fractional reserve

[Sunder]

Did anyone watch the 2nd vid I put in my post?

I just watched it. It's a little to "conspiracy theory"-esque for me. I'm not saying it's wrong, just that any "reasonable" or "well-grounded" type would completely discredit it despite any factual content, based on the other content.

I totally agree with this - I couldn't find much if anything that was factually wrong with it, but the conspiracy theory side was a bit much for me. Throughout history, there's always been men who try to make money - some by dubious means. Also, riches do run in families, so it doesn't surprise me some names come up more than once over a couple centuries.

What I am surprised by, is that the movie was uploaded by a gold reseller - but the video doesn't advocate a solution to the problem. Buy gold. Well, that's some people's solution. Gold is meant to be an inflation hedge, but in the lifetime of one person, I believe gold is far too affected by speculation. I think it's been in a bubble, and the shine is coming off it now. * Note this is not financial advice, just my opinion - and a less educated opinion than the vehicles I invest in as well, so it's completely worthless.

Like any "system" there are going to be those who get rorted by the system, and those who are going to learn the rules of the system, and they're going to become part of the system. If you never learn the game, you will remain poor forever. If you learn the system early enough - you will eventually become well off, if not rich.

The trick is early sacrifice, and wise investment. It sounds simple, and it is, but people fail because they introduce more complexity into it. They try to make millions instead of being happy with hundreds of thousands. For example, another good inflation hedge (aside from gold)? Property. But only property that you're buying for cashflow, not capital gains. People went nuts. They borrowed and bid up the price of property expecting capital gains - which is a ponzi scheme. If the only reason a property is worth more is because someone is willing to pay more for it, then someone going to be left holding the bomb when it goes off. But if someone is willing to pay more for a property to live in - then that property IS worth more, and you'll find someone to buy it off you at an increased price.

What do I mean by this? Imagine you bought a property for 100k, which someone was willing to pay you 10k to live in per year. A nice 10% yield. By the time you pay a bit of maintenance and any land taxes, say 7% - a little better than what you'd get putting it in a back. You're on a winner.

If you were going to buy a 100k property because the paper said "Utopia is the next boom town. In 10 years it'll be worth $200k" you're taking a gamble not an investment.

Let's just say in 10 years, the property IS worth 200k. If you're collecting 20k in rent, you're still on a good wicket. Keep the property. But if you're only collecting 10k rent, and you can't lease it out for more thank 10k, you know you're in a bubble. Find a "bigger fool" (Who expects it to double again in the next 10 years). If prices crash back to $100k, count your blessings. If it doubles to 400k, then count the 100k you already made and don't get greedy.

Same deal with shares. If something is giving you a 5% franked dividend (or 8%+ unfranked dividend). (Actual numbers depend on what the cash rate is - what you can earn by depositing the money risk free in the bank - but that's a fairly good rule of thumb) Buy up. If the price doubles, count your blessings. If during that price rise, dividends rose as well, hold on. If dividends didn't rise with the price, get out. If the price halves, but the dividend stays the same (in monetary terms) buy more. If the dividends disappear, then get out. * Again, all this is not financial advice, but just general wisdom. I'm not advocating the purchase or non purchase of any asset.

The name of the game is beating inflation. Buy quality assets with good cashflow - any real hard asset, whether it's gold, property, or shares, will rise with inflation (actually it rises with wages, but that's the best you can get). During a bubble, it's impossible to find a positive cashflow property, or high yielding shares that aren't extremely volatile. Don't despair - that's a sign to stay out.

Hope this helps you.

Oh, you had one other question about doesn't the bank lending increase inflation? Yes. It does. But it's no different than if you or I refused to save, and spent every cent we have. Remember what I said about money velocity? Banks keep money moving after people want to stop it (Let it sit in an account, not being spent)

When the velocity of money slows down so much that your real economy can produce more product (Food, electronics, services etc) than there is demand for, then prices drop as people try to sell more product at lower margin. This is called deflation, and it's something the fed is trying to avoid. That's why US interest rates are so low. Who is going to save when the banks is offering 2% for deposits? Who wouldn't want to borrow when banks are charging only 5%?

