Officially it never was called an "Emergency summit." But with the European currency only days from collapse according to many economists, it was clear that European leaders came to beg the American president for help. A closed-door conversation today between US President Barack Obama and European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso dealt with, among other things, the ongoing crisis that is spreading out of the Eurozone and into the United States. And according to statements courtesy of Obama, the time of American intervention could be coming soon, and at a monumental cost to the American public.
I can hear the Republicans and the Tea Party screaming already. Mind you, u.s. banks are properly fethed if things go bad in Europe. They have billions and billions on their loan books for countries like Italy, Ireland, and Greece.
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If the euro collapse how bad is it going to be? Not like out Great Depression back in the days I hope.........MATTRYM...your my Battle Buddy I got you covered...not the air fare of course
Wanting to or not aside, I am not sure if we can actually pull it off. Logistically, we'd need to form a coalition of a huge number of banks plus the fed to actually bail them out.
I'm not 100% sure how long ago it was but the UK has exemptions from the monetary union portions of the EU treaty, starts with an M I thinkie. 1992 I think.
Jihadin wrote:aannnddddd....we're getting downgraded again
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If the euro collapse how bad is it going to be? Not like out Great Depression back in the days I hope.........MATTRYM...your my Battle Buddy I got you covered...not the air fare of course
Cheers mate, but I'm off to work Black Ops for anyone with the money to pay me.
At the end of the day, we live in a global economy. Sure some countries will be slightly better off than others, but if the Euro disintegrates in the coming weeks, we are all in serious gak.
I just read The Economist, and its looking increasingly likely apparently..
Real bad. Probaly not like The Road bad, but really, really bad. The first world are navigating waters right between Charbondis and Scylla right now.
Let's say Europe decides to disband the Eurozone. Each country goes back to its own currencies. What ahppens to all the paper written for the Euro? Overnight it is worthless. It goes from having some value greater than 0, to 0 immediately. This makes the financial crisis due to derivatives look like a cake walk.
Those toxic assets haven't even been completely cleaned out, and most Central Banks and Governments have all ready spent huge sums to bail us out of that. There simply isn't enough political will (and possibly existing money) to bail out the finacial system if the Eurozone collapses.
I'm a bit nervous. Is it time for a good old fashion Bank run!
To borrow an American saying: "you bet your ass we're not in the euro!" Euronotes are like monopoly money and the coins have always got a picture of some fat italian guy on them (Da VInci I think)
Anyway, I thought america was 15 trillion in debt. You guys don't have two pennies to rub together, so how are you going to bail out the EU. Just send us your women folk and krispy kreme donuts. I'll be happy.
Do_I_Not_Like_That wrote:
Anyway, I thought america was 15 trillion in debt. You guys don't have two pennies to rub together, so how are you going to bail out the EU. Just send us your women folk and krispy kreme donuts. I'll be happy.
Must you bait our American friends?
Plus, if you send women with donuts, the women will eat all the donuts on the way over and then you wont want the big fat rhino arsed women anyway!
America is probably better off then we are. They have a larger debt, but it is a much smaller percentage of debt as GDP.
Yeah, I've asked myself that same question, who do they owe money to? China only accounts for a third? I think, so where does the rest go? Some sinister James Bond style villian holding america to ransom...
In reply to earlier comments:
1) I really like krispy kreme - I wish I had one now
2) 15 trillion is still a shed load of cash
3) UK has its tripple A status still, USA lost their triple A. I'm no economist, but I don't think Obama inspires confidence.
What's happening right now in the eurozone as i understand it is that countries are agreeing to cover each other so every country helps out if one country goes down, this would apply to every country in the eurozone.
Doing that would bring some much needed stability to the markets as the risk to investors is reduced.
The only country that doesn't like this is Germany but thats because they're in the best shape I guess
I'm wondering if these talks with the US is going to be along these lines.
The US cant afford for europe to sink and vice versa. Countrys are now too dependant on each other now to survive without each other.
Some how the UK looks ok at the moment. We've got more % debt than any other country in the world and still keeping our AAA credit rating, seems crazy but because we've shown service the debt then that doesn't change, but our econamy needs to really grow >1% each year for it to work out.
But right now it looks like we aren't quite going to manage that. However as our econamy seems more stable than anywhere else we're getting more investors here.
At 490 % of GDP makes us the highest or on level with japan
"UK's total indebtedness has increased, and is still the biggest relative to GDP of any of the big economies. That said, Japanese indebtedness is pretty much the same size - at the end of 2010, as opposed to the end of March 2011, Mckinsey says Japan's debts were also 492% of GDP.
US indebtedness is less, at 282% of GDP by the middle of this year, down from 296% in December 2008." - Robert Peston
I can't put much faith in a credit rating system that okay'd the derivatives market and all that other crazy stuff, but now turns around and claims it knows what it is doing with national credit worthiness.
UK's total indebtedness has increased, and is still the biggest relative to GDP of any of the big economies. That said, Japanese indebtedness is pretty much the same size - at the end of 2010, as opposed to the end of March 2011, Mckinsey says Japan's debts were also 492% of GDP.
US indebtedness is less, at 282% of GDP by the middle of this year, down from 296% in December 2008.
Phototoxin wrote:I don't understand wheer all this hypothetical money is owed to. The whole thing seems like a pyramid scheme that is bound to collapse
The US debt is owed to bond holders, it's like a long term loan. Its been awhile since I checked but last time China (public and private) owns something like 1.1 Trillion in US debt, Japan close to 900 Billion followed by Jolly Old England (Bank of I do believe). The thing about US debt is it isn't like those bond holders can all call in their debt at once.
The German position really confuses me, historically speaking. For the good part of the 20th century they were chomping at the bit to gain mastery of Europe. They tried it twice militarily, and failed.
Now, Europe is coming to them hat-in-hand and begging for them to essentially take hegemony in Europe. What do they do? Refuse?
Easy E wrote:The German position really confuses me, historically speaking. For the good part of the 20th century they were chomping at the bit to gain mastery of Europe. They tried it twice militarily, and failed.
Now, Europe is coming to them hat-in-hand and begging for them to essentially take hegemony in Europe. What do they do? Refuse?
Can someone explain this to me?
The people who attempted German domination on the Continent are now called "Polish." (I'm painting with a broad brush, plenty of Prussia is still in Germany) And modern Germany was more deeply scarred by WWII than even their victims.
