Cyprus-Forum.com

[erolz66]

Robin Hood - you understand some things about the creation of money but misunderstand so much more than you understand.

There are two principal ways in which new money is created. A central bank can just print more of it is one way. The other , the much more prevalent way, is via people or entities taking on debt. Both these create new money 'out of thin air'.

However the idea that a sovereign state can just print as much money as it likes and with that money it can then buy real things from others, like trains and stadiums and such forth is just nonsense. One only has to look at Zimbabwe or post WW1 Wiemar republic Germany to see that things are not quite as you make out.

If Greece had never joined the Euro, it could not have built all the stadiums it did, all the trains and everything else, just by printing ever more Drachmas out of thin air. If had tried to do so, the people it was trying to buy real things from with these printed Drachma's would have just demanded ever increasing amounts of Drachma's for them directly in relation to how many Drachmas the central bank was printing. The reason Greece was able to borrow so much to pay for real things like stadiums and Trains and so on, was exactly because the currency they were buying them with was NOT under the sole control of just Greece, but was backed by all the Euro zone countries.

As for money being created 'out of thin air' by people / entities taking on debt, yes this is what happens. However the new money is not created out of 'thin air'. It is backed by the person or entity that is taking on the debt. What is more as the capital sum, is repaid, that same money created 'out of thin air' is also 'destroyed in thin air'. When I borrow £10,000 from my bank, sure the bank just creates £10,000 of new money, as an entry in its computer systems. However the car I buy with that new money, is real and physical and made of real materials, hacked out of the earth, and by real labour. As is my labour done in order to earn money to repay the £10,000. It is not 'thin air' - it is real work done by me. Every £ of the capital sum I pay back to my bank, earned by my own real labour in the real world, results in a £ that was previous 'created out thin air' being destroyed in a similar manner.

[Robin Hood]

Erolz66:
I didn’t intend my post to be a definitive explanation of the financial system but seeing as you want to educate me .........

There are two principal ways in which new money is created. A central bank can just print more of it is one way. The other , the much more prevalent way, is via people or entities taking on debt. Both these create new money 'out of thin air'.

a) It is NOT money .... it is currency.

b) The Central Bank does print currency on behalf of the treasury in the form of note and coin only, but this represents just 2% of the currency in circulation. The Central Bank has no direct control of the creation of new electronic/book-keeping currency by commercial banks.

c) The ONLY way 98% currency gets in to circulation is by the extension of credit by commercial banks (High street banks), this in turn creates a debt for which there is no liability for repayment by the bank, the only liability is that of the borrower.

d) Repay the debt and you withdraw currency from circulation and the debt is written off the banks books.

e) To put currency back into circulation there is a need to create new debt.

f) No loans ...... no currency ......... that leaves only note and coin. This means that banks only have 2%, in the form of drawer/vault cash to cover ALL the depositor’s accounts, which are the banks liability. Hence the reason the banks fear a run on the bank ......... they plain just don’t have the money to cover it if the depositors want their money back in cash and the banks can’t print it. (Remember when the ECB shipped containers full of cash to Cyprus when they limited withdrawals ..... even reducing demand for cash they didn’t have enough ..... so the ECB lent them some!)

g) The debts that banks hold are considered by the book-keeping in the banking system as an ASSET, even though it never existed until the bank created debt by extending credit.

However the idea that a sovereign state can just print as much money as it likes and with that money it can then buy real things from others, like trains and stadiums and such forth is just nonsense. One only has to look at Zimbabwe or post WW1 Wiemar republic Germany to see that things are not quite as you make out.

You have fallen into the age old trap! In both instances above the systems failed because they had to buy much of what they needed to survive from outside the State. It was not really a case of just printing money, that was a symptom.

If Greece had never joined the Euro, it could not have built all the stadiums it did, all the trains and everything else, just by printing ever more Drachmas out of thin air.

Not true! As it was already in the Eurozone it had no option other than to purchase with Euro’s, everything it needed to build these stadiums etc, labour and materials.

Let us assume at the time it still had Drachmas: If it had the Drachma it could have done exactly the same thing but without having to borrow to do it. The government would create the Drachmas and pay the workers/contractors; the workers spend the money and this is taxed, taxed and taxed again until it all eventually returns to the treasury. The same process applies to all materials supplied from within the State.

