Fair point. It won't help Heather but some of you might understand it:

Banks are not "given" the money by BoE as Heather is implying.
(Heather can stop reading here)

BoE is buying up bonds and treasuries from banks and investors so the amount of money in the economy is increasing and the interest rate is decreasing (also inflation is being pushed up by this). This makes it less attractive for banks to hold on to the money and it is assumed that banks will lend more to business and individuals. However the times are tough and it is more difficult to find good borrowers that are likely to repay the money back. The risk of defaults is high so the true cost of lending is high too, even the actual cost of money is low. So banks have to ask for high rates of interests (to be profitable after allowing for certain amount of defaults) but for businesses it is hard to find investments (in deppressed economy) that will produce high enough returns (to make borrowing at high rates worth while).

It's hard to know what anyone is actually proposing here. Making up of minds is required.

Banks don't create money from nothing, they have to borrow from somebody to lend somebody else. Only BoE can create money from nothing.

Sounds like we're in dire straits.

It's been doing that on a semi-regular basis since 2008 (re: quantitative easing). It doesn't seem to have had that much effect overall.
You can't just give people money, as was said, that's a recipe for instant massive inflation. I suppose the government could buy liabilities from the banks and then effectively hold them unpaid for a given extended period (i.e. , you now owe your mortgage to UKGov but you don't have to pay it until the official growth rate is greater than x) but again, if you effectively create money in people's pockets from nothing, that's merely a recipe for inflation. Sensible people would say 'OK, I'll use that money to pay off other debt instead or put it in a deposit account for when I DO have to pay the mortgage off again'. But a lot of people aren't sensible, and would spend the money on enormous televisions and other things where the money basically heads straight out of the economy to places overseas but in the process makes a loaf of bread 'worth' a fiver.

There is no 'quick fix' for our current situation. If there was, you could be bloody sure Osborne would be trying it, because right now he'd give his right arm to look like he knows what he's doing. By whatever means you induce growth in the economy, which is what we actually need, you have to do so in a controlled way or you end up in even more trouble. It's like bringing somebody back to consciousness after a big operation. You have to do it slowly or the shock might do them more harm than whatever it is the operation fixed.

The question isn't about what we need to achieve - everyone is pretty much agreed about that. The question is how much pain/lasting damage will be done getting there and who ends up dealing with what proportion of it.

Jon

Banks create money that is why they then go and raise funds on the interbank market to balance their books, but banks now create money.

There gets to a point where I get the feeling that some believe that there is an infinite amount of money that can be generated, and others believe that there is a definite ceiling above which we have no ability to pass.

I have seen two videos on the web over the years - one, which I understand is incorrect, tells us that from debt money is created. So the act os lending money means that banks can, in effect, create more money from thin air.

The other (and I really wish I could locate the video because it seemed to be a well reasoned argument from someone with decent credentials) said that it was impossible to furnish infinite growth in an economy and at some point we’d hit a peak and fall back - which appears to be what has happened here. Unlike others here, who are clearly learned economists, I feel that this is probably the case. Like any engine, at some point it will run out of fuel, and if there is no more fuel, it will stop. And that, I believe, is just what happened. We need a different engine, or a different fuel. Or a different vehicle. All those controlling the economic engines can do right now is press some bubble gum into the fuel line in the hope that it will not leak, and, in the lines of the RAC bloke who fixed my Skoda once, hope it will “get you home”.

I can offer no real alternatives to capitalism as, like everyone else here, I have been conditioned all my life to believe that this is the way things just work. It’s a bit like days of yore when people were Christian simply because they had no other choice, conditioning from an early age, and peer pressure in later life (as well as legislation backed up by rather barbaric punishment) ensured that you remained so. However, I feel that there has to be another way, and I feel rather bothered that instead of being able to talk through alternatives, we are being steered back to the righteous path of capitalism by those who would rather we did stay in the status quo rather that consider other, possible more favourable routes. It seems to me that people do not like the notion that other ideas are being considered. A view I feel is blinkered, damaging and very short sighted.

To me, in its very basic form, money is credit for [LIFTED] you've done that someone everybody trusts keeps a record of. The only way to create money is by doing [LIFTED] and proving it to the guy that's in charge.

It would be hard enough to do that for a small tribe without trying to scale it up to millions. All that's left is trust in money and it's probably best not to look too deeply into how it all works.

They can create money from nothing so that is why the eliminating the debt is not such a great problem because much has simply being created from nothing so the only loser is the bank.


Every economic cycle has been restarted but with ever greater amounts of debt. That debt is now unsustainable even with low interest rates. Eventually borrowers will either be able to repay that debt or default. What the US and Europe are going through is a massive deleveraging and that means debt write offs or paying that debt down. Now banks would love it if we pay it all back. Though you only have to see the sales are now starting before Christmas to realise that something is wrong, and that even with big discounts people are unable to buy.


