Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - Quote “The financial crisis of 2007/08 occurred because we failed to constrain the private financial system’s creation of private credit and money.” and . . . "The banking system can thus create credit and create spending power – a reality not well captured by many apparently common sense descriptions of the functions which banks perform. Banks it is often said take deposits from savers (for instance households) and lend it to borrowers (for instance businesses). But in fact they don’t just allocate pre-existing savings; collectively they create both credit and the deposit money which appears to finance that credit.Thus banks can create credit and private money." '" www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse.

Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - Quote “The financial crisis of 2007/08 occurred because we failed to constrain the private financial system’s creation of private credit and money.” and . . . "The banking system can thus create credit and create spending power – a reality not well captured by many apparently common sense descriptions of the functions which banks perform. Banks it is often said take deposits from savers (for instance households) and lend it to borrowers (for instance businesses). But in fact they don’t just allocate pre-existing savings; collectively they create both credit and the deposit money which appears to finance that credit.Thus banks can create credit and private money." '" www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse.

This is amazing, I cannot believe no one has ever mentioned this on here before.

Shocking, isn't it?

I blame this lot:

What's even more amazing is that Mervyn King didn't spot it.

Has the opening poster ever commented on anything else?

Quote ="LeighGionaire"Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse.'" LeighGionaire in 'thinking an economist is backing him up because he misunderstood what he is saying' shocker. Quote ="Adair Turner"Could we ever practically move away from factional reserve banks, and if we did, would it be desirable to do so? Well my answer is still no. '" Instead of reading the out of context quotes on biased websites, why don't you actually read the sources you claim to support you. This is the second time in just over a week you've quoted a source who fundamentally disagrees with you! He states (on the very first page) that he is in favour of robust regulation of the financial system, not a complete destruction of the fractional reserve banking system.

Quote ="LeighGionaire"Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse.'" LeighGionaire in 'thinking an economist is backing him up because he misunderstood what he is saying' shocker. Quote ="Adair Turner"Could we ever practically move away from factional reserve banks, and if we did, would it be desirable to do so? Well my answer is still no. '" Instead of reading the out of context quotes on biased websites, why don't you actually read the sources you claim to support you. This is the second time in just over a week you've quoted a source who fundamentally disagrees with you! He states (on the very first page) that he is in favour of robust regulation of the financial system, not a complete destruction of the fractional reserve banking system.

Can we please have a whip round to buy Legionnaire a new book this Christmas? Preferably on a different subject and one that he may have a hope of understanding. Thomas the Tank Engine perhaps?

Just because his solution wouldn't necessarily be the same as mine we both agree on the fundamental problem at the heart of this crisis.

Anyway I'm still waiting for you to explain how the U.K money supply doubled in the last 8 years if banks don't create money when they give out new loans . . .

Quote ="Dally"Can we please have a whip round to buy Legionnaire a new book this Christmas? Preferably on a different subject and one that he may have a hope of understanding. Thomas the Tank Engine perhaps?'" How about YOU buy any of these books instead www.positivemoney.org.uk/books/ and enlighten yourself instead of misguidedly sniping at me about a subject you obviously don't understand. You probably still think banks loan out grannys savings

Quote ="Dally"Can we please have a whip round to buy Legionnaire a new book this Christmas? Preferably on a different subject and one that he may have a hope of understanding. Thomas the Tank Engine perhaps?'" How about YOU buy any of these books instead www.positivemoney.org.uk/books/ and enlighten yourself instead of misguidedly sniping at me about a subject you obviously don't understand. You probably still think banks loan out grannys savings

Obviously you don't even read your own threads properly as I commented there before I started this one.

Really?

He states the problem is that lack of regulation on banks lead to too much lending and thus private sector over-leveraging. To repair this he says we should increase banking regulation. He explicitly says that the current fractional reserve banking system shouldn't be got rid of

You say banks are perpetrating a 'money from nothing fraud', you think all debt is inherently evil, so you want to replace the current banking system.

If you genuinely think he is backing up your point then you're more crazy than I thought.



I have explicitly stated that banks create money, just not in a 'money out of nothing fraud'

I'll try once more to explain the difference between our position.

When I walk into my local Barclay's bank and ask for a £100k loan to buy a house from you, if I'm successful they will credit my account with £100k. They wont transfer money deposited from someone else's account into mine, they will simply credit my account with the money, I think we agree with this part.

But, when I successfully buy the house and the transaction goes through, what do you think happens? Do you think my bank simply transfers this newly created money into your (say Santander) bank account., and Santander accept this? This isn't what happens, they transfer money from their account with the central bank, into Santander's central bank account. They CANNOT create 'central bank money'.

