On 21 Nov 2013 at 11:19am Alfie Stirling wrote:
- The Bank of England digitally creates £375 billion out of thin air...
- It gives this £375 billion to large banks across four years so as to encourage lending...
- None of them lend...
- So the Government underwrites a brand new financial product: the 95% mortgage (if you think you recognise this product from before the financial crisis you must be mistaken. The Treasury would never be so stupid as to risk exactly the same mistakes as the last decade. Besides, the global financial crisis was caused by the UK government paying too much to nurses, teachers and the disabled)...
- So the Government both prints money out of thin air, and then takes on the risks of lending that money...
- Suddenly all the banks can afford to lend again...
- So people are borrowing money that doesn't exist to buy houses they can't afford...
- House sales rise in London and the South-east (no one really cares what they are doing in the rest of the country)...
- The Government taxes people spending the money that doesn't exist on houses that they can't afford...
- Treasury stamp duty receipts increase by 46% for October 2013...
- All these new tax receipts (from the spending of money that doesn't exist) now means that Government borrowing is going down (doesn't it?)...
- House prices rise in London and the South-east (no one really cares what they are doing in the rest of the country)...
- The entirely independent Office for National Statistics looks at the figures and announces that the whole country must now be in sustainable economic recovery...
- The UK responds by voting in another Tory government and votes to leave the EU for good measure (because stupid Europeans don't know how to manage their economy properly)...
None of this is actually true. If it was, the BBC would have said so.
Check it out here »
On 21 Nov 2013 at 11:26am Twit wrote:
By jove I think he's got it!
On 21 Nov 2013 at 12:15pm Deelite 2 wrote:
Recovery? It's all smoke and mirrors. Just look at the UK's national debt and ever increasing borrowing requirement to see that we are very much in the deep do-do.
The only things you can be sure of is that the rich are getting rich whilst the huge majority get poorer and that Bitcoins are a better bet than Pounds or Euros.
On 21 Nov 2013 at 1:48pm Knoxon Cutts wrote:
All mortgages are money created out of nothing,you can confirm this by reading official statements.You sign a document promising to pay the lender a certain sum of money.That is entered into the lender's ledger as an asset.They then give you the named sum as a cheque which you use to buy the house and enter it as a debit on the other side of the ledger. The money did not exist before you borrowed it and disappears when you pay it back.
This is the system by which all bank lending is carried out.They are not permitted to loan money which you have deposited but they may lend ten times that amount in the form of digitally created credit.This is called fractional reserve banking-ie they hold a fraction-one tenth-of the amount they can lend.
This is the same way that governments borrow money and those loans are guaranteed by the taxpayer.I don't know if the Bank of England can create money or if they have to borrow it but I think it's the latter. Are we still on the same page?
On 21 Nov 2013 at 1:56pm Reem wrote:
Dont suppose you'd moan of the fact that we have injected masses of money into natural disaster charities tho!
On 21 Nov 2013 at 2:10pm Knoxon Cutts wrote:
One look into the accounts of natural disaster charities would have you doing a lot of moaning Reem.Research the Haiti relief and see where the little that was distributed went!
On 21 Nov 2013 at 2:30pm Attilla the Hun's mate wrote:
Deelite 2 has got (some of) it right...
In effect, due to excessive borrowing by past Governments who spent more then they brought in via taxation (some might even say those past Governments kept taxes artificially low to please much of the lower paid electorate and thus "bought their way" back into power ;-) ), the current Government (and no doubt the next one too, whatever it's political persuasion may be), finds itself in pretty much the same mess as many who borrow "pay day" loans.
The former government knew they could not balance the books, (expenditure exceeded income) yet chose not to cut expenditure or increase income (via higher taxes) as neither would have been popular with the core of their 'working class' supporters, so instead they chose to ignore the real problem and instead took out a loan that would cost them even more in the long run, in the vain hope that some unforseen change in their circumstances would come along to solve their problem.
As with any unsettled "pay day" loans, each time the loan was due to be paid off, they could not afford to do so, so they simply took out another (larger) one and kicked the problem on down the road, rather than solving it.
