Cyprus-Forum.com

[erolz66]

When I say I owe you 100, then that is effectively the same thing. I have created an IOU, it DOES NOT mean I created 100. Only the central bank can do this.

No it is not the same thing because when you say you owe me 100 - I can not use that 'IOU' from you to pay my taxes, or my electricity bill or in fact anything. When the Bank says it owes me 100 I can use that 100 to pay my taxes, my electricity bill or anything else. Your IOU to me is not money, because I can not use it to pay for anything. The bank's 'IOU' is money because I can pay for anything with it.

[supporttheunderdog]

The Bank of Cyprus currently has a loans to deposit ration of 121%: that is to say for every Eu 100 deposited it has lent 121... of which 50% or are "delinquent", with a total 11.3 Billion deliquent loans

So where does this extra 21% come from: capital/equity? Since the Bank evidently has about 22.6B loans that means about 4Bn, but the market capetisation is 1,3,,, leaving a hole...or is that covered by the ELA of 3.3Bn?

Otherwise it is money out of thin air.

(Many banks in eg UK and Germany currently lend less than 100% of deposits so the money exists or at least is not created by the Bank)

[Robin Hood]

Erolz:

No it is not the same thing because when you say you owe me 100 - I cannot use that 'IOU' from you to pay my taxes, or my electricity bill or in fact anything. When the Bank says it owes me 100 I can use that 100 to pay my taxes, my electricity bill or anything else. Your IOU to me is not money, because I can not use it to pay for anything. The bank's 'IOU' is money because I can pay for anything with it.

The difference is simply a question of trust! If you were to offer me Paphitis’ IOU in exchange for something else I would most likely accept it, if I knew him and trusted him. The banking system is based on trust, a trust that I feel has now been exposed as having been abused for about a century!

I would say that the banks IOU is currency that is an accepted IOU. A minor point but ..... to actually meet the description of being money, it would have to have intrinsic value and an IOU has no value ........ it is like a cheque ........ it is only a means of transfer.

[Robin Hood]

Supporttheunderdog:

The Bank of Cyprus currently has a loans to deposit ration of 121%: that is to say for every Eu 100 deposited it has lent 121... of which 50% or are "delinquent", with a total 11.3 Billion delinquent loans

So where does this extra 21% come from: capital/equity? Since the Bank evidently has about 22.6B loans that means about 4Bn, but the market capitalisation is 1,3,,, leaving a hole...or is that covered by the ELA of 3.3Bn?

Do you mean €11.3bn in value as opposed to quantity 11.3bn? 11.3bn loans would be approx 11,300 loans for every man, woman and child in Cyprus and I don’t really think the banks are THAT generous. 90% of the Islands population would not even qualify for a loan!

Otherwise it is money out of thin air.

All the loans are created out of nothing, in spite of what Paphitis says! It is the start of the process ..... a single entry on a PC that puts a credit limit into a credit account in the borrowers name. He pays out an IOU to another, who then pays it into his account and BINGO ...... he has just created brand new money, that the receiving bank then borrows and they leave you with an IOU. The whole process really is as simple as that!

(Many banks in eg UK and Germany currently lend less than 100% of deposits so the money exists or at least is not created by the Bank)

They may have the deposits in the Central Bank but they are not permitted to loan these deposits. They are considered as ‘excess reserves’ and they will lend them to another bank, that has insufficient reserves. The LIBOR rate, that has been in the news recently, is the interest the banks charge one another when they do this. Even when they have sufficient reserves to cover loans, they will still create the new money as a computer entry out of nothing.

As a matter of interest: If you read the BoE bulletin; as well as saying ‘....loans create deposits’ they also say that ‘.....the repayment of loans destroys ‘money’. They just write the loan off the books when it is repaid, it does not go back into their accounts. If the loan is not repaid then the money the bank created as new money is now a permanent addition to the money supply, as opposed to being transitory. This is what increases the money supply over time and at the same time devalues it.

Cyprus? The collateral for the failed loan is seized by the bank, the ECB creates more dodgy money as QE and buys the collateral off the bank. The bank only needs to recover the interest to make their profit (i.e. they don’t lose) and the rest will be paid into the loan account and will write off the capital. The ECB will then sell of the collateral to speculators, who will gamble on recovering their investment. The ECB write off their QE money and the only loser is the guy who put up the collateral!

[Robin Hood]

Paphitis:

You have absolutely no idea how it works.

Banks are actually making IOUs when ever a loan is created, and this IOU is at call at any time. Whilst it is on their asset sheet, it is also an immediate liability for them if the money is drawn. The borrower however has time.

