“Banking” as it is known today is in fact two business.
Chequing, which is the management of payments and storage of deposits.
Loans, which is the management of capital and the required diligence.
Being good in one business has nothing to do with being good in the other. A loan shark knows how to protect his capital by beating up the people who occasionally miss a payment, that doesn’t mean you would feel comfortable depositing money with him. Reciprocally, depositing money with someone does not imply that you trust them to invest it as capital. All their investments might go bad.
What inflation does is not simply to change the price structure, but also to create a transfer of capital. All assets priced in the currency are devaluated, including the currency itself. The inflationist creates himself an asset out of nothing.
Now the law does not simply allow the banks to print money and declare it as pure profit. That would be outrageous. Instead they are required to lend out that money to other people, which in theory helps them. (Even if they are just lending to government to finance deficits.) The banks then declare a profit when the loan is paid back, including the capital that they inflated into existence.
The more capital they can inflate like this, the better off they are. They can pay themselves enormous bonuses and buy palatial Manhattan apartments. However, since the system requires them to make loans before they can pay themselves, they have to hire people to manage those loans and make sure they don’t turn out to be worthless. And so, the more fractional reserve inflation takes place, the more staff they hire, the more jobs they create and the more it appears there is prosperity, even when it turns out that wealth is being destroyed.
What about anything in the contract about what happens if there is a fire? I would suspect that Joe would not even ask about that because he would not perceive it as a significant risk.
I think you have made a huge factual error there. When loans are paid back the bulk of the money disappears out of existence, only the interest is kept as profit.
when you make sweeping statements about money and banking, are you speaking of them in the most general case, or under a regime of fiat currency and fractional reserve banking and government intervention ?
Well it you would have to look at the contract to see what it says to do in that event. But lets assume that no one thought of a fire, because they’re idiots, and then there’s a fire and Joe is loses all his stuff. Joe has to eat it. He loses. What he can do is tell other people about his story and then the storage company might lose business.
But this probably isn’t good enough for you. Note that you have explicitly set up a scenario where “What if someone loses?” and then I have to explain how he doesn’t lose or I lose the argument.
So what exactly do you want to happen here? You seem to want consumers to be insured against failure, but then what will check the firms they patronize? Imagine if you DID insure every consumer’s belongings in storage… then storage facilities would try to cut costs everywhere and provide only the cheapest, least secure accommodations. They might not even lock the gate at night cus who cares if everything gets stolen! Its insured by the government!
So then the solution is to regulate the industry further, require them to have gates and proper equipment and such. But there’s still no real incentive to follow the regulations since everything is insured 100%, you also don’t know if the facility is cost effective because obviously you can create a 100% secure fortress but that won’t be something most consumers are willing to pay for etc etc.
God I can’t even believe we are having this conversation. There is nothing wrong with the personal storage industry. Market mechanisms work to ensure quality and low prices.
Listen: You basically just ignore everything anyone here says that makes sense. I’ve made several points today, and each time you reply you just latch onto one small detail that has little or nothing to do with the OP. I think most of us have answered why banks are so loaded. Apparently it doesn’t matter to you, because you haven’t commented on all the regulation cited, or the distinction between small banks and megabanks etc etc. All the things which may have been helpful in determining the answer to the OP have been glossed over. Its not wonder people get frustrated with your threads.
It would if the fractional reserve process is shrinking, not if the money supply continues to expand. Now of course, the capital from the loan can still not be declared as pure profit, but that only means that the bankers can loan it out again and continue to earn interest on it. As far as they are concerned, this capital is now one their permanent assets.
All human activity doesn’t need to be ‘productive’ by your narrow criteria. Me buying a new DVD and spending my weekend sitting in front of the TV isn’t ‘productive’, but there’s nothing wrong with me doing so.
Many companies aren’t 100% floated, and for the ones that are the point on debt financing applies.
It does create bubbles in the current situation, but that doesn’t mean there is something inherently wrong with borrowing to invest, merely that there is a problem with out current system.
Too Long; Didn’t Read. Basically, what’s the gist of your blog entry on this topic?
Mickonomics you have so many opinions and ideas but each of them are founded on false assumptions and mis-information. In your blog you state that you are researching economics but you havn’t even learned the basic vocabulary for the topic yet. You have even admitted as much in a previous thread. Before you start espousing such idea’s as to why bankers make so much money and fabricate arguments of ‘rational exuberance’ why won’t you give previous economists the benefit of the doubt?
Why won’t you just read a little? What are you afraid of. All forms of technologies are built upon predecessor technologies. Having original thought is great but original thought is folly if not founded on the accomplishments of predecessors. In effect you are basically re-inventing the wheel. Economists have explored your questions and have answered then 100 years ago. Why ignore them?
I think I’ve left this quote for you numerous times now. Read dude! Don’t be afraid. I’m not saying this in a condescending context. I just think your far behind someone of your capacity should be. And don’t tell me it’s a time issue. You have enough time to think of all this folly and write about it on your blog then argue about it with us here. Give it a break and read some books.