Easy E wrote:The German position really confuses me, historically speaking. For the good part of the 20th century they were chomping at the bit to gain mastery of Europe. They tried it twice militarily, and failed.
Now, Europe is coming to them hat-in-hand and begging for them to essentially take hegemony in Europe. What do they do? Refuse?
Can someone explain this to me?
The people who attempted German domination on the Continent are now called "Polish." And modern Germany was more deeply scarred by WWII than even their victims.
obsidianaura wrote:UK's total indebtedness has increased, and is still the biggest relative to GDP of any of the big economies. That said, Japanese indebtedness is pretty much the same size - at the end of 2010, as opposed to the end of March 2011, Mckinsey says Japan's debts were also 492% of GDP.
US indebtedness is less, at 282% of GDP by the middle of this year, down from 296% in December 2008.
Easy E wrote:The German position really confuses me, historically speaking. For the good part of the 20th century they were chomping at the bit to gain mastery of Europe. They tried it twice militarily, and failed.
Now, Europe is coming to them hat-in-hand and begging for them to essentially take hegemony in Europe. What do they do? Refuse?
Can someone explain this to me?
The people who attempted German domination on the Continent are now called "Polish." And modern Germany was more deeply scarred by WWII than even their victims.
WTF
Yeah what he said :S
I think the Jewish people may disagree with you there
Easy E wrote:The German position really confuses me, historically speaking. For the good part of the 20th century they were chomping at the bit to gain mastery of Europe. They tried it twice militarily, and failed.
Now, Europe is coming to them hat-in-hand and begging for them to essentially take hegemony in Europe. What do they do? Refuse?
Can someone explain this to me?
The people who attempted German domination on the Continent are now called "Polish." And modern Germany was more deeply scarred by WWII than even their victims.
WTF
Yeah what he said :S
I think the Jewish people may disagree with you there
Yes because I have a long and demonstrative history of Jew hating.
I'm going to hope AystonT means that Germany was psychologically scarred by Nazism more than the countries they conquered were psychologically scarred by it.
Easy E wrote:I'm going to hope AystonT means that Germany was psychologically scarred by Nazism more than the countries they conquered were psychologically scarred by it.
Just had to go there eh.......I've a Krispy Kreme store a block from me beside the Duncan Donut store..
You mean to say that he is wrong?
Besides I hope US is the one to bail out the soon to fail euro zone, better then china or india at least.
That might actually strenghten the dollar but then that means more bad news for the US debt (which isnt the worlds highest by the way).
Dollar value would plummet in the wake of a massive intercontinental bailout. We don't have the surplus slush fund that China has. Doing that involves a pretty major (and terrible) investment on our part.
A bailout isn't the answer, the Eurozone needs to fix it's monetary policy and either abandon a common currency or gain common forms of governance. Without doing such a bailout only saves them for a year or two.
Dollar value would plummet in the wake of a massive intercontinental bailout. We don't have the surplus slush fund that China has. Doing that involves a pretty major (and terrible) investment on our part.
A bailout isn't the answer, the Eurozone needs to fix it's monetary policy and either abandon a common currency or gain common forms of governance. Without doing such a bailout only saves them for a year or two.
I agree, a bailout is a horrible idea but I disagree on the plummeting dollar since said bailout wouldnt come without certain conditions.
Yes, another bailout would simply allow the EU to continue with broken policies and pretend there isn't a problem. We need to sort out the damn situation not wish it away.
Dollar value would plummet in the wake of a massive intercontinental bailout. We don't have the surplus slush fund that China has. Doing that involves a pretty major (and terrible) investment on our part.
A bailout isn't the answer, the Eurozone needs to fix it's monetary policy and either abandon a common currency or gain common forms of governance. Without doing such a bailout only saves them for a year or two.
I agree, a bailout is a horrible idea but I disagree on the plummeting dollar since said bailout wouldnt come without certain conditions.
Unless the conditions include china paying us in the case of default I don't think any amount of words on paper would stop the dollar from taking significant hits.
Da Boss wrote:Yes, another bailout would simply allow the EU to continue with broken policies and pretend there isn't a problem. We need to sort out the damn situation not wish it away.
Recall that Ireland would be fine right now if it were not for Lenihan's (may he rot in hell) decision to guarantee the banks--evidently U.S. secretary of state Geitner refused any "haircut" for bond holders because that would have harmed u.s. banks. The systemic problem is not public sector spending it is the policy decision to protect sovereign debt at all costs.
Da Boss wrote:Yes, another bailout would simply allow the EU to continue with broken policies and pretend there isn't a problem. We need to sort out the damn situation not wish it away.
Recall that Ireland would be fine right now if it were not for Lenihan's (may he rot in hell) decision to guarantee the banks--evidently U.S. secretary of state Geitner refused any "haircut" for bond holders because that would have harmed u.s. banks. The systemic problem is not public sector spending it is the policy decision to protect sovereign debt at all costs.
The systematic problem is a common currency between nations that do not possess other forms of common monetary or economic policy. Therefore one state can be in severe recession while another booms and the common currency magnifies the situation by preventing the bust country from having its currency devalue while everyone reinvests in the boom country (further depressing the bust). Without common travel, banking, and tax laws between countries like we have in the states then common currencies are a risky endevour.
Shuma, I agree. For Europe to survive we must either federalise or disintegrate. It is merely nationalistic nostalgia that prevents federalisation- that and a distrust of the technocratic institutions of the EU.
The technocratic institutions of the EU are highly worthy of suspicion. I say that as a keen European. There needs to be more democratic accountability of the decision making process.
Also ShumaGorath is right about the financial difficulties of the Euro. Greece needs to devalue its currency by at least 25% but cannot because its currency is the Euro whose value is largely underwritten by the much bigger and more successful Germany economy.
Lastly, neither the Irish nor UK governments should have underwritten the private debts of the investment banks. They should have been allowed to go bankrupt, then bought cheaply in order to operate their retail arms.
However the UK suffers from a structural deficit, meaning that government spending almost always exceeds tax income. The bank bailout was not the cause of this problem. It just made the annual deficit a lot worse for one year.
I agree that there needs to be more democratic accountability. I think that it is most likely that we won't be able to "get there" fast enough to save the Euro though.
