The system is still in two parts –
The bankings system and the capital markets system.
The `credit crunch` was in the capital markets, not the banking system.
Podcast: Play in new window
That was Marvellous, Fantastic, Super.
you are going to have to try and understand what I’m trying to say.
The merchants realised that they could exploit the king with interest,
and each others wealth transfers, grabbing a piece of each others pie in the ebb and flow of trading. ( ones ebb is another ones flow so storing wealth)
The king needing to satisfy his contracts, needs to exploit the people, Which he can, Because he is Sovereign.
So he comes up with a wealth transfer system called Tax. A chicken, Bails of Hay, and bases it on property.
Then a big war comes upon him and bam. Need more money, so he needs to generate more tax.
the good old king seeks to exploit a cash rich reserve. The Church.
Henry VIII wanted the monastries’ wealth. something that encouraged a number of rulers in Europe to break with Rome.
At the time, the amount of property owned by the church was immense. The point was that an organization like the Church never Ends,
and so the property doesn’t change hands (no tax) and isn’t subject to inheritance tax. The Church had no incentive to use its property well
So there was an economic problem. Henry closed down the monasteries so he could collect the taxes as he just wanted more money.
to fight wars and pay the merchants ( stealer’s of wealth)
Good shit ;)
Promissory notes… empty promises. Confidence is its only currency. We can’t find the man behind the curtain because he does not exist… the audience are making the play through their own imagination**or delusion.
Nice, well presented video tonight Nick….
Are you therefore saying that the Shadow baking sector, is similar to the old Merchant system ( top 1% )…???
ie, they swap paper representations of the assets between themselves, and the rest of us ( in the UK at least ) use
Lastly, your last answer to me on a previous vid tonight, mentioned the assets we are discussing being mainly
from pension funds and ins’ companies etc and not from the banks…
So how did these assets come to be on the CB books…???
( May be an obvious answer, but are we talking Mortgage back securities etc…?? If not, what assets do we mean…?? )
This is tricky. This video has established that there were and still are, two systems.
This is all it was meant to do. (So I will not push the old systems too far here)
The banking system is what you think it is (mortgages, loans etc.). This part of the system did not fall over in 2008 (most people still paid their debts).
The `other` system did fall over, but the tricky part is that banks had got heavily intertwined into the `Merchant System` and that is what did for them.
Now we have two systems –
2. Merchant / Shadow / Capital Markets (all same thing).
There are two groups of money -
1. Banking (loans as `deposits` on the liability side; and loan contracts as `assets` on the asset side……….(Note: The banks `lever up` and buy more assets for the asset side)
2. The pension funds, insurance funds, big company funds (profits).
These funds are like little banks of their own and they can move around these funds as the CIO sees fit. Hmmmm~!? I am getting in too complicated now for a comment….
So, I will go with the most important group Money Market Mutual Funds.
Lots (perhaps most) real people want their savings to be safe, so they invest in MMMF’s, who guarantee to only invest in super-safe stuff.
Now, they could invest in short-term treasuries (and they do), but they also got a kick out of `lending overnight` to people. (Shadow Banking)
Here is where the trouble was. The MMMF’s lent overnight because it was safe and the people they were lending to got used to the money being there for them (overnight lending via repo was cheap funding)……but when the shit hit the fan with the repo paper the overnight funding was pulled.
This is too much. I am going to have to do a video.
I don’t think I will have time today.
See how we go.
Ok, I think I am following here, so far…
Lets wait for the vid….:)
I didn’t get to a second video…..the first one……ran on……a…bit~!
We have kinda come from easy tracks and out into a big clearing of modern finance…and it is going to be hard for me to know where to start.
Holding the fact that there are still two systems is important, but we are going to have to show how they now fit together……….Or, now the CB’s have come in – How the new system fits together, with the CB’s playing a much bigger roll.
Strayed from the easy tracks, and “Gone Bush” eh….??!!
If there is a way to convey your thoughts though, I am sure you will find it….:)
I think it is also important to point out that the traditional banking system is regulated and that the shadow banking system is unregulated. The Prol’s deposits are guaranteed by the FDIC, to a point.
Also, if a traditional bank faces significant withdrawal activity, then they call up the Fed who promptly increases their reserves to cover them. The Fed acts as the lender of last resort and keeps the system stable.
I’m not at all sure about this stuff, but I’ll give it a try, ok?
The shadow banking system, because they are not regulated by the govt, cannot go to the Fed for money when liquidity freezes. The crash occurred in 2008 because there was no lender of last resort. The money markets began to freeze up. No one trusted their counter parties anymore, so the spigot was closing…fast. That is why Paulson had to step in with the initial emergency $700B bailout fund.
