The cool bit is that the bank is creating new credit when it debits its P&L and credits its staffs' accounts or pays other costs, or credits the accounts of its shareholders with dividend payments.
So, banks have the privilege to pay their employees and costs not in "real" earned money, but in credit transactions? Other companies can only dream on...
Thus, everything that bank does is just an arithmetic operation on its balance sheet? Since capital fraction requirements are quite arbitrary, and no-one except interested specialists wish to follow bank operations and economic conditions closely, banking is a quite a seperate (independent but demanding) world.
The goods or services are consumed, but the mathematical value of what was created never expires. The Federal Debt of $13 trillion represents the cumulative value of every transaction for the last 230 years of American history.
Most of that Federal Debt is interest. Only so much of tangible value was ever created, but the aggregate claim on the debt is there and growing, regardless of what could ever be created. We have a mathematical hurricane, sucking all production into free lunch profits.
So, banks have the privilege to pay their employees and costs not in "real" earned money, but in credit transactions?
Yes, but to be fair to banks they actually do provide value. The economic function of a bank is as a risk intermediary, providing a guarantee of the credit of a borrower or trade buyer, and backing that guarantee with the shareholders' proprietary capital.
das monde:
We have a mathematical hurricane, sucking all production into free lunch profits.
That sums it up beautifully.......but you will observe that the 'free lunch' extends only to the bank's profits, not its (reasonable) costs or default costs.
There is in fact a solution, I believe, and that is a 'debt/equity swap' - through 'unitisation' of property rentals in particular - which will have the effect of turning most of the National Debt to a National Equity.
There is a compelling reason (minimal capital requirements) why banks will actually take this road - becoming risk service providers - since those who do not will be at a disadvantage to those who do. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
When all economy is indebted to bankers and almost no enterprise is standing on its own, that is an end of a road to some serfdom.
But that is not really the case: the banks are only middlemen, and deficit-based credit is only part of the problem.
Banks as risk intermediaries have been the instruments through which the rich and powerful have become more rich and powerful. The 90% are only nominally in debt to the banks - in reality it is the other 10% who are on the other side of the banks' balance sheets to whom we are indebted.
The combination of compounding debt and private property (historically in land) can only ever end in one way. For thousands of years this combination has unsustainably concentrated wealth in the hands of the few. That is why kings used to have 'Jubilees' if they wished to keep their heads on their shoulders.
We have turbocharged this combination through institutionalising both greed - through the profit motive - and irresponsibility - through 'free' limitation of liability.
The current system is terminally broken, and it is Time for a Change. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
The 10% are the wealthy in Society who benefit the most from privileged property rights over Commons like land. While some (too many) of the 10% are in Wall Street, most are not. 90% of us are indebted to the 10% via the Banks.
Wall Street serves the Wealthy 10% and applies a de facto Wealth Tax on them. But it's not Wall Street/the City who own most of the land eg in the UK 0.3% of the population owns 69% of the land. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
If they couldn't indebt the planet so easily, what is their wealth for?
... in the UK 0.3% of the population owns 69% of the land.
Why I think Land Reform is needed in the UK allied with a real Green Revolution© -- a change in the way agriculture is done, not just pouring a butt load of petro-chemicals all over the place raping the future to profit in the present.
Wall Street serves the Wealthy 10% and applies a de facto Wealth Tax on them.
They definitely tax most of economic activity, for as much as it is dependent on credit. Government taxes are peanuts.
