Comments on: Money Lending: Rotten to the Core http://www.dailyreckoning.com.au/money-lending-2/2008/04/09/ An independent perspective on the Australian and global investment markets Sat, 21 Nov 2009 17:27:32 -0600 http://wordpress.org/?v=2.8 hourly 1 By: Jonathan R http://www.dailyreckoning.com.au/money-lending-2/2008/04/09/comment-page-1/#comment-16485 Jonathan R Thu, 10 Apr 2008 12:21:14 +0000 http://www.dailyreckoning.com.au/?p=2405#comment-16485 Sure Byron, the banking system is corrupt, but not quite how you're presenting it. My impression is that the nature of fractional reserve banking (a pretty much global phenomena nowdays) means that almost all of the money supply is made up of debt-money. That is, much of the money only exists because somebody has signed up to a loan agreement of some form. Of course, the loan has to be repaid in principle and interest, so, looking at the system as an unsteady equilibrium of loans created vs loans retired you'll find that there is a big mis-match inherent. The interest to be paid on the aggregate loans outstanding must come from somewhere else. Of course the interest money could come from the 'real' money supply (i.e. the M0, or printed cash, if you will), but more than likely, it will come from an increase in the aggregate loan balance outstanding. Summary; the economy gets further indebted to the banking system, just to keep it stable. Of course, there are limits to this situation, as borrowers have only so much ability to take on further debt. To keep the system rolling, in a ponzi sort of fashion, the banking system must go further afield in search of 'suitable' borrowers, viz. sub-prime folks. This continual lowering of lending standards is needed, just to keep the debt-based money system working. It starts to break down, as all ponzi schemes do, because the last participants fail to live up to their obligations, hence the increasing default rate (and loss of capital/loan principle) must be offset by an increase in the interest paid by all the other diligent borrowers. This, however is at the limit of the expansion, and there are only two ways forward from here: One is for the government/reserve bank to physically print and distribute more cash (restoring the debt-cash balance) and the other is for much loss of captial/loan principal to ensue. The only way for a reserve bank to print cash, is for it to buy the worthless assets at their inflated prices. Even the FED doesn't seem to be doing this yet. Cheap loans to the afflicted, yes, but no real bail-outs yet. The current monetary policy appears to be aimed at an "orderly" and sustained destruction of debt principle, distributing the pain across as much of the economy as possible. So, the system is only corrupt because money can be loaned into existence. Sure Byron, the banking system is corrupt, but not quite how you're presenting it. My impression is that the nature of fractional reserve banking (a pretty much global phenomena nowdays) means that almost all of the money supply is made up of debt-money. That is, much of the money only exists because somebody has signed up to a loan agreement of some form. Of course, the loan has to be repaid in principle and interest, so, looking at the system as an unsteady equilibrium of loans created vs loans retired you'll find that there is a big mis-match inherent. The interest to be paid on the aggregate loans outstanding must come from somewhere else. Of course the interest money could come from the 'real' money supply (i.e. the M0, or printed cash, if you will), but more than likely, it will come from an increase in the aggregate loan balance outstanding. Summary; the economy gets further indebted to the banking system, just to keep it stable. Of course, there are limits to this situation, as borrowers have only so much ability to take on further debt. To keep the system rolling, in a ponzi sort of fashion, the banking system must go further afield in search of 'suitable' borrowers, viz. sub-prime folks. This continual lowering of lending standards is needed, just to keep the debt-based money system working. It starts to break down, as all ponzi schemes do, because the last participants fail to live up to their obligations, hence the increasing default rate (and loss of capital/loan principle) must be offset by an increase in the interest paid by all the other diligent borrowers. This, however is at the limit of the expansion, and there are only two ways forward from here: One is for the government/reserve bank to physically print and distribute more cash (restoring the debt-cash balance) and the other is for much loss of captial/loan principal to ensue. The only way for a reserve bank to print cash, is for it to buy the worthless assets at their inflated prices. Even the FED doesn't seem to be doing this yet. Cheap loans to the afflicted, yes, but no real bail-outs yet. The current monetary policy appears to be aimed at an "orderly" and sustained destruction of debt principle, distributing the pain across as much of the economy as possible.

So, the system is only corrupt because money can be loaned into existence.

]]> By: mike http://www.dailyreckoning.com.au/money-lending-2/2008/04/09/comment-page-1/#comment-16419 mike Thu, 10 Apr 2008 04:47:02 +0000 http://www.dailyreckoning.com.au/?p=2405#comment-16419 ...i be the thread of radiant ignorance that pass through the eye of the needle of knowledge with which to sew the fabric of understanding together within myself....in repetitious repetition i stitch through time, to the dawn of wisdom..... ...i be the thread of radiant ignorance that pass through the eye of the needle of knowledge with which to sew the fabric of understanding together within myself....in repetitious repetition i stitch through time, to the dawn of wisdom.....

]]> By: John http://www.dailyreckoning.com.au/money-lending-2/2008/04/09/comment-page-1/#comment-16318 John Wed, 09 Apr 2008 18:23:40 +0000 http://www.dailyreckoning.com.au/?p=2405#comment-16318 Well, in his defense, half the articles on the DR are repetitive... Well, in his defense, half the articles on the DR are repetitive...

]]> By: Pete http://www.dailyreckoning.com.au/money-lending-2/2008/04/09/comment-page-1/#comment-16302 Pete Wed, 09 Apr 2008 16:04:03 +0000 http://www.dailyreckoning.com.au/?p=2405#comment-16302 So, what was actually said in this article? I didn't read anything thought provoking, profound or new. This would be a good article for someone completely oblivious to all the problems of the global financial systems of late, but I would assume that for most readers here this article is about as trivial as they come. Thanks? So, what was actually said in this article?
I didn't read anything thought provoking, profound or new.

This would be a good article for someone completely oblivious to all the problems of the global financial systems of late, but I would assume that for most readers here this article is about as trivial as they come.

Thanks?

]]>