Victoria Grant explains Fictional-Reserve Banking and why everything is crashing

[notme]

I really don't want a world were people can't buy a house because there is no FRB system to let the previous generation lend to the next generation at a profit.

I just bought a house precisely because the previous generation lent to me and my fiance at a profit.... but there were no banks involved.  There is no need for FRB when you have a community.  Instead, many people choose to live in a cutthroat world without neighbors and friends.  No thanks.

[1715256668]

1715256668

[P4man]

Ahhh who cares if savers got the shaft in the process right?

Indeed. The opposite is far worse; if just the simple fact of having money results in you getting richer and richer by sitting on your money because other people grow the economy and therefore grow the demand for money, what kind of idiotic system is that? Having inflation means that you will have an incentive to invest your money, spend your money or otherwise participate in the economy, I have no problem with that.

[hazek]

Ahhh who cares if savers got the shaft in the process right?

Indeed. The opposite is far worse; if just the simple fact of having money results in you getting richer and richer by sitting on your money because other people grow the economy and therefore grow the demand for money, what kind of idiotic system is that? Having inflation means that you will have an incentive to invest your money, spend your money or otherwise participate in the economy, I have no problem with that.

:shaking my head: what utter ignorance of history you display......

You're completely oblivious to the 2nd industrial revolution right? Robbing people is not a path to sustainable wealth, it's a path to tyranny with a few and a life on a treadmill barely getting by paying all your bills.

[lonelyminer (Peter Šurda)]

You can't create more out of nothing. If I own a rock of gold and own it for the purpose of saving value I KNOW you can't own the same rock of gold. You can't either own a similar rock of gold if you haven't put in a huge amount of work to dig it up or produce something other of equal value in order to trade for it.

Correct. But I can own another good, S, which economically acts as a substitute of the rock of gold. If the production costs of S are below those of the rock of gold, the supply in that market will increase and the price will decrease. Again, this is not particular to money.

This rock of gold is a store of claims on goods and services in the economy and you creating a rock of gold out of thin air is stealing these claims on goods and services from me.

In order for a rock of gold to be some sort of claim, there needs to be a counterparty to that claim, with which you have a contract. People other than this counterparty cannot be held accountable if this claim is reneged upon. Who is this counterparty and when did they agree to a contract?

That's why counterfeiting is wrong in the first place.

Non-sequitur.

Absofkinglutely, otherwise what's the point of money?

There is no "point of money". Furthermore, it's a non-sequitur. You did not address why particular economic differences result in legal differences. It's like saying that it's ok to steal from the rich because rich are richer than the poor.

[hazek]

You can't create more out of nothing. If I own a rock of gold and own it for the purpose of saving value I KNOW you can't own the same rock of gold. You can't either own a similar rock of gold if you haven't put in a huge amount of work to dig it up or produce something other of equal value in order to trade for it.

Correct. But I can own another good, S, which economically acts as a substitute of the rock of gold. If the production costs of S are below those of the rock of gold, the supply in that market will increase and the price will decrease. Again, this is not particular to money.

This rock of gold is a store of claims on goods and services in the economy and you creating a rock of gold out of thin air is stealing these claims on goods and services from me.

In order for a rock of gold to be some sort of claim, there needs to be a counterparty to that claim, with which you have a contract. People other than this counterparty cannot be held accountable if this claim is reneged upon. Who is this counterparty and when did they agree to a contract?

Every market participant willing to accept a particular good as payment which makes a good money in the first place. Money wouldn't be money if it weren't a claim on good and services it would just be a good.

That's why counterfeiting is wrong in the first place.

Non-sequitur.

Ad hominem.

Absofkinglutely, otherwise what's the point of money?

There is no "point of money". Furthermore, it's a non-sequitur. You did not address why particular economic differences result in legal differences. It's like saying that it's ok to steal from the rich because rich are richer than the poor.

Ad hominem. Money wouldn't be money if it didn't fulfill the roll of money. Money without the roll of money would just be a good like anything else.

[P4man]

Ahhh who cares if savers got the shaft in the process right?

Indeed. The opposite is far worse; if just the simple fact of having money results in you getting richer and richer by sitting on your money because other people grow the economy and therefore grow the demand for money, what kind of idiotic system is that? Having inflation means that you will have an incentive to invest your money, spend your money or otherwise participate in the economy, I have no problem with that.

:shaking my head: what utter ignorance of history you display......