 

[Hardcarve1]

I'm not a smart person and never went through high school but did put myself through college so I consider myself a practical person. Up until a few years ago I was never owed money to the banks as I owned my house and car and saved my money. I took out a loan for a house 3 years ago because I got married and wanted to have another house and boy has life changed. We borrowed %80 of the value of the house and the loan is 2.9 times our income we have no kids and have no other money owing as we own everything. We are OK if interest rates go up to 14% and don't waste our money and have good savings but what I didn't count on when I worked out the loan is the increase in the cost of living. Our bills are stripping our wealth away and are on a steady increase each year with just about everything going up 10% each year. Australia is one of the most expensive places when it comes to living and while we may be OK with our economy we are being dragged under with overpriced goods & inflated charges.

After reading your article I see the money tree starts on the stock market, that is where money is created and destroyed in seconds and there is no real value to it other that the emotional thoughts of guys on a trading floor who have never run a business and get paid stupid money. If the market surges where does all that money come from? Why can’t the stock market only deal with a finite amount of money that increases when there is a real tangible increase in assets or is linked to a wealth of a nation. Every night I listen to the market movements and see the price of oil rise because a bomb blast in a Arab state or the value of my currency decrease due to a natural disaster somewhere else. Like I said I’m not that smart and plenty of those in the know will tell me why and how the markets work and I have it wrong. But show me where the money comes and goes and I may understand but I bet greed comes into it and the greedy don’t like to give up on a system that makes them get more.

It’s like in Australia it’s all about growth and population increasing so the big guys just need to open up new outlets every six months because more houses pop up with more people. But make a large company act like a small business that has to operate in a shrinking market and has to be lean and innovative to survive and can’t pay massive salaries to CEO’s and I bet it’s a different market.

Rant over.
Alex

 

[Joseph C.]

The real problem with the banking sector, more so now a problem with the U.S. rather than Europe, is that no one is regulating this industry.

You have cronies in Universities getting paid by interest groups to disseminate deregulated Austrian School of economics bullshit. The entire school of economics then becomes corrupted. You have moronic politicians who haven't a clue accepting terrible advice from their advisers - who are paid by the special interest groups. You have corrupt Finance Ministers such as Henry Paulson and Timothy Geithner all financial/banking insiders.

To make matters worse you had a corrupt clown like Alan Greenspan in charge of the Federal Reserve for nearly two decades who deregulated the whole industry during that period.

Finally, the financial markets (which should be closed down) make everything more unstable with ridiculous gambling (derivatives), credit debt swap insurers such as AIG leveraging out insurance to all an sundry (regardless if they actually own the asset or not) without having any reserve to guarantee bad debts.

All of the above exist in a miasmal sea of toothless, de-staffed, disempowered regulators.

The U.S. is now a ticking financial time bomb - the industry is more deregulated than it was in 2008 and the banks are bigger and more powerful. I would give it ten years, tops, before there is another crash that will dwarf 2008. Unless something is done about it.

Who started all this? Well you can thank Thatcher who gave Reagan the opportunity to implement all this. And there are still people on this forum who support deregulation and want to elect a politician who supports more deregulation - the mind boggles.

 

[strantor]

Who started all this? Well you can thank Thatcher who gave Reagan the opportunity to implement all this.

I blame the guy who handed our nation's money supply to a private bank, and mandated that we accept its notes:
from wikipedia:

The Federal Reserve Act (ch. 6, 38 Stat. 251, enacted December 23, 1913, 12 U.S.C. ch.3) is an Act of Congress that created and set up the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes (now commonly known as the U.S. Dollar) and Federal Reserve Bank Notes as legal tender. The Act was signed into law by President Woodrow Wilson.

 

[Joseph C.]

Who started all this? Well you can thank Thatcher who gave Reagan the opportunity to implement all this.

I blame the guy who handed our nation's money supply to a private bank, and mandated that we accept its notes:
from wikipedia:

The Federal Reserve Act (ch. 6, 38 Stat. 251, enacted December 23, 1913, 12 U.S.C. ch.3) is an Act of Congress that created and set up the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes (now commonly known as the U.S. Dollar) and Federal Reserve Bank Notes as legal tender. The Act was signed into law by President Woodrow Wilson.

And it was working fairly okay all those years until Reagan started the rot which all the subsequent U.S. Presidents have continued to add to right up to Obama. The crash in 1929 was caused by market speculation and insider trading (due to a lack of regulation).

The problem isn't with your reserve, it isn't with big businesses (which gets more ridiculous the more you think about it) and it isn't with fiat currencies. No, the problem is with no one regulating anything and the systematic removal of all the safety measures designed to prevent these problems.

