Who controls the money?

[Cranky]

This is about the US but we run under the same type of system. Every time the government prints mor money, it devalues what you have.

One of my concerns is how do rising real estate prices affect our economy. I am not an economist but here is what I figured out. If one has $100,000 and goes tpo borrow another $200,000 to buy a house, he is basically creating $200,000 of value to the economy. In theory, that money is comming out from the savings of people who have put money in the bank. IN THEORY. However, if average debt is GREATER then the savings people have, HOW CAN THE BANKS POSSSIBLY HAVE THIS MONEY TO LOAN?

My "confusion" is not really that complex to understand. If people had the money to buy the goods, then there would be no loans. However, if people do not have the money and they go to the bank to borrow these massive amounts of money, where the hell does the money come from? Foreigners? Tooth Fairy? Santa Claus? How? In Ontario, there was 40 billion dollars in real estate construction in 2005. If the average loan was 70% of this total investment, then there had to be 28 BILLION dollars of savings in the banks. That sounds possible BUT there is a catch. The year before that, an almost equal amount of money was borrowed, same thing for the year before that, and the year before that one too. So now you have $760 billion dollars of debt of ALL CANADIANS (Besides the half trillion Federal Debt.) WHERE did all this money owed to the banks come from? Certainly not from Canadians saving it otherwise there would be no personal debt. One mutually excludes the other.

Anybody have any answers?

Anywho....this film is very interesting. While it's intended for a US audience, I believe it raises the same questions here.

video.google.com/videoplay?docid=5232639329002339531


Some interesting stats....

www.philippinenews.com/news/view_article.html?article_id=6e880fef7bb5291e2b684a93ec7f8eec

[princelh]

Inflation. The price of commodities always rise and never fall below a certain level. Food, fuel, lodging always go up in price. If they fall and devalue to a certain level, you have a recession. If they fall to an even lower level, you have a depression. Money is always devaluing over time. That is why you see peso's being sold at 50 to 1 U.S. dollar, 60 to 1 U.S. dollar, etc. The U.S. federal reserve makes money, by using interest rates that determine how much credit is worth. Tighten the money supply with higher interest rates, and more money flows in to the federal reserve bank. The value of the money appreciates with highter interest rates. Same goes for the World Bank in Brussels.

[Skilly]

Let's not forget that not all debt is from Canadians either .... foreigh aid from multi-national corportation is also apart of it, as well as the federal government "loaning" money to other countries.... and so on.

[HABsurd]

habsaddict said:

This is about the US but we rund under the same type of system. Every time the government prints mor money, it devalues what you have.

One of my concerns is how do rising real estate prices affect our economy. I am not an economist but here is what I figured out. If one has $100,000 and goes tpo borrow another $200,000 to buy a house, he is basically creating $200,000 of value to the economy. In theory, that money is comming out from the savings of people who have put money in the bank. IN THEORY. However, if average debt is GREATER then the savings people have, HOW CAN THE BANKS POSSSIBLY HAVE THIS MONEY TO LOAN?

My "confusion" is not really that complex to understand. If people had the money to buy the goods, then there would be no loans. However, if people do not have the money and they go to the bank to borrow these massive amounts of money, where the hell does the money come from? Foreigners? Tooth Fairy? Santa Claus? How? In Ontario, there was 40 billion dollars in real estate construction in 2005. If the average loan was 70% of this total investment, then there had to be 28 BILLION dollars of savings in the banks. That sounds possible BUT there is a catch. The year before that, an almost equal amount of money was borrowed, same thing for the year before that, and the year before that one too. So now you have $760 billion dollars of debt of ALL CANADIANS (Besides the half trillion Federal Debt.) WHERE did all this money owed to the banks come from? Certainly not from Canadians saving it otherwise there would be no personal debt. One mutually excludes the other.

Anybody have any answers?

Anywho....this film is very interesting. While it's intended for a US audience, I believe it raises the same questions here.

video.google.com/videoplay?docid=5232639329002339531


Some interesting stats....

www.philippinenews.com/news/view_article.html?article_id=6e880fef7bb5291e2b684a93ec7f8eec

Where is all this money coming from? Well, from all of us. Each year the Canadian economy generates $1.2 Trillion in new wealth. Canada is also has a significant advantage over the US in two ways: Canada has a consistent positive current account balance and healthy exports, as well almost all the money owned by the federal/prov. gov't is owned to canadian institutions.

