The truth is out: money is just an IOU, and the banks are rolling in it

Sep 2013
38,812
30,792
On a hill
#1
David Graeber

The Bank of England's dose of honesty throws the theoretical basis for austerity out the window

Tuesday 18 March 2014 06.47 EDT

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning".

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

To get a sense of how radical the Bank's new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don't suffice, private banks can seek to borrow more from the central bank.

https://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity
 
Likes: 2 people
Sep 2013
38,812
30,792
On a hill
#2
What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite.
Makes sense, more sense than austerity.
 
Jan 2012
3,527
1,617
Vacaville, CA
#3
I guess I need to take Economics 101. What in the US is the equivalent of the Bank of England? The Federal Reserve? So, my impression is that the Federal Reserve or some other agency lends money to the banks at nearly zero percent interest and, in turn, the banks lend it to us at rates from about 3 percent for home loans to 24 percent on credit card debt.

Why can't the U.S. set up its own bank and loan money directly to the people instead of going through the private banks?
 
Likes: 1 person
Jul 2014
31,059
7,943
midwest
#4
I guess I need to take Economics 101. What in the US is the equivalent of the Bank of England? The Federal Reserve? So, my impression is that the Federal Reserve or some other agency lends money to the banks at nearly zero percent interest and, in turn, the banks lend it to us at rates from about 3 percent for home loans to 24 percent on credit card debt.

Why can't the U.S. set up its own bank and loan money directly to the people instead of going through the private banks?
Because Wall Street and the big banks OWN our politicians?

Could that be it?

Especially Hillary.

Hillary is bought and paid for by Wall Street, the rich, big corporations, and foreign gubmints.

And she will serve them well...
 
Likes: 1 person
Jan 2007
30,286
5,967
#5
David Graeber

The Bank of England's dose of honesty throws the theoretical basis for austerity out the window

Tuesday 18 March 2014 06.47 EDT

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning".

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

To get a sense of how radical the Bank's new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don't suffice, private banks can seek to borrow more from the central bank.

https://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity
http://www.rayservers.com/images/ModernMoneyMechanics.pdf put out by the Chicago Fed years ago.
 
Last edited:
Sep 2013
38,812
30,792
On a hill
#6
I guess I need to take Economics 101. What in the US is the equivalent of the Bank of England? The Federal Reserve? So, my impression is that the Federal Reserve or some other agency lends money to the banks at nearly zero percent interest and, in turn, the banks lend it to us at rates from about 3 percent for home loans to 24 percent on credit card debt.

Why can't the U.S. set up its own bank and loan money directly to the people instead of going through the private banks?
It could.
 
Sep 2013
38,812
30,792
On a hill
#7
Because Wall Street and the big banks OWN our politicians?

Could that be it?

Especially Hillary.

Hillary is bought and paid for by Wall Street, the rich, big corporations, and foreign gubmints.

And she will serve them well...
So then you would rather have the government act as banker rather than the private sector?
 
Likes: 1 person
Apr 2012
10,675
4,365
East coast USA
#9
At least Hilary can bank in the USA, no US bank will loan to trump. They know he lies and is a bad bet. He can deal only with Deutsche Bank of Germany, which is having trouble of they're own currently.
 
Likes: 1 person

RNG

Moderator
Jan 2015
12,853
8,535
Left coast
#10
Every western country I know of has a central bank. The Fed is a strange critter and I don't know how it fits exactly. These central banks only deal with other banks and foreign countries.

QE can be a successful stimulus. Austerity does inhibit economic growth. But unlimited QE would cause massive inflation, and interest payments on debt do hurt the country in the long term.

Many people bad-mouth Keynesian economic theory, but are only aware of half of it. Yes, Keynes said in bad times the government should spend to stimulate the economy. BUT he also said that when the economy improves, that money needs to be paid back.

Too many left leaners always seem to ignore the second part.