 

[Philistine]

The problem isn't with your reserve, it isn't with big businesses (which gets more ridiculous the more you think about it) and it isn't with fiat currencies. No, the problem is with no one regulating anything and the systematic removal of all the safety measures designed to prevent these problems.

Yes, the boom and bust cycle and the propensity for humans to engage in the creation of economic bubbles is all Thatcher and Reagan's fault :lol: . No-one's ever gone crazy for Tulips, and the entire state of Louisiana was never the subject of a Ponzi scheme, and I never had conversations in the dotcom boom with stockbrokers telling me to buy stocks that they didn't even know what they did as a business, but gee they were "hot"....

Don't get me wrong, I hate the Republican party, I hate neo-conservatives, and I was opposed to the repeal of the Glass-Steagall Act. I have been a long time critic of many fundamental aspects of investment banks and how they work, and unlike most critics I am a capitalist insider with a good working knowledge of how things operate.

There is no question that US banking prudential regulation needs to look something more like Australia's, and that if lending practices had been maintained to a better standard (eg, Ninja loans should never have been allowed, CDS and over the counter instruments should never have been allowed to occur in a completely unregulated fashion) we could have curtailed the big losses we have suffered lately, I agree with all of that. But I can't stand this conclusion that people reach, that the GFC was the natural conclusion of de-regulation and capitalism. The GFC was the result of the inherent greedy nature of humans, and the boom/bust and bubble cycle that we as humans are forever trapped in. I think Joseph C that you and I probably have very similar ideas on what prudential regulation of financial markets should look like, but please don't suggest that Thatcher (and I have to swallow vomit in my mouth to say this), Reagan, didn't delivered some very beneficial reforms to the UK and US economies.

The disgusting glee which I see socialists take in the GFC/Sovereign debt crisis reminds me of the disgusting glee with which I saw Chicago school economists take in supposed End Of History with the fall of Communism.

Humans are greedy. That is a fact. In highly deregulated/free market economies that will take the form of insider trading and public choice theory outcomes - in highly regulated liberal big government democracies it will take the form of corruption (both government and union etc., and bad inefficient policy). Take your choice.

 

[Joseph C.]

I think Joseph C that you and I probably have very similar ideas on what prudential regulation of financial markets should look like, but please don't suggest that Thatcher (and I have to swallow vomit in my mouth to say this), Reagan, didn't delivered some very beneficial reforms to the UK and US economies.

I'm sure Hitler had good qualities too. Of course it wasn't just Reagan and Thatcher's fault and nothing in life is ever black and white. The unions in Britain had become too powerful and were contributors to stagflation due to their desire to want higher and higher wages to keep ahead of inflation (built-in inflation). So they had to be constricted. In that case, Thatcher did a good thing.


But if you have to put a finger on when these economic policies were successfully implemented by political institutions for the first time you point the finger at those two and Thatcher in particular. Who put Greenspan in charge of the Federal Reserve? Ronald Reagan. Therefore, he gets blamed.

 

[strantor]

Who started all this? Well you can thank Thatcher who gave Reagan the opportunity to implement all this.

I blame the guy who handed our nation's money supply to a private bank, and mandated that we accept its notes:
from wikipedia:

The Federal Reserve Act (ch. 6, 38 Stat. 251, enacted December 23, 1913, 12 U.S.C. ch.3) is an Act of Congress that created and set up the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes (now commonly known as the U.S. Dollar) and Federal Reserve Bank Notes as legal tender. The Act was signed into law by President Woodrow Wilson.

And it was working fairly okay all those years until Reagan started the rot which all the subsequent U.S. Presidents have continued to add to right up to Obama. The crash in 1929 was caused by market speculation and insider trading (due to a lack of regulation).

The problem isn't with your reserve, it isn't with big businesses (which gets more ridiculous the more you think about it) and it isn't with fiat currencies. No, the problem is with no one regulating anything and the systematic removal of all the safety measures designed to prevent these problems.

Well, a big spike in inflation happened around that time, as shown by this graph:

I'll have to look into what you're talking about and learn about it. thanks for the lead.

 

[Philistine]

I'm sure Hitler had good qualities too.

http://en.wikipedia.org/wiki/Godwin's_law

 

[Joseph C.]

I'm sure Hitler had good qualities too.

http://en.wikipedia.org/wiki/Godwin's_law

 

[Joseph C.]

I'll have to look into what you're talking about and learn about it. thanks for the lead.