You're completely oblivious to the 2nd industrial revolution right? Robbing people is not a path to sustainable wealth, it's a path to tyranny with a few and a life on a treadmill barely getting by paying all your bills.

Calling it robbing doesnt make it so. Do you feel robbed because bitcoins (or for that matter, gold) is constantly being mined?

[westkybitcoins]

Ahhh who cares if savers got the shaft in the process right?

Indeed. The opposite is far worse; if just the simple fact of having money results in you getting richer and richer by sitting on your money because other people grow the economy and therefore grow the demand for money, what kind of idiotic system is that? Having inflation means that you will have an incentive to invest your money, spend your money or otherwise participate in the economy, I have no problem with that.

:shaking my head: what utter ignorance of history you display......

You're completely oblivious to the 2nd industrial revolution right? Robbing people is not a path to sustainable wealth, it's a path to tyranny with a few and a life on a treadmill barely getting by paying all your bills.

Calling it robbing doesnt make it so. Do you feel robbed because bitcoins (or for that matter, gold) is constantly being mined?

It becomes robbery when people are forced to participate in said inflationary system.

[hazek]

Ahhh who cares if savers got the shaft in the process right?

Indeed. The opposite is far worse; if just the simple fact of having money results in you getting richer and richer by sitting on your money because other people grow the economy and therefore grow the demand for money, what kind of idiotic system is that? Having inflation means that you will have an incentive to invest your money, spend your money or otherwise participate in the economy, I have no problem with that.

:shaking my head: what utter ignorance of history you display......

You're completely oblivious to the 2nd industrial revolution right? Robbing people is not a path to sustainable wealth, it's a path to tyranny with a few and a life on a treadmill barely getting by paying all your bills.

Calling it robbing doesnt make it so. Do you feel robbed because bitcoins (or for that matter, gold) is constantly being mined?

Of course not, it takes work to mine gold. It takes no work to convince people they have access to their money that they don't really.

[realnowhereman]

I really don't want a world were people can't buy a house because there is no FRB system to let the previous generation lend to the next generation at a profit.

I just bought a house precisely because the previous generation lent to me and my fiance at a profit.... but there were no banks involved.  There is no need for FRB when you have a community.  Instead, many people choose to live in a cutthroat world without neighbors and friends.  No thanks.

I'm glad for you.  You are very lucky to have access to a previous generation to do so.

I also would like the world you describe where we borrow directly from people we know; bitcoin will help us get there.

Until then... FRB and banking is filling that gap.  Unless you seriously think that every current FTB has parents/friends/neighbours with enough saved cash to purchase a house?

It's worth remembering that bank lending should have the advantage that they can spread the loss.  If 1000 people deposit $1000 each, and 10 people borrow $100,000 then with your friends/neighbours scenario 10 people lose $1000 if someone defaults.  With a bank, 1000 people lose $100 (of course I've not included profit, which will cover a certain amount of default in a real system).

[hazek]

I really don't want a world were people can't buy a house because there is no FRB system to let the previous generation lend to the next generation at a profit.

I just bought a house precisely because the previous generation lent to me and my fiance at a profit.... but there were no banks involved.  There is no need for FRB when you have a community.  Instead, many people choose to live in a cutthroat world without neighbors and friends.  No thanks.

I'm glad for you.  You are very lucky to have access to a previous generation to do so.

I also would like the world you describe where we borrow directly from people we know; bitcoin will help us get there.

Until then... FRB and banking is filling that gap.  Unless you seriously think that every current FTB has parents/neighbours with enough saved cash to purchase a house?  I suppose it's possible.

As if there is no way to crowd loan ..

[realnowhereman]

As if there is no way to crowd loan ..

Please point me at this magical place that will crowd-source a 30 year mortgage for £250,000 (a fairly typical house price in the UK) at lower rates than I can get at a bank.

Please then point me at the people who have held other crowd-loans for 30 years and had no defaulters.

Edit: there is a thread going on right now about crowd-sourcing $125,000 to buy an island.  Care to predict whether they'll get it or not?  For comparison, UK mortgage lending is in the order of £130 billion; and you throw about facetious little "as if there were no crowd-loans"? Ha.

[hazek]

As if there is no way to crowd loan ..

Please point me at this magical place that will crowd-source a 30 year mortgage for £250,000 (a fairly typical house price in the UK) at lower rates than I can get at a bank.

Please then point me at the people who have held other crowd-loans for 30 years and had no defaulters.

