the city) has dropped dramatically too, it really is confusing because there are many factors at work.
            I agree about the wage inflation, I feel it’s inevitable that we will be fighting inflation in a few years and interest rates will have to go up, probably a lot.

          • http://fishwickmains.com Peter Wilson Close

            First some more thoughts on the house price bubble:

            It’s generally accepted that house prices doubled in the run up to D day [start of the Depression!] and inevitably there would be inflated build costs. Since then, through lack of demand, only builders who have cut their prices have stayed in business. thinking laterally: If you assume that for these large houses deflated build costs are still now c.350 – 400k and that plots to sell have to ease back to 100k – 150k then that takes us to c. 500k – a 30% drop from the peak – which has taken out the developer margin. I can only assume a similar scenario covers smaller houses and for this reason do not see prices dropping further as long as people want to own their house. On the other-hand I gather the rental market is expanding to take up the slack but this is putting a bottom in the market as the big letting companies are buying up property.

            I do not envisage a problem with inflation – as I said above we need some wage inflation to fire up a bit of demand in the economy. We may well see increased food and energy prices due to temporary [hopefully!] supply problems but there’s little that can be done about that! In the largely consumer economy that we now have there seems to be little risk of runaway inflation – Amazon, Ebay etc. have seen to that!

            The end of – or more realistically progressive severe restriction to – fractional reserve banking, with the slack in the need for fiat money in the economy taken up by debt free BOE money, taken together with progressive elimination of national debt by re-purchase of bonds with debt free money, will release some 50 billion a year for tax reduction. Debt free central bank money has only been derogatorily branded “helicopter money” by the vested interest banking fraternity to discredit it. It is inevitable that it’s day will come, preferably sooner rather than later a decade on after an even bigger almighty global crash. I do harbour hopes that Carney might just be a revelation – perhaps with a bit of help from Soros and Turner!

          • DozyHole

            You could be right about house prices not being able to drop further, but I am also aware that new builds are a small portion of the housing stock, private sellers are more free to reduce prices.
            But I don’t think prices will fall much now unless interest rates rise, which we disagree on, again, it’s only a feeling I have that we will get inflation soon(2-3 years).
            As for Carney, I read somewhere that he advocates banks printing up their own notes, I could be wrong. I think this would be a large backward step.

          • http://fishwickmains.com Peter Wilson Close

            I presume he doesn’t mean central banks printing their own notes which they do anyway so if he wants commercial banks to print their own notes there must be a catch in it against them! I guess he accepts we are unlikely to get full reserve banking – at least initially – so is he trying to tie them down with their own notes to be committed to adequate reserves? Say only allowed to issue notes if reserves are over 30%? Is this his carrot to get them in line rather than using the big stick?

          • montmorency

            With cash being already less than 3% of money in circulation? sounds like a bit of a gimmick, and since they already create their own electronic money, how would this change anything?

            One positive effect though, since it would mean a change in the law, there would have to be a debate in Parliament (unless the government managed to fiddle it, and it slipped through in disguise – not unheard of), so the subject of money creation would be on the open agenda at last.

          • montmorency

            ” I do harbour hopes that Carney might just be a revelation …”

            A former Goldman Sachs man? I’m not holding my breath.

            As for Soros the professional gambler, and Baron Turner of Ecchinswell, the poacher turned gamekeeper, I wouldn’t pin my hopes on those two, either.


            House prices are clearly too high – clearly they have risen out of all proportion to average incomes, and they need to come down. The “wage inflation” which people lightly talk about is

            a) not likely to happen in the present climate
            b) if it did happen, it would be likely to lead to general inflation
            c) it would not happen equally, i.e. there would be groups of people (large numbers of people) who would be left way behind, e.g. pensioners, those on minimum wage, employees in retail and small businesses generally.

            The days of property being used as a means of a relatively small number of people being allowed to grow exceedingly rich should be over for ever.