The problem with inflation and the consumer price index is that there are a myriad of factors which are causing the increases.

http://upload.wikimedia.org/wikipedia/commons/8/87/Oil_Prices_1861_2007.svg

Does the linked to graph look familiar? The price of oil is a big factor in the price of goods and services.

 

[strantor]

he problem with inflation and the consumer price index is that there are a myriad of factors which are causing the increases.

http://upload.wikimedia.org/wikipedia/commons/8/87/Oil_Prices_1861_2007.svg

Does the linked to graph look familiar? The price of oil is a big factor in the price of goods and services.

I can't view the .svg file. can you link to the article, or the .png version?
thanks

 

[Joseph C.]

I can't view the .svg file. can you link to the article, or the .png version?
thanks

http://en.wikipedia.org/wiki/Price_of_petroleum

Oil is one cost-push inflation factor - there are others but their effects would be more subtle and industry specific. Oil is a catch-all for nearly every sector though.

 

[strantor]

Sunder,
Back to your example, what would happen if the butcher took out a 10 coin loan after the candlestick maker deposited his 10 coins received from the baker?
Would there now be 50 coins worth of physical gold & notes floating around in the economy? or is there some mathematical reason this could not happen?

 

[strantor]

What I'm getting at here is money multiplication.
consider the following example I have written:

The banks don't print money, true. But they do create money in the form of loans. Let's say that you are a brand new bank's only customer. you deposit for example 10,000$ in your account; the bank is allowed to loan out 9000$ of that money. That's their fractional reserve limit, 10%. So, you hold 10,000$ in your hand, you walk into the bank and hand it over. Now you walk out with a debit card. The debit card is as good as the bills that you walked in with; it is money. So joe blow walks into the bank right after you leave and asks for a car loan; the bank says "sure joe, we can loan you up to 9000$" - Joe agrees, and walks out with a bank check for 9000$. So now your 10,000$ just turned into 19,000$. Now, TECHNICALLY, the 9000$ doesn't exist, because when joe signed on the line, his promisory note became a negative number in the bank's books. If the auditor came around and looked at their books, the auditor would see that they had the promisory note, which is just as good as money also. the bank traded your 9000$ for a promisory note valued at 9000$, no harm, no foul. But the fact that the 9000$ doesn't TECHNICALLY exist (because it is cancelled out in the bank's books by the promisory note), doesn't matter to the economy. The promisory note only exists in a filing cabinet down at the bank. it does not exist out there in the economy. Out there in the economy, there is IN FACT 9000$ more than there was 10 minutes ago. The bank created it. Now, here's the kicker. Joe blow goes down to the dealership and hands the check over Jim Bob the car dealer for a used mustang. Jim Bob thinks, hey, I think I'll go open an account at that new bank, they have good interest rates. So, Jim Bob walks in there 6 hours after you left and deposits the 9000$ that Joe Blow gave him. Guess what, a deposit is a deposit. They are allowed to loan out 90% of every deposit. So, now they can use Jim Bob's 9000$ deposit and loan out 8100$ of it (10%, just like before). So Jane blow is jealous of Joe's new car and decides to get her own. She walks into the bank right after Jim Bob walks out, and she takes out a loan for 8100$. So your initial deposit of 10,000$ has now turned into 27,100$. The phenomenon is called money multiplication, and the total amount of money a bank can generate from a single deposit is equal to the inverse of the reserve ratio. so if the reserve ratio is 10% and your deposit is 10,000$, then the bank can generate up to (1/10% = 10) 10X your deposit. 100,000$ from your 10,000$ created by relending 90% of every deposit that comes back. (more info here http://en.wikipedia.org/wiki/Money_multiplier)

is that fiction? or is it again velocity of money?

 

[Kiwi]

[youtube]Dc3sKwwAaCU[/youtube]

Here you go. Have a watch.

 

[strantor]

kiwi,
Thanks for the video. I've seen that video among others. I think it's one of the better ones, but I'm reluctant to take everything seen in youtube videos as fact. I did that at first, and wound up writing a flawed write-up. That's why I'm currently engaging Sunder in this patience-testing (for Sunder, I'm sure) exercise. Sunder seems the most informed person who's been willing to discuss it with me so far. I'm trying to merge conflicting ideas into a factual understanding of how things actually work. If I remember correctly, that video had a good section on money multiplication, and I would recommend everyone to watch it.

