But that shortage in supply, what is the root cause?
Builders aren't building, but that's not the cause, that's a symptom.

The cause is the fact that first-time buyers (on whom the whole structure depends) can't get mortgages.
If they could get mortgages, builders would be building homes a whole lot cheaper than the existing stock is currently selling for.
One thing that Dally did get right is that house prices will erode but IMHO that will be slow.

Cameron says that it's planning regs and process that are the problem.
But Cameron is a lying n0bhead who wants to help the likes of Tesco to build on land they have stockpiled.

The last thing the BoE and Government want at the moment is a big increase in housing supply. Policy is aimed at trying to keep property prices artificially high for the medium term.

Quote ="LeighGionaire"Who'd have thought it, a mainstream news source explaining how banks create money from nothing . . . . www.guardian.co.uk/commentisfree ... ed-stealth Just think about this as an example. Say it takes a days work for a bank employee to process a mortgage application for a customer. If the mortgage is over a period of 25 years and one days pay per week is needed to repay the mortgage, the customer is essentially giving up 5 YEARS of work for the initial days work it took the bank sorting out the paperwork to conjour up the money out of thin air in the first place! This is debt slavery in a nutshell.'" Letting nutters from the Occupy movement take over CiF is probably one of the silliest things the Grauniad has ever done. The fact that the Gruadian chose to do it does not mean that 'mainstream media' have suddenly become converted to their idiot ideas. There's a good repost to the whole nonsense [url=http://ukhumanrightsblog.com/2011/11/15/freemen-of-the-dangerous-nonsense/here[/url

Quote ="LeighGionaire"Who'd have thought it, a mainstream news source explaining how banks create money from nothing . . . . www.guardian.co.uk/commentisfree ... ed-stealth Just think about this as an example. Say it takes a days work for a bank employee to process a mortgage application for a customer. If the mortgage is over a period of 25 years and one days pay per week is needed to repay the mortgage, the customer is essentially giving up 5 YEARS of work for the initial days work it took the bank sorting out the paperwork to conjour up the money out of thin air in the first place! This is debt slavery in a nutshell.'" Letting nutters from the Occupy movement take over CiF is probably one of the silliest things the Grauniad has ever done. The fact that the Gruadian chose to do it does not mean that 'mainstream media' have suddenly become converted to their idiot ideas. There's a good repost to the whole nonsense [url=http://ukhumanrightsblog.com/2011/11/15/freemen-of-the-dangerous-nonsense/here[/url

There is some very confused thinking on here. People bemoan the fact that we got into a mess due to credit being freely available and most policy suggestions involve growth via further deabt but at the same time bemoan the fact that mortgages for first time buyers are not given away!

But we appear to have gone from a situation where money was being thrown around, to one where it's kept under lock and key and nobody can have any. I guess banks have never heard of a happy medium?

They have no choice. Things went wrong now they need fixing. If we take, say, a 25 year period - previous 15 years and next 10 you will probably see there was a happy medium on average - just dramatically skewed between the first and second half of that period.

That average will really help businesses who are struggling to get finance to expand and boost growth.



Banks [udo[/u have a choice. They chose to throw money around and now they choose not to. My main problem with the latter (whether it's better for the economy or not) is that banks' profligacy and bad decisions led in part to their problems, yet when the taxpayer helps them out, keeping them in jobs and bonuses, their answer to the taxpayer seeking to borrow money (not asking for it back - BORROW) is almost always NO.

Would Gideon's growth forecasts and figures be as bad if the banks were made to lend at least some of it back?

Spot on.


Can't see it. Latest forecasts have UK population up from 70m to 90m within about 30 years. Gotta live somewhere and sales of tents are static.

They chose to throw money around because they were given the ability to. Being forced to now hold more capital to help avoid future bail outs has now removed that ability.

Ufortuanately we can't have it both ways.

We had strong 'growth' during the period when boom and bust ended but debt was racked up to such a degree that it's more or less brought the country and large parts of the world to its knees. We need a slightly better approach that debt fuelled growth to solve this. How about hard graft and an acceptance of lower living standards?

Gotta love LeighGionaire's periodic 'I dont understand the banking system' threads



If banks create money completely out of thin air, in the way you've just described, how in 2007/8 did we end up in a position in which banks suffered from a liquidity crisis resulting in a run on Northern Rock etc. Were all the people responsible for adding zeros to the banks balance sheet off sick or something?


The global financial crisis was partly a result of US' problems with the sub-prime mortgage industry. Banks were lending money to people who weren't credit worthy, and were fairly likely to default on their repayments. If banks simply create the money out of thin air in the way you describe, with none of this lent out money actually coming from the banks income, how could the sub-prime lenders defaulting on their repayments be a problem?