      • ralph

        It’s important here to distinguish between GYRATIONS in house prices, which full reserve would moderate, and on the other hand any factors which result in house prices being PERMANENTLY elevated.

        Much the biggest factor that PERMANENTLY elevates house prices is restrictions on planning permission. The price of the average house in the UK is about £160,000 and this is boosted to the tune of £45,000 by those restrictions according to this Policy Exchange study.

        http://www.policyexchange.org.uk/images/publications/making%20housing%20affordable%20-%20aug%2010.pdf

        I actually did my own back of the envelope calculations before I first came across the above Policy Exchange study, and got much the same £45,000 answer.

    • ralph

      I’ve done a detailed analysis of Kumhoff’s ideas here:

      http://ralphanomics.blogspot.co.uk/2013/05/full-reserve-la-benes-and-kumhoff-is.html

  • Harry White

    Listening to those economists who attended the Conferences of
    The Institute of New Economic Thinking (INET) sponsored by George Soros and within which Sir Adair Turner has become a Research Fellow it is obvious that they are embarrassed that their priest like knowledge, based on faulty theories that ignored the influence of money, failed to predict the 2008 Crash.

    At the last two Conferences Adair Turner, at least, acknowledged that the Chicago Plan should not be dismissed lightly and had some merit. Nevertheless, overall INET have not been convinced by the reforming organisations such as Positive Money that the privilege of creating broad money by the banks should be removed. Instead they have “Hyped” themselves up to recognising that they need to discover what they call a new Economic Paradigm. I suspect they mean tweaking the existing system but now ,at least, also recognising money is created when banks make loans and using mathematical creativity to show how the new theory could be used to regulate and predict dangers in real and investment sectors of the economy.

    In this Conference “Fixing the Banking System for Good” whilst not actually mentioning “A New Paradign” I felt that Adair Turner’s speech was influenced by this new line of thinking and he s probably hard at work developing this new paradigm of Economic
    Theory. As ETNIKs says he was very clever in not making outright criticism of
    the reformers but I felt his tone was to complement them on having a novel idea
    but possibly a hidden inference that the generally recognised “superior”mainstream
    economists, including himself, would in the course of time, arrive at the right
    answer to our economic woes. This I feel is unfortunate for Positive Money since Adair Turner is such an influential Economist who would have the ear of Government
    and MPs.

    As a non economist I am mystified by some of the speeches and writings
    of main stream economists – they effectively speak in a jargon that is
    effectively a foreign language – this seems to be their power. They seem to be
    obsessed with middle level mathematics but real scientific method seems absent.

    Conversely, I can clearly understand the criticism of thecurrent monetary system and solutions put forward by Positive Money as could any reasonably intelligent lay person if they are inclined to take an interest. I feel that additional reforms are also needed e.g. Investment Companiesengaged in trading on the secondary equity market should lose limited liability status and operate as partnerships, but at this stage the advocated reforms should not be overcomplicated.

    To conclude, I feel that the unfortunate stance of Adair Turner could be a setback to the PM campaign and means that it needs to vigorously continue building a critical mass of
    takesupporters from the general public before any significant numbers of MPs will take notice.

    take notice.

    • Simon

      Most people used to believe in witch doctors (some still do in Africa), and that the sun went around the earth. Galileo had real problems with the Catholic church for disputing the mainstream religious view. I do not believe in man made global warming, or at least have an open mind, despite it being a majority view. My devout Muslim friend believes earthquakes are “acts of God” and has never heard of plate tectonics. Unfortunately much of the population believe the rubbish fed to them in the main media and do little research for themselves, although I think this is changing with the Internet. Strongly religious societies in the middle east are going to find it more difficult as people get connected with phones and on the Internet, in the same way the Catholic church had trouble with science and the Renaissance 500 years ago. The banking priesthood and their economist cheer leaders are being found out, which can only be very good for society although it could take time.