Further, President Clinton repealed the Glass-Steagall Act which had separated commercial and investing banking. After the repeal, capital markets were flush with new dumb money from the depositors of commercial banks and the sharks had a feeding frenzy. We should also remember the disastrous effect the Quants had on the money markets, and how their mathematical models failed with regards to correlation and risk.
Nassim Nicholas Taleb: “Anything that relies on correlation is charlatanism.”
Asset-backed securities, mortgage-backed securities, commercial paper, repos, credit default swaps, interest risk, credit risk, etc. It is very complicated and should have been left in the purview of the investment banks and hedge funds. Risk management went out the window and now we are all paying for their foolish gambling.
The shadow banking (MMF’s directly which make up the bulk of it) were 100% backed by the government when push came to shove.
Then the Fed bought 1.3 trillion of MBS, which was essentially manufactured for the SBS to play with in the good times.
So the Shadow System got the full `get out of jail free` treatment, just like the regulated side.
Of course they did! They run the show~! How do you think they got Clinton to repeal Glass-Steagall in the first place. And Clinton portrayed himself as the people’s president, just like Obama.
The problem is that shadow banking affects all of us, but we have zero input or control with their actions. When they screw up, they pass on the losses to us and we sheepishly pay for them through our taxes and austerity cuts. We rely on our govt officials and elected politicians to manage our national treasure, but they are bought and paid for by the big boys. If another major crash occurs, they will get bailed out again and the losses will be socialized again. Each time we go down in our standard of living, while theirs is elevated. Diverging paths.
The only real non-violent action that we can take is to not pay our taxes and shut the system down until they take notice. But, then they will imprison us,; in corporate prisons, no less. So, what to do? Violence? Is this where we are heading with our divergent paths?
They would love to privatize our social security fund and pension funds. I think they’ll get them, in due time, along with our public infrastructure; roads, bridges, schools, airports, tunnels, subways, rail, etc. Of course, they will appropriate those funds and our infrastructure, for our own good. Hope and Change. They’re hoping to get the last of my spare change.
How is Manchester United doing this season? Did you catch American Idol last night? GM is working on a 8 liter, 600 hp engine for a new SUV! Nation building is going well in Afghanistan. Green shoots!
If there is hope, it is with Steve Keen via George Soros’s INET.
The economists have to blow the cover on the extraordinary privilege of banks to create money.
It will involve the people knowing what money is and where it comes from, but that is possible.
When they know what banks can do, then they will realize what governments can do.
Then politicians will have an awful lot of thinking to do.
I see it as ending in knowledge or violence.
You are very optimistic, Mystic. Keen is ok, but he is still an academic.. Soros is a fucking rat-fink cunt; read his true CV.
People waking up to their impending doom? Politicians doing the right thing? If only….
Knowledge or violence? I am laying 5000:1 on violence. Any takers on the knowledge bet?
Today’s video (inspired by these comments) is a long rambling affair that says, `knowledge has a chance`.
The people do not want violence.
So, you enlighten the people. Then What? Then they will spontanseously stand up and cry……What?!
Please fill in the blank for me.
“the people do not want violence.”
Are you so sure? Based on current TV, films and books, I think they love it.
They will relish in it when the food runs out.
Yes, you are right………..they want to watch other people getting hurt.
I’m sure there were enlightened individuals discussing the brutality and stupidity of gladiator games at a cafe in Rome 2,000 years ago. It didn’t stop the Circus. They were probably rounded up and fed to the lions the next week. We need to focus on concrete remedies, not intelligent observations. I love the meta concpet notion. Time for concrete Meta solutions? Let’s try throwing some against the wall, and see what sticks? Are you game? What do we have to lose? It’s just a blog. But, I think there is some real brain power under the surface. You are the mentor, so mentor away!
They like to watch OTHER PEOPLE getting hurt.
They are not going to put themselves up for getting hurt~!
Yup. And the banks were licensed to create the bits and earn interest on them by sending Industrial Man’s physical wealth to build McMansions.
Agreed the operations between banks and the people, small businesses, etc are based “in theory on a stable loan creating and repayment destroying monetary equilibrium….While banks account locally for their customer deposits, transfers of money between banks are accounted for against the bank’s holdings at the central bank and with other banks in the system…This has resulted in long standing confusion surrounding the defintion of money within the system since local customer deposits cannot be directly exchanged with deposits held at the central bank even though they are denominated in the same units… Funding of central bank deposits can only be performed by physical cash or through the exchange of a restricted set of financial instruments, primarily government securities. This particular relationship arises from vestigial elements of the older gold standard system which remains embedded in the book keeping practices that embody modern banking” . — from IEEE paper by J. Mallett (more to follow but is is right in line with your apparent off the wall historical synopsis in this video)
Bravo! :) This is the kinda stuff I can drop on folks and get that deer caught in the headlights look. :)
You must be dealing with some realing fucking geniuses.
