News Us politics - read first post before comment

[hodge]

Sorry, crappy internet connection!

It's the Russians! Lol.

 

[Anarchy]

Russians

Only if they've bought Google.;)

 

[Anarchy]

that ruling class includes people like Wall Street bankers, which is why THEY get bailed out and regular people, not

Bankers and financiers are key cronies

Banks are technically bankrupt all of the time, they only contain a tiny fraction of the money that customers have been told they withdraw immediately, because the rest is fraudulently lent out and earning interest

It's a stunt that banks are allowed and encouraged to do, and if it goes wrong, the FDIC guarantees the banks, and if that is overwhelmed "bank holidays" are resorted to. You aren't allowed to take your money out of the bank, but it is allowed to pursue people who owe the bank money.

If some other business, like a warehouse or a grain elevator tried to pull the same stunt; issuing tickets to withdraw goods at any time, but those goods aren't there, they're Lent out earning interest. They're guilty of fraud.

What the practice of only keeping fractional reserves does, is create multiple claims for the same dollar

So with a 10% reserve ratio, and you putting one dollar in the bank, with all of the lending and re lending, it creates $10 of claims for that $1 !

If a crash comes, there's only the one dollar, but a bunch of people are chasing it

Actual reserve ratios for real banks are around 2%
so $1 creates claims for $50

The effects of this include price inflation and, by distorting the interest rate, it results in the business cycle.

There's a good (no maths) explanation of fractional reserve banking by David Howden, up on YouTube.


Why the rulers tolerate and encourage this sh!te, is because the banksters are partners in inflating the money supply.

It's done by stealth means

The government issues bonds (promises to tax the population at some point in the future), which are bought by banks for dollars.

Central banks then either buy the bonds or take them as security in return for issuing new money to the banks, which the banks then inflate on top of, and lend out.

There's a good explanation by Philipp Bagus, In The Rothbard memorial lecture, on monetary externalities. Bagus is talking about the Euro, but he explains about the dollar as well. Again no maths!

Bagus and Howden have co authored books on the tragedy of the euro, and on the Icelandic crash in 2008.

Sorry that I can't post links, I can't extract them in Google chrome, it just opens the YouTube app.
__________________
Back in 2008 when Ireland crashed and the "Celtic tiger economy" was revealed as just another one of the PIIIGS,. I was waiting for a politician to come around canvassing

Unfortunately none ever did, fine Gael and labour knew they were going to win, no matter what happened, and Fianna Fail and the greens knew that they were going to be wiped out.

All were promising to fix the broken banks (again, the crash had only revealed the situation, the damage had been done by the inflationary boom).

My little trap for them was going to be to draw up a balance sheet; assets one side, liabilities the other, and to ask them to write things like customer check account balance, customer loans etc on it in the correct position.

Then to ask them how they hoped to fix banks when they clearly had no idea what a bank's balance sheet looks like; my check account balance is a liability on the Bank's balance sheet, my loan from the bank, is one of its assets...

 

[scout86]

because the rest is fraudulently lent out and earning interest

It might be a bit of a stretch to say "fraudulently". Here, at least, it's common knowledge that that's the way they operate. All legal and above board. And it works, as long as no one looks at it too closely and gets nervous. (When I was a kid, there was a cartoon on TV here, called "The Roadrunner". His nemesis was Wiley Coyote. The coyote was forever running off the edge of cliffs. He'd keep running until he looked down. As soon as he realized where he was, he'd fall. Our economic system reminds me a lot of that.)

Back in 2008, in the lead up to the financial crisis (which was pretty obviously happening) I happened to know a guy who was a Wall Street lawyer. Nice guy. (He's got horses, which is how I knew him.) We were talking about the FDIC one day. I asked him "There's a scenario where that guarantee isn't worth the paper it's written on, isn't there?" The replied that there most definitely was. I asked about warning signs. He laughed and said, "Just hang around. If it's going to happen, I'll let you know." (And he probably would have.) But, we in this country, and maybe in most countries who think of themselves as stable democracies, tend to think that those types of guarantees are iron clad. They aren't. Worst case scenario, the government is going to say "sorry, you're on your own".

 

[Anarchy]

It might be a bit of a stretch to say "fraudulently"

For banks it is legal, for any other business, the examples I gave were grain elevators and warehouses, it is fraud, and if they're caught doing it, they'll usually end up in court.