The US is plagued with negative current account balance and much of their debt is owned to foreign banks etc. The one thing that is saving the american economy, their most succesful export if you will, is the american dollar which other countries purchase for their international transactions. However, budgetary pressure in the US (the $1.2 Billion spent on the Iraq war doesn't help) means that the US needs those dollars domestically.

Hope you can sleep better at night now.

[Yossarian]

This book: www.realityzone.com/creatfromjek.html, is a little over the top some times, and gets quite argumentative, but is an interesting read. Its an author's crusade against the Federal Reserve, and the chaos it creates by creating "fiat money" (money with no precious metal backing).

[Cranky]

habdomen said:

Where is all this money coming from? Well, from all of us. Each year the Canadian economy generates $1.2 Trillion in new wealth. Canada is also has a significant advantage over the US in two ways: Canada has a consistent positive current account balance and healthy exports, as well almost all the money owned by the federal/prov. gov't is owned to canadian institutions.

New wealth? You are defining GDP (gross domestic product) as "wealth'?. The GDP is not even close to being "wealth". It is the goods and services of any and all kinds.

GDP = Consumption, Government Spending, Insvestments. Exports and Imports (plus or minus)

Canadian institutions own us, that's for sure....

There is the problem right there. How did these institutions create all this "money" by what mechanism? How about this, money is created out of thin air by BANKS. As much as THEY want. We have NO control. We just slave away trying to earn it.

Here is an article....or two

~~~~~~~~~~~~~~~~~~

Introduction

Where does your money come from? You do favours for other people, and in return they give you money. They in turn got their money by doing favours for people in return for money. But where did the money come from in the first place? In Canada, it comes from two sources:

The Bank of Canada, owned by the federal government.
The chartered banks, such as the Royal Bank of Canada and the Toronto Dominion Bank.
Both these groups have the legal right to create money out of thin air without doing anyone a favour in return.
You were probably aware the Bank of Canada can just print money or create it by entering a line in a ledger, but you might be surprised to learn the chartered banks can do so as well. This was not always the case. Prior to Prime Minister Mulroney, banks were required to maintain an 8% reserve. This allowed them to lend the same money out 12.5 times. Mulroney dropped the reserve rate to 0%. This means banks can lend out as much money as they please, even if they have nothing to back it. (In the USA, reserves are 3% for current accounts and 0% for savings accounts).

When you consider how serious a crime counterfeiting is, it is rather odd for the government to have effectively handed over the printing plates so that banks can create money too. Unlike the Bank of Canada, the banks don't literally print money; they create it out of thin air with a ledger entry any time they lend money.

It is a strangely generous act of the federal politicians to the Canadian banks who were Canada's most prosperous institutions even before this boon.

Inflation
Isn't creating money inflationary? Yes, of course. Further, it does not matter who does the creating; both kinds of money, Bank of Canada and chartered bank, are equally inflationary. Not all inflation is bad; you need a certain amount of expansion of the money supply to allow an expanded economy to function. However, out of corruption and kickbacks, the federal politicians have handed over control of the money supply to the private banks. When the Bank of Canada creates money, the federal government gets to spend it on programs like education, health and defense, or debt reduction or reduced taxes. When the banks create it, the money goes to the bank shareholders.
The Sneaky Flat Tax