As I previously stated banks can deposit as much money into people's accounts as they like. But as soon as the person tries to spend it or withdraw it, they need 'central bank money' to back it up - and they cannot create this type of money.

So yes banks can create as much money as they like, as long as they don't care about becoming insolvent. Barclays could deposit £100 trillion in my account right now, but as soon as I tried to spend it the bank would be insolvent.

I have a few questions I would like to ask you.

a) you state that ' there is NEVER enough Money/Credit in the system to pay back all the loans because the extra money needed to pay the interest isn't created at the same time as the loan'.

Where do you think the money from the interest repayments goes? Do you think banks horde all their interest repayments in big underground vault. Or do you think this money is simply income for the bank, which is used to pay the salary of its employees, and dividends to its shareholders?

b) You say governments can never pay off their debts. But governments can ensure that they run a surplus, this means debt decreases. At what point would the magic boundary come into play and stop governments reducing debt so much it became 0?

We all lived it up on cheap credit. Now we are being asked to pay it off.

Quote ="LeighGionaire"How about YOU buy any of these books instead www.positivemoney.org.uk/books/ and enlighten yourself instead of misguidedly sniping at me about a subject you obviously don't understand. You probably still think banks loan out grannys savings '" Any book written by people who can so blatantly misrepresent the Adaire speech with selective quoting and wilful misinterpretation is fundamentally worthless.

Quote ="LeighGionaire"How about YOU buy any of these books instead www.positivemoney.org.uk/books/ and enlighten yourself instead of misguidedly sniping at me about a subject you obviously don't understand. You probably still think banks loan out grannys savings '" Any book written by people who can so blatantly misrepresent the Adaire speech with selective quoting and wilful misinterpretation is fundamentally worthless.

No. No we 'all' didn't. And the cheapness or otherwise of the credit is irrelevant.

I didn't. But, I am. Moral hazard doesn't begin to explain it.

Adair Turner's speech gives good explanation of the benefits of fractional reserve banking, which is what Leigionnaire and his mates are always arguing should be scrapped. www.fsa.gov.uk/static/pubs/speeches/1102-at.pdf (p16-17) 1. Banks allow maturity transformation. This means you can hold liabilities over a longer term than your assets. In other words you can buy a house and borrow over 25 years, but you can hold savings (ie you lending to someone else) over short term, so you can have quicker access. The only reason you can do this, is because the bank is taking the risk by lending out more than it has. If you had 100% reserve banking then there would be no maturity transformation, the total amount a bank lent out would have to equal the total amount deposited in the bank, and they could only lend out over the same length as the savers are depositing in. So to lend mortgages over 25 years they would need an equal amount of depositors willing to tie their money in 25 year savings accounts, which is not going to happen. This maturity transformation is also beneficial to businesses and UK economic development was enhanced by having a more advanced form of maturity transformation system in its banks, which encouraged more business investment. 2. Maturity transformation allows for lifecycle consumption smoothing. As most people are going to see their earnings increase over time in their lifetimes, being allowed to take out a mortgage to buy a house and pay back over 25 years, means you can enjoy the benefits of that house over 25 years. If you had to squat in a shack whilst saving up that money over 25 years before buying it, you have missed out on 25 years of house. Similar analogies apply to businesses particularly start ups. Without maturity transformation you wouldn't get start up businesses, apart from amongst the already wealthy. Hence Adair Turner concludes "we should I believe accept the existence of fractional reserve banking as a given fact of modern economies". Turner is a good bloke, and would be a good Governor of the Bank of England, he would be my second preferred choice after Gus O'Donnell.

Adair Turner's speech gives good explanation of the benefits of fractional reserve banking, which is what Leigionnaire and his mates are always arguing should be scrapped. www.fsa.gov.uk/static/pubs/speeches/1102-at.pdf (p16-17) 1. Banks allow maturity transformation. This means you can hold liabilities over a longer term than your assets. In other words you can buy a house and borrow over 25 years, but you can hold savings (ie you lending to someone else) over short term, so you can have quicker access. The only reason you can do this, is because the bank is taking the risk by lending out more than it has. If you had 100% reserve banking then there would be no maturity transformation, the total amount a bank lent out would have to equal the total amount deposited in the bank, and they could only lend out over the same length as the savers are depositing in. So to lend mortgages over 25 years they would need an equal amount of depositors willing to tie their money in 25 year savings accounts, which is not going to happen. This maturity transformation is also beneficial to businesses and UK economic development was enhanced by having a more advanced form of maturity transformation system in its banks, which encouraged more business investment. 2. Maturity transformation allows for lifecycle consumption smoothing. As most people are going to see their earnings increase over time in their lifetimes, being allowed to take out a mortgage to buy a house and pay back over 25 years, means you can enjoy the benefits of that house over 25 years. If you had to squat in a shack whilst saving up that money over 25 years before buying it, you have missed out on 25 years of house. Similar analogies apply to businesses particularly start ups. Without maturity transformation you wouldn't get start up businesses, apart from amongst the already wealthy. Hence Adair Turner concludes "we should I believe accept the existence of fractional reserve banking as a given fact of modern economies". Turner is a good bloke, and would be a good Governor of the Bank of England, he would be my second preferred choice after Gus O'Donnell.