Add in an unforseen financial crash - triggered in part by banks that had been allowed to get ever more out of control by people in those very same Governments, and we are now where we are.
It is easy to say it all went wrong under Thatcher (and blame the 80's greed culture etc), but it is hard for many to accept that the following Labour Governments also chose to largely ignore the problem, rather than tackle it. It served their purpose to allow many people to think they could enjoy a better lifestyle at no real added cost to themsleves, so public sector jobs were expanded to boost services and increase employment, and welfare state spending increased, but taxation never increased at the same rate as the increasing public sector wage/welfare bills. Many people did not question how such expansion could be paid for without increases in taxes, and they were not encouraged to ask, either.
Add in an increasing pensions bill as more people started to live longer in retirement and the Governments' bills just kept getting bigger year on year, yet taxation did not increase in line with them as it would have been too unpopular with the voters. Instead, the deficit was simply rolled over from one year to another, all the time incurring ever more in interest charges.
While it is easy to say the rich are getting richer (and at what income level, or asset level, is someone defined as "rich" Deelite 2?), even if you tax the highest earners incomes at say 75%, there are so few of them that the extra income will never solve the probem.
Like it or not, the only way to decrease the deficit quickly is to cut government spending (which hurts services as we are all seeing), or increase taxes on the section of the population that would generate most extra revenue for HMG, and that section of the population is those who are earning far less than most tabloids would have us believe.
On 21 Nov 2013 at 2:51pm Deelite 2 wrote:
That's pretty much what I would have said if I could have been bothered! Rich and poor? Lets go 5% against 95%?
The Blair government was at least as culpable as Thatcher. All UK governments are weak and look to the short (election) term. This is the obvious result of our first-past-the-post winner-takes-all whip and media driven political system. Until we have proper proportional representation and government by consensus and not (class derived) confrontation this cannot change.
Your big omission is inflation. The (almost) inevitable result of quantitative easing and so very attractive to a government wanting to get rid of debts.
On 21 Nov 2013 at 3:27pm Alfie Stirling wrote:
You're absolutely right about mortgages and fractional reserve banking (except that the reserve does not have to be 1/10)
But, yes, the BoE can and does create money out of thin air in a different way to how conventional credit works. Check out Quantitative Easing. Essentially digital money is literally typed up and used to buy Treasury bonds that are being held by private institutions.
On 21 Nov 2013 at 3:30pm Alfie Stirling wrote:
We are talking about hundreds of billions being spent on QE. By comparison, we spend tens of millions on disaster relief (which, yes, I think could and should be more).
On 21 Nov 2013 at 5:37pm bastian wrote:
Alfie, I knew you'd turn out to be an amazing individual, and you have. Thank you for pointing out to the hard of believing what a mess we are being forced to endure, with our buckles tightened to choking level, just so theis wired game can continue unchallenged. We are all so fatigued by it we don't have the mental energy to change it.
On 21 Nov 2013 at 6:14pm Andy wrote:
1) The money the UK government lent to UK banks was primarily to increase their capital reserves - not just to lend to small businesses. The UK regulators are instructing the UK Banks to lend LESS (thereby taking on less risk).
2) Again, it was the regulators that allowed the investment (casino) banks to merge with retail (high st) banks. And, by the way, the regulation was under Labour's watch
3) A mortgage is simply a loan with a property as collateral. The retail banks just group all the mortgage loans together and arrange to sell the debt to investors - e.g. bonds. (Yes, there are complexities - such as interest rate swaps to provide fixed mortgages - but essentially it's this simple).
4) The banks (and the City) provide about £61 Billion (yes £61 BILLION) in tax every year. The City in London is the ENVY of many other countries who would love this income. New York is probably the only competitor.
5) Bankers pay is excessive but it's global supply & demand. If the UK govt tries to tax bankers further (over 50%) they will simply relocate to another country and the UK has lost the tax revenues.