When the Bank of Canada prints money, it lends it to the federal government at some nominal interest rate. But since the federal government owns the Bank of Canada, it gets dividends, so effectively it gets the money and interest free. Releasing new money into circulation slightly inflates the giant pool of money in circulation, so, in effect, everyone who owns Canadian dollars already, pays for this new money through inflation of their slightly less valuable holdings. Printing money can thus be looked on a sort of sneaky flat tax you can't wriggle out of no matter how clever your tax lawyer.
The Banks’ No-Win Game
When banks create money, they effectively tax everyone to pay for it with inflation, the same as the federal government. But when they create money to lend they simultaneously put a debt on their books with the interest owed. So eventually they get that money back plus interest. Now imagine this game played over and over millions of times. For every $100 the banks create, they create say $150 in debt. Where is the money to come from to pay the interest? The banks create debt at a much faster rate than they create money. There mathematically isn't enough money in total to pay off all the debt. Somebody has to default! The banks have designed the system so that defaults and bankruptcies are mathematically inevitable. They usually come in waves we call recessions.
It is amusing watching the banks so vigorously go after deadbeat creditors for principle and interest, when the money the bank lent cost them nothing in the first place, and when they set up the rules by which a certain percentage of people mathematically had to default. It is a bit like a game of musical chairs.

The banks have the cheek to create the money they lend out of thin air, but insist on being paid back the principal and interest in real money, earned with the sweat of the brow.

How Crooked Are They?
Paul Martin, the Liberal Leader, had yet another sweetheart deal with the banks. Instead of “borrowing” money from the Bank of Canada at effectively no cost principle and interest, he borrows it from the chartered banks at the going interest rate. Presumably Stephen Harper is continuing the practice. Both cause equal inflation. Why would he blow billions of the taxpayers' money so needlessly? Just look at the favours the banks do Martin at election time to repay his generosity with your money.
LETS
In Argentina, the major banks such as Citibank and the Bank of Nova Scotia simply fled the country with the deposits and left everyone high and dry. The people turned to a local-currency barter system when the government peso failed. With computers, it is possible to streamline barter, using local electronic currency. There are many ways to set up a LETS (Local Exchange Trading System).
In one scheme, scheme, LETS money can be created simply with a transaction. When A sells B a good or service, A's account in incremented and B's is decremented by the amount of the sale. The total balance of all accounts is still 0, just like a bookkeeping general ledger.

One big advantage of a LETS scheme is that it recirculates money in the local economy and encourages people to buy locally produced goods and services. It can function no matter what the IMF, crooked politicians and big banks have done to the national currency.

The Way Out
Part of the solution is to make the banks retain reserves as they did prior to the corrupt Mulroney administration. The government should remain in firm control of the money supply. The bonanza from printing money should accrue to the taxpayers, in the form of reduced taxes or improved services. It should not be handed over to the private banks. They are powerful and rich enough. They got this bonanza through crooked means and it should be taken away. The savings would be so drastic, that Canada could abolish the hated GST or institute a guaranteed annual income.

Nature teaches us that the more diversity there is in an ecosystem, the more stable it is. Nature teaches that if you want something not to fail, you have to have a backup system, and a backup system to that. Putting all your eggs in one basket is a recipe for disaster. So it seems to me, the solution is to develop and use three parallel currency systems: local, national and international.

