Cyprus-Forum.com

[Paphitis]

And when you think about it on a deeper level, you actually come to understand the pure genius of the capitalist System.

The entire system is an intricate balancing act, and credit must be given to where it is actually due.

Even a borrower, who borrows money from a Bank to buy a house or set up a business, has to have a Fractional reserve. That is what the Banks are doing when they say they can only leverage you up to 80% on a house and 70% for a business. So that means that the Borrower has to maintain a Fractional Capitalization of 20 to 30%.

In other words, a borrower must put down some of their money or back it up with additional collateral.

It's friggin brilliant. It's art in motion.

If all this was not in place and functional, then we would all be living in a Communist Block watching the only State Run TV channel on a tiny TV set and eating rice and lentils because that is all the State can afford to give us plebs (and no Guardian ).

It's like watching the internal precision movements of a fine Swiss Made Watch.

[kurupetos]

Just a friendly advice, koala...

It's always better to rely on your own experiences and judgement, than some Zionist-controlled media.

[Robin Hood]

Paphitis

No it isn't. I don't believe you have explained to me how Banks work. You think you know. You probably don't like them either. But you have not explained to me how they work.

Maybe this will do so? It refers to the BoE bulletin of 2014.
https://en.wikipedia.org/wiki/Bank_Charter_Act_1844

Even if the Government can create money, something btw I believe they can do through the Central Bank

They can’t at least not under normal circumstances (QE being the exception to the rule) .... fact! They produce note and coin through the Royal Mint acting on the instructions from Government (Treasury) the rest is created by commercial banks as debt ..... fact!

Nothing could give entrepreneurs some real jitters more than what you are proposing. The reason for that .......etc.etc.etc.................... is going to take my business if things don't work out hey? I think all big business would just flee to the next tax haven. That is what will happen.

You are using exactly the same methodology to get your point over as those who believe that the UK should remain in the UK are applying to their campaign ...... FEAR of the unknown! The simple answer is, like them, you don’t have an argument, it is all what YOU think could happen.

There must be one jurisdiction around the world that does this? Give us an example, so we can see if it works. I'm pretty open. Offer an example and let's see if your system works, and let's see if there is an economy to be confident about

Try looking at those damned Colonials that called themselves Americans! From the point they had the damn cheek to declare independence from their Masters until around 1910 when they were tricked ( http://www.jekyllislandhistory.com/federalreserve.shtml ) into having a Central Bank (FED) run by the Bankers of the British empire led by some upstart who called himself Rothschild! His name was actually Baure and although he wasn’t even British, he was an Ashkenazi Jew from Eastern Europe, he controlled the money supply. He even boasted about it!

And most Bank Deposits are created by a Bank when someone applies for credit. The Bank creates a Deposit in the Borrowers account, and the Borrower goes and buys an asset.

Sorry your concept is wrong! It is not the borrower’s bank that creates the currency it is the bank of the person the borrower pays it to, that creates the new currency into circulation, By making that deposit into his/her account.

Why? Because what he has now deposited in his account can be converted into cash. The borrower’s bank only allowed him to spend something against an account that had nothing in it and thus created debt. So, if it was not for the complicity of the bank in an obvious fraud ..... he would get arrested.

It can only go as far as is fractional ledger allows it to do. It has to support deposits by a minimum amount - let's say 15% (I don't know what the ratio is.) If the Capitalization falls under that, then the Bank is basically up shit creek, and probably Bankrupt. That is what happened in Greece and Cyprus, hence the need for a Bail In. It has never occurred in any other country other than Iceland I believe. And our Banks in the West have been trading for decades with not that many issues.

The sum the bank has deposited with the central bank as its reserve and this cannot be lent, it is not the banks money ..... IT IS YOURS!!! They do however lend it .... but only to one another and within the central bank to maintain the fractional reserve required (10% I think you will find.) The LIBOR interest rate is the interest they charge one another.

You say it happened nowhere else except Iceland? What do you think happened in 2008 with the sub-prime fiasco in the US? When they realised that all these assets were crap and in many cases were not worth a light, the banks collapsed as their debts (NPL’s)way exceeded the deposits. The FED bailed them out with literally trillions of dollars. I am afraid Cyprus and Greece were victims .... not examples.(Try watching the film 'The Big Short' a bit heavy but it explains what happened leading up to 2008)

Because when they apply a Credit to someone's Bank Account, they need to support it in theory.