If a bank creates 100k completely out of thin air to give to you to buy a house, you repay 10k before going bankrupt, even if by this point the value of the house has crashed surely the banks have still made a profit?
Also why were these debts being sold on in the form of CDO's? Surely if the banks funded new mortgages by creating money out of thin air, and not from 'real' money from the banks income, they would have absolutely no need to do so.

Banks create money out of nothing. However they need a borrower's signature to create the money. That's the trick. They can't just sit there all day and night creating money willy-nilly.

If banks don't create money then how do you explain a comment like this?

Quote ="tb"Letting nutters from the Occupy movement take over CiF is probably one of the silliest things the Grauniad has ever done. The fact that the Gruadian chose to do it does not mean that 'mainstream media' have suddenly become converted to their idiot ideas. There's a good repost to the whole nonsense [url=http://ukhumanrightsblog.com/2011/11/15/freemen-of-the-dangerous-nonsense/here[/url'" The link you provided doesn't mention the article I linked so how can it be a 'repost to the whole nonsense'? Now here is a link that discusses the issues addressed in the Guardian article, it's from the Financial Times. However they don't slate the Guardian article for being wrong about money creation, they instead lampoon the author for only just finding out how the system works! Quote Congratulations to Ben Dyson, self-professed “money and banking specialist” for finally discovering, err, money. Or, how money works. In a column in the Guardian on Tuesday, Dyson recounts in grand revelatory style how the solution to the system’s current ails is nothing other than recognition of the fact that “money has been privatised”. Shock, horror!'" ftalphaville.ft.com/blog/2011/11 ... /#comments

Quote ="tb"Letting nutters from the Occupy movement take over CiF is probably one of the silliest things the Grauniad has ever done. The fact that the Gruadian chose to do it does not mean that 'mainstream media' have suddenly become converted to their idiot ideas. There's a good repost to the whole nonsense [url=http://ukhumanrightsblog.com/2011/11/15/freemen-of-the-dangerous-nonsense/here[/url'" The link you provided doesn't mention the article I linked so how can it be a 'repost to the whole nonsense'? Now here is a link that discusses the issues addressed in the Guardian article, it's from the Financial Times. However they don't slate the Guardian article for being wrong about money creation, they instead lampoon the author for only just finding out how the system works! Quote Congratulations to Ben Dyson, self-professed “money and banking specialist” for finally discovering, err, money. Or, how money works. In a column in the Guardian on Tuesday, Dyson recounts in grand revelatory style how the solution to the system’s current ails is nothing other than recognition of the fact that “money has been privatised”. Shock, horror!'" ftalphaville.ft.com/blog/2011/11 ... /#comments

www.neweconomics.org/publication ... -come-from

www.neweconomics.org/publication ... -come-from

Quote ="LeighGionaire"Now here is a link that discusses the issues addressed in the Guardian article, it's from the Financial Times. However they don't slate the Guardian article for being wrong about money creation, they instead lampoon the author for only just finding out how the system works! ftalphaville.ft.com/blog/2011/11 ... /#comments'" Oh dear. You've misunderstood the article you link to above. Here - a simple explanation of why Dyson's article was 'bollox on stilts' lifted from the comments section... Quote No. No, no no no no, with cherries on top. This is the worst (mis)explanation of fractional reserve banking I have ever read. When you borrow money from the bank, that money is not "created" by the bank. The bank has to fund it - either from deposits (the "prudent grandmother's life savings"icon_wink.gif or from borrowing it from someone else (the wholesale funding market). The "creation of money" that everyone goes on about is quite different, very simple, and not at all sinister. It results from the fact that when a bank takes a deposit and lends it out again, both the depositor and the borrower treat themselves as having the money in question. Of course that's not actually true - the depositor does not have any money, just a debt owed to him or her by the bank - but because bank deposits are treated as equivalent to cash by almost everyone, the illusion is convincing. Even then the banks cannot "create" an infinite amount of money, because the government does not allow them to lend out ever penny they receive in deposits. They have to keep a set percentage as reserves. So for example, thrifty grandma Mrs Bloggs saves GBP100,000 with Megabank. The bank has to keep (say) 8% of this as reserves, but can lend out GBP92,000 to Mr Flatbuyer. Now Mr Flatbuyer thinks he has GBP92,000 and Mrs Bloggs thinks she has GBP100,000, so the total amount of money in the economy appears to have gone up by GBP192,000. But of course it hasn't really. You can see that because eventually Mr Flatbuyer has to pay back his GBP92K and Mrs Bloggs withdraws her GBP100K, which leaves you back to where you began (give or take a little interest). Further because the capital ratio is always positive, the total amount of money that can be "created" in this way is limited. For example, instead of buying a house Mr Flatbuyer could deposite his GBP92K back into a bank, which could then lend out 92% of that (GBP84,640), and so one. Which (for an 8% capital ratio) works out at a maximum of GBP4 being "created" for each GBP1 of "real" money. How you gonna change the world if you don't understand it?'"