There was an attempt in Britain in the 19th century, to outlaw fractional reserving, and that was the sugar coating on a highly authoritarian bill by Robert (orange) Peel.

It took no account of the money in checking accounts, and was therefore a failure, fractional reserving and the resulting business cycle of booms and busts continued, and the campaigners for an end to fractional reserving were discredited.

Wiley Coyote was forever running off the edge of cliffs... Our economic system reminds me a lot of that.

:)

The FDIC did have a twin, that was wiped out. It is a sticky plaster.

The knowledge that a bailout is likely, creates "moral hazard". The fear of bad consequences is one of the factors that should limit dangerous or abusive behaviour

Without the FDIC and fed, there are serious limits on fractional reserving (especially in a hard money environment, where physical gold or silver are money, and banks can be called upon to redeem their paper money in physical gold or silver coin ("specie").

The largest of those limiting factors is the wonderfully democratic institution of the bank run; where the substantial looking building and stuffy conservative manner of the manager are very publicly shown to be confidence tricks, the bank is bankrupt.

I'm trying to remember whether it was post 1812 or post the war to re conquer the south, that the paper "greenbacks" were horribly over inflated, and there was a general bank holiday.

Wildcat banks sprang up to take advantage of the laws that absolved banks from redeeming paper in specie, and those banks issued their own fraudulent paper...

Where the fractional reserving really hurts is through the business cycle, and that hurt is exacerbated by the government stepping in to prevent the economy from readjusting back into line with consumer wants.

That intervention continues the distortions away from consumer preferences, which were caused by the artificially lowered interest rates, and prolongs the pain.

The classic example is comparison of the crash of 1921, which was a very sharp crash, but was over before the government could get around to intervening

With the crash of 1929, Hoover acted immediately to prop up over inflated prices and wages, and to "reduce production" in order to maintain prices, so while there were bread queues, the department of agriculture was going around ordering the slaughter and burial of every third pig, and the ploughing under of crops because of some fictional problem of capitalist over production
Those policies were continued and claimed as his own by FDR (Rex Tugwell, FDR regime insider, was clear on that point, the Hoover regime had initiated most of the "new deal", and FDR continued).

The state interventions managed to perpetuate the depression from an event that would normally be over in 18 to 24 months at most, into around 12 years of misery, that were then followed by a war.

There are lots of good explanations of the "Austrian theory of the business cycle"
A very good, in depth one (no maths, but graphics, horrible sounds and a picture of Paul Krugman:sick:) is Roger Garrison's "Austrian macro" lecture.

Fractional reserve banking is one of the areas where anarchists get accused of hypocrisy, for criticizing freedom of business practice.

The reply to that criticism, is that fraud is not a freedom, it's a crime, even in non state legal systems.

Saying that money (or other goods) are available for immediate withdrawal, when they're not, is fraud

The answer to "how would the economy survive without fractional reserving?" Is that banks could sell debentures which match the maturity dates of assets and liabilities.

 

[scout86]

Just wanted to add that am extra added attraction during the 'Great Depression' in this country was an event known as 'dust bowl'. Bad timing!

Even more than the banks (which bother me some), I'm bothered by the very existence of the stock market. It seems like that goes off into the realm of the imaginary WAY more than banks, in the consumer sense, do.

 

[Anarchy]

Even more than the banks (which bother me some), I'm bothered by the very existence of the stock market. It seems like that g

That's where a lot of the newly printed and fractional reserve money goes.

Both the printing of new base money, and the fractional reserving, drop the interest rate below the rate that genuine savers and borrowers would arrive at on an unhampered market.

That results in more borrowing and less saving.

A lot of the cheap lending goes into "leveraged" speculation on the stock (and commodities and futures and derivatives) market.

That works well when the share etc prices are rising faster than the (artificially lowered) interest rate, but as soon as there's a hiccup in either, then people get their fingers seriously burned.

It really needs the explaination in Roger Garrison's "Austrian macro" lecture, of the structure of production, and the graphical representation of it as "Hayek triangles", but I'll try here.

Under a genuine change in "time preference" where people in society start saving more of their money, that reduces expenditure on current consumption
It also lowers interest rates as more people are saving and less is being borrowed.

The effect of lower consumer sales is to reduce employment of people in the end of production closest to the consumer.