    • http://fishwickmains.com Peter Wilson Close

      I would like to give Soros and Turner the benefit of doubt. I understand and accept your suspicions but was so excited by Turner’s speech – and his previous INET presentation on April 4th – that taken together with the somewhat inept but confirmatory offering from Michael Kumhof [deputy research head at IMF] I am forced to think a change is in the air. That Turner suggests modification of the status quo, to me suggested a realism that appreciated change would not be easy – if even possible. He is not going to self-destruct by going too far out on a limb which might snap off! On the other-hand there is no need for Soros to involve himself for financial gain so perhaps he has turned philanthropic in his twilight years and wants to be remembered as the one who helped expose and castrate the bankers!

  • ETNIKS

    For those of us who are serious about ending Fractional Reserve Banking, it is critical we understand what we’re dealing with, otherwise we won’t succeed.

    1- TODAY’S GLOBAL DEBT CRISIS WOULDN’T EXIST if banks were not allowed to use Fractional Reserve Banking.

    2- SOMEBODY IS BENEFITING FROM IT “BIG TIME” and control countries like puppets using debt as the weapon.

    3- THEY WON’T RELINQUISH POWER by just rolling over when we try to end their pillaging system. They’ll fight and they’ll do it using ANY means. We’re talking about immense power and wealth in the TRILLIONS of dollars.

    4- FRACTIONAL RESERVE MAKES IT IMPOSSIBLE TO AVOID A DEBT CRUNCH because it is inherent in the system. The more an economy grows, the more it needs money, and since the only way money can exist is IN DEBT, the bigger the economy, the bigger the debts.

    5- IN TODAY’S MONEY SYSTEM, THE CURRENCY TO PAY THE INTEREST IS NEVER CREATED, therefore there is ALWAYS more debts in the economy than money to pay them with. This is why it is a fraud. It puts everyone to scramble for the scarce cash to pay back our debts.

    6- FRACTIONAL RESERVE IS A PONZI SCHEME because it is unsustainable on its own, and requires an unending source of new outside “victims” to join the DEBTORS in order to keep it from falling.

    7- ELECTED GOVERNMENTS HAVE BECOME MERE ADMINISTRATORS for the bond holders who pressure them to extract wealth from the producers in the Real Economy, the entrepreneurs, the workers and their governments.

    8- ALL DEBTS THAT COULD HAVE BEEN AVOIDED IF GOVERNMENTS HAD CREATED THEIR OWN MONEY INTEREST-FREE, SHOULD BE DECLARED FALSE AND NON-REDEEMABLE. It is a no-brainer to see the obvious.

    WE’VE BEEN HAD, but we are waking up now and we can see THE TRUTH, so let’s act on it. They have the police, the army, the judicial systems and politicians corrupted, but we are armed with THE TRUTH that will disarm enough military and policemen to bring them into our camp of the people, of humanity, of the future, of civilization, of REASON!!!

    • nomiso

      ETINKS, you need to stop pussyfooting around and start speaking your mind more often!

      Yes I totally agree but thankfully I feel a Copernican revolution in understanding of the how current money system works is underway, now it just needs as many people as possible to realise how elite structures of power have so many years controlled the public through illegitimate debt.

      But like you and Harry White above I struggle to feel overjoyed when mainstream economists like Jeffrey Sachs, a man with so much blood and misery on his hands, and institutes like INET, funded by someone like George Soros, start talking about fixing the banking system. On the contrary I just tend to get highly suspicious, someone please tell me if that is wrong to feel that way? If there is ever going to be meaningful monetary reform working for the common good it is only ever likely to come from grassroots movements working from the bottom up.

      • nomiso
      • ETNIKS

        Yes I had read Matt Taibbi’s article where we can see how for decades the whole system has been a total farce, not only with Libor but every other “indicator” used to give signals to the “free markets” to behave.

        This means banksters and politicians have been sending whatever signals they want in order to produce a predetermined outcome benefiting THEM, not the Real Economy, not the people, and therefore the idea of “free markets” is an illusion.