Thanks Nick, that was very good indeed.
That the craziness ( & sometimes tragedy) of the money narrative is sustained by the abundance of energy is, to my mind at least, a very powerful observation.
You’ve got more coming today/tomorrow~!
Thanks for a good video -as always! This is a very complicated subject, but this is how I see it:
• In our current system money do have value. Since we know that money is created by debt, private individuals or cooperation’s will create money by taking out debt and promise to repay it -with interest, by working and producing stuff. Therefore the “value” is that promise to work your as of to repay the debt.
• A government can also create money by getting into debt, and the backing is a trust by ROW that the country who is getting into the debt (by selling bonds for example) is able to tax their citizens to repay it. And tax is in a way, a cut of the value of the labour or a commodity that the population produce.
• So if for example OPEC is trading a barrel of oil for 124 paper dollars, those dollar is someone’s promise to work or produce stuff. If a government is not trustworthy for example with Zimbabwe, ROW will not except the currency because there is not a legitimate backing of labour of the paper.
• And then there is also stuff with things like QE. In this case when a government is getting “money” by borrowing from “them self”, and therefore in a way not having the same taxpayer backing, the consequences might be that the “value” the currency is decreasing. Now I know that statement is oversimplified and in the real world the opposite may occur due to deflationary pressures.
• In a way this is also a comment on MMT, I agree with the MMT stuff you been presenting, but I think it is only true in world where confidence between the countries participating in the money game. If a country, let´s say Sweden (who can create its own currency) would “create” more money than they can back from the taxpayers, ROW will probably not accept this “paper”, or it would be traded with a decreased value.
• But of course If confidence is completely broken, the “money” is utterly worthless.
”Since we know that money is created by debt, private individuals or
cooperation’s will create money by taking out debt and promise to repay
it -with interest, by working and producing stuff.” ….. Producing stuff~? …. Are you sure~!?
And then the rest of your comment……..and I don’t think I would go along with a word of it.
I am not saying it is wrong, but I don’t like the way any of it is stated.
Maybe this is because I am understanding from the quote above, that you think money is something, or backed by something or something……which it isn’t…….So, it taints the way that I read the rest of your stuff.
Hi! Sorry for poorly stated comment. But I think the underlaying value of a debt (money) is labour (producing goods/service), from a historical point of view of a bank. The banks take a cut from the “labour” (Interest), and thats partially how they make a living -”A bankable project”,”money as debt” etc. A farmer that produces eggs and wanna buy a barn from a carpenter, pay with the labour of producing eggs, whether it is via fiat money, gold or barter. I know this is oversimplified, and the housing boom where in some examples only the asset of the house was enough to create debt (NINA), but that is a recent phenomenon that did not really worked out very good. In what way is money not backed by anything? If the same transaction of the egg/barn could be done with barter as well as with gold or fiat money.
Well, you just said the same thing again.
You have an idea in your head and are going to stick with it (whether it makes sense or not)……..So, there’s nothing much I can say about it. You could read Graeber’s `The first 5,000 years of debt`….(or not~?).
Focus on the Meta concepts. No time to waste, now, Lad.
I guess whether money has a value or not, Isn’t a Meta concept. ;)
Me again (sorry to but in again SoD)
Toby…Think back to when money was sea shells, or leather, or a piece of iron.
Did that money have value backing it~?
Money is exchange tokens….that is all.
The things it can buy are the value and the wealth…the money is just transition tokens.
Yep, was trying explain it differently since you did not like my first comment. You pretty much replayed the the same thing as well, so I guess you also got an idea in your head and going to stick with it. My idea is partially based based on your videos that I been watching for several years, but I guess I got it wrong and need to read “The first 5000 years of debt”. Thanks for the tip! :)
Go to Vimeo Ovethepeak and watch 400 videos by Mystic and then comment. I’m not trying to be disparaging, but please learn a thing or two before commenting. We are too far gone now for the basics.
Already done it, watched Mystic since -08. I know my comment is basic, but please let me know where it is incorrect.
It is not so much incorrect…….as useless.
What is anyone meant to do with the comment (fact~?)~?
And anyway……someone takes out a mortgage to buy a house for a million….what does that mean~?
That million is released into the world…?….and so……And so what~?
No, sorry. I can’t make anything out of it.