 

[Sunder]

What I'm getting at here is money multiplication.
consider the following example I have written:

The banks don't print money, true. But they do create money in the form of loans. Let's say that you are a brand new bank's only customer. you deposit for example 10,000$ in your account; the bank is allowed to loan out 9000$ of that money. That's their fractional reserve limit, 10%. So, you hold 10,000$ in your hand, you walk into the bank and hand it over. Now you walk out with a debit card. The debit card is as good as the bills that you walked in with; it is money. So joe blow walks into the bank right after you leave and asks for a car loan; the bank says "sure joe, we can loan you up to 9000$" - Joe agrees, and walks out with a bank check for 9000$. So now your 10,000$ just turned into 19,000$. Now, TECHNICALLY, the 9000$ doesn't exist, because when joe signed on the line, his promisory note became a negative number in the bank's books. If the auditor came around and looked at their books, the auditor would see that they had the promisory note, which is just as good as money also. the bank traded your 9000$ for a promisory note valued at 9000$, no harm, no foul. But the fact that the 9000$ doesn't TECHNICALLY exist (because it is cancelled out in the bank's books by the promisory note), doesn't matter to the economy. The promisory note only exists in a filing cabinet down at the bank. it does not exist out there in the economy. Out there in the economy, there is IN FACT 9000$ more than there was 10 minutes ago. The bank created it. Now, here's the kicker. Joe blow goes down to the dealership and hands the check over Jim Bob the car dealer for a used mustang. Jim Bob thinks, hey, I think I'll go open an account at that new bank, they have good interest rates. So, Jim Bob walks in there 6 hours after you left and deposits the 9000$ that Joe Blow gave him. Guess what, a deposit is a deposit. They are allowed to loan out 90% of every deposit. So, now they can use Jim Bob's 9000$ deposit and loan out 8100$ of it (10%, just like before). So Jane blow is jealous of Joe's new car and decides to get her own. She walks into the bank right after Jim Bob walks out, and she takes out a loan for 8100$. So your initial deposit of 10,000$ has now turned into 27,100$. The phenomenon is called money multiplication, and the total amount of money a bank can generate from a single deposit is equal to the inverse of the reserve ratio. so if the reserve ratio is 10% and your deposit is 10,000$, then the bank can generate up to (1/10% = 10) 10X your deposit. 100,000$ from your 10,000$ created by relending 90% of every deposit that comes back. (more info here http://en.wikipedia.org/wiki/Money_multiplier)

is that fiction? or is it again velocity of money?

It's not fiction: Money is multiplied by being reloaned - but you're seeing it in the wrong context. You think it's new money being created, but it's the same old money being spent multiple times. It is a velocity of money thing.

Consider this scenario instead.

Rather than you depositing your money in the bank, you buy a new kitchen from Joe Blow, and pay him $10,000

Joe Blow then goes to Jim Bob, and buys a second hand mustang car for $10,000

Jim Bob, rather than depositing the money in the bank, decides to go out and spend it on a new interior design, and hires Jane Blow to do it for $10,000

Jane Blow then uses here new money to buy a second hand Toyota Prius for $10,000.

Question. How much money has been spent in the economy?

$10,000 new kitchen
$10,000 on a Mustang
$10,000 on an Interior Design
$10,000 on a Prius.

How much money was spent - $40,000. How much money existed? $10,000. Now a question for you. Think about this in a real time frame. How much money would be spent in a year, if each person spent their $10,000 the day after they got paid, and this chain continued to happen all day, every day for a year. Question part 2: How much money would be spent in a year, if each person, after getting paid, held on to their money for a month (Without depositing it or doing anything else with it) before spending it? If you come up with the right numbers, you're starting to grasp the idea of the velocity of money.

Consider the alternative scenario 2: I don't trust banks. So instead of depositing money in the bank, I put it under my mattress. What happens now?

Joe Blow can't borrow $9,000.
Jim Bob can't deposit $9,000
As a result Jane Blow can't borrow $8,100

How much money was spent? Zilch. Stop. Recession time. How much money exists? $10,000

Do you see what is happening? In neither of the two extremes, no new money been created or destroyed. But in the first case, you're relying on people spending to keep the money moving to create new demand. In the second case, someone has decided to not spend AND not to lend it to the bank who then can't lend it out, and therefore, no new demand is created - which has a downchain effect. If someone isn't spending money, someone else isn't earning money. And if that someone else isn't earning money, then that someone else isn't spending money, which causes the next person in the chain to not be earning any money.