As the the UK structural deficit, man, that is just crazy. They should be pummelled by the opposition and media whenever they overspend.
Help me out, without fully integrating (or just a mere free trade zone or some expanded version of it) whats the problem with going back to multiple currencies again?
Frazzled wrote:Help me out, without fully integrating (or just a mere free trade zone or some expanded version of it) whats the problem with going back to multiple currencies again?
Every bank in that hemisphere would run at the same time. Also it was a bad system before so going back to it isn't good.
Frazzled wrote:Help me out, without fully integrating (or just a mere free trade zone or some expanded version of it) whats the problem with going back to multiple currencies again?
Every bank in that hemisphere would run at the same time. Also it was a bad system before so going back to it isn't good.
It worked forever before. Yes forex guys make money on the arbitrage but its so? That woudln't run the banks. Its the governments not paying their bonds that would run the banks. The Euro is a cover for it.
Frazzled wrote:Help me out, without fully integrating (or just a mere free trade zone or some expanded version of it) whats the problem with going back to multiple currencies again?
Every bank in that hemisphere would run at the same time. Also it was a bad system before so going back to it isn't good.
It worked forever before. Yes forex guys make money on the arbitrage but its so? That woudln't run the banks. Its the governments not paying their bonds that would run the banks. The Euro is a cover for it.
Every country would see a significant draw from its banks as people attempt to pull or reinvest all of their money simultaneously in reaction to the declaration of the end of the euro. That would cause a run instantly. Aside from that every business deal in the last 15 years would have to be restructured heavily.
Also, it worked forever before, but so did horses and wind powered shipping. Having 20 currencies stopped working the moment their economies started becoming interconnected. It also helps to keep them from shooting eachother.
Frazzled wrote:Help me out, without fully integrating (or just a mere free trade zone or some expanded version of it) whats the problem with going back to multiple currencies again?
Every bank in that hemisphere would run at the same time. Also it was a bad system before so going back to it isn't good.
It worked forever before. Yes forex guys make money on the arbitrage but its so? That woudln't run the banks. Its the governments not paying their bonds that would run the banks. The Euro is a cover for it.
Every country would see a significant draw from its banks as people attempt to pull or reinvest all of their money simultaneously in reaction to the declaration of the end of the euro. That would cause a run instantly. Aside from that every business deal in the last 15 years would have to be restructured heavily.
Also, it worked forever before, but so did horses and wind powered shipping. Having 20 currencies stopped working the moment their economies started becoming interconnected. It also helps to keep them from shooting eachother.
1. That wouldn't draw on the banks. The fear that a government will default on its loans will draw on the banks if there is a fear the banks will be insolvent. 2. Why do I want to keep them from shooting each other again? Playing devil's advocate we're the CHina of military manufacturing. Time for Northrup to make it some bank! Query - are any bonds against the entire "Euroland" or all tied to governents?
Also ShumaGorath is right about the financial difficulties of the Euro. Greece needs to devalue its currency by at least 25% but cannot because its currency is the Euro whose value is largely underwritten by the much bigger and more successful Germany economy.
That plus Greeces prime was forcefully removed and a gakking eurocrat formerly serving goldman sachs was installed.
But then again democracy died a long time ago in euroland.
Devalving will never help either since that is only treating the symptoms, the disease that is fiat monetary system that is built and based on intergraited debt that can only grow is what needs to be changed. Sadly nobody knows of any "working" alternative.
ShumaGorath wrote:You should be safer-er, Australia does most of it's business with China doesn't it?
Who in turn use the raw products to manufacture goods for export to Europe and the USA.
Little known fact about the GFC is that China had 40 million newly unemployed, before China's own stimulus package kicked in (it was the largest stimulus package as a % of GDP of any nation). That stimulus kept the Chinese economy
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Phototoxin wrote:I don't understand wheer all this hypothetical money is owed to. The whole thing seems like a pyramid scheme that is bound to collapse
Private lenders. The funds come mostly from Asia, and from the ultra-rich.
Fun fact, if you track income inequality against debt to GDP ratios, the two lines match incredibly closely. Turns out income inequality gets hidden by the rich lending the middle and poor classes, until the middle and the poor can't pay anymore, and we get the mess like we're in now.
Now we'll get more economic upheaval, lots of instability and hardship. We'll come out the other side and we'll go through this whole charade again. Next time around you can be part of the fun of seeing it all unfold just like it did the time before.
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Do_I_Not_Like_That wrote:Yeah, I've asked myself that same question, who do they owe money to? China only accounts for a third? I think, so where does the rest go? Some sinister James Bond style villian holding america to ransom...
In reply to earlier comments:
1) I really like krispy kreme - I wish I had one now
2) 15 trillion is still a shed load of cash
3) UK has its tripple A status still, USA lost their triple A. I'm no economist, but I don't think Obama inspires confidence.
In terms of US government debt, the funniest thing to realise is that much of that 15 trillion is owed by the US government to other US government departments. Seriously. US government accounting is just weird.
Most of the rest of the debt is owned by domestic investors in the US, corporations and immensely wealthy private individuals for the most part.
That leaves about a third, which is owed mostly to China.
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ShumaGorath wrote:The systematic problem is a common currency between nations that do not possess other forms of common monetary or economic policy. Therefore one state can be in severe recession while another booms and the common currency magnifies the situation by preventing the bust country from having its currency devalue while everyone reinvests in the boom country (further depressing the bust). Without common travel, banking, and tax laws between countries like we have in the states then common currencies are a risky endevour.
Sort of, the bigger issue is that lack of control over individual government's fiscal policies. Forming a combined currency but placing little effective control over the borrowing practices of individual nations was a terrible idea.
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Frazzled wrote:Help me out, without fully integrating (or just a mere free trade zone or some expanded version of it) whats the problem with going back to multiple currencies again?
It's certainly doable, it's just that while everything is on a knife edge that kind of structural reform is made near impossible.
Basically, it can't be used to settle everything down, because it couldn't be done until everything was settled down.
Fun fact, if you track income inequality against debt to GDP ratios, the two lines match incredibly closely. Turns out income inequality gets hidden by the rich lending the middle and poor classes, until the middle and the poor can't pay anymore, and we get the mess like we're in now.
This is basic child level social economy.
-The rich person lends the bank a million gaining 5% profit from interests.
