Spain - Next For The Brussels Muscles?

[Truth Seeker]

 

 

I haven't made the point clear, Money disappears when loans are paid back, you may have heard economists say there is a contraction in the money supply, what they are telling us is loans are being paid off but not enough new loans are being created.

That is one thing that can cause contraction in the supply. There are others, eg raising reserves, govt/central banks selling bonds.

The only money that circulates is the 3% of the paper and coin money, The debt/money that is created out of thin air disappears when the principle is paid back, its gone, there will never be enough money to pay the interest, the way to keep the Ponzi scheme going is to create more loans.

That's not really the case. The money that circulates is real money, it doesn't matter if it's paper or coin or on a bank balance sheet, it's still real money. The important part is if it's sitting in reserve doing nothing, or being circulated. I don't understand your assumption that there'll never be enough to pay off the interest. The money loaned out is used for making more money, and that pays the interest. Why do you think it'll be lost somehow?

That increases the supply of money but also increase the amount of interest, eventually the increase in new loans has to fall, thats when the Ponzi scheme come to a end.

That's not a ponzi scheme. It's not a closed loop, the system doesn't rely on new money paying off old.

To sum up, there is not enough of this debt/money to pay off all the interest.

There doesn't need to be, as there are multiple ways of controlling the supply of money.

Yes indeed, if Fractional Reserve Banking was banned over night, the supply of money would drop, so it needs to be replaced with a system that keeps the supply of money more stable. by money I mean the ones in bank accounts, the paper and coin money is fine.

 

Could These 3 Simple Changes to Banking Fix the Economy? http://www.positivemoney.org/

[Slim]

Yes indeed, if Fractional Reserve Banking was banned over night, the supply of money would drop, so it needs to be replaced with a system that keeps the supply of money more stable. by money I mean the ones in bank accounts, the paper and coin money is fine.

 

Could These 3 Simple Changes to Banking Fix the Economy? http://www.positivemoney.org/

Woah, that's some leap. Fractional Reserve Banking is a way of creating liquidity through debt. You need debt, it oils the wheels. Any time anyone's tried to remove these systems people have created their own to replace them. The nonsense positive money are spouting has been argued since money was first used, these aren't new views. They're still wrong.

 

Look at bitcoin, that's largely what you're talking about and it's got a liquidity problem. It's hoarded and not spent. It's not the solution.

 

That's not to say there aren't issues with the current system, we'eve seen that with the crisis. Bad debt, bad risk management, complex instruments etc. Can be improved, but I don't see how you'd replace it.

[Truth Seeker]

 

 

Yes indeed, if Fractional Reserve Banking was banned over night, the supply of money would drop, so it needs to be replaced with a system that keeps the supply of money more stable. by money I mean the ones in bank accounts, the paper and coin money is fine.

 

Could These 3 Simple Changes to Banking Fix the Economy? http://www.positivemoney.org/

Woah, that's some leap. Fractional Reserve Banking is a way of creating liquidity through debt. You need debt, it oils the wheels. Any time anyone's tried to remove these systems people have created their own to replace them. The nonsense positive money are spouting has been argued since money was first used, these aren't new views. They're still wrong.

 

Look at bitcoin, that's largely what you're talking about and it's got a liquidity problem. It's hoarded and not spent. It's not the solution.

 

That's not to say there aren't issues with the current system, we'eve seen that with the crisis. Bad debt, bad risk management, complex instruments etc. Can be improved, but I don't see how you'd replace it.

You are right Fractional Reserve Banking is a way of creating liquidity through debt. Which is the boom time, but then you get the bust. When the money supply contracts because people and business can't pay the debt back. One idea is to let the banks keep not just the interest but the principle of the loan as well, the catch being the reserve ratio would be 1 to 1 in other words for every 1 pound in the bank they can loan out 1 pound. This would take time to work its way through the system, so the Bank of England would be responsible for making sure the banks can get loans from the BOE to keep there reserves up. Eventually the money supply would be stable. As for the Bitcoin example it's not that easy to spend it on goods. I looked at a online map of where you can spend Bitcoin on the IOM, it showed only 1 place, so its not much use at the moment, until people accept it for payment of goods and services.

 

http://www.bitcoinmaps.org/

[pongo]

@Truthseeker

 

Niall Ferguson's Ascent Of Money: A Financial History of the World is a really good introduction to the how and why of the banking system. In particular the genius of The Fractional Reserve system and how it creates liquidity / money supply.

 

It would be a good place to start before reading about alternative scenarios.

 

ETA: there is some good stuff about how the US system of quickly writing off bankruptcy encourages business

 

I haven't responded to your previous points because Slim already addressed them accurately.

[Truth Seeker]

@Truthseeker

 

Niall Ferguson's Ascent Of Money: A Financial History of the World is a really good introduction to the how and why of the banking system. In particular the genius of The Fractional Reserve system and how it creates liquidity / money supply.

 

It would be a good place to start before reading about alternative scenarios.

 

ETA: there is some good stuff about how the US system of quickly writing off bankruptcy encourages business

 

I haven't responded to your previous points because Slim already addressed them accurately.

