Simplifications

I have come to the following draft conclusions:
a) The banking system is short of capital and it can't get it from joe public when the future outlook (and government involvement) is so uncertain
b) The non-banking system is short of cash, and can't get that cash from the banks without getting into more debt.

The banking system can be recapitalized by creating New Banks (see earlier posts), not recapitalising the old banks.

The non-banking system can get more cash but how? Printing money and some non-house inflation might be a good option.

6 comments:

Robin Smith said...

I'm do not understand this statement:

"The banking system is short of capital"

Do you mean it is short of credit it can make available for the creation of wealth in an advancing economy? If so why? It can create all it wants to.

Correct me if I'm wrong:

1) An advancing economy requires more wealth to be created than destroyed

2) We create more wealth by working on land and natural resources. NOT by creating money out of money. Money is not wealth

3) I can think of nothing that has stopped us from continuing to work as much after the crunch than before

4) The only thing preventing the further creation of wealth is that the banks are deliberately not creating credit for employers and employees. And those wealth creators do not htink they can work and make things without money. They can though.

If the banks wont provide credit, please help me understand why they wont do it, then we should set up our own new banks to do it somehow and ignore the conventional banks until they die out for good. The treasury could do this immediately and just link loans to inflation.

TheClimatePhilosopher said...

>"The banking system is short of capital"
>
>Do you mean it is short of credit it >can make available for the creation >of wealth in an advancing economy? >If so why? It can create all it >wants to.

Banks are short of asset value to extend new loans

>Correct me if I'm wrong:

>1) An advancing economy requires >more wealth to be created than >destroyed
Yes, absolutely

>2) We create more wealth by working >on land and natural resources. NOT >by creating money out of money. >Money is not wealth
Yes

>3) I can think of nothing that has >stopped us from continuing to work >as much after the crunch than before
Our financial position, that's what.

>4) The only thing preventing the >further creation of wealth is that >the banks are deliberately not >creating credit for employers and >employees.
True enough

>And those wealth creators >do not htink they can work and make >things without money. They can though.
Yes, but they need a medium of exchange of course, and they care about their financial position.

>If the banks wont provide credit, >please help me understand why they >wont do it, then we should set up >our own new banks to do it somehow >and ignore the conventional banks >until they die out for good. The >treasury could do this immediately

Exactly. That's what we're proposing.

Robin Smith said...

Can you indicate what is making being short of asset value a problem? It never concerned them before. ie how much, in % or absolute terms, of the asset value do they need before they will stop issuing credit?

TheClimatePhilosopher said...

Banks are able to lend only when they have net asset value (capital).

TheClimatePhilosopher said...

>ie how much, in % or absolute terms, of the asset value do they need before they will stop issuing credit?

Capital requirements are about 10% of the amount of credit that can be extended I think, (the exact amount depends on the riskiness of the guy you are lending to).

TheClimatePhilosopher said...

"Money costs almost zero to make and very litte to manage. Yet they claim most of their profits in interest go to wages!!!"

Be careful! Many people use this term 'create money' very loosely, almost as if the banks have a printing press and can just churn the stuff off like counterfeiters.

Of course when banks 'create money' (e.g. for paying their employees) the money they create (deposits) is an obligation on the bank to pay other people. So the bank will want to 'create' as little as possible - it is not in their interest to do more.

I'm not sure 'create money' is really the best way to put it, even though it is broadly accurate. 'Create tradeable obligations to pay people (often, but not necessarily in exchange for obligations for people to pay the bank)' would be a more accurate description.