6) The City is not a 'closed club'. Anyone from a state school can apply for a graduate job in an investment bank and do very well. All banks recruit by talent nowadays not by class. e.g. i know a Managing Director at Barclays Investment Bank that went to Priory!
On 21 Nov 2013 at 8:04pm Deelite 2 wrote:
2). This was a result of Thatcher's deregularisation of the financial markets in 1986 that led to a lot of the old financial firms being taken over by large banks. Less important was on whose watch it eventualy went tits up. The conditions had been set previously.
On 21 Nov 2013 at 9:51pm Illuminaughty wrote:
They are going to shaft us all if the Tories/Labour/Lib Dems get in.
The "none of the above" box must be an option on our ballot papers in 2015. It registers your vote but declares your unwillingness to back these wa*nkers any more.
Look at this clown Flowers, head of the ethical bank and so in deep with the establishment it's not true.
What do you think the chances are that he is also a sex case too? Highly likely.
On 21 Nov 2013 at 11:18pm David ike wrote:
Its the rothchilds and the new world order...wake up people.
On 22 Nov 2013 at 2:53am Expat Two wrote:
If I had a yen for politics, I'd found a party and call it 'Nobody, they're all lying sh*ts'. I, for one, wouldn't be able to resist ticking that box at the polling station.
On 22 Nov 2013 at 7:58am Humbert wrote:
This is why I definitely won't vote Labour, Lib Dem or Tory in 2015, they are all complicit and equally awful. I probably won't vote at all.
On 22 Nov 2013 at 9:44am Andy wrote:
Humbert - I agree. I definitely won't vote Labour, Lib Dem or Tory in 2015. So there is UKIP or the Greens... I don't trust the Greens having seen how they run Brighton Council. And I don't like the possibility that UKIP might be rascist. So I'm also not going to vote. I know people died to get the vote but the parties are all so awful there's no point even reading the manifestos as they're all lies.
On 22 Nov 2013 at 10:17am Hyena wrote:
bastian, are you related to Alfie by any chance? And the rest of you , we've been here so many times before, chatter, chatter, what's the solution then?
On 22 Nov 2013 at 10:41am Twit wrote:
I think I'm going to emigrate
On 22 Nov 2013 at 12:57pm Zzz.. wrote:
Solution seems to be to not vote Hyena.
Why are you still reading this?
On 22 Nov 2013 at 4:18pm Cupid Stunt wrote:
Is it a silly question then to ask why The Phillipines Government don't just print up a shed load of money then, like we did, without the hurricane ?
On 22 Nov 2013 at 5:13pm Knoxon Cutts wrote:
No cupid,it's not a silly question,in fact they could and it would be effective inside the country for all their domestic needs.The problem is that foreign countries would not accept it,not knowing what it was worth.That is if they have to pay for their aid.They won't do it because it would set a precedent and the people would realise that they are only penniless serfs because the elite like it that way.One of the reasons why aid has been slow getting to where it,s needed is that much has been re-packed with "from your president" printed on it.Human life if not important but power is.
On 22 Nov 2013 at 5:49pm Knoxon Cutts wrote:
Andy,did the government lend money to the banks or give it?Where did it get the money in the first place? It must have borrowed it from another bank.
Alfie,you mention treasury bonds which pay a dividend and must be paid back,so,that digital money from nothing is a debt,so it does cost the taxpayer in the end.There's a short youtube,Bill Still speech at Bromsgrove 2010 which is very good about money.
On 22 Nov 2013 at 10:36pm Hyena wrote:
Zzz, that's not a solution .
On 23 Nov 2013 at 1:54pm Alfie Stirling wrote:
Okay, not quite, and this is where it's gets a little complicated, so apologies in advance.
The interest on bonds held by the Bank of England (BoE) is paid into a special account -- the so called Asset Purchase Facility (APF). Until last year, this money was just sitting there with small amounts drawn out by the BoE to meet it's own running/borrowing costs.