-The poor person lends the million from the bank giving the bank 10% profit in interests.
And the bank only has a minuscale percentage of the money as most are just made up numbers supported by a fractioning monetary system.
Gotta give creds for the dudes who came up with this
We did this after WW2 and the European markets have been in our pockets ever since... at least from what I've heard secondhand from raving family members. Odd that they're turning to us and not the asian markets.
You know what this world's struggling economic system needs? Another World War! Bwahaha
Colonization of the moon...world goal...before a asteroid hits us....or man creates dinosaur....dinosaur eats man....last few men are going to be damn lucky
Phototoxin wrote:I don't understand wheer all this hypothetical money is owed to. The whole thing seems like a pyramid scheme that is bound to collapse
The debt comes up when a country purchases things it doesn't have the money to pay for up front. It happened alot after WWI when the US pretty much double dipped, lending money to Germany who had to pay Britain for supplies ( while Germany couldn't pay off their debt to the US) then the Brits had to pay us for supplies. After the intrest on the loans, American banks were supposed to get rich, instead it forced the great depression because the money people owed didn't exist, anywhere.
Automatically Appended Next Post: Intrests seem to be the problem, they create debt that is really hard to fix, the debt gets transferred over to another country, printing more money only makes the problem much much worse as money becomes worth less and less...
Pyriel- wrote:This is basic child level social economy.
-The rich person lends the bank a million gaining 5% profit from interests.
-The poor person lends the million from the bank giving the bank 10% profit in interests.
And the bank only has a minuscale percentage of the money as most are just made up numbers supported by a fractioning monetary system.
Gotta give creds for the dudes who came up with this
I've heard it likened to a poker game, where a couple of players hold almost all the chips. All the advantage is held by the players with big stacks, and the can never compete for more than a couple of lucky hands before they're forced out. The rich players keep winning, and the game only continues as long as the rich players are willing to keep lending to the poor.
Phototoxin wrote:
I don't understand wheer all this hypothetical money is owed to. The whole thing seems like a pyramid scheme that is bound to collapse
Think of this veeery simplified explanation:
All the world contains 100$, this is the global economy.
You lend your friend your 100$ on the condition he pays you back with 10% interest.
Now the time is for you to collect the 100$ but due to interest he owes you 110%.
So where do the extra 10$ come from, there were ever only 100$ to begin with.
This is what is called "fiat money", money that dont exist and that no one can actually collect and hold in the hand.
This is also debt and how debt grow, money that arent there are growing and growing and growing.
To battle this, or rather temporarily steer it of the fed bank prints more money to cover the demands but as you know, everything that gains in numbers looses in value, thus is inflation created out of debt that was created out of interest that is the basis pillar of our very economy.
This is extremely simplified but the basis is that debs IS money and there can be NO stable economy with no debt. The entire system is built on rising debt and it is impossible not to create growing debt with time. Thus even if todays bad economy and debt are somehow fixed it is as inevitable as the rising of the sun that this cycle will occur again as debt rises in time to new catastrophic proportions.
The system itself is flawed and for it to work like it does in the world right now it must be flawed.
Sick yeah, but there you have it.
Want to know something more sick?
Think of the mechanics of how a bank loan works (again, very simplified).
You go to a bank and ask for 100 000$ so that you can buy your house.
How do the bank give you the money?
They dont!
They simply open an account for you (electronically) and write 100 000 in it. They create the money for you out of thin air, they dont have the 100 000 you just borrowed from them, they created them for you. Legally the banks are required to only have a minuscale percentage of "real" money as cover for the fractionalised (the empty air) money they create, this technically speaking the money you get into your account you will not be able to get them in your hand should all other people who borrowed money from the bank want to have them pay it out.
For this privilege YOU owe the bank interest, that is you are to pay back more then they borrowed you from money they actually dont have in the first place.
Yes you just managed to royally screw yourself over since the money that dont actually exist were given to you on the condition that you create even more money that dont exist based on the growth of the money you just got.
The worst thing on top of all this is also that the house you just bought for the money you borrowed that dont exist is most probably owned by the bank itself since the last idiot who borrowed from the bank didnt manage to pay back his loans to the bank and so they confiscated his house...that you are now buying with yet another loan of money that dont exist.
This is also why it is so "easy" to get loans and pay on credit since now YOU are stuck in the system and cannot escape. You are forced to work in a squirrel wheel of paying back debt and by working increase profit for the same sector that got you to borrow the money that dont exist in the first plac. You are now what is called a "wage slave" completelly trapped in the system.
The whole house/real estate bubble is based on this plus the fact banks, in their greed granted loans to people that they knew wouldnt be able to pay it back since they wanted to make quick profits.
Again, simplified like hell but still true.
It is so disgustingly sick and ingenious that I cannot but admire the f*ks who came up with this.
This is also the reason I feel sorry for people who take bank loans since it is nothing else but basically an veiled way to get people to voulentarily submit to economic slavery.
This is also the reason I will never in a million years be caught taking a bank loan. All I buy I pay with saved money.
The economically savvy people in here, feel free to correct my simplified explanation of how the system works. I´m sure I forgot to mention something or got some detail wrong but it´s really educational to know what the hell you are doing when taking a loan and how debt is created.
Pyriel- wrote:Think of this veeery simplified explanation:
All the world contains 100$, this is the global economy. You lend your friend your 100$ on the condition he pays you back with 10% interest. Now the time is for you to collect the 100$ but due to interest he owes you 110%. So where do the extra 10$ come from, there were ever only 100$ to begin with.
That example doesn't make any sense. When you look at debt borrowings on the level of 100% of GDP, you aren't paying it back in one year, you're paying it back over decades, and likely reborrowing to make payments along the way. Your worry over the sudden appearance of an extra $10 is a thing that simply doesn't exist in the real world.
This is what is called "fiat money", money that dont exist and that no one can actually collect and hold in the hand. This is also debt and how debt grow, money that arent there are growing and growing and growing.
No. Fiat money is simply money with no backing from gold or some other precious commodity. Instead of having the prop of 'this dollar has value because if you really wanted to you could exchange this dollar for a dollar worth of gold, but we all know you're actually going to use it in exchange for bread' we cut out the unnecessary step and say 'this dollar is valuable because we all know you're going to exchange it for bread'.