As I've said before it does create liquidity when more people and businesses take out more loans, but that can't go on for ever, as amount of new loans drops the liquidity drops. Banks think charging interest on money created out of thin air, is a great idea, until the system crashes then they demand bail outs. Getting back on topic, the post I made about Spain charging a Tax on bank deposits, may cause the big depositors to move money to other overseas banks, which will mean the Spanish banks will find it harder to make new loans, which will contract the liquidity further.

[Slim]

You are right Fractional Reserve Banking is a way of creating liquidity through debt. Which is the boom time, but then you get the bust. When the money supply contracts because people and business can't pay the debt back.

Hang on, you said not two posts ago that money supply contracts when debt is paid back - the exact opposite of what you're now saying.

One idea is to let the banks keep not just the interest but the principle of the loan as well, the catch being the reserve ratio would be 1 to 1 in other words for every 1 pound in the bank they can loan out 1 pound. This would take time to work its way through the system, so the Bank of England would be responsible for making sure the banks can get loans from the BOE to keep there reserves up. Eventually the money supply would be stable.

But that would mean vastly reduced liquidity and effectively more hoarding of money. The banks wouldn't loan because the reserve requirements would be too steep.

As for the Bitcoin example it's not that easy to spend it on goods. I looked at a online map of where you can spend Bitcoin on the IOM, it showed only 1 place, so its not much use at the moment, until people accept it for payment of goods and services.

 

http://www.bitcoinmaps.org/

I'm not sure why this point is relevant? I raised bitcoin as an example of something with poor liquidity because it can't be loaned, nothing to do with spending it.

As I've said before it does create liquidity when more people and businesses take out more loans, but that can't go on for ever, as amount of new loans drops the liquidity drops. Banks think charging interest on money created out of thin air, is a great idea, until the system crashes then they demand bail outs.

That's more because they've got the ratio's wrong than the system being inherently flawed.

[woody2]

Spain is mainly a cash economy, most jobs are not on the books

[Lxxx]

You can't introduce something like charges on deposits without implementing some form of capital controls, as capital will flow to wherever it gets the best return so the big institutional money will just leave the country, having the negative effect it was trying to avoid. The whole system is flip flopping around trying to plug the holes in the dyke and as everything is connected a decision in one area results in a bubble elsewhere. All the while governments are trying to raise taxes everywhere to grab more of the pie, again meaning less liquidity at a time when they need economic growth. It's absurd.

[John Wright]

Spain is mainly a cash economy, most jobs are not on the books

That just isn't true.

[woolley]

 

Spain is mainly a cash economy, most jobs are not on the books

That just isn't true.

There is a hell of a lot of it, John. I can assure you.

[woody2]

 

Spain is mainly a cash economy, most jobs are not on the books

That just isn't true.

and what is your expertise in this area?

[John Wright]

I've owned property in Spain for 10 years. I'm in Spain now. I've had building extensive work done. I employ spaniards. Yes, like IOM there is a cash economy, people hate paying VAT and Social taxes but the vast majority of those who are working or running businesses are legit, issue invoices etc. some of the unemployed, especially those out of work for 12 months or more, who lose benefits, will work cash in hand, yes in tourist areas there lots of crime directed at tourists.

 

But look at the official size of the economy and contrast the population and unemployment rates (it's somewhere between the 11 to 15th largest industrial economy, depends which stats you read) and it's clear that the economy is mainly legit, not mainly cash.

 

Woody, you used mainly, which means 50% plus, as your descriptive adjective of choice. You've now retreated to a hell of a lot, I'd say there is some. There is some in most places.

[Thomas Jefferson]

No need to worry... Spain will be Muslim in 5 years. Muslims don't do interest.

 

They do -- they just use a lot of equivocation and waffled nonsense to get around the prohibition.

[Thomas Jefferson]

Interesting graphic, but in reality the UK is much, much further down the road of becoming a caliphate than Spain.

 

Very true.

 

[hillshepherd]

I've owned property in Spain for 10 years. I'm in Spain now. I've had building extensive work done. I employ spaniards. Yes, like IOM there is a cash economy, people hate paying VAT and Social taxes but the vast majority of those who are working or running businesses are legit, issue invoices etc. some of the unemployed, especially those out of work for 12 months or more, who lose benefits, will work cash in hand, yes in tourist areas there lots of crime directed at tourists.

 

But look at the official size of the economy and contrast the population and unemployment rates (it's somewhere between the 11 to 15th largest industrial economy, depends which stats you read) and it's clear that the economy is mainly legit, not mainly cash.

 

Woody, you used mainly, which means 50% plus, as your descriptive adjective of choice. You've now retreated to a hell of a lot, I'd say there is some. There is some in most places.

i'm afraid you must be amongst the 1% who are legit,i personally know of 3 people from the iom who have used dinero negro for their spanish property transactions,and one of said parties used one of our illustrious abogado's of athol st to peruse/advise on the legal contract,another is a relative "fact", so you must be one of the few mugs in spain who pay their taxes! re your note on size of country and unemployment, spain has one of the worst unemployment rates in the "modern world" ffs russian unemployment is only 4.9% spain is 25.9% with youth unemployment hitting nearly 56%,so regardless of your blinkered europhile view on this subject "woody is not far out.