Tag Archives: endogenous money

5 Years After The Financial Crisis, The Big Banks Are Still Committing Massive Crimes

22 Sep

usury

Cross-posted from Zero Hedge:

Preface: Not all banks are criminal enterprises. The wrongdoing of a particular bank cannot be attributed to other banks without proof. But – as documented below – many of the biggest banks have engaged in unimaginably bad behavior.

You Won’t Believe What They’ve Done …

Here are just some of the improprieties by big banks over the last century (you’ll see that many shenanigans are continuing today):

  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here
  • Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Participating in various Ponzi schemes. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees. But studies show that most of the fraud is committed by management.

Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud. See this, this and this.

Even the bank with the reputation as being the “best managed bank” in the U.S., JP Morgan, has engaged in massive fraud. For example, the Senate’s Permanent Subcommittee on Investigations released a report today quoting an examiner at the Office of Comptroller of the Currency – JPMorgan’s regulator – saying he felt the bank had “lied to” and “deceived” the agency over the question of whether the bank had mismarked its books to hide the extent of losses. And Joshua Rosner – noted bond analyst, and Managing Director at independent research consultancy Graham Fisher & Co – notes that JP Morgan had many similar anti money laundering laws violations as HSBC, failed to segregate accounts a la MF Global, and paid almost 12% of its 2009-12 net income on regulatory and legal settlements.

But at least the big banks do good things for society, like loaning money to Main Street, right?

Actually:

  • The big banks have slashed lending since they were bailed out by taxpayers … while smaller banks have increased lending. See this, this and this

Indeed, top experts say that fraud caused the Great Depression and the 2008 crisis, and that failing to rein in fraud is dooming our economy.

We can almost understand why Thomas Jefferson warned:

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies ….

John Adams said:

Banks have done more injury to religion, morality, tranquillity, prosperity, and even wealth of the nation than they have done or ever will do good.

And Lord Acton argued:

The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.

No wonder a stunning list of prominent economists, financial experts and bankers say we need to break up the big banks.

IMF Admits Usury Is The Root Problem Of The Global Financial System

6 Sep

usury

There is much of interest in the IMF’s Financial System Stability Assessment of Australia, published in November 2012.  The following line in particular caught my eye, and is worthy of comment. The context is the IMF’s consideration of what are the “key risks” to our banking system (page 10-11):

Pressure on the net interest margin, which accounts for almost two-thirds of operating income, has the potential to encourage more risk-taking by banks in order to preserve profitability.

Thoughtful readers will observe that this statement unintentionally lends direct support to a fundamental argument your humble blogger has made — that usury is the root problem of the global monetary system, and that fractional reserve banking (or endogenous money creation) is only a secondary problem.

Consider again the conclusion to my recent post, IMF Economist Says Banks’ Key Function Is To CREATE Money:

As we have oft-repeated here at barnabyisright.com, while this power to “create money” ex nihilo (out of nothing) is a key problem, it is not THE root problem.

The power to create “money” (in the form of debt) out of nothing, simply gives banks leverage.

What they leverage, is Usury.

The “net interest income” — that is, the difference (or “spread” or “margin”) between the interest % they give on deposits, and the interest % they take on loans — is the heart of the banks’ profit (and power) business model.

The power to create more and more money (“credit”), simply allows them to magnify (or leverage) their “returns” (profits) on that difference between usury paid, and usury taken.

It deeply saddens your humble blogger that there are so many highly intelligent (far moreso than I), sincere, well-meaning, altruistic men and women in the world who are keenly interested in reforming the financial system for the betterment of humanity … and yet, almost none have yet recognised that usury is the root problem.

The IMF has directly admitted that the root of banks’ profit-making model is net interest income, and that pressure on the “margin” between what they charge in interest for loans, and must offer in interest on deposits, “has the potential to encourage more risk-taking by banks in order to preserve profitability”.

What exactly is meant by “more risk-taking”?

In the footnote (3) to the IMF’s comment, we are told that:

“Riskier activities could include, for example, loosening underwriting standards or expanding too quickly into new business or geographic regions.”

In other words, making it easier for more people to borrow more debt.

Using the leverage of increased fractional reserve / endogenous money creation.

Barnaby Is Right … is right.

See also:

Looking For A Root

A Tale Of Usury, Explosions, And A Used Car Salesman

A History Of The Legal Case Against Usury

An Historical Warning For Proponents Of A Modern Debt Jubilee

IMF Economist Says Banks’ Key Function Is To CREATE Money

9 Aug

Cross-posted from neweconomics.net.nz (my bold added) –

Today I made the mistake of going to a Georgist website where there was a sentence which made me mad. It said that in New Zealand, banks like finance companies can only lend out deposits made with them. Well I rarely get mad these days but I don’t like untruths being perpetrated. So I thought the best way to recover would go and transcribe the first seven minutes of a talk Michael Kumhof, economist from the IMF made to a seminar in January 2013.  It is on youtube here and here is my transcript, give or take the odd aside I left out.

“Virtually all money is bank deposits.

The key function of banks is money creation not intermediation. The entire economics literature that you see out there today is that it is intermediation, taking the money from granny, storing it up and then when someone comes and needs it I can lend it out to them. That is complete nonsense. Intermediation of course exists, but it is incidental and secondary and it comes after the actual money creation. Banks do not have to attract deposits before they create money. I’m a former bank manager. I worked for Barclays for five years. I’ve created those book entries. That is how it works. And if a leading light economist like Paul Krugman tries to tell you otherwise, he does not know what he is talking about.