To battle this, or rather temporarily steer it of the fed bank prints more money to cover the demands but as you know, everything that gains in numbers looses in value, thus is inflation created out of debt that was created out of interest that is the basis pillar of our very economy.
Again, no. Inflation existed before fiat currency. In fact, that inflation was much harder to control, because if the value of gold would grow of itself, inflating the value of money.
Think of the mechanics of how a bank loan works (again, very simplified). You go to a bank and ask for 100 000$ so that you can buy your house. How do the bank give you the money? They dont! They simply open an account for you (electronically) and write 100 000 in it. They create the money for you out of thin air, they dont have the 100 000 you just borrowed from them, they created them for you. Legally the banks are required to only have a minuscale percentage of "real" money as cover for the fractionalised (the empty air) money they create, this technically speaking the money you get into your account you will not be able to get them in your hand should all other people who borrowed money from the bank want to have them pay it out.
No, that isn't how it works. What's happened here is that someone has explained the basics of the accelerator on a broad level to a conspiracy minded loon, who's misunderstood it, invented a whole level of crazy, and then repeated it to you, almost certainly on a youtube video with some simple but appealing cartoon animation.
First up, the bank needs to have $100,000 in order to lend it to you. They simply do, there's no way around that. That's always been the case, and is still the case today. It's why they take deposits off people, so they can lend them to other people. That's what banking is, taking deposits and paying 3%, and then lending that money out to someone else at 6%.
The accelerator is the realisation by economists of what this does on the money supply, because they might have printed and put into the system $100 billion in coins and notes, but that money is then deposited in banks, and lent out, then deposited again, before being lent out, over and over again so the effective level of money in the economy is far greater than just the amount of notes and coins.
Fractional banking, in turn, is the requirement placed on the banks to keep a set percentage of the deposits placed with them, both to insure the banks maintain liquidity, and to keep some measure of control over the money supply. So, if people deposited $100 in the banks, and the fractional reserve was 10%, the bank would be required to keep $10 and could only loan out the remaining $90. The thing is that $90 would then be deposited back into the banking sector, of which $9 would have to be kept, and the other $81 could be lent out. This process would continue until there was $1,000 lent out, and $100 kept in deposits in the bank.
That last bit is what was twisted around in your description, into the claim that banks can just invent money they don't have. It was just ignoring the actual process, of lending money out, then receiving it back in deposits.
The economically savvy people in here, feel free to correct my simplified explanation of how the system works. I´m sure I forgot to mention something or got some detail wrong but it´s really educational to know what the hell you are doing when taking a loan and how debt is created.
Please believe me when I tell you that what you've described above simply isn't how the system works, at all.
No, that isn't how it works. What's happened here is that someone has explained the basics of the accelerator on a broad level to a conspiracy minded loon, who's misunderstood it, invented a whole level of crazy, and then repeated it to you, almost certainly on a youtube video with some simple but appealing cartoon animation.
First up, the bank needs to have $100,000 in order to lend it to you. They simply do, there's no way around that. That's always been the case, and is still the case today. It's why they take deposits off people, so they can lend them to other people. That's what banking is, taking deposits and paying 3%, and then lending that money out to someone else at 6%.
There is also a very good example, I dont remember the details nor have a link but I am certain you know what I am talking about and can correct any errors that I make.
A man in the US some decades ago sued a bank over a foreclosure the bank had over his house. He claimed that a contract couldnt be valid as the bank didnt follow the definition of a contract, meaning two (in that case) parties both had to exchange something of value. He claimed that whereas he gave the bank something of value (a debt) the bank didnt give him anything since it basically invented the money he was to owe them out of thin air. He won.
Do give me a link to the story since I lost it and it was a very good read.
First up, the bank needs to have $100,000 in order to lend it to you
That is not true. The whole issue with a "bank run" plus the bank doesnt have to have the whole sum it wants to lend to someone.
I dont remember the numbers but I think it is something like 5 or 10% of money lent needs to actually be had in the bank. No wonder there are no money then if the banks customers decide to withdraw all they put in since the money are on most part invented out of thin air.
What then is a "bank run" if not the inability of the bank to actually show people there is physical money in it.
The best example being what happened during the great depression. People rushed the banks to withdraw their savings but the banks couldnt give it to them.
Your worry over the sudden appearance of an extra $10 is a thing that simply doesn't exist in the real world.
Yes it does. We are not talking about 10% but far greater numbers. It's the basics of interest, you add up debt to a pool of money that in theory make the money grow but is not represented by actual money. Printing new is a temporary way out but causes inflation. Look up germany when bread cost wheelbarrows of money.
Answer me this: How much money is there roughly in the world?
How much of this does actually exist in a physical form, 5%?
What happens when the system crashes (depression) and scared people run to the banks wanting to withdraw all their savings to put under the pillow due to lack of trust in the economy/bank but there are actually no money?
Of course this happens over time but the same mechanic apply. Interest from a set amount of money create "invented" money that increase the sum but those are never there since interest is just a percentage growth.
My example is thus sound in its simplified state.
If we only have 100$, you have 0 and I have 100 and I lend you my 100 for a yearly interest rate of 20% and you pay me back the next year I would get 120$ from you but you only have 100$.
Thus interest created out of thin air 20$.
Throw in fractal banking making banks create 1000$ out of only 10$ that they have and pile interest on top of the created part and the end sum would be enormous, far far greater then the actual printed 10$ that do exist.
If you do study economy (which I dont) please do educate me on this (since I want to learn and know more) by explaining in simple terms how it is that actual money are so much less then "invented" money, how it is that interest does not create money out of thin air, how debt and inflation are a part of the economical system and how on earth does a bank lend you 100 000$ when all it is actually required to hold in its vault is some 10-100 bucks and not call it invented/made up money.
Da Boss wrote:Shuma, I agree. For Europe to survive we must either federalise or disintegrate. It is merely nationalistic nostalgia that prevents federalisation- that and a distrust of the technocratic institutions of the EU.
Its more than that, there's also legitimate reservations about how a federal Europe would be governed. I mean, look at the US and how volatile the political system is here. Now apply a similar federal system to the EU, where there is no common language (or lingua franca), no common culture, and a significantly larger population. Its a mess, though a mess that leads to many beneficial outcomes if muddled through.
Each of those articles describes the process as I explained it to you. The first one, in particular, used almost exactly the same language I used.
