Banking and sustainability

Hi @olenakozakking - are you able to share any of the results of your research back to the group?

Before anyone asks the UK banking system and, in fact, all banking systems around the world are essentially the same as the NZ one. There's a few differences in laws and regulations but they all work the same way. They create money when they make a loan and destroy most of it when the loan is paid back. The part that's not destroyed is the interest that they charge but that too has been created by interest bearing loans.

If all the principle of all the loans in the world was paid off we'd all still be in debt for the amount of the interest that had accrued.

This is unsustainable as the amount of debt must always increase until it can't be paid and the economy collapses.

Really though, after filling in the survey, the problem with asking for people on this board to fill it in is that most people here would be from NZ and thus some of the demographics form at the end doesn't apply.

There is a group as well - though not sure it's currently active: https://www.loomio.org/g/NntKYvHS/perceptions-on-a-more-sustainable-banking-system

Bryan Gould: Brash doesn't seem to understand banking

But the capacity they do have is hugely important. I concluded by asking whether it was wise to entrust such wide-ranging powers - so significant in their impact on the whole economy - to the banks, and then to arrange that the only person able to regulate that impact was himself a banker - the Governor of the Reserve Bank.

That concern is surely heightened if a former Governor seems not to understand what is really happening.

My bold.
I also question if Brash didn't understand how banks work of if he was trying to distract from how they work

Some Corporations manage to stay ahead of the bank by making more with the money they borrow than the interest that they need to pay back. Essentially "Debt funded growth". While those who cannot manage there money efficiently go into a lot of debt without any assets to back them up.

Unfortunately it is like a game as for every winner that stays ahead of the interest rates there are losers who collapse into bankruptcy. If New Zealand becomes more educated about finance we could potentially beat the rest of the world if we choose (Continue) to play the game. But indeed in the long long long run the banks do control the money supply and they dictate the rules and eventually it will return to the banks.

Many successful entrepreneurs are winners that borrowed money and started a business so there are short term gains if you are smart (and Lucky) enough to use it properly. Banks are in it for the long haul.

Some Corporations manage to stay ahead of the bank by making more with the money they borrow than the interest that they need to pay back. Essentially "Debt funded growth". While those who cannot manage there money efficiently go into a lot of debt without any assets to back them up.

Those profits are paid by debt funded money which means that that profit indicates an increase in debt and the interest that continually builds upon it elsewhere in the economy. that debt ill build up until such time as the economy collapses due to excessive debt.

Those profits are paid by debt funded money which means that that profit indicates an increase in debt and the interest that continually builds upon it elsewhere in the economy. that debt ill build up until such time as the economy collapses due to excessive debt.

But if I borrow $1 from the bank, the bank requires $1.10 be returned, then I perform $1.10 in services to the bank, the bank pays me $1.10 (IOU), then I pay the bank back $1.10, and I have no debt, the bank has no debt.

We could pay off 100% of debt tomorrow, and the economy wouldn't collapse. And many organizations (including governments) have operated with some form of debt continuously for hundreds of years. Debt doesn't cause any collapse, and paying off debt is possible.

No debt is issued, except on real currency that actually exists.

To believe "banks make money" you have to understand what "makes money" means.

I have $100 in my pocket. Alice comes up to me just before lunch. She asks to borrow $10 for lunch. I give her $10 to pay me back $10 tomorrow (0% loan). Bob does the same. Then Charlie. Eventually, I have no more money. Alice, Bob, Charlie, Dave, Edward, Frank, George, Hank, Ivan, and Jacques have $10 each. Now, Kelly comes asking for money. Alice decides to led Kelly the $10, because Alice had a snack to eat instead.

How much money is in the room?

The "banks make money" camp would insist there's $210 in the room. My $100 in IOUs is "money", as is the $100 the IOUs were written against, as well as the extra $10 Alice has in an IOU.

I can't spend my IOUs. I can't really sell them, either. So they aren't "money" in any sense of the word.

Banks can trade debts. Does having someone willing to but the 0% IOUs suddenly change them into money? The "banks make money" crowd seems to think so.

If you never count a debt as "money" then banks never "make" money. They can still earn it through fees, but they aren't creating it themselves.

"Banks create money, and I don't like it" isn't a policy. It doesn't lead to an action. It's simply a complaint. So what's the action? What's the policy to deal with the imagined crisis?

But if I borrow $1 from the bank, the bank requires $1.10 be returned, then I perform $1.10 in services to the bank, the bank pays me $1.10 (IOU), then I pay the bank back $1.10, and I have no debt, the bank has no debt.

1 + 1.1 - 1.1 = 1 of debt which still needs to be paid.

And that's not taking into account the fact that the bank may just decide to pay you 0.9

We could pay off 100% of debt tomorrow, and the economy wouldn't collapse.

If all debt was paid off tomorrow there would be no money left but lost and lots of debt.

No debt is issued, except on real currency that actually exists.

Wrong

To believe "banks make money" you have to understand what "makes money" means.

I do, you obviously don't.

I have $100 in my pocket. Alice comes up to me just before lunch. She asks to borrow $10 for lunch. I give her $10 to pay me back $10 tomorrow (0% loan). Bob does the same. Then Charlie. Eventually, I have no more money. Alice, Bob, Charlie, Dave, Edward, Frank, George, Hank, Ivan, and Jacques have $10 each. Now, Kelly comes asking for money. Alice decides to led Kelly the $10, because Alice had a snack to eat instead.

That may be how you work, it's not how banks work. Now if I had $100 dollars in my pocket and put it in the bank and then the bank loaned it out as you say then I would still be able to buy a $100 lunch. I wouldn't have to wait until tomorrow when everyone had paid me back.

And that's how banks work.

So what's the action?

Real Monetary Reform

And it's not an imagined crisis - it's very real as the studies have shown.

Steve Keen: The coming crash