They don’t support it! When a bank goes down the pan, the depositors are unsecured creditors ..... the bank has nothing but our money in their reserves, money they borrow from you when you make a deposit. A strange phenomena with banking is that your deposit is on the books as a ‘liability’, because they have a liability to give it back to you when you ask for it (well .... in theory!) But all these ‘debts/loans’, limited as a multiple of say 10 times the clients deposits, are down on the books as ‘Assets’.

Now just think about that? We have ‘liabilities’ on deposit at the central bank, and ‘assets’ that are all debts. Then look at it from the book-keepers point of view! The banks ‘assets’ (debt) will always way out exceed their ‘liabilities’ (deposits) ...... in theory the more debt they have the richer they become.

Then it goes pear shaped ..... they get a whole bundle of NPL’s and these ‘debts’ go from being ‘assets’ to becoming ‘liabilities’ overnight! To correct this they now reduce their liabilities by defaulting on their liability to repay YOU the money they borrowed; they write off their liabilities = ‘Bail-in’. (First trial of this response was on the Cypriots who, because they didn’t have a clue that their money was not theirs but the banks, they lost the money with barely a whimper.) It is now written into legislation World wide as the preferred method of dealing with bank failures.

There is still nothing to stop the individual from taking out a substantial amount in cash.

The problem is when ALL the people want their cash back ...... then it becomes obvious that the bank has available just a mere fraction as cash .... about 2% ...... and the bank crashes.

What I see in the Banks is fairness. Everyone is equal to a certain extent because a bank wants to have you as their customer generally speaking. If you're a borrower, then all they care about is your ability to pay and collateral.

In reality the depositor is a liability out of whom they make nothing. BUT, if you are a borrower they can make money. If you fail to repay the debt, they seize the collateral .... they exchange your theoretical debt ..... for YOUR wealth! The money they created remains in circulation ..... that increases the money supply = inflation.

I don't think that will be the case for a Gubberment such as let's say Cyprus or even other countries like the USA or any EU Country for instance. Free money sounds good, but how is the Gubberment going to fund all the infrastructure if you don't even recognize that money does actually have a cost?

You admit that you accept that the banks create money from thin air very obviously AT NO COST, where is the cost you now perceive? If a bank creates credit, it is spent into the economy, it is then repaid and is destroyed, when the debt is repaid ....... it is a net sum of ZERO.

You are giving one entity too much power.

Agreed ..... THE BANKS. “Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild. Banks run the Nations not Governments …. Governments are subservient to bankers.

A few more relevant quotes …….

http://www.themoneymasters.com/the-mone ... n-banking/

[yialousa1971]

Just a friendly advice, koala...

It's always better to rely on your own experiences and judgement, than some Zionist-controlled media.

Maybe the Koala works for Zionists?

[Pyrpolizer]

Banks create debt, they don’t loan anything ..... they provide credit! When you take up the offer of the credit and spend to the agreed amount, it is the payment by the means of transfer (say a cheque or bank transfer) that creates new money in the recipients account. Your bank will clear your (rubber) cheque and award you debt. Not a cent actually changes hands. Commercial banks really do create new currency out of thin air!

For a start we might want to be accurate in what we are saying otherwise we could end up to fallacious conclusions.
If prefer to use the term "currency" for the real money in notes or coins in circulation, which as you said is only 2% of the total. I would then call "money" all the electronic entries in Banks’s computers.In addition I will use the term "sleeping/hidden money" being the value in "money" units of immovable properties, resources etc as shown on the diagram below.

Value of an Economy.PNG

All these summed up make up the VALUE of an economy. All that can be measured in money units (be it Euro, US$ etc) and that usually increases over time.
You stated that "Commercial banks really do create new currency out of thin air". Imo you are partly right in that. Yes they do create what I call new "money" but it’s not out of thin air. They just facilitate the waking up of "sleeping money" usually because the borrower has chosen to do so by putting his immovable property as collateral. There’s absolutely nothing wrong about that, the new money is NOT profit or anything for the Bank, the only profit the Bank would ever get would be from the interest.You correctly stated that this new "money" is eventually (after the borrower would pay back his loan) get killed - I would rather say it goes back to sleep as the then freed collateral, would still keep it’s money value that could be used again and again in the future.
So to claim that the Banks create money out of nothing, is like claiming that mother nature creates rain out of nothing. It doesn’t. It just takes water from the seas, evaporates it, makes clouds, and throws is back as rain.Total amount of H2O on Earth remains the same.