        It is another inch on the crack opening of the door to see the light.

        ====

        Now, regarding your suspicions about the Cabal through Soros funding these meetings, I totally agree with you.

        We must come to be in awe of how smart these bastards are. All they do in their miserable lives is to think how best to manipulate us all as if we were lab-rats, to work for them even if we think we are working for us.

        The best way to control an outcome, just like Lord Adair Turner did in his presentation. is to be part of it, and then slowly, subtly start moving it out of its original direction towards the useless (for us the people) goal they have decided for us.

        It is up to us to see it for what it is and disregard it, but we’ll encounter many naive people who will go for the candy thinking they can benefit from their money without losing the cause they are supposedly supporting.

        Let’s not forget “the Chicago Plan” during the thirties was also very discussed but nothing came out of it, and this is what they expect this time again.

        Today we have the Internet and it is up to us to use our ingenuity to make it VERY easy to understand for the masses HOW we’re being milked from our hard earned cash by these extremely rich scumbags who are robbing us as we speak.

        The question is how is it possible that hundreds of years ago when we had no Internet, no Telephone, No TV… only the printing press, FARMERS were more aware of this horrendous problem than we are today as a society?

        In 1827 and 1833 the US elections were fought and won by Andrew Jackson having the end of the US central bank as the main issue, and finally in 1836 the president “killed” the bank as he put it.

        In Jackson’s long life this was his most dear achievement, and there was no other central bank until 1913.

  • ETNIKS

    For those who watched the Conference video, at the end during the last words a video was presented which we could not see, only hear. I include it below. It is powerful:

    Wealth Inequality In America
    http://www.youtube.com/watch?v=JTj9AcwkaKM

  • http://www.facebook.com/vince.richardson.56 Vince Richardson

    Slightly OT some mainstream news…. an encouraging one

    http://www.telegraph.co.uk/finance/currency/10036033/Osborne-passes-Trial-of-the-Pyx.html

    From the Daily Telegraph article on the testing of the mints new coinage….

    “”It would be easy to say this is no longer relevant anymore when money is
    created electronically,” Nick Harland, deputy clerk of the Goldsmiths’
    Company, told the Telegraph in February.”

    I know its a case of blink and you miss it but it hit me straight away.I wonder how many readers realised the huge implication of that simple sentence.Nevertheless it is there for anyone to witness.

  • Jeremy hawton

    Productivity is what gives the value to money. Therefore, charging interest is money creation. Why? Because there is no productive effort behind charging interest that merits it being payed back. Charging interest on a demand deposit should be banned, even in a positive money system.

  • Harry White

    Adair Turner has adopted a “disarmingly” sympathetic approach to monetary reform along the lines proposed by Positive Money but still sees some virtue in the retention of FRB with higher capital buffers. One of his arguments is that the UK Industrial Revolution probably occurred as a results of banks operating under a fractional reserve structure. However, he failed to point out that this revolution was also accompanied by periodic booms and busts resulted in investor losses and worker hardship during downturns.

    His most notable omission was not making reference to the change in company legal structure in 1850 in the UK – the LIMITED LIABILITY COMPANY. This legalised structural change also occurred in the US and other European countries within a few years. This extremely significant change unleashed huge investment capital from numerous smaller more risk averse investors and provided the engine of growth for the numerous large manufacturing and infrastructure companies that were
    formed at that time.

    It is strange that the latter phenomenon did not appear
    to have been mentioned in his speeches because it could have had a greater
    influence on the UK lead in the Industrial Revolution than Fractional Reserve Banking.
    Have anyof this topic commentators any views or relevant data on the relative
    influences of the emergence of the Limited Liability Company versus Fractional
    Reserve Banking?