But Osborne changed all this when his chances of meeting his own deficit reduction targets looked ever more unlikely. The new arrangement is that so long as the APF is in net credit (minus the running/borrowing costs for the BoE which the Treasury is ultimately responsible for anyway) for a given quarter, the total amount is then passed back to the Treasury. At present, this amounts to tens of billions of pounds (serious stuff). And all of this cash is then entered into the Treasury balance sheet as credit (and set against the annual deficit). So essentially the Treasury pays to itself the interest on debts owed to itself (the BoE), and then uses it to help pay off its other debts.
This is all 'fine' so long as the APF is in credit. But bare in mind we are currently in a period of the lowest interest rates in history (in order to provide a temporary stimulus to the economy). At some point in the next few years (apparently when unemployment falls below 7%) the BoE will have to increase the base rate of interest. When it does, it will itself have to start paying more on it's other debts. Which means more money will have to start coming out of the APF than is currently the case. And the arrangement is that as soon as this causes the APF to go into net debit, the Treasury will have to pay back the money it is currently taking out. When in office, the previous Governor of the Bank of England said that 'under normal assumptions' the Treasury would pay back the 'majority' of the money that it is currently taking out. So in effect a considerable part of supposed deficit reduction each year does not exist and will need to be paid back to the BoE within a few years (Osborne just hope it will be under a different government).
All of this of course is just the tip of the quantitative easing (QE) iceberg, because I have only talked about the interest paid on the principal amount. As soon as the BoE decides to end QE, the principal will simply be deleted from it's balance sheet as, and when, it is repaid by the Treasury. So the bulk of QE is literally typed into the BoE's books at the start, used to buy Treasury bonds currently held by private banks, and then simply deleted at the end. The net effect is that the Treasury borrows money that is typed out from nowhere and pays the interest to itself.
All of this information is in the public domain, but unsurprisingly most people don't really bother to try and follow it all. See the attached link for an example...
Check it out here »
On 23 Nov 2013 at 2:31pm Alfie Stirling wrote:
Here are some alternative courses of action that could be taken if different vested interests held the ear of government:
1. PROBLEM: The Treasury is using money that it will have to pay back to the BoE to pay off the deficit (see last post). This means that the Treasury is paying off debt to save on current interest payments of 0.5%, only to have to borrow again in the future at a higher interest rate in order to pay back the money to the BoE.
1. POSSIBLE ALTERNATIVE: Instead of this short term, accountancy suicide, the Treasury could use the money to invest in areas of the economy where it knows it can get both a social return and a financial return that is greater than both the current and future interest rate. One possibility off the top of my head could be to further increase the Personal Allowance for income tax by thousands of pounds for everyone who does not pay the top rate of tax. This will put money into the pockets of people who will need it most, increase demand in the economy which will benefit everyone, and reduce future government expenditure dramatically by reducing the amount of benefits paid to people in work (which, by the way, accounts for most benefit payments). This is just one alternative though. Another might be to create more and better paid jobs (whilst diversifying the economy and reducing our balance of international trade at the same time) by investing in the 'boom' sectors of the future, such as construction or energy.
2. PROBLEM: QE is ineffective, benefits the wrong people, and is just serving to inflate a new housing bubble (see start of thread).
POSSIBLE ALTERNATIVE: At the moment, the current level of QE (£375 billion) is maintained by reinvesting in government bonds as and when the principal on existing bonds is repaid (see last post). Instead this could be injected into the real economy by funding similar ventures as suggested above.
On 23 Nov 2013 at 3:29pm bastian wrote:
Ah! but modern finance is only interested in short term thinking, or panic policy where they stick their finger in the dam in an emergency rather than plan to eliminate the emergency. Basically you can't have infinate growth, it doesn't work.
On 23 Nov 2013 at 4:56pm knoxon cutts wrote:
Thanks Alfie,I'llget back to you when I've digested that,and the Christmas pudding!
On 25 Nov 2013 at 10:31pm Deelite 2 wrote:
If the root cause of this fragile financial wall of mirrors is short term political gain then all the more reason to change this rotten first-past-the-post winner-takes-all, confrontational, whip and media driven system.