This might have been true a generation or so ago. But these days for the overwhelming majority of people beyond the age of 25 (when training, apprenticeships etc. have ceased and the employee is drawing full pay) the emphasis is on capping rises or cutting wages completely. Personally, I've lost count of the number of people bemoaning the fact that they were both better paid and better off ten or even fifteen years ago (often under the same company). I mean, in REAL TERMS, any person not pulling in 5%+ per annum increase is almost certainly taking a pay cut year after year. According to the government inflation is currently running at 2.7% - but the [imethods[/i of calculating inflation have fallen victim to political inveiglment and thus aren't what they were in, say, the seventies when today's figure would be significantly higher.

talk about sweeping generalisations ?

What you mean is you are basing this all on anecdotal evidence and you don't want to believe official measures of inflation so you just say "well the government fixes the figures".

I bet you don't know how the inflation indices are calculated, or what changes have been made over the past 'generation' in calculating RPI or CPI. You are just making up that they are faked.

Politicians don't legislate on how inflation is calculated anyway. It's done by statisticians in the civil service following guidelines that come from the International Labour Office to ensure measures are comparable across different countries.

This is ridiculous. I and just about anyone around the age of 40 can recall a time when excluding mortgages and other services from inflation statistics was - at the very least - uncommon. It was during the eighties that this method gained serious traction within the media. Even though I think it's utterly ridiculous to use this exclusive calculation I could at least handle the media quoting old and new side by side. But now they regularly refer only to the new method [iand without any qualification whatsoever[/i.

So yes - the way inflation is calculated has changed. If you want to deny this and claim we have always excluded mortgages etc. from the sums I really can't help.

Quote ="LeighGionaire"Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse.'" Shouldn't that read "A link to an article that backs up what I've been saying for ages regardless of any evidence presented to counter my arguument"

Quote ="LeighGionaire"Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse.'" Shouldn't that read "A link to an article that backs up what I've been saying for ages regardless of any evidence presented to counter my arguument"

You appear to have answered your own question. Irrespective of the to-ings and go-ings of "money" inside central banks - LeighGionaire is quite correct in saying banks have created off-the-books money knowing perfectly well (because many current and former representatives of the very same banks sit on regulatory boards such as the SEC in America) that insolvency isn't a problem as the Bank of Last Resort (us) will be forced to stump up the cash.

I really don't understand why you and many others are willfully misinterpreting some (not all) of LG's points. I mean, haven't prominent economists such as Richard Werner been saying precisely the same for years?

Is this a figment of my imagination?

I'd appreciate it if you could find an example of me misrepresenting him, because I'm fairly sure I've done no such thing.

I understand how banks create money via the fractional reserve system. I understand they saw regulation, designed to curb their money creation, as a hindrance which should be avoided in order to maximise profits. I know they underestimated risk, and I suspect some may have pushed it further than they thought was safe, for selfish reasons. I'm not sure why this is relevant though.

LG claimed banks create money in a 'money from nothing scam', he thinks when they lend money they create it completely out of nothing, and it is backed by nothing. He routinely quotes economists who completely disagree with him, even in the very paper he is referencing, because he hasn't bothered to read the paper - instead only reading the out of context quotes on a biased website. This is very embarrassing. First rule of making an appeal to authority, check they actually agree with you, or if you're lazy at least check they don't completely disagree with you on the very first page! He has misrepresented my views, as far as I'm aware (feel free to correct me) I've never misrepresented him.