Please understand that the bank is not free to just invent money and give it to people. It can't do that.
Once again, the phenomenon is that government prints up $1,000, and the banks (keeping to a fractional reserve of 10%) receive that money in deposits, lend it out, receive it again in fractional deposits and so on, until the bank has received and loaned that money ten times over, giving it deposits of $10,000 and loans of $10,000.
There is also a very good example, I dont remember the details nor have a link but I am certain you know what I am talking about and can correct any errors that I make.
A man in the US some decades ago sued a bank over a foreclosure the bank had over his house. He claimed that a contract couldnt be valid as the bank didnt follow the definition of a contract, meaning two (in that case) parties both had to exchange something of value. He claimed that whereas he gave the bank something of value (a debt) the bank didnt give him anything since it basically invented the money he was to owe them out of thin air. He won.
That ruling goes against basic economics, and would have destroyed banking as we know. To the extent that such a ruling exists, I am certain it didn't happen as you described it. I would love to read a link to the case.
That is not true. The whole issue with a "bank run" plus the bank doesnt have to have the whole sum it wants to lend to someone.
No, please read what I'm saying. The bank needs to have $100 to give you $100.
What happens is that when you go and give them $100, they go and lend 90% of that money to someone else. That's how banks make money, on the difference between the interest they pay you, and the interest they charge the borrower. This means that of the original $100 you deposited, only $10 of it is still in the bank, because the rest was loaned to someone else.
A bank run occurs when most of the people who deposited money in the bank want their money. The bank has lent 90% of their money to other people, and so it doesn't have it there to give it to people.
Think about it this way, if the bank was free to just invent money whenever people wanted it, and lots of people came in demanding the bank give them their money, couldn't it just 'invent' money to give them? No, of course it can't, because banks do not get to invent money.
Please repeat that bit with me... banks do not get to invent money. The process you are attempting to describe is the process by which depositors, lendors, and banks acting as nothing but an intermediary, all work to increase the basic money supply into 10 or 20 times that amount.
This process doesn't even need banks, you, me and Jervis Johnson could do the same. Say you work hard as a gardener and save $100, and Jervis Johnson says he'll give you 4% on your money if you lend it to him, and you agree. Jervis is cunning sort, and he knows I need some cash, so he offers me $90 at 8% interest, and I readily jump at the opportunity. I needed that cash to pay you for your gardening work, and now you've got another $90, which you then turn around and give to Jervis, who will pay you 4% for this money as well. Jervis then goes and sees if I need to borrow some more money, and is able to lend me 10% of your last deposit, so he gives me $81, which I use to buy more of your gardening service. This continues again and again, reducing by 10% each time to cover the minimum deposit, until eventually you Jervis has lent me $1,000, I've paid you $1,000 for gardening, and you've deposited $1,000 with Jervis.
No magical bank powers needed.
Yes it does. We are not talking about 10% but far greater numbers. It's the basics of interest, you add up debt to a pool of money that in theory make the money grow but is not represented by actual money. Printing new is a temporary way out but causes inflation. Look up germany when bread cost wheelbarrows of money.
Hyperinflation in Germany was driven by the German government attempting to cover it's massive government deficit by printing more money. The interest rate, and interest paid on debt is totally different.
Answer me this: How much money is there roughly in the world?
How much of this does actually exist in a physical form, 5%?
The amount of cash in the world varies from country to country depending on systems and regulation, but 5% is probably about good for a rule of thumb figure.
What happens when the system crashes (depression) and scared people run to the banks wanting to withdraw all their savings to put under the pillow due to lack of trust in the economy/bank but there are actually no money?
Yes, leveraging exists. This does open up the possibility for panic and bank runs, though it's a fairly remote possibility at best (pretty much when banking collapses on that level, then the system is screwed to such an extent that the money they get is pretty useless as well, and so is the gold that some people wish the money was based on, what you'd really want then is shotguns and bottled water).
But it really, really matters that you understand the process of how this really works, and that it has nothing to do with banks magically creating money.
Interest from a set amount of money create "invented" money that increase the sum but those are never there since interest is just a percentage growth.
No. Interest and inflation are different things. Just because they both have % signs doesn't mean they're the same thing.
My example is thus sound in its simplified state.
If we only have 100$, you have 0 and I have 100 and I lend you my 100 for a yearly interest rate of 20% and you pay me back the next year I would get 120$ from you but you only have 100$.
Thus interest created out of thin air 20$.
No, that isn't how it works at all. Interest doesn't just create money. Interest creates an obligation on the borrower to pay. So in your example, I borrow $100, and a year later you come to me telling me I have to pay you $120. I explain that I just put that money under my bed for a year but that I'm willing to give it back now. No, you reply, now you have $120 because interest magically created more money. I explain that no, in order for you to actually get $120 I would have to physically pay you that much.
You learn, and next time you lend the $100 to Gavin Thorpe, who uses the money to start a miniature game company, earning himself many thousands of dollars in profits. Because he used your loan to generate money, he can afford to pay you back the full $120. But note no new money was created in that borrowing process, the $120 you received was $120 that came out of Jervis's profits from his business.
If you do study economy (which I dont) please do educate me on this (since I want to learn and know more) by explaining in simple terms how it is that actual money are so much less then "invented" money, how it is that interest does not create money out of thin air, how debt and inflation are a part of the economical system and how on earth does a bank lend you 100 000$ when all it is actually required to hold in its vault is some 10-100 bucks and not call it invented/made up money.
Okay, I'll just and explain these terms as simply as I can;
Think of interest on a loan where you never pay back the principle. So you borrow $100, and in exchange you have to pay the interest back every year. The interest rate is 6%, so every year you take $6 out of your pocket, and give it to the lendor. That's it. There's no creation of money.
Think of inflation as the relationship between the amount of goods and services moving around the economy in relation to the amount of money out there. So if you have $150 in the bank and tomorrow Obama declared he was going to double everyone's bank balances because he's just that awesome, then you'd have $300, but the amount of goods and services out there would be exactly the same, and everyone else would have twice as much money as well. You'd expect the cost of every good to double, wouldn't you? And so you'd expect that your bank deposit, despite having doubled in value, is still only able to buy the same quantity of goods as it did when was $150. That's inflation, and it's something the government tries to control, matching the increase in money supply more or less to the steadily increasing amount of goods and services available.