You may not like the fact that the Banks use the deposits of their clients to do that, and you may say it’s illegal, unethical etc but that’s how the Banks work. It’s based on the fact that not more than 2-3% of their depositors would ever withdraw their money at any given time. Ever since this secret was "discovered" the Banks started giving loans. I don’t consider it bad. It’s just another service to our society. They get rewarded for that service with some profit. Suppose they just use ONLY MY deposits to lend someone. If the borrower never pays back, and the Bank has to suspend it’s activities they could very easily come to me and tell me, "sorry we gave your money to person A, he doesn’t want to pay back, take his immovable property it’s yours now, it’s worth 30% more, no need to thank us..

The Central Bank would create the electronic currency, out of thin air, just like commercial banks do now. To provide you with the currency for a mortgage or a car loan the banks would borrow the currency from the BoE and at a very low interest rate, maybe even zero. So you, as an individual borrower would see no difference except for the fact that it would be the BoE that would determine the interest rates, and the collateral would be held by the bank on behalf of the State. As the primary lender the State, not the bank, would seize the collateral if you were to default.

OK fine, although I don’t see how anyone could force a 3rd party - the Banks- to hold collaterals, on behalf of the Central Bank, without them getting at least some commission for their service. Basically that’s illegal imo. For the sake of discussion let’s correct this and assume the collateral would held by the Central Bank. Continuing to the next part of your proposal.

If you now transfer the creation of the electronic currency from the banks to the State, the currency is spent as before into the economy by government expenditure ...... but with a big difference! It is NOT a loan, it is effectively an investment by the State (Who now own the Central Bank) in the State, just as if it were buying shares in itself.

Hold on for a minute here. The newly created new "money" in the form of an electronic entry is presumably a transformation via a collateral of "sleeping money" to electronic money.This doesn’t mean the Government would gain a surplus that she could spend into the economy! The one and only who can spend this newly created money in the economy is the borrower! You may say the Government would get a surplus by the minute the borrower starts paying back. Well, no, by the minute he starts paying back the newly created electronic money gets less and less until it finally gets killed, in the same manner as it would if it was created by any of the commercial Banks.

I believe this a serious disagreement, and there’s no point continuing unless we clarify this matter. Am I missing something?

[Robin Hood]

Paphitis:

You appear to be anti Banks. You need to do more research because Banks are heavily regulated by the Central bank

.
I don’t trust banks and I have no respect for The Bankers (The 0.001%).... the employee is OK as he/she is just doing what he has been trained to do. I am a firm believer that the Commercial (High Street) Bank and the Investment (Casino)Banks should be separate entities as per the Glass Steegal Act. I also believe that the 1844 Bank Charter act should be revised to include the sole right of the State to create ALL forms of currency.

Banks are NOT heavily regulated by the Central Bank the only effect the CB has on commercial banks is primarily setting the ‘base rate’. The bank regulators have nothing at all to do with the central bank, they are Independent Institutions .

Central Bank can introduce new money into circulation. .This is termed Expansionary Monetary Policy.

More commonly known as Quantitative Easing! More of that later.

The detractors call it Money Printing. Essentially that is what it is. When a Central Bank does this, inflation usually increases so that is in fact the regulator that prevents Central Banks from printing too much. It also increases the cost of money, and decreases interest. A Central Bank will do this in an effort to try and stimulate the economy into growth. They will also try and reduce interest rates down to stimulate growth.

Don’t just cut-n-paste without understanding the subject.

Do you know what QE was intended to do? The idea was that the currency generated by the Central Bank as QE, (£397bn) would go directly into the economy via government spending. (Just like Corbyns QE for people and as I would instigate if I were in a position to do so, on the creation of ALL currency, not just QE! Like it used to be to a great extent in the UK until after WWII and the US since about the late 1800’s. )

Out of the £397bn generated by the BoE as QE ........ 98% of it went straight to the commercial banks who exchanged it for Bonds (IOU’s) from pension funds to fill their ‘Black holes’ and by giving out cheap loans for the purchase of property, loans that they gave to anybody whether they could afford the repayments or not. This increased the value of bonds, property and securities, which are ASSETS ....... they do not create wealth by creating jobs.