That's why in times of recession, the government will often start stimulus projects. Do we need a new Highway? Not yet, but hey, we employ 10,000 engineers, construction workers and labourers, and they'll spend money on food and clothes, which will employ store staff, bakers, fruit pickers, etc. These people will spend, who will buy cars, etc etc etc.

How does this fit into your "But my debit card is as good as cash"? It's not. Tell me what your debit card is worth, if your bank won't honour the transactions you're making with it. The bank can only honour transactions out of the reserve that it's forced to keep. If you went to the bank and asked for $100 out of your $10,000 back - no problem. If you asked for $500 back, no problem. If you asked for $1001 back... The bank has to demand payment back from Joe Blow to honour your withdraw.

This may not make sense when you talk about a single person, but when you have 10 million customers depositing their wages in the bank, how often do all 10 million of those customers ask for a significant portion of their wage back? I can tell you I get paid, I spend about 25% of my wage each week and the rest slowly accumulates. When it reaches a certain balance, I move the excess to a high interest savings account, or sometimes a term deposit. (Which are all deposits anyway). So each time I ask for $100, I'm really only asking for less than 1% of the total money I have with the bank. Far far below the reserves they keep. If I went and took all of my money out - again, no problem. I'm one out of 10 million customers.

What if every single one of the customers wanted ALL their money back - they couldn't do it, because it's all out on loan. The bank would have to be bailed out. This is what happened with GFC 1 - (Not that all the customers wanted their money back) The banks lent out money to people who couldn't repay. And the value of the collateral was less than the value of the loan. So when depositors wanted their money back? Well, they'd pay out of the reserve first. Once that's gone, the bank needed a bailout. Injections of money from the fed, or loans from other banks, until it can trade itself back profitable again so it can redeem deposits.

I don't want to really labour this point much more. If you can't understand that money is NOT created when you spend or lend it, then I'm sorry, I don't think you'll understand the concepts of finance.

 

[strantor]

ok, so velocity of money again, makes sense. Thanks. I like you Sunder; you are one of the most patient people I have met online. Thanks again, for the the last time I guess.

 

[mdd0127]

"Money" may not be created but perpetual, exponentially increasing DEBT is created and a debt based system enables social inequity and a definite form of slavery. If you don't agree, how many people do you think like their jobs and would prefer to spend only two of the seven days of every week doing things they like....that is if they have the energy and resources left to do ANYTHING other than recover on those two days. This is debt that, by nature of the way it was created,.....will NEVER be paid off......only more debt created....which means more and more poor people working their asses off so the decreasingly few rich people don't have to.

I've always found it absurd that anyone can promise to pay a certain amount every month for years on end and still have the illusion that they are free people. Since the banks have created all of this debt, ie worthless money with no backing, those that actually have to WORK for their money and save up because they're not comfortable with being tied to never ending monthly payments(financial slavery), which if missed will cause them to loose everything, can't afford to buy things like homes, land, and healthcare... The reason they can't afford it is because the people that are selling those things are used to dealing with amounts that are based upon the amount that predatory lenders are/were willing to loan, because the more they loan, the more "money" they "make", and the amounts that desperate, confused, brainwashed people are willing to borrow because they can't see, or aren't allowed to see, any other way. None of it has ANY basis in realistic values.

For example, I've been looking for a reasonably priced chunk of land for years. Most people I've come into contact with won't deal with real world figures because they're holding on to their pre collapse value notions and waiting for "some rich guy to come buy it." These homes and pieces of land have been vacant for YEARS and are falling apart and turning from something useful into garbage that needs to be cleaned up, but instead of selling them at a price that the average working person can save up for and afford, they're waiting for some of this magic debt money to come along. It's sickening and I hope everyone of them looses everything and has to learn what work is again. If you own an empty home that you don't need, you ARE causing someone else to be desperate and homeless no matter how hard they work......and if you really think about it, due to the exponential nature of it all, you're probably causing a few thousand people to be desperate and homeless, no matter how hard they work and how nice they are.

It flat out sucks and needs to be stopped. No slick explanation will satisfy me. The world population is exploding exponentially because of this misguided pyramid scam of a credit system and has expanded beyond the planet's capability to sustainably support 1/10th of them. We NEED a recession. People NEED to stop living beyond their means. Fiat currencies, greedy unethical pigs, and dictatorial banking regimes need to GO! NOW!