I think your videos is fantastic and educational and I been agreeing with 99% of your content, but the statement that “money has no value” is just something I cant´t get my head around, except if it was based on a philosophical argument like “what is a value”. Since we are discussing money I was with a very basic argument is a way of disagreeing with you. What I attend to do with my comment get a clear understanding of what money is by arguing and discussing the matter. Since a basic thing like “the value of money” is at the core of all this stuff (e.g. MMT), I was expecting someone at this community at least give it a go to disagree. And when I did I basically got “you are not incorrect. But your wrong, too basic, narrow minded, repetitive and it is useless”. But it´s ok, no hard feelings -I am a noob at posting comments on the internet, so I might need to practice a bit. :)
Regarding the million dollar house, I feel Im repeating basic stuff to you again but here it goes: I think the value of the house in only “released” into the world when the profit is spent. When the “asset” is traded for “money” and the money is traded for “labour” (goods/service).
Let me roll you back.
You are wealth if you know stuff (or can lift heavy things etc.)
A table is wealth.
A house is wealth.
Money is wealth.
All these things are wealth, because the `owner` has bargaining power with them.
That is different from `money is backed by something`.
Money has no value backing it.
The value in the house, is in being a house~!
What value do you get when you sell it.
You get money…..What value does money have…..Well, it can buy you a house~!
Can we forget this.
Unless you can come up with something dazzling, I tend to think this is a bit silly.
(that is, `it` is silly…..not you~!)
Hiya Toby, excuse me for jumping in too.
Reading your exchange with Nick, made some of Alfred Mithell Innes stuff spring to mind. If you are interested have a read of his ” the credit theory of money” & “what is money?” both these papers can be found on the ces.org.za website. If you are unimpressed… I would hope that you would at least be impressed by how long ago it was written.
The ‘Community Exchange System’ advocated by CES, is interesting too. Not sure how open to being gamed these systems can become ( probably same as any, I guess…).
Ultimately I think the sovereigns & big dick Econ types would kick these forms of exchange in the head should they evolve into anything more than ‘hoby economics’ ( for the public good of course…).
Dear Mr. Mystic:
Very well said, but the conspiracy theorists are sure to be disappointed.
The truth is often stranger than fiction.
I cracked today and did a long rambling video on how `knowledge` may be able to divert the course of the western world away from its `date with disaster`.
You are going to have to help.
It’s funny you should mention truth being stranger than fiction. I’ve been helping a nice German gal with an American History class she enrolled in, and she made the same comment a few days ago!
You let me know what you would like me to do (give me an assignment and a time frame), and I’ll be more than glad to do what I can! By the by, my Skype user name is the same as my DISQUS handle – john_by_the_creek.
Good on you John. (I don’t like telephones, but…..)
First is to get through my today’s video.
What I think we have is this -
This economy thing is going to crash again (people are going to get hurt).
If it crashes well enough it could lead to war, revolution, civil war….maybe even the TeeeeVeeee going off~!
Me thinks that the only way to avoid this is via knowledge.
I maybe thought this before, but had no idea what that knowledge would be.
I think Steve Keen could be the pointy end of a wedge that could get stuck into the body economic/politic.
The banking (and shadow banking) system is a mess.
Government funding structure is outdated (by about a hundred years).
I know you don’t think much of government, but they are the only idiots that can go any way towards sorting this out.
If you have time, arm yourself with the comment section here -
I don’t think you go for the MMT angle, this is more a question of who is right………but then to think what the ramifications are for the `wrong` people (if that be what they are) holding so much policy power.
For me (at the moment) there are only two angles -
Banks creating money from nowhere (and should the people know about this)
Governments putting taxes in the bin when received (and should the people know about this).
`Creating money from nowhere` and `Putting taxes in the bin` are awful descriptions….must do better~!
I thought you knew the workout.
That other system, the one that runs on that non-money stuff, represents the financialization of the economy.
That is where the benefits of Summers-engineered financial “innovation” became concentrated and grew in the bubble.
Applying Taleb’s wit says we need to de-financialize the economy into its real money, real economy structure.
The real money system will provide the natural amount of money required to balance the economic flows, without inflation, deflation or debt.
Because it is based on science.
Thanks a lot, Nick.
I am still plugging away.
It has always been Soddy.
You say this money-system stuff is all ‘crap’.
This is from one of the articles on Arian Nevins’ NationalEconomy.net website – very much devoted to Soddy and science-based money.
“”So Soddy turned his back on chemistry and turned to economics. Here’s his conclusion:
“I thought that, as a scientific man, I ought to know something
about economics. So I studied the money system for two years and could
make nothing of it. Then, one day, the truth dawned on me. What I was
studying was not a system, but a confidence trick.” “”
He was a smidgeon too scientific to call it ‘crap’.
A ‘confidence trick’ can be exposed and undone.
And so he wrote: “The Role of Money”.
I know you don’t like to read much anymore.
But this work cannot be stripped out to MP3, far as I know.
And we need to overcome all of that institutional inertia that you so well described.
Sorry to say that Keen does not get it.
He is another like Minsky, along with most of the MMT schooled.
They KNOW there’s a problem.
But they do not know that it is debt-based money.
Endogenous though it may be.