The BoE action in giving the banks the £397bn created a surge in stock, bond and share prices and a steep rise in property prices much of to ‘buy-to-let’ landlords, so that now 9 out of 10 young people will never be able to own their own house, an even greater ratio in the S/SE of the UK. Once again the greedy banks f*cked up when they saw a chance of making a quick profit.

It is the Central Banks which control interest rates and not the Retail Banking sector.

They set the ‘base rate’ (overnight rate) i.e. the interest rate banks charge one another. The banks charge the rates to the level they think the markets will tolerate. They determine the rates through market forces not by dictate from the CB.

Fractional Reserve Banking - most countries rely on a Fractional Reserve System

That is old hat!!!! See the paper by Prof. Werner of Southampton University. The three concepts of banking. What you are referring to is the ‘multiplier concept’. This along with the ‘intermediary concept’ has been proved not to be correct. The only concept that complies with ALL the evidence is the ‘creation concept’. This is supported by the BoE, The FED and German Central Bank.

This in theory defines each Banks Capitalization. That in theory is the trigger for understanding whether a Commercial Bank is adequately resourced and is maintaining Fractional Minimums (whatever the ratio is). Banks also have their own Credit Worthiness Ratings, issued by Agencies such as the Central Bank and even Private Firms such as Moody's etc. When their liquidity falls, and their Fractional Minimums are breached, then there is cause for a lot of concern. What that means is that the Bank is unable to support all depositors and that makes things worse because depositors will run on the Bank causing in to fold even. This occurred in Cyprus with Laiki, and BoC.

But in spite of all this expertise and regulation they still manage to screw up! As I previously said try watching ‘The Big Short’, that will show you just how reliable these private Agencies are! They cook the numbers to suit their clients. It was intervention in 2008 by the IMF and the independent bank regulators that made some banks adopt a minimum reserve of ~10%.
A bank run is the result of depositors all trying to remove their deposits at the same time and the banks don’t have their money, all they have available is just 2% of what the accounts show there to be on deposit ......... the rest is IOU’s for what the bank owes you.

And yes, the Government want a Fractional System because it allows it to spend a lot of money it doesn't have. So when things go bad, they have to protect depositors. That is how it is suppose to work anyway

.
Sorry mate but that is bull sh*t! It is banks that wanted the fractional reserve system. because it gives them the ability to create money by the simple expedient of extending credit .... and thus creating debt on which they charge interest. Banks only make a profit out of debt.

The problem with Cyprus is that Cyprus no longer had a central Bank with the power to intervene like it does in the USA or Australia for instance. So that is a major a flaw in the Eurozone.

Then what do you think the €60bn QE a month the ECB is creating out of thin air, is? It was a conscious decision made NOT to bail out Cyprus, by the IMF/ECB/EU, it had nothing to do with Cyprus CB powers. Effectively, the CBC is a branch office of the ECB. Cyprus was a patsy selected to be the try out for this ‘bail-in’! Maybe you mean that had they had a truly independent Central Bank that created a sovereign currency, it would never have happened.

So you are not being very accurate that the Banks can just create money without restriction. that is not the case at all.

But I never said that they could ‘ .....just create money without restrictions’. The level of ~10% was actually set AFTER the 2008 collapse but before that there was very little in the way of limitations. Canada, the UK, New Zealand, Australia and Sweden have no reserve requirements and they ALL have sovereign currencies.

Another interesting fact is that borrowers actually stimulate the economy, and that creates growth and employment. It's when people and business stop borrowing or don't borrow at all, when things turn to shit.

Absolutely! If there was no borrowing under the current banking system, then there would be no money, because that is the only way money comes into being. The problem is today that most of the borrowing is in general going into assets like property and bonds and that does not in any way stimulate the economy.

The bottom line is, that all this is fuelled by growth in the economy. If the economy grows, all is good. When it stops, then things get bad for everyone.

Note the previous comment. The economy is not growing at least in the West by very much at all. All countries are showing a growth rate of at most a couple of percent. Capitalism requires a growth rate of 3% to survive ..... and that is 3% on everything from commerce, to money, to energy, to rubbish, to food production, to population etc .... everything must grow year on year by 3% and that is an expediential curve .... in reality it is impossible! You cannot thrive if you are constantly having to borrow to survive and that is what is happening. But the banks are not stupid ...... they lend you debt, if you fail to pay off your debt, then they seize your wealth!