I think that the Native Americans used to know how to live as free humans but greed(probably introduced by the white men that were stealing their land), geographical pressure(definitely introduced by the white men that stole their land), ignorance, and lack of communication got the best of them. We live in the Garden of Eden. In almost every location on earth, man can use the bounty of the earth to survive without upsetting the balance of nature. Why have we forgotten this and chosen to sit in cubicles and get cancer only so someone that gets money because they have money can get even more money???

It's really sad to see a species that SHOULD KNOW BETTER eating themselves out of house and home and competing instead of cooperating with each other.......... just because they WANT MORE STUFF.........that they really don't even NEED.

Now where is that damn mothership? I'm ready to get out of here!

 

[Kiwi]

..what he said. Spot on. You are born onto this earth but not allowed to reside here with out buying your right to exist. Committing to a life of slavery to pay a debt you are told you must or be confined to a cell or cast off into the streets.
We are no longer children of the earth, but children of the corporations and elites. Non of us a free.

 

[Sunder]

"Money" may not be created but perpetual, exponentially increasing DEBT is created and a debt based system enables social inequity and a definite form of slavery. If you don't agree, how many people do you think like their jobs and would prefer to spend only two of the seven days of every week doing things they like....that is if they have the energy and resources left to do ANYTHING other than recover on those two days. This is debt that, by nature of the way it was created,.....will NEVER be paid off......only more debt created....which means more and more poor people working their asses off so the decreasingly few rich people don't have to.

I've always found it absurd that anyone can promise to pay a certain amount every month for years on end and still have the illusion that they are free people. Since the banks have created all of this debt, ie worthless money with no backing, those that actually have to WORK for their money and save up because they're not comfortable with being tied to never ending monthly payments(financial slavery), which if missed will cause them to loose everything, can't afford to buy things like homes, land, and healthcare... The reason they can't afford it is because the people that are selling those things are used to dealing with amounts that are based upon the amount that predatory lenders are/were willing to loan, because the more they loan, the more "money" they "make", and the amounts that desperate, confused, brainwashed people are willing to borrow because they can't see, or aren't allowed to see, any other way. None of it has ANY basis in realistic values.

For example, I've been looking for a reasonably priced chunk of land for years. Most people I've come into contact with won't deal with real world figures because they're holding on to their pre collapse value notions and waiting for "some rich guy to come buy it." These homes and pieces of land have been vacant for YEARS and are falling apart and turning from something useful into garbage that needs to be cleaned up, but instead of selling them at a price that the average working person can save up for and afford, they're waiting for some of this magic debt money to come along. It's sickening and I hope everyone of them looses everything and has to learn what work is again. If you own an empty home that you don't need, you ARE causing someone else to be desperate and homeless no matter how hard they work......and if you really think about it, due to the exponential nature of it all, you're probably causing a few thousand people to be desperate and homeless, no matter how hard they work and how nice they are.

It flat out sucks and needs to be stopped. No slick explanation will satisfy me. The world population is exploding exponentially because of this misguided pyramid scam of a credit system and has expanded beyond the planet's capability to sustainably support 1/10th of them. We NEED a recession. People NEED to stop living beyond their means. Fiat currencies, greedy unethical pigs, and dictatorial banking regimes need to GO! NOW!

I think that the Native Americans used to know how to live as free humans but greed(probably introduced by the white men that were stealing their land), geographical pressure(definitely introduced by the white men that stole their land), ignorance, and lack of communication got the best of them. We live in the Garden of Eden. In almost every location on earth, man can use the bounty of the earth to survive without upsetting the balance of nature. Why have we forgotten this and chosen to sit in cubicles and get cancer only so someone that gets money because they have money can get even more money???

It's really sad to see a species that SHOULD KNOW BETTER eating themselves out of house and home and competing instead of cooperating with each other.......... just because they WANT MORE STUFF.........that they really don't even NEED.

Now where is that damn mothership? I'm ready to get out of here!

I'm saddened by this post. Saddened because there are people like this, who think they're on an endless treadmill of debt, and because they think so, condemn themselves an endless treadmill of debt. You tell them how to get out of it, and they'll answer "Yeah but" "Maybe for you, but" "For some people, but" "But, but, but". They wear themselves into the ground. They'll take the meagre offerings of the state when they're old, and they'll die before their time, tired and cynical. They'll blame the system, everyone in their situation will nod and say that the system got them. The irony is that everyone else will look down on them and wonder why they let the system get them.