And with the banks loaning out money, you're confusing the effect of the process with a power you think is held by a bank. Yes, the effect of the process is that the total cash available is increased, but that's due to how all parts of the economy, depositors, banks, and lendors operate together. Read the anecdoate about you, me and Jervis Johnson. That's how it all works on a large scale, with no magic powers needed.
In the case of Ireland the bank debt became sovereign debt because of the state issued a blanket bank guarantee (hurray crony capitalism!). So if you were a German trader who had bought bank Irish bank shares because they were yielding high profits (by trading credit default for example) the Irish tax payer now has the bill. The story is similar in other countries. Greece and Italy are partial exceptions due to systemic corruption.
Automatically Appended Next Post: The Polish (In the EU but not in Euro) foreign minister has criticized the Germans for acting like innocent victims of the profligacy of others:
First came six points Mr Sikorski wanted Germany to acknowledge.
1) it is the biggest beneficiary of the current arrangements and therefore under the biggest obligation to sustain them
2) it is not the "innocent victim of others' profligacy...You, who should have known better, have also broken the Growth and Stability Pact...your banks...recklessly bought risky bonds"
3) the crisis has lowered Germany's borrowing costs
4) if its neighbours' economies implode, it will suffer
5) the danger of collapse is greater than the danger of inflation
6) "your size and your history" mean a "special responsibility to preserve peace and democracy on the continent".
Here's the money quote:
I demand of Germany that, for your sake and for ours, you help [the euro zone] survive and prosper. You know full well that nobody else can do it. I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.
Da Boss wrote:Shuma, I agree. For Europe to survive we must either federalise or disintegrate. It is merely nationalistic nostalgia that prevents federalisation- that and a distrust of the technocratic institutions of the EU.
Its more than that, there's also legitimate reservations about how a federal Europe would be governed. I mean, look at the US and how volatile the political system is here. Now apply a similar federal system to the EU, where there is no common language (or lingua franca), no common culture, and a significantly larger population. Its a mess, though a mess that leads to many beneficial outcomes if muddled through.
A system of free trade, with common weights and measures seems most appropriate, while allowing each country to retain its sovereignty and home rule towards other important matters. Sounds almost like...NAFTA.
Frazzled. here's why it is bad if all countries go back to their own currency.
All current debts are in the Euro. Every single bank in the world has bets out that the debts will be paid or not repaid base dont he Euro. if the Euro ceases to exist, ALL of those bets are essentially zeroed out for a loss.
I don;t know the exact amount of loss, but it is something larger than we have ever seen before.
Now, couple that with the staggering losses from the real estate derivative/toxic assets morass that still has not been really addressed, and we are talking total financial armageddon, as there would be no TRUST anywhere taht anything had any actual REAL value.
Since trust and perceived value is the basis of the economy, when you lose those things.... well.... hello Road Warrior.
Easy E wrote:Frazzled. here's why it is bad if all countries go back to their own currency.
All current debts are in the Euro. Every single bank in the world has bets out that the debts will be paid or not repaid base dont he Euro. if the Euro ceases to exist, ALL of those bets are essentially zeroed out for a loss.
I don;t know the exact amount of loss, but it is something larger than we have ever seen before.
Now, couple that with the staggering losses from the real estate derivative/toxic assets morass that still has not been really addressed, and we are talking total financial armageddon, as there would be no TRUST anywhere taht anything had any actual REAL value.
Since trust and perceived value is the basis of the economy, when you lose those things.... well.... hello Road Warrior.
Frazzled would, I suspect, be content with the Road Warrior scenario.
That ruling goes against basic economics, and would have destroyed banking as we know. To the extent that such a ruling exists, I am certain it didn't happen as you described it. I would love to read a link to the case.
I found it for you, no wonder it was hell to find as it is not a good thing to know lol
Basically it backs what I am saying, a judge actually declared a banks foreclosure demands null and void on the premises that it created money out of thin air and thus the contract was not valid.
But as you say, pointing out the truth would destroy the banking system as we know it so I dont know this but I bet it was later over turned by pressure from the bank lobby, that or the laws must have been altered to allow for such a fraud system to pass.
Easy E wrote:Frazzled. here's why it is bad if all countries go back to their own currency.
All current debts are in the Euro. Every single bank in the world has bets out that the debts will be paid or not repaid base dont he Euro. if the Euro ceases to exist, ALL of those bets are essentially zeroed out for a loss.
I don;t know the exact amount of loss, but it is something larger than we have ever seen before.
Now, couple that with the staggering losses from the real estate derivative/toxic assets morass that still has not been really addressed, and we are talking total financial armageddon, as there would be no TRUST anywhere taht anything had any actual REAL value.
Since trust and perceived value is the basis of the economy, when you lose those things.... well.... hello Road Warrior.
Frazzled would, I suspect, be content with the Road Warrior scenario.
...As they wonder up Fortress Dakka gates...as the raiders and looters roaming not far.....Frazz probaly be the first to go "Whats in it for us."....in a big comfy field chair, mug of coffee with the umbrella, and his golfbag weapon sets within reach
edit
Does this seem like a game of hot potato to anyone?. So...which euro country going to bail us out next?
Easy E wrote:Frazzled. here's why it is bad if all countries go back to their own currency.
All current debts are in the Euro. Every single bank in the world has bets out that the debts will be paid or not repaid base dont he Euro. if the Euro ceases to exist, ALL of those bets are essentially zeroed out for a loss.
I don;t know the exact amount of loss, but it is something larger than we have ever seen before.
Now, couple that with the staggering losses from the real estate derivative/toxic assets morass that still has not been really addressed, and we are talking total financial armageddon, as there would be no TRUST anywhere taht anything had any actual REAL value.
Since trust and perceived value is the basis of the economy, when you lose those things.... well.... hello Road Warrior.
Why does the Euro have to cease to exist if Greece defaults? Serious question. I don't understand the relationship. If California defaults, the US$ doesn't go in the toilet. California is just that much crappier. Hence my query.
Automatically Appended Next Post:
Jihadin wrote:...As they wonder up Fortress Dakka gates...as the raiders and looters roaming not far.....Frazz probaly be the first to go "Whats in it for us."....in a big comfy field chair, mug of coffee with the umbrella, and his golfbag weapon sets within reach
edit
Does this seem like a game of hot potato to anyone?. So...which euro country going to bail us out next?