What costs them is those materials and services they have to obtain from outside! This will be paid from earnings such as tourism. Just like Cyprus before they went into the Euro, all foreign currency was taken by the State and you picked up Cyprus Pounds. When I bought my first home in Cyprus, I paid in £’s and the developer had to convert that at the bank to £CY, my account with him was all in £CY even though I paid £UK.

If had tried to do so, the people it was trying to buy real things from with these printed Drachma's would have just demanded ever increasing amounts of Drachma's for them directly in relation to how many Drachmas the central bank was printing. The reason Greece was able to borrow so much to pay for real things like stadiums and Trains and so on, was exactly because the currency they were buying them with was NOT under the sole control of just Greece, but was backed by all the Euro zone countries.

A misconception! With a sovereign currency you do not use it for foreign purchases; hence the UK’s demise if they BRexit, because they are a reserve currency, meaning it CAN be used for foreign trade. They export their inflation! What happens when all these £’s,€’s and US$ that their suppliers hold ,that they have used to pay for goods and services, become the purchasing currency for goods services FROM the US/UK/EU?

The bigger picture: What do you think all the wars are about in Iraq, Libya, Syria and the threats against Iran, Russia and China ...... it is all about protecting the US Petro dollar ..... many countries are dropping the $ and trading in sovereign currencies. Like Iran, Russia and China ..... just as Ghadaffi, Saddam and Assad want (wanted) to do!

The Drachmas are created by the GCB to pay the government directly so that they, in turn pay labour and materials. Not a loan but an investment ...... (try reading about Corbyn’s QE for the people, this is what he proposes with his peoples ‘Investment Bank’.) The Drachmas are spent into circulation free of debt ..... the GCB didn’t have to borrow a cent and ALL of it returns to the treasury to be re-spent into circulation. There is no need for the GCB to create a continuous stream of new currency because the State, to a great degree, is self financing. Hence the reason your comparison with Weimar and Zimbabwe is misleading. Singapore, Hong Kong, Japan have been doing it for years very successfully and whist the Japanese National debt is huge, most of it is in Japanese YEN!

........(the debt) It is backed by the person or entity that is taking on the debt

Exactly ...... as I said; That backing is what I referred to as ‘Asset Backed Securities’ THAT is the wealth not the numbers in the banks computers.

When I borrow £10,000 from my bank, sure the bank just creates £10,000 of new money, as an entry in its computer systems. However the car I buy with that new money, is real and physical and made of real materials, hacked out of the earth, and by real labour.

The ‘car’ is the collateral (albeit a diminishing asset) ..... it is an asset backed security! It is worth something in real terms. To raise the money for the deposit and to repay the loan you work, get paid in IOU’s and these the banks use to write off their books when the debt is repaid ...... but you have to put in a few more hours to pay the interest. The currency you use started as nothing and ends up as nothing ..... net sum is zero. Out of all the currency the banks create the ONLY profit they make is out of the interest.

Question for you: So how do the major banks make billions in profit when interest rates are so low?

[miltiades]

Robin, having voted "OUT" , understandable of course since you are expressing your view that coming out Europe would be in the best interests of Britain, do you think really that there is the remotest chance that Britain will exit the EU ?

Having listened to businessmen, farmers, even small shopkeepers im convinced that the " IN " vote will win and by a large margin. My own prediction is a landslide for the "INs".

[Lordo]

Robin, having voted "OUT" , understandable of course since you are expressing your view that coming out Europe would be in the best interests of Britain, do you think really that there is the remotest chance that Britain will exit the EU ?

Having listened to businessmen, farmers, even small shopkeepers im convinced that the " IN " vote will win and by a large margin. My own prediction is a landslide for the "INs".

who actually are britain. how the hell can it affect everybody all the same. the rich will benefit and the poor will get screwed. if the working class vote for exit its like terggys voting for christmas ffs.

[erolz66]

a) It is NOT money .... it is currency.

A given currency is one form of money. Just as apples are one form of fruit.

b) The Central Bank does print currency on behalf of the treasury in the form of note and coin only, but this represents just 2% of the currency in circulation.