Capitalism has benefits in that it offers rapid feedback of what is wanted, and not wanted but the problem is that unrestricted capitalism leads to abuses and that is what we have now.

Every year new things are constructed, and old things digested. Existing money is invested in creating new things or upgrading old things, and the value of the sum total of things that exist increases on aggregate. So either new money can be created or money must get more expensive. The existence of the money is pretty much nominal, but the value of the things it represents is relatively tangible. So focusing on the money obscures the issue.


I think I know the video you refer to. Fractional reserve banking is a fact (although badly misrepresented there), but that video encourages misunderstanding about its implications. Banks can't just magic up money, they have to draw from their capital to lend, and the lending is on the balance sheets as an asset. Over time banks, like any business, must achieve a return on their invested capital - otherwise the capital is withdrawn and put into some other investment. If banks could really summon money from the ether, that wouldn't be a problem, they would always return whatever percentage they wanted.

Fraudulent loans for assets that did not really exist at a bank in Afghanistan recently wiped out a large chunk of that nation's GDP. If the money was simply summoned from nowhere, that wouldn't have been a problem.


I can't comment on specifics, but this sort of thing comes along quite often. Normally there is a plausible sounding but basic misunderstanding involved.


If you have a system where people are allowed to own property, and as a result of that ownership they have the right to invest in improving that property and they continue to own the improved property afterwards, that's basically capitalism. Everything else is variations on the theme. Improvements within the system are always possible, replacing it wholesale has proved tricky.

I sat through the Irish Budget on Wednesday, I was visiting Ireland on business. Some of the new taxes and the cuts they brought in were quite shocking. We keep hearing about how bad Ireland is at the moment, but actually being there was something else.

That said, the people we met weren't moaning about things.

But a pint was about 2.5 to 3 times as expensive as we'd pay here, and on Wednesday it went up by another 10c.

What really flumoxed me was the change for OAPs, they can only see a GP, their state health insurance doesn't cover medication, specialists or hospital treatment!

I really wish I could remember the name of the guy. I think I emailed it to someone, so tomorrow I will dig through my Sent folder to see if I can find it. It was interesting because he connected:
The global economy, the environment, the planet’s natural resources and basically said that it was problematic to keep on going as we were because one of those will run out, and bring the rest down with it. I remember him saying that we are past Peak Oil and the oil field that BP and others blew up would have provided enough oil for the plant to run for something like 24-48 hours.

Ah - I have found it: http://www.youtube.com/watch?v=8WBiTnBwSWc

It’s long, but an interesting one to watch.

That's a good video illustrating why we need to change our economic model. In the long run, it is unsustainable without moderation. The best we can hope for is putting off the inevitable collapse.
This video - http://vimeo.com/15061570 - rather nicely illustrates why austerity economics leads to class politics which as we're all aware, is a roaring success.

Oh I saw the Chris Martenson one before. There's a thread somewhere here about it. It's strewn with errors.
The most important error comes iirc in the Q&A at the end, when he is talking about steam ships. It demonstrates either dishonesty (because the question posed was valid and showed a major hole in his theory), or a basic misunderstanding of how markets work. Also if you find that bit, you will note that he suddenly stops talking about exponential maths - a subject he harps on regularly throughout the rest of the video. Why? Because at that point the method to which he was enslaved didn't support the conclusion he desired, so he dropped it like a hot turd.



Blythe is both complaining about and practising "class politics" in his own right, which is at best mildly hypocritical. He covers the basics of the paradox of thrift though, and I agree that 'expansionary fiscal consolidation' is an idea that deserves all the ridicule it gets. Unfortunately it's at the point where he says why that self-evidently loony phrase is bad that he says "precisely because" and then strays off on a random tangent that doesn't explain why expansionary contraction is a paradox. Instead he is talking about an unrelated thing he also doesn't like. But because there's a noted professor saying "because" it's quite easy to assume he's telling you about a cause of something. I had to rewind a few times to make sure I wasn't missing some logic. But it's not there.

Not that this would matter too much. There are lots of other economists who will tell you that expansionary fiscal policies do so much harm over the medium to long term that their short term benefits are not worth pursuit. Others will tell you that our level of debt is extravagant as is, and even in the short term a fiscal expansion endangers our stability. Nobody can prove anything in a 5 minute video.

Bythe did explain why everyone trying to cut back was a mistake. It was called the fallacy of composition. Most economists are still dumbstruck as to why the recession is still carrying on when the economy should be recovering quite strongly by now. The fact that the OBR have been so optimistic about the UK's position is one reason why the Chancellor has to keep putting back his estimate of when we will exit recovery. In two years time I suspect that he will put it back to 2020, in which case he would have lead Britain into a lost decade.