What I do agree with in this post is that there are people who buy stuff they don't need - these are the very people who think that they're in an inescapable cycle of debt. There are those who commit to 25 year loans, and yet, they travel, upgrade their cars every 3 years, upgrade their phone every year because they get a "Free upgrade" (Even though you get a $20/month discount to say no to the upgrade), they spend $100/month on cable, and have walls full of DVDs most of which they've watched once. Their life is banal. They consume. They are entertained. And half way through their loan, they refinance for another 25 years so they can get a new kitchen or extend their house, buy a car they couldn't afford, or go on a trip of a lifetime... Then wonder why they can't pay off their mortgage before they retire.

There are also those who think they can get rich by buying assets on the way up - with no regard for the fundamental values of those properties. Many of those delusional ones are of course the last "greater fool" who have no greater fool to sell to, so they hold on to a loss making property, condemning themselves even further. On the flip side of course, there are those who won't pay realistic values for property either - Those who say "I'm not paying 5 times my income just to have a roof over my head!"... Of course, they never considered it probably took 10 guys 6 months to build that house, not to mention all the efforts to create a serviced block of land (Power, water, sewerage, roads - which you either pay for in development fees, land tax, or levies, depending on your country), and the fact you're competing with other people for an exclusive block of land if it has any exclusive features (Views, close to city, close to transport or amenities).

Of course, at the end of the day. If you don't like the debt, you can go without. You can live with your parents until you have enough money to buy a house outright. You could be there a while though. You could just rent your entire life. Nothing wrong with that. You could go without a car. Catch public transport - ride an eBike. You don't need debt, and if you think that it will cause you to live like a slave, you're probably right, because you don't know how to handle debt. Debt is a tool. It can be used to create, or it can be used to destroy. Too many have used it to destroy their lives and blame the tool. That's why this post makes me sad.

 

[Joseph C.]

Nothing like over-inflated property prices to cripple people with debt-burden for decades.

Houses/apartments/flats should be roughly two-and-a-half times the average industrial wage. The second standard way of calculating it is by rent. Therefore a property should be worth 12 to 14 times the yearly annual rental income.

If the property prices are not even remotely close to those figures you have a property bubble that is destined for a crash.

Take Berlin for example, one of the most sought-after cities in the world in one of the largest economies. These are the prices they pay:

http://www.findaproperty.com/searchresults.aspx?edid=09&salerent=0&areaid=4522

If you are paying much than the formulas above for property you are being ripped-off.

 

[deronmoped]

"Do you have a dollar in your wallet, or in your bank account? If so, do you know where it came from? how it was created?I’ll tell you; at some point, someone took out a loan from a bank, and that dollar was created".

I stopped reading the initial post at this point because, dollars only represent things. Dollars represent value in goods. As soon as that is no longer true, the system falls apart. When there are more dollars in the system then they represent in value of goods, the dollar gets inflated so they come in line with the value of goods they represent. A gallon of gas that used to be $2.50, is now $3.50 because the Fed is printing too much money. Well one of the reasons the cost of goods has gone up recently.

Dollars are not created, goods or labor are created, the dollar only represents those goods or labor.

 

[mdd0127]

By the way, unless you count insanely overblown medical bills for a few kidney stone visits, a year of trade school that did absolutely nothing for me and a failed e-bike project with two investors that were just in it for a quick buck, I am not in debt. I don't use debt even if I could potentially profit from it because I KNOW it's WRONG and makes people's lives hell. I don't use banks and credit cards because I've NEVER met a banker that didn't deserve a painful execution and by using their system, at all, I'd further empower them.

So since I don't use the system, I have had a VERY difficult time not killing myself because I see lies and pain all around everyday and nothing but more ignorant people supporting the system that causes it all. People should know how to make the things they need, be it clothes or food or guns and those that don't should freeze and starve because only by doing something first hand can one appreciate it's true value, which is something the current system will never allow.

I am a homeless, outcast refugee in my own country. I also don't take advantage of unconstitutional, socialist government programs because of the same reasons. So, when I need money, I hit the streets and find any work I can. I may not be rich, but because of my commitment to honesty, integrity and compassion, and my serious intolerance for drama and greed, I have acquired many valuable skills. Unfortunately, when you "unofficially" work for yourself, jobs are hard to get, don't usually pay well, and are few and far between, creating a constant struggle just to survive. If I could afford a piece of land, my only struggle would be harvesting everything I grew before it rotted in the fields......and not having too much fun LIVING.

There is an upside though........Baja sounds nice....... 8)