  • Harry White

    Adair Turner has adopted a “disarmingly” sympathetic approach to monetary reform along the lines proposed by Positive Money but still sees some virtue in the retention of FRB with higher capital buffers. One of his arguments is that the UK Industrial Revolution probably occurred as a results of banks operating under a fractional reserve structure. However, he failed to point out that this revolution was also accompanied by periodic booms and busts resulted in investor losses and worker hardship during downturns.

    His most notable omission was not making reference to the change in company legal structure in 1850 in the UK – the LIMITED LIABILITY COMPANY. This legalised structural change also occurred in the US and other European countries within a few years. This extremely significant change unleashed huge investment capital from numerous smaller more risk averse investors and provided the engine of growth for the numerous large manufacturing and infrastructure companies that were
    formed at that time.

    It is strange that the latter phenomenon did not appear to have been mentioned in his speeches because it could have had a greater influence on the UK lead in the Industrial Revolution than Fractional Reserve Banking. Have any of this topic commentators any views or relevant data on the relative influences of the emergence of the Limited Liability Company versus Fractional Reserve Banking?

  • Harry White

    Most followers of this topic will be supporters of the PM
    Monetary Reform Proposals. At this time. however, Fractional Reserve Banking is legal.

    In this context since there are calls for more high
    street banks to compete with the 4/5 International giants that have a virtual
    monopoly of UK Banking. I am interested in

    (1) What government organisation grants a licence to a new bank? – Treasury, FSA, BoE?? (

    2) Are there different allowable types of Banks ? for examp,they might be as follows:-

    (a) A bank that can operate full reserve activity and is a true intermediary between savers and lenders like old time building societies or possibly like credit unions

    (b) A bank that can operate with FRB but are not admitted to the BoE interbank clearing system

    (c) And of course a bank similar to the big 4/5 operating FRB and being members of the inter bank clearing system.

    3 “Googling “has not helped me in answering the above questions and the characteristics of some of the banks that I have described are likely to be invalid. CAN ANY TOPIC COMMENTATOR WITH IN -DEPTH KNOWLEDGE OF CURRENT BANKINGPRACTICE THROW LIGHT ON THESE OPAQUE ISSUES?

    4 Following on from the above I have two technical questions

    (a) Can what I will refer to as Secondary Banks borrow from the main banks?

    (b) Are depositors/savers in such secondary banks covered by the £85,000 taxpayer protection in the event of bankruptcy of such banks.

    5 Also, what could be described as a Political/ Public nterest question.

    Currently RBS is mainly government owned and since it is making a profit there is talk that it should be reoffered to the market even if the original government bailout is not fully recovered. Couldn’t it be argued that since the major banks fail to provide adequate liquidity to the SME’s in the productive sector, for reasons that we are all aware, that the Government buy up the remaining shares . With all the shares in public ownership the bank could be be operated by its management as a Public Bank of the United Kingdom similar to the State Bank of North Dakota. Such a bank could support viable SMEs and the profit would be a continuous income stream to the Exchequer rather than a one off capital inflow.

    I apologise if I have submitted a poorly designed “examination paper” but any useful insights from this topic commentators may remove some or all of my concerns about these banking issues.

  • mitaky

    Contemplate the Millennium Koan 2012
    http://conscious-capitalism.blogspot.com

  • mitaky

    US Justice Department reluctant to prosecute corrupt financial institutions due to perceived negative impact on US and Global Economy. Do you agree? Watch First 10 minutes. http://www.aljazeera.com/programmes/insidestoryamericas/2013/05/2013525103017186999.html

    • Dennis Crane

      Have you ever heard of crony capitalism? Who do you think are the cronies? Who do you think capitalizes them and with whose dollars? Only a foolish left hand prosecutes it’s right.

      • OTObamaTruther

        Isn’t ‘crony capitalism’ the term Fabian Socialists use to perpetuate the fable of evil capitalists/benevolent socialists.

        They will make the host lethargic enough to enable the slower parasites to hop on board and feed but they won’t kill the host, they will assure it’s survival.