~~~~~~~~~~~~~~~~~~~~~


Canada: Class Action Accuses Banks of Illegal Creation of Money
Categories
Economy

John Ruiz Dempsey, criminologist and forensic litigation specialist filed a class action suit on behalf of the People of Canada alleging that financial institutions are engaged in illegal creation of money, reports Tom Kennedy, a Canadian activist for economic reform.

One of the best kept secrets is the mechanism of money creation in today's economic system. Although not really a secret at all, the fact that money is created not by and for the people who use it and not even by the government, but is issued by commercial banks when giving loans to private persons or government, is hidden by what could be described as thick clouds of smoke, put out by economists and government departments.

The complaint was filed Friday April 15, 2005 in the Supreme Court of British Columbia at New Westminster. It alleges that all financial institutions who are in the business of lending money have engaged in a deliberate scheme to defraud the borrowers by lending non-existent money which are illegally created by the financial institutions out of "thin air."

The legal action brings to the fore one of the major economic "drag factors" - the interest charged by banks for money that technically and legally is not theirs to lend, because even governments end up paying interest to banks lending money for public spending, and they in turn charge tax payers. A large part of every country's tax revenue goes first and foremost - before any "internal" spending - to payment of interest, largely because of the basic flaw in our way of creating money by the rich and for the rich.

~~~~~~~~~~~~~~~~~~~


Ask yourselves one question...

Why do we not hear about any of this? Why is the media so 'dumb" about it? Is it because if the common man understood the system it could collapse?

And no, I am not sleeping better knowing my financial well being is in the hands of banks.







www.newmediaexplorer.org/sepp/2005/04/19/canada_class_action_accuses_banks_of_illegal_creation_of_money.htm

mindprod.com/money/moneycreation.html

[Habs_fan_in_LA]

500 billion dollars. That's over $8,000 for every man woman and child in Iraq. We could have let private industry kill them for a lot less than that.

[Toronthab]

Even the federal reserve system allowed a ratio of about 8 to 1 , Eight loans of $100 for every $100 in deposit.

I used to think that when I borrowed $100 that the bank paid the reserve rate on that 100 and made a little interest....or money for risk...on that 100. NOT!

[Yossarian]

So central banks around the world now need to flood the money supply with freshly printed money, rendering whatever is out there (our hard earned sheckels) less valuable.

Somehow, I doubt this is the "free market" and capitalism that Adam Smith endorsed.

Financial institutions and hedge funds with way too much capital all chasing bad risks (sub-prime mortgages) and other risky investments, for the sake of a greater share return and return on investments. It all starts to turn sour, and every one pays through the hidden tax called inflation.

If the fallout didn't have such huge economic implications, I would say that its all good. That is, people and corporations who had no good reason to get the financing for their ventures in the first place, foreclosing.

Seriously, if I have any advice for my children that I hope they comprehend and take to heart, is refuse all forms of credit offered by these financial vultures. Other than a reasonable rated mortgage, stay as debt free as possible, and especially avoid credit card and Line of Credit debt.

[Cranky]

Wait until October......wait until October.....

[habmeister]

i'm saving my pennies for exactly that HA, would love a collapse!

[Kareem]

In economy class, I learned that for every dollar you save, the bank can loan 20$. Don't ask me why, but it should explain what you're asking for.

[habmeister]

you may or may not be missing that equity is able to be used to get loans. ie. real estate theoretically always goes up, so that is why banks will loan you 75% of money needed to purchase an investment property. they are making money on the 75% and if you cannot repay the loan the only way they could theoretically lose money is if the property decreases more than 25% since they have 25% down payment to principal already.

i personally can carry a lot of debt, but carrying debt does not mean that i am on the negative side of personal net worth. in fact i have a few friends, one that is worth close to $20 mil that has at least $10 mil in debt, we like to call it leverage.

if it wasn't good business for the most profitable banks in the world to be loaning this kind of money they would not.

i think the hugest problem are people that are running up credit card debt with their 18%+ interest rates. i still don't understand the logic (i'm sure there are more than a few reading this that do this)in buying "things" with credit cards. it's one thing to pay the balances off every month to accumulate airmiles or points, but even though many say they're doing that they don't. insert my sister here. she always maxes out her cards, then is paying $100-$200/month in interest so that she can buy crap. she doesn't even have nice stuff, at the very least if you're going to run it up buy a nice tv or some great shoes or something. running it up buying starbucks coffees and at restaurants means you CANNOT AFFORD IT!

i have 6 credit cards, sometimes i get called by them saying that i've overpaid them and they're not happy. i only use them for business. 98% of people should cut their cards in half.

[Cranky]

This is what I wrote in another forum. Much like here, I started a thread warning of impending "doom and gloom" but was dismissed by all the "local experts". It's a Mercedes forum so there is some "validity" to their money expertise, but not to their lack of common sense.

~~~~~~~~~~~

Notice the start date of the thread. This "major house" said that the Feds will pour billions to prop the market but it will not hold. That was over a year ago and this is EXACTLY what is happening. The housing/commercial market is what is keeping the entire economy afloat with over 50% of the entire economy depended on it and then there was billions poured in easy credit takeovers that poured even more money into the market (new investment by the takeover sellers). Why is it a suprise that easy credit catalyzed the bubble and takeovers? Why is there now a shock that that "easy credit" has shaken the entire market?

As for the October statement....it's a long story. Feds can prop up whatever they want but it's the consumer confidence that can crush the economy. The "spending confidence to borrowing" ratio is starting to take negative effect and if the Fed's do not lower interest rates, Joe Blow will tighten his belt. When Joe Blow tightens his belt in a market that already has sent it's major economic engine (housing) into a tail spin then there will be major economic blood letting.

I am not a "sophisticated" buyer convincing myself to invest in the "newest finiancal vehicle" or convincing myself that "things can only get so bad". I am out of the market since Christmas and now I am waiting to pounce on collapsing real estate.