That is what I said.

The Central Bank has no direct control of the creation of new electronic/book-keeping currency by commercial banks.

No direct control but very real indirect control by various means but principally by imposed reserve requirements and capital adequacy ratios.

g) The debts that banks hold are considered by the book-keeping in the banking system as an ASSET, even though it never existed until the bank created debt by extending credit.

Yes because as long as repayments can and are made on that debt it is an asset, one the depreciates as it is repaid. That is how 'book keeping' works. If repayments are no longer paid and it becomes a NPL, then is becomes a liability, because it is a liability. That is how 'book keeping' works.

You have fallen into the age old trap! In both instances above the systems failed because they had to buy much of what they needed to survive from outside the State. It was not really a case of just printing money, that was a symptom.

No the 'system' (printing more money in the form of a given currency) fails when central banks just keep printing more money without limit, based on a false notion that 'it's ok we can just print as much money as we need'

Let us assume at the time it still had Drachmas: If it had the Drachma it could have done exactly the same thing but without having to borrow to do it. The government would create the Drachmas and pay the workers/contractors; the workers spend the money and this is taxed, taxed and taxed again until it all eventually returns to the treasury. The same process applies to all materials supplied from within the State.

Yes but Greece did not buy it's trains from within Greece. It bought them from Germany.

What costs them is those materials and services they have to obtain from outside! This will be paid from earnings such as tourism.

If Greece had of had a positive balance of trade with Germany (or other Euro countries) then sure it could have paid for the German trains it wanted with the surplus Euros it had from that positive balance of trade. But Greece did NOT have a positive balance of trade with Euro countries before it joined the Euro. Thus it would have had to buy the euros with Drachmas to pay for the trains and it it tried to just print more drachmas to buy the eruos needed to buy the trains, then the cost of buying a euro would have gone up and up accordingly.

A misconception!

The misconspetion, it seems to me, is the idea that before Greece joined the Euro it has a positive balance of trade with other Euro countries.

(try reading about Corbyn’s QE for the people, this is what he proposes with his peoples ‘Investment Bank’.)

That the UK has been able to use QE on the scale that it has and is is directly related to the global economic climate post 2008. That is such is only possible on the scale it is because the UK is not doing this alone, it is doing it against a back drop of QE from the likes of the US, the Euro Zone and others besides. I actually have much sympathy with Corbyn's views on what you should do with the money created by QE and that instead of giving it to banks in the hope that they in turn lend it out to people who will create wealth from those loans, you could stimulate such wealth creation with it more effectively by cutting out the banks. However the one thing Corbyn is most definitely NOT saying should be done with the money created from QE is to go and buy German Trains from Germany with it (or build non wealth creating vanity projects like stadia that sit unused shortly after their creation).

The idea that Greece could have in 2001, not joined the Euro, and instead printed vast amounts of new Drachma's (massive QE against a global background where no other countries were doing this) and used those drachma's to buy German trains without any negative debt or consequence to Greece is just fantasy. Greece could have printed money and used it for stimulating wealth creation within the Greek economy but it could have done the same with the money it borrowed after it joined the euro zone. The point is it did not spend it on stimulating wealth creation within the Greek economy, it spent vast amounts of it on German trains and vanity projects that did NOT stimulate wealth creation within the Greek economy.

There is no need for the GCB to create a continuous stream of new currency because the State, to a great degree, is self financing. Hence the reason your comparison with Weimar and Zimbabwe is misleading. Singapore, Hong Kong, Japan have been doing it for years very successfully and whist the Japanese National debt is huge, most of it is in Japanese YEN!

This is premised on Greece having at least a neutral balance of payments relative to other countries / currencies. It did not and it does not. Japanese national debt is huge but it is supportable or at least the belief of the 'market' is that it is supportable. If it were to just start printing more and more yen and then use those yen to buy foreign made goods (like German trains) then it would not be long before it was in a similar position to Greece.

The ‘car’ is the collateral (albeit a diminishing asset) ..... it is an asset backed security!