  • Dennis Crane

    The money which is created is a number in a book. When the “money” is repaid the number is taken off the books. But the interest is real and ruinous. The idea that artificially lowering the interest will somehow make things more fair is an additional ruin.
    Money becomes scarce and the central banks use it for other than lending purposes. Scarce money precipitates business failures and unemployment. The system is corrupt and should be scrapped. However, the billionaires who profit greatly from the process will allow no such revolution.

  • Dennis Crane

    I suspect Mr.s Soros and Turner profited greatly from the 2008
    “debacle”. So would it be correct to say they misjudged?

  • planckbrandt

    Yes, not so sure about INET. We know Soros’s money comes from the system exactly the way it is. They are equivocating. Yeah yeah new economic paradigm. There will be no new economic paradigm as long as money remains fractional-reserve debt-money creation in private centralized self-interested hands. And, with public debts tied to their own prerogatives. Maybe Turner needs that job. Not sure. Too bad.

  • Dennis Crane

    ruining millions of people hardly seems philanthropic.
    You should look at your basic premises. Free markets enhance the upward mobility of millions of people. They depress almost none. Each distortion of the market costs in unseen ways. Bastiat, Hayek or von Mises could dispel some fog.

  • Dennis Crane

    Bravo Simon: The wizard behind the curtain is making slaves. The trick only works because the slaves don’t find out. A place to start finding out-where the curtain begins-
    is the beginnings of the World Bank and the IMF. Look at the connection between the world bankers and the Fabian Socialist Society. Check out their motto and their symbol-the wolf in sheep’s clothing.

  • http://fishwickmains.com Peter Wilson Close

    Dennis, I’ve just read/re-read your other posts and whilst you write a lot of sense you fail to consider the basic problem that successful, and therefore expanding, economies need an expansion in money supply to function. Where this money comes from is crucial to how the economy operates. i.e. democracy, quasi democracy, dictatorship, monarchy, totalitarian state etc. Someone has to dictate how the money is created and where it is directed. In many of the above the citizen could be totally side-lined. with at least some fractional reserve facility this can, to some extent be addressed – if not safeguarded.

  • http://fishwickmains.com Peter Wilson Close

    Much of the necessary money in circulation in the UK from 1970 should have come debt free from central banks as capital spending and lower taxes. However the failure to ensure an adequate expansion of M3 opened the door – together with deregulation of course! – for the banks to take up the shortfall – and more! As you clearly know the problem with money creation as debt by commercial banks is that when things look good they “expand their balance sheets”, create too much and thereby promote inflation and asset bubbles. When it all goes pear-shaped they “reduce their balance sheets”, the money disappears again and we have recession, bank bail-outs and on-going depression. It’s time for change! debt free money can easily solve the fiscal problem but private debt is a different matter. to get out of this depression in an orderly fashion we desperately need some wage inflation and progressive re-financing of the private sector and preferably involving a move away from the credit card fiasco. I have severe forebodings of problems ahead since all of my numerous credit card providers seem to be trying to ladle out increased limits at the moment.

  • Dennis Crane

    The funny money just retires an entry in a book when it is repaid. The profits from lending come because the interest is real money. When very highly leveraged funny money is loaned, even at low prices, the very real interest makes for tidy profits.
    Reducing interest just assures that non-leveraging lenders can’t afford to lend. So the funny money pervades the whole system. Since it is more profitable to do carry trade and other sleight of hand investments with the leveraged funds, regular borrowers for small business or home loans…can’t find money. This creates an eventual shortage of money for employers and lowered employment is the necessary consequence.
    The slack in employment is taken up with an abundance of govt. supplied food stamps, unemployment insurance and other govt. services. This converts more and more of the workers into state clients who are then a reliable vote for larger government. Funny money is the cutting edge of the slave making factory.