[Yossarian]

I read today that the EU is launching an investigation into why the credit agencies had no warning about the banks and hedge funds, and the credit crisis that now exists. Well, it is because they do the credit ratings for the banks, a clear conflict of interest.

You're right H.A. The best thing that can happen to an economy over the long run, and at the same time destabilze the banking system built on fraud, is for collectively, individuals and businesses pay back debt and refuse to accept any debt that is beyond their means to pay. By choice is the best option, by force (default) is next best.

[franko]

How can you expect me to live beyond my means if you won't give me credit?

How ddo you expect me to have everyhting I want [even if I can't afford it] if you won't give me credit [whether I "deserve" it or not]?

[Yossarian]

Oh, if you want credit, in today's yesterday's market, you can get, regardless of your ability to pay it back, unless you're a total degenerate.

Clarification: "live within your means" = "reasonably afford to exhaust debt".

I really want a BMW M5. I'm sure I could swing the financing some how. I'd likely have to give it up after a few months, if I wanted to keep feeding my family. I'll settle for my 2001 Hyundai, which was paid for long ago.

[Cranky]

yossarian said:

Oh, if you want credit, in today's yesterday's market, you can get, regardless of your ability to pay it back, unless you're a total degenerate.

Clarification: "live within your means" = "reasonably afford to exhaust debt".

I really want a BMW M5. I'm sure I could swing the financing some how. I'd likely have to give it up after a few months, if I wanted to keep feeding my family. I'll settle for my 2001 Hyundai, which was paid for long ago.

You ever listen to the talking heads on tv? They have answers to everything and yet they ignore the obvious. People who are borrowing beyond their means is an epidemic. If I look at my employees alone, 3/4 of them are living week to week with NO ability to pay their bills if they need to rely on UIC. What will happen to the houses these people own? What will happen to the leases on their cars? It will all unravell within weeks for them. Yet our ministers and talking heads tell us the "fundamentals" are sound? How?

It gets worse...

Let's say that the there is a bubble burst and people start to lose their house and the rest lose the value of their houses. So what. Life is a b!tch. But if the government steps in and reduces interest rates to "save" the banks then we are in for a nightmare inflationary future. People will buy houses on cheap credit and they wont give a damn about paying down because they will be taught the lesson of "you are not responsible for your actions". How do they stop THAT lesson other then increasing interest rates and creating yet another credit crunch cycle? To me, it's far better to let 5% of the population lose their houses and deflate the housing boom then to prop and see-saw the entire economy. How can one seesaw what 50% of the market depends on? The permit and building cycles are too long and too prone to peoples "market perceptions" to keep the general economy moving. Of course we can always depend on those manufacturing jobs to prop our economy....ooops, those went to China.

What the hell, governments will NEVER do what is right or what is prudent. Voters want their faces licked and their asses wipped....and the politicians are going to make sure that they get what they want. It's the votes stupid.

[Cranky]

franko said:

How can you expect me to live beyond my means if you won't give me credit?

How ddo you expect me to have everyhting I want [even if I can't afford it] if you won't give me credit [whether I "deserve" it or not]?

I am going to sound like a communist here.....

We need to create "demand" slaves in order to create thriving economies. To reach our current employment numbers, we need to convince the general population that they must buy the latest and the greatest....credit be damn.

[Skilly]

I don't really consider a house as "debt". It typically increases in value and as long as you can pay the monthly payment (with the mortgage insurance) then it is paid off for you if you or your spouse pass away. Really it sounds like free money when you think about it.

[franko]

skilly said:

I don't really consider a house as "debt". It typically increases in value and as long as you can pay the monthly payment (with the mortgage insurance) then it is paid off for you if you or your spouse pass away. Really it sounds like free money when you think about it.

A house is an investment, fraught with risk like any other investment. The question: should banks be profitting more than just by interest earned? The other question: should people expect banks to bail them out when they go over their head, using the equity of their house for non-housing purchases [ie running up debt thinking the house will bail them out]? And what happens when interests rate rise to double digits again and people can't afford their mortgage payments?

Personally, I'm becoming more and more in favour of the "year of Jubilee". Two problems with that, of course: (1) I'm not Jewish, and (2) there was no follow-through.