Quote ="LeighGionaire"Now here is a link that discusses the issues addressed in the Guardian article, it's from the Financial Times. However they don't slate the Guardian article for being wrong about money creation, they instead lampoon the author for only just finding out how the system works! ftalphaville.ft.com/blog/2011/11 ... /#comments'" Oh dear. You've misunderstood the article you link to above. Here - a simple explanation of why Dyson's article was 'bollox on stilts' lifted from the comments section... Quote No. No, no no no no, with cherries on top. This is the worst (mis)explanation of fractional reserve banking I have ever read. When you borrow money from the bank, that money is not "created" by the bank. The bank has to fund it - either from deposits (the "prudent grandmother's life savings"icon_wink.gif or from borrowing it from someone else (the wholesale funding market). The "creation of money" that everyone goes on about is quite different, very simple, and not at all sinister. It results from the fact that when a bank takes a deposit and lends it out again, both the depositor and the borrower treat themselves as having the money in question. Of course that's not actually true - the depositor does not have any money, just a debt owed to him or her by the bank - but because bank deposits are treated as equivalent to cash by almost everyone, the illusion is convincing. Even then the banks cannot "create" an infinite amount of money, because the government does not allow them to lend out ever penny they receive in deposits. They have to keep a set percentage as reserves. So for example, thrifty grandma Mrs Bloggs saves GBP100,000 with Megabank. The bank has to keep (say) 8% of this as reserves, but can lend out GBP92,000 to Mr Flatbuyer. Now Mr Flatbuyer thinks he has GBP92,000 and Mrs Bloggs thinks she has GBP100,000, so the total amount of money in the economy appears to have gone up by GBP192,000. But of course it hasn't really. You can see that because eventually Mr Flatbuyer has to pay back his GBP92K and Mrs Bloggs withdraws her GBP100K, which leaves you back to where you began (give or take a little interest). Further because the capital ratio is always positive, the total amount of money that can be "created" in this way is limited. For example, instead of buying a house Mr Flatbuyer could deposite his GBP92K back into a bank, which could then lend out 92% of that (GBP84,640), and so one. Which (for an 8% capital ratio) works out at a maximum of GBP4 being "created" for each GBP1 of "real" money. How you gonna change the world if you don't understand it?'"

Kosh - the Financial Times could have ripped the Guardian article to pieces if the overall premise about how banks create money had been wrong. The fact that it doesn't and instead focuses on defending debt speaks volumes to me. Notice how you have to find a random reply in the comments section to try and debunk my reasoning. Three people have attacked my reasoning on this thread so far yet none have explained how the Martin Wolf quote mentioned a few posts up is wrong.

Why do banks make so much money?

=#FF0000No direct YouTube links please

"Steve Keen talks about the money creation process in the second half, and how the assumption of 99.9% of neoclassical economics that savings and debt cancel each other out in an economy is completely misguided as it is ignorant of the fact that nearly all new money is created as debt by private banks in modern economies." www.positivemoney.org.uk/2011/12 ... er-report/

"Steve Keen talks about the money creation process in the second half, and how the assumption of 99.9% of neoclassical economics that savings and debt cancel each other out in an economy is completely misguided as it is ignorant of the fact that nearly all new money is created as debt by private banks in modern economies." www.positivemoney.org.uk/2011/12 ... er-report/

An important point to remember that the principle of fractional reserve banking (where, say, £10 is lent for every £1 that is deposited) is entirely dependent on people choosing to [isave [/imoney. Given that interest rates have been in a state of flatline for some years now it's hard to see how banks (excluding those based in Asia) can be in a position to lend money. Although there seems no shortage of offers from so-called "debt consolidation" companies to people struggling to pay the bills.

On a personal note, even though I was offered plenty of credit prior to the sub-prime debacle it simply doesn't compare to the mountain of credit card deals I've received since.

What is a credit card "deal"!?

Incentives. A matter of perspective, I suppose. But they seem to be falling over themselves lately to get my business. I guess the plan is instead of throwing credit at everyone and his dog (pre-subprime) they're all now competing to milk those remaining who they still think have a few pennies left under the mattress.

Burn the top one, then one each clockwise round the table starting on your left.

They've been doing it this way for years now. Credit check is a test of willingness to toss the house keys in.

Capital One are a good example. they currently have this thing on Facebook and elsewhere, click on this and we'll tell you in 60 seconds if your credit card is approved. they bumf then says the interest rate is something like 39% which given that Bank rate is about a millionth of a percent seems like decent business if anyone falls for it.

I have no clue how many they issue, but it must surely be a right shedload, as else why would they spend all the dosh on advertising it?

Precisely! There seems a strong positive correlation between businesses who offer "deals" and rip off merchants. Mobile 'phone charges spring to mind too.