When I say I owe you 100, then that is effectively the same thing. I have created an IOU, it DOES NOT mean I created 100. Only the central bank can do this.

Now, I am completely fed up with you making it up as you go along. The Banks making money from thin air is one of the biggest bullshit narratives and misunderstandings out there, and the Banks are partially responsible maybe for not explaining it properly, or the people are just too willing to use and misinterpret Central Bank material in order to create a particular narrative.

CASE CLOSED!

I know exactly how the banking operation works and how they create money!

I won’t call you stupid or dumb because I don’t believe that is the case, but then neither am I! I have had an interest in how banks work and how money comes into being for over a decade. I started at the basic level of cartoons and conspiracy theory and worked my way through it, I have learned, and also un-learned, a lot and eventually came to the same conclusions as the ‘experts’ like the BoE. I have even had an acknowledgement from the BoE that I had applied their bulletin way beyond the intent of their paper and they admitted that the implications were not part of their remit! No suggestion that I was wrong or had misunderstood the document so, I am far from being ill-informed or stupid.

In my opinion you have a blind spot! Your references to non-existent money, broad money, IOU’s , fractions or FRB, shows you have a basic understanding that the banking system is really no more than an accounting system that shoves numbers around in computers and yet fail to comprehend that the whole system is kicked off in exactly the same way ....... a few key strokes and that’s it .......... you just miss it completely.

[supporttheunderdog]

interesting

I assume these are the BOE Items:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyintro.pdf and
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Once one looks at money as an IOU it starts to make sense.

[Robin Hood]

STUD:
Yes ..... they are the two reports in the BoE 2014 bulletin. The first doesn’t really deal with the money creation process but the second is much more detailed and specific.

If you want the real nitty-gritty ..... and have the interest and time to read it, this goes into the subject on a scientific basis and draws the conclusion that, there is only one of the three theories of banking that fits all the evidence and that is ‘The Creation Theory’. Richard Werner states unequivocally that the ordinary high street, private, commercial banks DO create money out of thin air! He explains in some detail and with supporting evidence as to how they achieve this.

http://www.sciencedirect.com/science/ar ... 1914001434

I trust the results because he tackles it in a way that is familiar to me. To work out what is wrong with the operation of a chemical plant, you start with the control system and replicate events noting what should happen and what actually happens. Usually, after a while (hours or days!) the obvious usually becomes apparent and the problem is resolved.

You then do what is needed and you make the necessary changes to the control system to correct the problem.Sometimes a simple job and sometimes a major problem with the design. Werner’s report follows exactly that process on a standard banking computer by borrowing (€200k) and watching what happened at each stage of the transaction.

The experiment was well documented and the results were conclusive, the ‘Creation Theory’ was fully compliant with all the evidence. Now all ‘WE’ have to do is to change the banking system so it works to the benefit of all rather than just the few. Before that can happen banking operations and the creation of the commodity called ‘money’ has to be more widely understood ........ I do try very hard but some are more difficult to convince than others!

[Paphitis]

When I say I owe you 100, then that is effectively the same thing. I have created an IOU, it DOES NOT mean I created 100. Only the central bank can do this.

No it is not the same thing because when you say you owe me 100 - I can not use that 'IOU' from you to pay my taxes, or my electricity bill or in fact anything. When the Bank says it owes me 100 I can use that 100 to pay my taxes, my electricity bill or anything else. Your IOU to me is not money, because I can not use it to pay for anything. The bank's 'IOU' is money because I can pay for anything with it.

It is an explanation of what the Banks can do.

Every time they make a loan, they are entering an IOU to someone. An IOU they are liable for.

It's like me saying IOU $100. It is no different.

Now understanding how the system works, it is not exactly creating money as described in Robin Hood's narrative. It is an IOU on a balance sheet which they need to fully support whenever they are called upon to do so. They do this from their reserves.

Now, there are of course stringent limits. Because if a bank went all crazy and started making IOUs, potentially, they can go to the wall. If their lending portfolio is largely non-performing and electronic money and cash do not come in, they will get stressed. Once they are stressed, there is a Bank Run. And then they go to the wall.

They can't create money like the Central bank can.

There is one hell of a difference between creating money from thin air (a Central Bank privilege) and creating an IOU.

In fact, to create an IOU, there doesn't even need to be any loans created. IOUs are created every second of the day when workers get their wages, when pensioners are paid their allowances and when business make transactions with commercial facilities. As these are mostly electronic transactions, they are effectively IOUs and this is a kind of money creation along with lending in the form of money into the economy, but it is not creating money from thin air.

IOUs can be made by anyone, including individuals and businesses. There is no money creation. Just entries on a Balance and Accounts sheet.