  • Dennis Crane

    Well you are right. Ludwig von Mises suggests a slow depreciation. He goes into a lot of reasoning in Human Action. He thinks a solid money base like gold and silver can gradually increase in value which makes savings and lending from savings (which is ethical) possible and workable
    .My view is slightly different. I think each country should keep close account of it’s increase in production and simply create an amount of money equal to the previous years economic growth. This would provide some money for government spending (enough I think) and would put politicians and the creation of laws solidly on the side of the productive elements of society.
    Of course, the government sponsors wouldn’t like this system as it deprives them of crony capitalist profits. It is precisely those crony profits which must be curtailed if we are to create a fair and decent society.
    Thank you for your post, Dennis Crane

  • Dennis Crane

    I suspect you have already provided a solution.
    I read the BAO and it makes sense-however.
    It also provides some very potent reasons-people reasons-it would be hard to initiate.

  • Dennis Crane

    Interesting. As to house prices: I think they have been artificially lowered (via lowball appraisals) so that the banks can strip out the equity and recapture the home ownership which appreciation has produced. My proof is two-fold 1. Houses can be purchased and rented out at a profit-first time in my 67 year old life. 2. At least in San Diego, in costs more to build a house than it is worth when you are finished. Of course this will slow house building at put more and more people in the existing houses. I think this is just what the slave makers/bankers…want. Once they recapture ownership they can begin to unwind to lowball appraisals and realize large resale profits.
    I don’t think this will change until a major correction (probably huge inflation) occurs.
    Nice comments you are making, Dennis Crane

  • Dennis Crane

    Yes, we don’t have free markets. But free markets are not an illusion. Free markets are made to serve cronyism and the super rich by the distortions added to the free markets.
    Interestingly, it is those who preach the loudest about all the good things they will do for others who have their finger on the scale. I mean among Politicians of course. Well also among the super rich. I find it interesting that Mr. Buffett says loudly and repeatedly that the rich should pay more taxes while he avoids them altogether for about 1/2 his income and pays a paltry percentage (I heard .6 percent) less than 1 percent on the other half. This is typical of the wolf in sheep’s clothing which is the symbol of the creators of the IMF and World Bank, the Fabian Socialist Society. Of course your mention of Soros is to the point.
    Best, Dennis Crane

  • Dennis Crane

    I am afraid you have put your pointy finger precisely on the point. I see only one way out and I don’t think that will work to the people’s benefit.
    I think we will print or issue, massive amounts of new money in order to create huge inflation. Unfortunately I suspect this will go through banking hands and take a long torturous path to the common use. Now if we just printed dollars and paid the debt we could get out of this but the bankers would scream. Get out of short term flexible debt and currency is my advice.

  • Dennis Crane

    I agree with you. I have heard mention of the London School of Economics and JM Keynes. Well they are the very elements who gave us the IMF and the World Bank. The Federal Reserve is a typical outlet of that group. So how can the fix come from there? It was the Fabian Socialist Society
    who created and is using the IMF to slowly and by stealth, recreate the slave conditions which were so universal before our Republican Nations came along. I mean Nations which are Republics-which is to say Nations of Laws rather than Nations of Men of power and wealth.

  • Dennis Crane

    Exactly to the point. Thank you.

  • Dennis Crane

    Mr. Close I agree:
    I disagree with the basic premise that house prices are too high.

    1. It is not just housing but fuel, gold, cigarettes and bread that have gone up. This doesn’t reflect high house prices but low money value. In 1965 a gallon of gas was around 25-30 cents-over $4 now. That is a 10-15x increase. My father’s house was 20,000 now about 200,000. That shows a decrease in dollar value.

    2. Furthermore, house prices are so low relative to rents that you can buy a house and rent it out at a profit over the mortgage. You couldn’t do that in 1965.

    And 3. The cost to build a house (in San Diego) is more than the house is worth-per appraisal. This is not valid economics. This is a created effect.