Edit: there is a thread going on right now about crowd-sourcing $125,000 to buy an island.  Care to predict whether they'll get it or not?  For comparison, UK mortgage lending is in the order of £130 billion; and you throw about facetious little "as if there were no crowd-loans"? Ha.

http://www.kiva.org/

http://www.kickstarter.com/

Of course the loans and investments made just on these two sites I happen to know about naturally do not reach the billion dollar large loans banks make nowadays but I'm sure it's only because they can't compete with them due laws and regulations and other costs imposed by them and due to the fact that they are not allowed to do FRB.

Also you miss a crucial piece of fact: $125,000 is just a number. Who knows how much lower the number representing the same value would be in a non FRB system.

[JusticeForYou]

As if there is no way to crowd loan ..

Please point me at this magical place that will crowd-source a 30 year mortgage for £250,000 (a fairly typical house price in the UK) at lower rates than I can get at a bank.

Please then point me at the people who have held other crowd-loans for 30 years and had no defaulters.

Edit: there is a thread going on right now about crowd-sourcing $125,000 to buy an island.  Care to predict whether they'll get it or not?   UK mortgage lending is in the order of £130 billion; and you throw about facetious little "as if there were no crowd-loans"? Ha.

Yea, you see that is the problem. The banks interest rates shouldn't be that low. They are, but they shouldn't be.

They won't be for long. So get it whilst you can.

Crowd funding has really entered the Individual Market to any extent. Lloyd's comes close, Kickstarter, Venture Capitalists, etc.. are others.

We do have a Lending Forum here, with the appropriate collateral something might be arranged but you would need to lock up that collateral for 30 years also. So it's not perfect for long term loans.

Personally, I think 30 Year loans are absurd anyways. They don't benefit the individual. You pay the bank way more than the value of the asset, especially now. 10 Year should be max and a nice compromise. If you have money, 5-7 years would be perfect for the individual.

[hazek]

Yea, you see that is the problem. The banks interest rates shouldn't be that low. They are, but they shouldn't be.

I wonder why that is huh? Could it be because of an artificially higher supply of loans then there is actual savings provided by FRB? Hmm...

[realnowhereman]

Why am I getting sucked back in?

Of course the loans and investments made just on these two sites I happen to know about naturally do not reach the billion dollar large loans banks make nowadays but I'm sure it's only because they can't compete with them due laws and regulations and other costs imposed by them.

Oh yes; I'm sure too.  I'm sure it's nothing to do with people not being quite as generous lending money to people they don't know as you imply.

Also you miss a crucial piece of fact: $125,000 is just a number. Who knows how much lower the number representing the same value would be in a non FRB system.

Erm.. the people lending are doing so in exactly the same devalued currency.  What does it matter what the units are?  Measure it in oz gold if you want.  Measure subscription as a percentage of total value if you like.  It doesn't change the fact that it's "one island's" worth of money that's being crowd-sourced.

You claim it's trivial to do so... great, I shall be happy to have my scepticism proved wrong, but you've not convinced me that my scepticism is unwarranted.

Maybe one day; bitcoin will indeed make it standard that we crowd fund our mortgages/company loans from the general public.  That day is not today though.

[realnowhereman]

Yea, you see that is the problem. The banks interest rates shouldn't be that low. They are, but they shouldn't be.

They won't be for long. So get it whilst you can.

Crowd funding has really entered the Individual Market to any extent. Lloyd's comes close, Kickstarter, Venture Capitalists, etc.. are others.

We do have a Lending Forum here, with the appropriate collateral something might be arranged but you would need to lock up that collateral for 30 years also. So it's not perfect for long term loans.

Personally, I think 30 Year loans are absurd anyways. They don't benefit the individual. You pay the bank way more than the value of the asset, especially now. 10 Year should be max and a nice compromise. If you have money, 5-7 years would be perfect for the individual.

I agree with what you say; but "should" is different from "is".

What would your advice be to, say your daughter, who wants to buy a house, in this universe, right now?  "30 year loans are absurd", "good point Dad, but the house I want costs £120,000 and I can't afford £2,000 a month on the mortgage".

Incidentally, 30 year loans do benefit the individual -- they have somewhere to live for the 30 years.  Bastiat's "Essays on Politicial Economy" explains why lending is good for the receiver of the loan.  Anyway, if it isn't good for the individual, why are people taking them out?

[hazek]

Why am I getting sucked back in?

Of course the loans and investments made just on these two sites I happen to know about naturally do not reach the billion dollar large loans banks make nowadays but I'm sure it's only because they can't compete with them due laws and regulations and other costs imposed by them.