The security is not the car (if the loan was an unsecured loan). I did in fact buy my last car with an unsecured loan - I could have used the money for anything, cocaine if I wanted. The security is my promise to pay back the loan and the statistical probability that I will do so. That is not 'thin air' - that is real.

Out of all the currency the banks create the ONLY profit they make is out of the interest.

Yes. That is the true 'problem' at the core of the fraction reserve banking system, that it is predicated on ever increasing growth, and specifically growth of debt. It is not that it creates 'money out of thin air', or it allows some to 'create money out of thin air' and others not (be they banks or nations with sovereign currencies).

[erolz66]

Robin, having voted "OUT" , understandable of course since you are expressing your view that coming out Europe would be in the best interests of Britain, ....

As far as I understanding him he is saying he voted 'come out' because he believed that would be the worse option for the UK ?

[Paphitis]

Robin, having voted "OUT" , understandable of course since you are expressing your view that coming out Europe would be in the best interests of Britain, do you think really that there is the remotest chance that Britain will exit the EU ?

Having listened to businessmen, farmers, even small shopkeepers im convinced that the " IN " vote will win and by a large margin. My own prediction is a landslide for the "INs".

Yes a BREXIT is a distinct possibility. The public are not as STUPID as you seem to think.

For starters, the EU is not looking after the interests of its members. One example is once again Greece, which is being cut off and stranded by Schengen and the EU. So called "partner" States are closing their borders and Greece may back fill with illegal immigrants. The calamity Greece may face if there is no solution may be unprecedented.

So, please tell us how the EU is looking after the interests of Greece or any other member state like Britain. I am intrigued.

[Paphitis]

Robin, having voted "OUT" , understandable of course since you are expressing your view that coming out Europe would be in the best interests of Britain, ....

As far as I understanding him he is saying he voted 'come out' because he believed that would be the worse option for the UK ?

Greece would have been better off out of the Euro. No one actually said that Greece would be able to print money without restriction and that everything will just be perfect for them.

Not only has Greece been screwed over by the Eurozone, but it is being screwed over again by its so called "partners". We will get to the point where there will be a massive rebellion against the EU and it will start in Greece very soon.

[erolz66]

One example is once again Greece, which is being cut off and stranded by Schengen and the EU. So called "partner" States are closing their borders and Greece may back fill with illegal immigrants. The calamity Greece may face if there is no solution may be unprecedented.

So do you really think that a Greece that had never joined the EU or Schengen, faced with the refugee crisis such as it is today, would be better off in regards to trying to deal with this crisis ? I understand that you feel that other EU / Schengen countries should be doing more to help Greece, but are you really saying that Greece would be more able to deal with such a crisis if it were outside the EU ?

[Paphitis]

One example is once again Greece, which is being cut off and stranded by Schengen and the EU. So called "partner" States are closing their borders and Greece may back fill with illegal immigrants. The calamity Greece may face if there is no solution may be unprecedented.

So do you really think that a Greece that had never joined the EU or Schengen, faced with the refugee crisis such as it is today, would be better off in regards to trying to deal with this crisis ? I understand that you feel that other EU / Schengen countries should be doing more to help Greece, but are you really saying that Greece would be more able to deal with such a crisis if it were outside the EU ?

Yes I unfortunately believe 100% that Greece would have been better off with the Drachma, because it could inflate its debt and achieve more growth. But it would not be a perfect situation by any stretch. There is also the issue of ripping out the countries soul and taking away a people's dignity - this is what has happened to Greece and its people. If you remove these things, people lose their hope and that is the worse thing of all.

The EU is NOT a Union. It can never be not like it is in the USA for example. Without a single entity, one Nationality and even one Military umbrella, the EU is a house of cards that will fall in time, and Britain needs to get out while it can.

If the EU was headed down the same path as America did just after the Civil War, then I would have a different opinion.

Another example I can give you. Wages in Greece are low, very low. Germany could set up Volkswagon, and BMW factories in Greece to take advantage of Greece's International competitiveness and reduce their overhead. The advantage for Greece is that Greeks will have jobs, good technical jobs where young people can even develop solid careers in the automotive industry.

Rather than do this, they are setting up factories in Brazil and Turkey.

The EU is a dead duck I'm afraid.