Quote ="Mugwump"This is ridiculous. I and just about anyone around the age of 40 can recall a time when excluding mortgages and other services from inflation statistics was - at the very least - uncommon. It was during the eighties that this method gained serious traction within the media. Even though I think it's utterly ridiculous to use this exclusive calculation I could at least handle the media quoting old and new side by side. But now they regularly refer only to the new method [iand without any qualification whatsoever[/i. So yes - the way inflation is calculated has changed. If you want to deny this and claim we have always excluded mortgages etc. from the sums I really can't help.'" Mortgages are included in the Retail Prices Index but excluded from the Consumer Prices Index. For long run inflation comparisons its best to use RPI as the CPI only started being used in 1996. The media most commonly reports the CPI as the 'headline figure' but the ONS announces both in the same release. Previously benefits, pensions etc were uprated in accordance to RPI until 2010 when George Osborne linked them to CPI instead (as its lower because it excludes mortgage payments). Also the Bank of England's target is based on CPI not RPI. In any case these days mortgage interest payments have been pretty low for a while due to base interest rates being low. The main drivers of inflation in recent times are energy prices and oil prices, and to a lesser extent food prices. In general inflation has been much lower in the past two decades, partly because of tight wage restraint (as you alluded to) and also because the world market has become more globalised and a lot of consumer goods, clothes etc are much cheaper now due to the availability of cheap imports from developing countries. So price rises have been much more stable. I know what you are getting at that the cost of living seems harder for lots of people but I think the story there is less one of inflation being underrated and more one of wage inequality getting stronger. People at the lower end have not seen their wages rise much for a long time whilst wage rises for those above the middle end have been very good for a while. So those that are fairly well off have enjoyed rocketing living standards as they can enjoy more consumption due to consumer goods being cheap. Those at the lower end are more exposed because things like energy, petrol and food take up a greater portion of their spending. The Institute for Fiscal Studies did something on this a year or so back, and calculated the poor were paying a considerably higher rate of inflation than the rich because the stuff that takes up proportionately more of their income, was what was rising in price faster: www.guardian.co.uk/business/2011 ... -than-rich

Quote ="Mugwump"This is ridiculous. I and just about anyone around the age of 40 can recall a time when excluding mortgages and other services from inflation statistics was - at the very least - uncommon. It was during the eighties that this method gained serious traction within the media. Even though I think it's utterly ridiculous to use this exclusive calculation I could at least handle the media quoting old and new side by side. But now they regularly refer only to the new method [iand without any qualification whatsoever[/i. So yes - the way inflation is calculated has changed. If you want to deny this and claim we have always excluded mortgages etc. from the sums I really can't help.'" Mortgages are included in the Retail Prices Index but excluded from the Consumer Prices Index. For long run inflation comparisons its best to use RPI as the CPI only started being used in 1996. The media most commonly reports the CPI as the 'headline figure' but the ONS announces both in the same release. Previously benefits, pensions etc were uprated in accordance to RPI until 2010 when George Osborne linked them to CPI instead (as its lower because it excludes mortgage payments). Also the Bank of England's target is based on CPI not RPI. In any case these days mortgage interest payments have been pretty low for a while due to base interest rates being low. The main drivers of inflation in recent times are energy prices and oil prices, and to a lesser extent food prices. In general inflation has been much lower in the past two decades, partly because of tight wage restraint (as you alluded to) and also because the world market has become more globalised and a lot of consumer goods, clothes etc are much cheaper now due to the availability of cheap imports from developing countries. So price rises have been much more stable. I know what you are getting at that the cost of living seems harder for lots of people but I think the story there is less one of inflation being underrated and more one of wage inequality getting stronger. People at the lower end have not seen their wages rise much for a long time whilst wage rises for those above the middle end have been very good for a while. So those that are fairly well off have enjoyed rocketing living standards as they can enjoy more consumption due to consumer goods being cheap. Those at the lower end are more exposed because things like energy, petrol and food take up a greater portion of their spending. The Institute for Fiscal Studies did something on this a year or so back, and calculated the poor were paying a considerably higher rate of inflation than the rich because the stuff that takes up proportionately more of their income, was what was rising in price faster: www.guardian.co.uk/business/2011 ... -than-rich

Seriously, you DON'T develop a Blue Screen Contradiction error writing this:



and then this?



You admit that banks "create" money out of thin air - but this is ok, provided they follow the rules laid down by the regulatory body which say they must be able to cover the full value of the loan if so required. You then admit they gamed those rules completely (and this is BEFORE we even begin to consider the full ramifications of other scandals such as LIBOR), which ultimately resulted in several major global banks being unable to cover the very same loans you argue are covered.

The reason I say you are misrepresenting at least [ipart[/i of LG's point is that even if banks aren't explicitly set up to purposely function as some kind of backyard counterfeit money press - their EFFECT (and let's be honest - this isn't the first time this has happened throughout history) has amounted to such in all but name.