I will make a prophecy! The banking and financial system will collapse and maybe sooner than we think. The banks will then write of ALL government debt and seize their assets as they have done with Greece and are well on the way to doing in Cyprus and other Eurozone countries. The stock markets will collapse and the derivatives tsunami will kick in causing absolute chaos.( Liabilities of 20 x the GDP of the whole Planet) Then over time they will force citizens into debt until they are in a position to seize all their wealth as well. You think you are smart enough to avoid that? ..... think again and consider the implications of a cashless society!

You have said several times the you are not bothered about who creates money as long as they keep doing it .... yes? So what makes you believe that it is only banks that can do this fairly? When you step back and look at the picture as a whole, it is obvious that you do not need banks to lend money to the State when the State has the capacity to produce its own currency free of both debt and interest. It is like having the capacity to grow your own vegetables but you then borrow money from your neighbour to buy HIS vegetables ..... it really is THAT stupid.

Pyrpolizer:

I think you have made some good points, sleeping money is a new one on me! I will come back to you later. ( I took down two large carob tress yesterday and cut them into logs .... albeit with a chain saw .... and my back is killing me! This is when I know I am not 21 any more!)

[kurupetos]

Just a friendly advice, koala...

It's always better to rely on your own experiences and judgement, than some Zionist-controlled media.

Maybe the Koala works for Zionists?

No, I doubt it... he's too stupid to work for anyone...they just use him...

[Paphitis]

That's right Pyro.

Money isn't REALLY created at all. The underlying fact is that it does actually EXIST in someone's Balance Sheet but is dormant!

Banks are unable to just create money no matter what. That is just the Leftist argument of all the ills of Capitalism. When you dissect it, you find out that it is all nonsense!

A Bank to actually "create" money needs to actually back it up with something, otherwise it can't create it at all. A Borrower needs to offer Collateral, and that is dormant money on their Balance Sheet.

Therefore, the money creation (loan) is backed up by the value of the Collateral. Problems occur when a Bank doesn't back up its Lending Balance Sheet with Collateral and there are a few examples of Banking collapses that resulted from irresponsible lending practices _ US Sub Prime and Lehman Bros, Greece and Cyprus (Laiki and BoC).

It is exactly the same as backing up the currency against Gold Bullion. The only difference is, now anything can be used - land, immovables, shares, businesses, equipment and so on and so on.

I'm finding this money creation thing very difficult to grasp. Because it can't be created if the money is not backed up by some other asset.

RH,

I think I prefer what we have right now.

If it were not for the Banks creating new money against assets, then the global economy can only be a fraction of what it is today. In other words, global poverty would be a lot worse than it is today.

What you seem to have difficulty understanding is that all our assets have a value. Since they have a value, assets are actually money (at least as an entry on a Balance Sheet). Even you own home is money as it has value. Just like Gold has a value. Just like Platinum, Silver, and Diamonds have a value.

So theoretically, you can borrow against these assets of value. That is how money is "created". Like it or not, when a bank offers a borrower a loan, they are actually taking your Collateral as security to release your very own wealth and give you a Credit in your own Bank account. I will go further. The Bank is actually taking possession of your asset until you pay the loan back and extinguish the debt back to its dormant state.

Which is why Banks and all of us rely on Growth. When the economy grows, everyone's Balance Sheets grow. Our assets increase in value. Gold and commodities increase in value. Economy becomes heated, people and business become confident and borrow, thus releasing (creating) dormant money into the economy thus creating a snow ball affect.

At the moment, the opposite is occurring. There is no growth or very little growth. Nothing wrong with that. Markets have their natural cycle as well.

[Paphitis]

The more you actually think about it and dissect it, you just can't help how brilliant the entire system truly is. It's like a prized Symphony playing Beethoven's No 9.

It's absolutely brilliant. Bank offers you money based on the value of your Collateral which in turn becomes an IOU Deposit in someone else's bank account that you bought from. BTW, that's a liability for that person's Bank because that Bank has to support that IOU at least fractionally and also pay interest on. So no, Banks just can't create money willy nilly, because if they did, they would send each other to the wall.

Poetry in motion.

[Paphitis]

No it isn't. I don't believe you have explained to me how Banks work. You think you know. You probably don't like them either. But you have not explained to me how they work.

Maybe this will do so? It refers to the BoE bulletin of 2014.
https://en.wikipedia.org/wiki/Bank_Charter_Act_1844

Nope. Not good enough.