Oh yes; I'm sure too.  I'm sure it's nothing to do with people not being quite as generous lending money to people they don't know as you imply.

Also you miss a crucial piece of fact: $125,000 is just a number. Who knows how much lower the number representing the same value would be in a non FRB system.

Erm.. the people lending are doing so in exactly the same devalued currency.  What does it matter what the units are?  Measure it in oz gold if you want.  Measure subscription as a percentage of total value if you like.  It doesn't change the fact that it's "one island's" worth of money that's being crowd-sourced.

You claim it's trivial to do so... great, I shall be happy to have my scepticism proved wrong, but you've not convinced me that my scepticism is unwarranted.

Maybe one day; bitcoin will indeed make it standard that we crowd fund our mortgages/company loans from the general public.  That day is not today though.

So now the loans are big enough.  

Look, the concept is a proven one, it will work with large loans just as it does now with smaller ones. Of course today it's impossible to compete with FRB therefor large are largely their domain. I mean FFS you yourself admit that we will get there one day, all you need to do is admit why we aren't getting there today. Remove the fraud out-competing the honest lending and BOOM, we're there.

[hazek]

Yea, you see that is the problem. The banks interest rates shouldn't be that low. They are, but they shouldn't be.

They won't be for long. So get it whilst you can.

Crowd funding has really entered the Individual Market to any extent. Lloyd's comes close, Kickstarter, Venture Capitalists, etc.. are others.

We do have a Lending Forum here, with the appropriate collateral something might be arranged but you would need to lock up that collateral for 30 years also. So it's not perfect for long term loans.

Personally, I think 30 Year loans are absurd anyways. They don't benefit the individual. You pay the bank way more than the value of the asset, especially now. 10 Year should be max and a nice compromise. If you have money, 5-7 years would be perfect for the individual.

I agree with what you say; but "should" is different from "is".

What would your advice be to, say your daughter, who wants to buy a house, in this universe, right now?  "30 year loans are absurd", "good point Dad, but the house I want costs £120,000 and I can't afford £2,000 a month on the mortgage".

GO TO WORK AND SAVE MONEY. It's not rocket science you know.

Of course in our current monetary system of central banks creating money out of thin air and FRB doing practically the same saving is impossible.

[realnowhereman]

Maybe one day; bitcoin will indeed make it standard that we crowd fund our mortgages/company loans from the general public.  That day is not today though.

So now the loans are big enough.  

What?  You make no sense.  Yes, the imaginary loans that are not possible to get today are big enough to buy a house.

Look, the concept is a proven one, it will work with large loans just as it does now with smaller ones. Of course today it's impossible to compete with FRB therefor large are largely their domain. I mean FFS you yourself admit that we will get there one day, all you need to do is admit why we aren't getting there today. Remove the fraud out-competing the honest lending and BOOM, we're there.

Of course it is possible, and I haven't said the contrary.  Deposits are already more than loans.  Numerically it is absolutely possible.  I have said repeatedly that I hope bitcoin is the enabler that lets it happen.  "Why we aren't there today" is because until the advent of the internet banks were necessary.  They are less so today; and bitcoin is making it less and less daily; but banks are still necessary.  To think otherwise is to have covered your ears, shut your eyes and be shouting "la, la, la, la".

You also seem to think that FRB won't/cannot happen with bitcoin.  Of course it will; it just won't be FRB, it'll be FR...

Bob has 1000 BTC.  Alice lends 1000 BTC from Bob to buy Charlie's house.  Charlie instantly lends that 1000 BTC to Dave to buy Emily's house.  Alice owes 1000 BTC to Bob.  Dave owes 1000 BTC to Charlie.  Emily has 1000 BTC "on deposit" in her bitcoin wallet.

OH MY GOD!  1000 BTC has created 2000 BTC worth of loans.

[realnowhereman]

What would your advice be to, say your daughter, who wants to buy a house, in this universe, right now?  "30 year loans are absurd", "good point Dad, but the house I want costs £120,000 and I can't afford £2,000 a month on the mortgage".

GO TO WORK AND SAVE MONEY. It's not rocket science you know.

And where should she live while she is going to work and saving money?  Somewhere rent free I suppose?

Loans are a method by which we move our future wealth creation into the present.  Renting/mortgaging is the same process except in one case it is the landlord who's done the lending and acts as a middle man funnelling exactly the same wealth creation into the purchase of a house.