Thursday, October 1, 2015

Economic Insights from 97% Owned Documentary

Below are quotes mined out of the documentary called 97% Owned.

 I don't agree with their proposed solutions.  To be honest I don't think there are any solutions to our current economic problems. These sort of problems are radical and systemic.  And they have to do with values as well as goals of each and every person, all of which are different. If economy literally means household management and Earth with all its organic and inorganic objects is our home and we depend on them, this should give us some insight as to how we should conduct our economic affairs.

Anyway, I think these are useful quotes to get oneself acquainted with the current economic system in the West.  The current system is a mighty fine example of how the future generations should not think and live:

It's basically an accounting trick . . . Banks create money. They don't lend it . . . when a bank gives out what is called a loan, it basically pretends that you have deposited the money . . . it has to invent the liability . . . this is how money supply is created. (Professor Richard Werner) 
. . . by far the largest role in creating money is played by the banking sector . . . When banks make loans they create additional deposits for those that have borrowed the money. (Paul Tucker-Deputy Governor of the Bank of England) 
money is the center of economy . . . if you don't understand where it comes from and who creates it . . . and when it gets created then how could you understand the entire economy? 
When the vast majority of money that we use now is not cash but electronic money, then whoever is creating the electronic money is getting the proceeds of creating that money. and obviously creating electronic money is much more profitable than creating cash, because you don't have any production cost at all. So while we've got 18 billion over the course of the decade from creating cash, the banks have actually created 1.2 trillion pounds. 
Banks create money whenever they extend credit, buy existing assets, or make payments on their own account, which mostly involves expanding their assets. When a bank buys securities such as a Corporate or Government bond it adds the bond to its assets and increases the company's bank deposits by the corresponding amount. New commercial bank money enters circulation when people spend credit that has been granted to them by the banks 
The issue with banks creating money. . . the two main issues. First the fact that create this money when they make loans. So it guarantees that we have to borrow all our money from the banks. . . . The reason that everyone is in debt now is not because we have been recklessly borrowing. We haven't borrowed all this money from an army of pensioners who have been saving up all their lives. Money in the current system is debt, is created only when banks make loans. So the only way, in the current system, the only way that we can have money for economy, for business and trade is if we borrowed it from all the banks. The second big problem with bank creating money is that they always have the incentive to create more. They create more money if they issue a loan, they get the bonuses, and the commissions and the incentives to lend as much as possible. 
One of the reasons we find it difficult to understand the banking system and credit creation . . . We leave school without any money, and we go and get a job working as an apprentice to a plumber. We work really hard all month, and at the end of the month somebody puts money into our bank. And so for us the logic is you work, and then you get money and savings. In reality you would have never got that job if credit hadn't been created in the first instance. Its a really important conceptual misunderstanding. 
Money doesn't come out of economic activity. A lot of people I've met kind of assume if you've got people, if you've got businesses, you got people doing things, that somehow money emerges out of the process of people doing things, and making things, and growing things, selling things, producing things . . . it emerges, and its not, you have to put it in. 
You know its a paradox under the current system. If we the public go into further debt that is going to put more money into the economy, and we are going to have a boom. And when you have a boom, it is easier to borrow, and so people get into more debt. And eventually this cycle continues. It gets easier and easier to get into debt until some people get over-indebted and they default, they can't repay their mortgage. That's what happens . . . and it brings a wave of defaults which ripple across the entire economy. Banks go insolvent, then we are into financial crises, And then the banks stop lending, and they were excessively lending in the boom, and they stopped lending and that makes the recession even worse. People lose their jobs and then they become even more dependent on debt just to survive basically. You know we have a system where we have to borrow in order to have an economy. We have to be in debt to the banks. And that guarantees massive profit for the banks

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