    So, the premise is flawed on several measures. Yes as a percent of wages they are higher. This shows that wages have lagged. That’s what happens when you tax labor with income tax and allow imports from slave economies (like China) to come in free. Wages decrease relative to goods at about the rate of taxes. Pretty significant over time.

    Now, why would this false premise be pushed and how.

    1. Banks dislike increasing equity as it represents a type of wealth that lessens the need for borrowing-especially borrowing at higher rates.

    This is especially important when you have huge amounts of money created by enormous leveraging. Banks need poor borrowers who are barely capable of repaying their loans.

    2. As to how, simple, first you get a lot of talking heads to agree that there is a bubble. Then you start lowering appraised values-which the banks control.

    There is as well, a further factor operating to lower values. That is the decreasing % of employed people. I’m not talking about unemployment, I’m talking about the shrinking number of employed.

    That is steadily decreasing and as a consequence there is less demand for single family homes. The unemployed move in with granny or….

    So, even though houses are not really over-priced relative to other commodities, and the value of money, there is a shrinking demand and an intentional depression of housing prices. So house prices have declined. Wrongly and unfortunately so. Houses are the middle class saving haven. Their decrease spells the beginning of the death of the middle class. Income taxes will continue to depress wages and low house prices will wipe out equity. Presto fewer and fewer middle class savers.

    Another way of depressing the middle class is the lowering of interest rates. As interest declines (by decision from above rather than thru market forces), there is less lending for venture-small business and housing. Goldman Sachs will continue to pay an average wage of about $600,000 annum while the middle class withers.

    I’m getting away from the subject. Please consider that house prices are not too high. Money is becoming worth less because banks are making way too much money by fractional reserve lending and double entry bookkeeping
    magic.

  • Dennis Crane

    At the risk of repetition: prices are not too high. Money is sinking in value because there is too much of it being created in order to gain the interest.

  • Andrew Buckley

    I agree on Buffett. The whole, “Well those are the incentives. I am a business, after all!” argument is just not going to cut it. All the same, we should use his generous offerings of support, and then cut him and his tax evading accountants out of our credibility radar when he says something we don’t agree with. Hypocrites deserve to have their hypocrisy used against them.

    As for whether or not these lectures display people actually doing their best for reform, or just pretending… I think the former, but with some groupthink to temper the degree of reform. One must applaud Michael Kumhof for consistently drumming it in. “Banks create money when they make loans.” Later obfuscation regarding mutual funds, and dreadful explanations about debt “forgiveness” (but not actually) were a bit concerning, but lend themselves to my point: these people have to explain their proposed solutions to groups of other people who are still fervently clinging on to their delusions about how the current system operates.

    They’re not all evil! People who’ve done well by the system find it very difficult to see the suffering of others as a direct consequence of an exploitative setup. It is easy to see why: they and their friends are complicit in its operation. The few who do see it for what it is don’t care, or are gently trying to win over their fellows (you can’t be too forceful, or you’ll become a crackpot).

  • Andrew Buckley

    This idea of linking money to some measurable output might be a sensible proposal, but I’m hesitant to support the public surrendering its ability to manage the economy.

    I must stress that free markets should not be conflated with currency. This neo-liberal obsession with free markets (Hayek in particular) is infuriatingly idealistic, and completely ignores the power differentials that financial inequality represents.

    “Distortions of the market cost in unseen ways.” You mean, in the sense that no one can articulate what they are? The Austrian suggestion that we should prostrate ourselves to the market seems, to me, a malicious euphemism for learning our place. It also seems to suggest that when we trade, the market acts through us, as if our own decision making were driven by a mysterious force.

    I’m sure you didn’t mean it that way, but I have to ask if you’ve analysed the assumptions of classical economics (those which lead to these “mathematically supported” claims of market perfection)? You might be surprised how flimsy they are.

  • Andrew Buckley

    Anyone who thinks economics played a significant causative role in the industrial revolution needs their head screwed back on. People forget that material change comes from science and technological innovation. The economics follows.

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