Even if the Government can create money, something btw I believe they can do through the Central Bank

They can’t at least not under normal circumstances (QE being the exception to the rule) .... fact! They produce note and coin through the Royal Mint acting on the instructions from Government (Treasury) the rest is created by commercial banks as debt ..... fact!

Sorry, but you are not telling us all the facts. The Central Bank creates money by issuing Government Bonds. This works on the exact same principle as the Retail Banks. People and Businesses give the Government Money in exchange for a Government Bond which adds interest upon maturity. The Government is in fact creating money for itself. Central banks can also print money and they do as we speak - Billions every day.

Nothing could give entrepreneurs some real jitters more than what you are proposing. The reason for that .......etc.etc.etc.................... is going to take my business if things don't work out hey? I think all big business would just flee to the next tax haven. That is what will happen.

You are using exactly the same methodology to get your point over as those who believe that the UK should remain in the UK are applying to their campaign ...... FEAR of the unknown! The simple answer is, like them, you don’t have an argument, it is all what YOU think could happen.

Yes I do. I have a proven and unbroken workable system right now. You want to fiddle with something that is not broken. Therefore, I challenge you to show me that your way works better. C'mon, please explain to me how FREE MONEY can work and I will support it.

You can't offer me an example or an adequate explanation why your system is better and now resort to name calling and slander.

There must be one jurisdiction around the world that does this? Give us an example, so we can see if it works. I'm pretty open. Offer an example and let's see if your system works, and let's see if there is an economy to be confident about

Try looking at those damned Colonials that called themselves Americans! From the point they had the damn cheek to declare independence from their Masters until around 1910 when they were tricked ( http://www.jekyllislandhistory.com/federalreserve.shtml ) into having a Central Bank (FED) run by the Bankers of the British empire led by some upstart who called himself Rothschild! His name was actually Baure and although he wasn’t even British, he was an Ashkenazi Jew from Eastern Europe, he controlled the money supply. He even boasted about it!

I like those American Colonials. The land of the free and brave.

Are you sure you're not just bitter about these colonials kicking your arses? I have no clue what the Colonials have to do with this topic.

And most Bank Deposits are created by a Bank when someone applies for credit. The Bank creates a Deposit in the Borrowers account, and the Borrower goes and buys an asset.

Sorry your concept is wrong! It is not the borrower’s bank that creates the currency it is the bank of the person the borrower pays it to, that creates the new currency into circulation, By making that deposit into his/her account.

No you're wrong. It is a mutual agreement. Bank is only leveraging against dormant money that already exists. It is the Borrower offering the collateral as much as it is the Bank. Without either or, none of this poetry ever happens.

Why? Because what he has now deposited in his account can be converted into cash. The borrower’s bank only allowed him to spend something against an account that had nothing in it and thus created debt. So, if it was not for the complicity of the bank in an obvious fraud ..... he would get arrested.

Hello! Collateral!

It can only go as far as is fractional ledger allows it to do. It has to support deposits by a minimum amount - let's say 15% (I don't know what the ratio is.) If the Capitalization falls under that, then the Bank is basically up shit creek, and probably Bankrupt. That is what happened in Greece and Cyprus, hence the need for a Bail In. It has never occurred in any other country other than Iceland I believe. And our Banks in the West have been trading for decades with not that many issues.

The sum the bank has deposited with the central bank as its reserve and this cannot be lent, it is not the banks money ..... IT IS YOURS!!! They do however lend it .... but only to one another and within the central bank to maintain the fractional reserve required (10% I think you will find.) The LIBOR interest rate is the interest they charge one another.

Yes it is fantastic! I am truly sold!

Yes yes yes! Lend it and lend some more. let's create all this money we need. I completely love it.

But don't forget that Collateral! Without it, they won't lend other people's money or create new money.

You say it happened nowhere else except Iceland? What do you think happened in 2008 with the sub-prime fiasco in the US? When they realised that all these assets were crap and in many cases were not worth a light, the banks collapsed as their debts (NPL’s)way exceeded the deposits. The FED bailed them out with literally trillions of dollars. I am afraid Cyprus and Greece were victims .... not examples.(Try watching the film 'The Big Short' a bit heavy but it explains what happened leading up to 2008)

I did mention sub prime. But that is where some stupid Bank started to lend out money to unqualified borrowers with insufficient collateral. And it did not cause an American banking Collapse. The USA is far more robust than that.

Because when they apply a Credit to someone's Bank Account, they need to support it in theory.