Just don't let the raiders get too close to Frazzled. He has ten million wiener dog mouths to feed, and they like meat...
That ruling goes against basic economics, and would have destroyed banking as we know. To the extent that such a ruling exists, I am certain it didn't happen as you described it. I would love to read a link to the case.
I found it for you, no wonder it was hell to find as it is not a good thing to know lol
Basically it backs what I am saying, a judge actually declared a banks foreclosure demands null and void on the premises that it created money out of thin air and thus the contract was not valid.
But as you say, pointing out the truth would destroy the banking system as we know it so I dont know this but I bet it was later over turned by pressure from the bank lobby, that or the laws must have been altered to allow for such a fraud system to pass.
The first link you posted was super biased anti-fed nonsense. The second link was just the raw rulings. The ruling simply didn't have a basis. The justice didn't have jurisdiction and while cases just like that have been brought on a regular basis, that's the only one that was ruled that way.
What you are calling a "fraud system" is how banks work. It's the entire purpose of banks. I swear to god, it's like every 20 years america forgets how banks work and freaks out about it all over agian.
Frazzled wrote:
Why does the Euro have to cease to exist if Greece defaults? Serious question. I don't understand the relationship. If California defaults, the US$ doesn't go in the toilet. California is just that much crappier. Hence my query.
This is a great question!
It happens because of a complex series of loans and bailouts that have been made in a circle, so if certain key countries fall apart, the values of the debt that they are all borrowing against drops in a domino effect. Basically europe has bailed each other out in a long chain and some links are looking weak.
That ruling goes against basic economics, and would have destroyed banking as we know. To the extent that such a ruling exists, I am certain it didn't happen as you described it. I would love to read a link to the case.
I found it for you, no wonder it was hell to find as it is not a good thing to know lol
Basically it backs what I am saying, a judge actually declared a banks foreclosure demands null and void on the premises that it created money out of thin air and thus the contract was not valid.
Umm, that was a ruling by a Justice of the Peace, and it was immediately overturned because he had no right to make such a ruling. When a similar case was attempted in a Utah court in 2008, that court noted that cases like these had been overturned repeatedly, and had no basis in law or in fact.
So basically you had a JP overreach his grounds, get confused by fractional banking and think it was something it was not, before more level heads immediately overruled his mistake, and courts in every instance since then go on to enforce that position.
But as you say, pointing out the truth would destroy the banking system as we know it so I dont know this but I bet it was later over turned by pressure from the bank lobby, that or the laws must have been altered to allow for such a fraud system to pass.
No, that is not what I'm saying. I am saying that if such a case was upheld and maintained, it would have destroyed US banking (why would a bank ever lend money, if people didn't have to repay it?)
That doesn't mean what the guy claimed is true. What he claimed was utter nonsense, and that's something you would understand to, if you'd only do me the service of properly reading what I wrote out for you. I mean seriously, just read this example I've coped from above;
"This process doesn't even need banks, you, me and Jervis Johnson could do the same. Say you work hard as a gardener and save $100, and Jervis Johnson says he'll give you 4% on your money if you lend it to him, and you agree. Jervis is cunning sort, and he knows I need some cash, so he offers me $90 at 8% interest, and I readily jump at the opportunity. I needed that cash to pay you for your gardening work, and now you've got another $90, which you then turn around and give to Jervis, who will pay you 4% for this money as well. Jervis then goes and sees if I need to borrow some more money, and is able to lend me 10% of your last deposit, so he gives me $81, which I use to buy more of your gardening service. This continues again and again, reducing by 10% each time to cover the minimum deposit, until eventually you Jervis has lent me $1,000, I've paid you $1,000 for gardening, and you've deposited $1,000 with Jervis. "
Do you see how that works? Without granting Jervis, or any bank, the magical power to create money, we've seen how fractional banking works within an economy to create money.
Can you please just accept this, and get on with worrying about things that are actually real problems in the world?
Jihadin wrote:So UK like "leaning" away from Europe before it gets stuck in the commode and waiting to see the result eh?
They're in there regardless. Europe is their largest trading partner and they're pretty well attached. They'll recover more quickly though.
Nope. All the European countries are in the same financial gak except Switzerland. They (most of them) got the Euro, we got Gordon Brown. Those nations that had the Euro got the better deal, excepting Greece and Ireland.
Jihadin wrote:So UK like "leaning" away from Europe before it gets stuck in the commode and waiting to see the result eh?
They're in there regardless. Europe is their largest trading partner and they're pretty well attached. They'll recover more quickly though.
Nope. All the European countries are in the same financial gak except Switzerland. They (most of them) got the Euro, we got Gordon Brown. Those nations that had the Euro got the better deal, excepting Greece and Ireland.
What were you noping exactly? You can't just nope and then say something unrelated.
I swear to god, it's like every 20 years america forgets how banks work and freaks out about it all over agian.
Andrew Jackson anyone? i'm pretty conservative but that guy was crazy, kind of like an angry primarch...hmm
Also for people wondering how Euro could switch back to currencies. Currencies have switched before and everyone just has to agree on a set transfer limit. the problem is that it's unbelievably complicated and theres a lot of room for more agressive(not calling them greedy) countries to profit. For instance, Germany before the wall had two currencies, afterwords, had one. well they didn't say ALL OF THE PEOPLE WITH THIS CURRENCY ARE NOW RENDERED WORTHLESS they declared an exchange rate (of 1 to 1 which was huge considering how much better West German was than East germany). The Europ could do this and possibly even do 1 to 1 and just let the chips fall where they may.
Jihadin wrote:So UK like "leaning" away from Europe before it gets stuck in the commode and waiting to see the result eh?
They're in there regardless. Europe is their largest trading partner and they're pretty well attached. They'll recover more quickly though.
Nope. All the European countries are in the same financial gak except Switzerland. They (most of them) got the Euro, we got Gordon Brown. Those nations that had the Euro got the better deal, excepting Greece and Ireland.
Well, they're not, or everyone wouldn't be trying to get Germany to bail out the system.
I think Germany has the ability to bail out a decent amount of the problem, then again they also have the ability to start WW3 so, I don't expect them to do much in either direction.
beside the Duncan Donut store..