[Paphitis]

The Bank of Cyprus currently has a loans to deposit ration of 121%: that is to say for every Eu 100 deposited it has lent 121... of which 50% or are "delinquent", with a total 11.3 Billion deliquent loans

So where does this extra 21% come from: capital/equity? Since the Bank evidently has about 22.6B loans that means about 4Bn, but the market capetisation is 1,3,,, leaving a hole...or is that covered by the ELA of 3.3Bn?

Otherwise it is money out of thin air.

(Many banks in eg UK and Germany currently lend less than 100% of deposits so the money exists or at least is not created by the Bank)

No its not. The system is fractional. There is a very big difference. If it was not fractional, then the global wealth will end up being about 3% of what it currently is or even less potentially. Truth is, no one knows what would be the case, because it is untried and tested, but we can presume it is not going to be good for anyone.

They are creating IOUs. Just like any trading business, the stockmarket, and even your local green grocer buying produce from primary producers. He effectively has a rolling account whenever he makes an order.

Just like an aircraft getting fuel at Heathrow. You don't see the pilot come out with a VISA, but the Oil company will send the airline an account and they probably do that immediately through electronically means. It is an IOU until the Airline transfers money electronically to the Oil company through electronic means in which case it is an IOU within the Banking system. All these Billions of transactions need to be supported.

A Bank can create an IOU as well, but it is a far cry from creating money from thin air.

This is all pretty basic stuff, but some people a deliberately propagating propaganda. Fact is, if fractional Banking and the IOU system stops tomorrow. there would be chaos and anarchy on the streets. No one will be able to work and businesses will shut down immediately. Just imagine! All the money in your accounts, will disappear for a start. Your pensions, wages, everything. Airlines will need a baggage compartment of cash to pay the Oil company to get fuel. Not going to happen, but just think of the ramifications on a global scale.

Which is why the system is actually quite robust and very well run.

Just because the Banks in Cyprus were corrupt and a bunch of idiots doesn't mean that the Banks everywhere else operate the same way. It just goes to show, that in Cyprus there is a much bigger issue than the Banks themselves. That's what it comes down to.

Just because a bank manager's koumbaro, who happens to own a Developing company is no reason to approve any lending if the business is not on solid financial foundations. This is what happened in Cyprus. The Banks were giving out loans to people who could not afford them. In the normal world, non-performing loans are between 1 to 4%.

It hapenned in America too with Lehman Brothers. The difference in America is that it is a massive economy and marketplace. A failure of a particular Bank is not going to bring all of the USA on its knees. It will have an effect but not as much as a Bank like Laiki or BoC going down in Cyprus.

Which obviously means, the Banks need to be prudent and not look at Koumbarous!

[Paphitis]

Paphitis:

You have absolutely no idea how it works.

Banks are actually making IOUs when ever a loan is created, and this IOU is at call at any time. Whilst it is on their asset sheet, it is also an immediate liability for them if the money is drawn. The borrower however has time.

When I say I owe you 100, then that is effectively the same thing. I have created an IOU, it DOES NOT mean I created 100. Only the central bank can do this.

Now, I am completely fed up with you making it up as you go along. The Banks making money from thin air is one of the biggest bullshit narratives and misunderstandings out there, and the Banks are partially responsible maybe for not explaining it properly, or the people are just too willing to use and misinterpret Central Bank material in order to create a particular narrative.

CASE CLOSED!

I know exactly how the banking operation works and how they create money!

I won’t call you stupid or dumb because I don’t believe that is the case, but then neither am I! I have had an interest in how banks work and how money comes into being for over a decade. I started at the basic level of cartoons and conspiracy theory and worked my way through it, I have learned, and also un-learned, a lot and eventually came to the same conclusions as the ‘experts’ like the BoE. I have even had an acknowledgement from the BoE that I had applied their bulletin way beyond the intent of their paper and they admitted that the implications were not part of their remit! No suggestion that I was wrong or had misunderstood the document so, I am far from being ill-informed or stupid.

In my opinion you have a blind spot! Your references to non-existent money, broad money, IOU’s , fractions or FRB, shows you have a basic understanding that the banking system is really no more than an accounting system that shoves numbers around in computers and yet fail to comprehend that the whole system is kicked off in exactly the same way ....... a few key strokes and that’s it .......... you just miss it completely.

Bottom line Robin Hood, is that you do not know how Banking and business works at all. I really do mean that.

You're just anti Banking because you have excluded yourself or shielded yourself from the system as much as you possibly can, which is fine.

I won't call you dumb either, but you are pushing a narrative which doesn't exist.