They don’t support it! When a bank goes down the pan, the depositors are unsecured creditors ..... the bank has nothing but our money in their reserves, money they borrow from you when you make a deposit. A strange phenomena with banking is that your deposit is on the books as a ‘liability’, because they have a liability to give it back to you when you ask for it (well .... in theory!) But all these ‘debts/loans’, limited as a multiple of say 10 times the clients deposits, are down on the books as ‘Assets’.

Yes they do. Everything is supported. Everything.

Exactly the same as when currency use to be supported by Gold, it can now be supported by virtually anything of any value.

Now just think about that? We have ‘liabilities’ on deposit at the central bank, and ‘assets’ that are all debts. Then look at it from the book-keepers point of view! The banks ‘assets’ (debt) will always way out exceed their ‘liabilities’ (deposits) ...... in theory the more debt they have the richer they become.

Yes they make money out of it. And they have a tendency to over secure their loans as they only leverage up to 80% which btw is exactly what they do on the deposit side with their Fractional Reserves.

Just before, you were telling me about Lehman Bros.

Then it goes pear shaped ..... they get a whole bundle of NPL’s and these ‘debts’ go from being ‘assets’ to becoming ‘liabilities’ overnight! To correct this they now reduce their liabilities by defaulting on their liability to repay YOU the money they borrowed; they write off their liabilities = ‘Bail-in’. (First trial of this response was on the Cypriots who, because they didn’t have a clue that their money was not theirs but the banks, they lost the money with barely a whimper.) It is now written into legislation World wide as the preferred method of dealing with bank failures.

No it doesn't go pear shaped at all. It only went pear shaped in Greece, Cyprus and Iceland because the Banking Sector there was just immatiure and too greedy.

Just because it went pear shaped there doesn't mean that this entire intricate system which has been working just fine for the betterment of humanity, needs any changing.

There is still nothing to stop the individual from taking out a substantial amount in cash.

The problem is when ALL the people want their cash back ...... then it becomes obvious that the bank has available just a mere fraction as cash .... about 2% ...... and the bank crashes.

The whole system works on the principle that not everyone will want their money back at the same time. If they did, then the Banks do have all the Collateral from all the borrowers which they can foreclose on. But that would shut down the country too and result in 100% unemployment.

Oh and the M2 Index has to be a lot higher than a mere 2%. If it was just 2% all the Banks would be gone.

Please don't tell me it will happen. The planet can get hit by a massive meteorite too.

What I see in the Banks is fairness. Everyone is equal to a certain extent because a bank wants to have you as their customer generally speaking. If you're a borrower, then all they care about is your ability to pay and collateral.

In reality the depositor is a liability out of whom they make nothing. BUT, if you are a borrower they can make money. If you fail to repay the debt, they seize the collateral .... they exchange your theoretical debt ..... for YOUR wealth! The money they created remains in circulation ..... that increases the money supply = inflation.

They pay interest to the depositor, so they actually lose money.

Banks can make and lose money from borrowers,. No it is not a one way street. I've seen banks try to move against people and be held up in courts for months.

I don't think that will be the case for a Gubberment such as let's say Cyprus or even other countries like the USA or any EU Country for instance. Free money sounds good, but how is the Gubberment going to fund all the infrastructure if you don't even recognize that money does actually have a cost?

You admit that you accept that the banks create money from thin air very obviously AT NO COST, where is the cost you now perceive? If a bank creates credit, it is spent into the economy, it is then repaid and is destroyed, when the debt is repaid ....... it is a net sum of ZERO.

Yes the Bank and Borrower create money. Money that already exists on a Balance Sheet! The Bank creates money by applying a CREDIT against the value of an asset that is used to secure the principal.

It's not exactly the same as creating money as you seem hell bent to describe it.

You are giving one entity too much power.

Agreed ..... THE BANKS. “Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild. Banks run the Nations not Governments …. Governments are subservient to bankers.

No the Banks are thousands of global entities which seem to be a lot better to deal with than the Government in my experience.

No thanks. I want these thousands of Banks competing against each other otherwise we're screwed.

A few more relevant quotes …….

http://www.themoneymasters.com/the-mone ... n-banking/

Mmmmm....I don't like quotes. Give me facts please.

Show me an example of what it is you are proposing. You can't exactly convince people to tear the Banks down for no reason.

As if the Banks are going to create IOUs without getting their hands on something tangible of enough value to cover their backsides. Even if the IOU goes to another Bank.