The lower interest rates, signal that people are saving up for something
And those lower interest rates and freed up people, allow entrepreneurs to start doing things further away from consumers, like searching for oil and minerals, building steelworks, cement plants and machine tools, that will come on line several years in the future, ready for when the savers want to start spending.

With artificially lowered interest rates, saving is discouraged, borrowing and spending are encouraged, so there's no freeing up of people and funds. Instead, speculative borrowers have to bid up the prices of goods and wages in order to get workers and resources for the longer term speculative stuff, like looking for oil and minerals, building steelworks, "investing" in real estate and building skyscrapers.

This is the price inflation that is seen in inflationary booms/bubbles

More and more borrowing is necessary to keep the bubble going. Eventually something gives (it has to, if it doesn't, the paper currency will be destroyed in a crack up boom aka "hyper inflation". As it is, many genuine businesses are destroyed in the bubble, as people leave to get high paying jobs in speculative crap, and the prices of inputs gets bid at a faster rate than selling prices are going up).

Once the bubble pops,
It's revealed that there isn't the actual consumer demand or the savings to pay for all of the new projects that have been started,. They have to be liquidated
Also the people who got lured away from mundane jobs more consumer oriented parts of the economy, and into construction, real estate and financial services...

Find themselves without jobs, and looking for new ones, with a lot of other people looking for jobs at the same time.

The damage is done in the boom, and the recession is the painful but unavoidable result, as people and resources are moved back to serving consumers.

People are adaptable (even though it hurts!) "Capital" is less so, and many of the things like oil wells, new mines, steel and cement plants (and investment properties in county Leitrim!!!) turn to have been a complete waste of time effort and materials.

We've seen the "unconventional" oil and gas boom, that the hedge funds stuck a lot of the money into that was printed in the 2008 bust and afterwards. And we've seen it burst.

We've also seen the Chinese Bubble ( the Chinese economy is Keynesian on steroids!) Sort of bursting and the west coast and Canadian real estate bubbles are fueled by Chinese, trying to get their money out before the government departments values the currency (and we have a friend who is being hurt by that real estate bubble)

There was a huge bubble in farm land prices too. That might be ok for farmers as long as food prices don't turn out to be artificially high. If food prices turn out to be a bubble too, then there will be people who will be farming land at a loss to pay back the money they borrowed to buy it.

This link is a few years old, but it's still interesting, as an insight into the thinking of central bankers regarding inflation Link Removed

 

[Anarchy]

I almost forgot, back during the "Celtic tiger" a very bright 25 year old colleague, who'd just finished a PhD, had mortgages on three houses (I'm guessing 100% plus).

She wasn't too worried about getting tennants, as the book value of the houses was "earning" her more than her salary from working.

I don't know what happened. Whether she managed to unload them in time, or whether she had to give the keys to the bank when real estate prices dropped >75%.

 

[Deleted member 41765]

Just wanted to add that am extra added attraction during the 'Great Depression' in this country was an event known as 'dust bowl'. Bad timing!

Indeed.

And as it seems to be my MO on this thread to interject occasional random meditations (is it really just about economics...? I sincerely hope not, and yet...). I recently visited a Dorothea Lange exhibit, The Politics of Seeing, at the OMCA and, while so many of her images are singularly iconic, the impact of the photographs together was both preeminent and heartrending. She has long been a favorite artist of mine and it is to be noted that I (briefly) maintained/managed (to phrase it mildly) my crowd-anxiety just to see her work in person.

I want to highlight one photo in particular: a desolate filling station, advertising AIR, to which someone had clearly tacked up a message beneath reading: "THIS IS YOUR COUNTRY DON'T LET THE BIG MEN TAKE IT AWAY FROM YOU." (Plate 53--Last West. Gas Station, Kern County, California, November 1938. Small independent gas station during cotton strike.)

 

[scout86]

That picture sounds like the perfect symbol for the resistance. :ninja:

 

[Deleted member 41765]

It's power is unlimited, resistance or no, and I wanted to copy it here, as I took a covert photo of the photo, thinking "mine, mine". Yes, moderators, not mine. Pretty please??? Pleeeeassee?
OR a photo from my book but with my dog drooling on it? Yes?;)

 

[joeylittle]

A link to the photo would be fine; putting it here, I'd rather you didn't. But links are always a-ok.