It seems we are agreed on determining what is productive and what is not. We only disagree on whether non-productive investments are a good thing or not. Given that there is only a limited amount of genuine savings in an economy and given an array of people wanting to borrow money. I suggest that all the people wanting to borrow money in order to be able to produce goods more efficiently in the future should be at te front of the queue ahead of those wishing to borrow to consume.
But still, the value of the so far unsold shares can be determined from looking at the history of dividends and the fundamentals of the company. That’s exactly what investors are supposed to be expert in. If you only invest on the basis of “what everyone else is investing in” then you are a sheep, not an investor. Lots of sheep in a market place lead to ABCT etc.
Conceivably, but my analysis is of our current system as it exists today.
My point about pensions is that they are a bit of a charade. Consider what a pension would be in a barter economy… It would be an agreement between older workers and young people. The older ones would have a contract that said something like “I’ll give you X% of my produce for a bunch of years, then when I retire, you give me Y% of your produce till I die.” Notice that there is no external storage of any goods. Its simply a matter of an agreement and flows of goods. Now a proper reflection of this arrangement with money involved would be to say that younger workers continually pay cash to support retired people. There is no need to build up any “pile of cash” anywhere and the pretense that you do need such a pile of cash leads to excess money seeking investments when there simply aren’t enough real investments to be made. So this excess goes in to pseudo-investments instead, allowing the banks to rake in the money and ultimately rob us of a comfortable retirement. Consider the fees of pension fund managers. They are often of the order of 1%. Now if the long term growth achieved by the fund manager is 3% then that means that the banker is taking a massive slice of our pension! I’d rather have the older worker-younger person contract arrangement and keep the banker out of it.
What I disagree with is your loud and vociferous opinions while willingly and dilibertly remaining in a state of economic ignorance. Your posts seem to me more like you’d rather argue to be right, rather then argue to find the truth.
Your unwillingness to actually research economics but overbearing opinions make your posts and your blog hard to take seriously.
And I suggest who recieves savings should be determined by the market, not by you’re arbitrary assessment of who ‘deserves’ it.
Certainly it may be the case that in a free market most or even perhaps all of the savings may go into ‘productive’ investment, and I would have no issue if you were merely speculating on whether this may be the case, however my problem arises when you make the assertion that your guess is the only valid possibility, and that it should be enforced by government order.
It doesn’t matter what the fundamentals are, future floats will only be possible at a price equal to or less than the going market price for current shares, or otherwise investors would merely purchase already floated shares.
So are most other analysis you will find on this website. The difference is that while most other analyses get to the core of the matter and advocate a free market, for some reason you are forgoing this option in favour of arbitrary controls on activity which has no real inherent problems.
I think a problem here is that you’re trying to analyse a government pension system as a free market contract, when the nature of the transfer makes it unfeasable as such.
In a free market there’s no ‘pretense’, it’s a simple fact that savings are needed for retirement. There’s nothing special about retirement savings that differentiates them from any other savings.
Imagine a small very primitive bartering community, imagine that they collectively had accumulated enough non-perishable food to feed one person for a year and this is stored in a “food bank”. Now two people turn up at the food bank each of whom wants to borrow the entire stash of food. They both want to borrow it so that they can perform their pet projects without having to feed themselves in the process, and both will promise to return the entire store plus interest over the next five years. One of the guys has just invented (in his head) a new machine that will enable the production of food at a lower price then before (benefiting the entire community), he wants the money so that he can spend a year building the machine. The other wants the food so that he can spend a year building himself a bigger house. The food-bank manager has to decide who he lends the food to. The whole community is looking on… what should the bank manager do?
I have no problem with people trading shares with their own money. I just object to trading shares with borrowed money because of ABCT. If trading shares is allowed then I don’t see how there is a problem on this point.
IMHO free banking is never going to happen. So I have spent some time thinking about what practical things could help address the current crisis ridden monetary system. Actually I think that free banking still doesn’t solve all the issues in the OP but that’s another issue.
If you want to gave a huge fraction of your retirement wealth to a banker then go ahead. Personally I don’t want to. And if you read this short article I don’t know how you could possibly support our current pensions system.
He should give it to whoever is willing to pay the highest interest (adjusted for his assessment of their default risks). This person values the funds higher, and this is, as I have been saying all along, what should determine the distribution of resources in an economy, not your subjective opinion of who ‘should’ get it.
Government manipulation of the money supply causes the business cycle under ABCT. Banning borrowing money for investment isn’t going to stop the business cycle if this still occurs.
I don’t think any progress at all is going to be made if you throw out the right answers in favour of wrong answers simply out of political practicality.
That’s fine if you dont want to. I believe people should have the freedom to invest as they wish. As for your article, a few points:
There are more options for investing your retirement savings than ‘throw it on the stock market’. Want potentially lower but safer returns? Put it in a term deposit or high-quality bonds.
Results and to a lesser extent (meaning needs a bit more financial knowledge) investment strategy are reasonable easy ways to differentiate fund managers. You seem to have a patronising idea of savers, and going back to point 1 ignore that those who are not prepared to do such analyses are quite free to choose alternate investments.
Your paragraph on ‘who really pays’ seems full of problems. You say workers pay for the rich people as though you’re looking at this through some marxist ‘exploitation’ theory. The people who ‘pay’ for wealthy retirees are those who use their savings.