When you approve a loan, as a bank manager you enter on the asset side of your balance sheet the loan, which is your claim against this guy and at the exact same time you create a new deposit on the liability side. You have created new money because this gives this guy purchasing power to go out and buy something with it. Banks have created money at that point. No intermediation, because the asset and liability are in the same name at that moment. What happens afterwards is that that guy can spend it somewhere else later but it is still in the banking system. I care about the aggregate banking system. Looking at the microeconomy and transferring the logic to the macroeconomy is really wrong. Someone will accept that payment.

money

What that means is that it becomes very, very easy for banks to start or lead a lending boom even though policy makers might not, because if they feel that the time is right, they simply expand the money supply. There is no third party involved, just the bank and the customer and I make the loan. The only thing that is required is that someone else will accept that deposit, say as payment for a machine, and he knows that is acceptable because it is legal fiat.

There is an important corollary to this story. A lot of loans are not for investment purposes, in physical capital. Loans that are for investment purposes are a small fraction. The story that is often told in development economics is that first you need to have savings, then once you have the savings, you can have investment. So a country needs to have sufficient savings in order to have enough investment. Nonsense too – at least for the part of investment that is financed through banks because when a bank makes a new loan it creates new purchasing power for the investment to go ahead. The investment goes ahead. Then the investor takes his new bank deposit and gives it to someone else In the end someone is going to leave that new deposit in the bank. That is saving.  The saving is created along with the investment. It’s not that saving has to come before investment. Saving comes after investment, not before. This is important for development economics.

The deposit multiplier that is taught in economics textbooks is a fairytale. I could use less polite terms. The story goes that central bank creates narrow money and there is a multiplier because banks can lend out a fraction. It is actually exactly the opposite. Broad monetary aggregates lead the cycle and narrow monetary aggregates lag the cycle.”

***********

As we have oft-repeated here at barnabyisright.com, while this power to “create money” ex nihilo (out of nothing) is a key problem, it is not THE root problem.

The power to create “money” (in the form of debt) out of nothing, simply gives banks leverage.

What they leverage, is Usury.

The “net interest income” — that is, the difference (or “spread” or “margin”) between the interest % they give on deposits, and the interest % they take on loans — is the heart of the banks’ profit (and power) business model.

The power to create more and more money (“credit”), simply allows them to magnify (or leverage) their “returns” (profits) on that difference between usury paid, and usury taken.

It deeply saddens your humble blogger that there are so many highly intelligent (far moreso than I), sincere, well-meaning, altruistic men and women in the world who are keenly interested in reforming the financial system for the betterment of humanity … and yet, almost none have yet recognised that usury is the root problem.

One that must be dug up entirely, and killed off, else all other “reforms” are a waste of time.

The evil tree will simply regrow.

Full Reserve Banking Advocates Are Myopic: Here’s Why

23 Jul

myopic-lasik

From central bank governors, to the IMF, to brilliant contrarian economists, to well-intentioned activist groups, there is a growing chorus of voices calling for an end to fractional reserve banking … or, more correctly, fractional reserve lending.

These voices are of those suffering from myopia.

Their complaint is this; that the root cause of the world’s ongoing economic ills is that, due to fractional reserve lending, private banks have been permitted to create too much “money” (debt) out of nothing, and lend it for profit.

Alas, they are only seeing what is immediately in front of their eyes.

The creation of “money” out of nothing, is only a lever.

Usury (ie, net interest income), is what is being lever-aged.

Consider the words of the National Australia Bank:

How Banks Work

…Their profit is the difference between what they pay in interest on your deposits and what you pay them in interest for the loan they made you.

Creating money — debt — out of nothing, does not make profits for bankers.

Charging interest on money (debt) created out of nothing, is what makes profits for bankers.

For those with full vision, the Big Picture is clear.

Every “solution” to the economic crisis that does not focus on the real problem — usury — is a short-sighted, and inevitably short-lived, non-solution.

4,500 years of recorded economic history prove it so.

See An Historical Warning For Proponents Of A Modern Debt Jubilee

Looking For A Root

28 May

one-root-to-rule-them-all-fa41dc-e1341482332407

“In Keynes’s view capitalism’s driving force is a vice which he called ‘love of money’ … in the General Theory ‘the propensity to hoard’ or ‘liquidity preference’ plays a vital part in the mechanics of an economy’s rundown, once something has happened to make investment less attractive. And this links up with Keynes’s sense that, at some level too deep to be captured by mathematics, ‘love of money’ as an end, not a means, is at the root of the world’s economic problem.”

Robert Skidelsky; “John Maynard Keynes: Vol. 2, The Economist As Saviour 1920-1937″ (1994)

“There are a thousand hacking at the branches of evil to one striking at the root.”

– Henry David Thoreau

Would you be inclined to agree, that the best way to solve a problem, is to begin by looking for a root?

Economy

Definition of economy

1. the state of a country or region in terms of the production and consumption of goods and services and the supply of money

Oxford Dictionary

Who is responsible for the “supply of money”?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

– Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion

How is “money” supplied?

The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

– Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion

Why is money supplied (by banks)?

…banks basically make money…

Investopedia

How do banks “make money” (ie, make profits)?

by lending money at rates higher than the cost of the money they lend. More specifically, banks collect interest on loans and interest payments from the debt securities they own, and pay interest on deposits, CDs, and short-term borrowings. The difference is known as the “spread,” or the net interest income…

Investopedia

Er… let’s hear that again … HOW do banks “make money” (profits)?

They make money just like any other business. The difference is that their product is money. In other words banks sell money, mostly in the form of loans. Their profit is the difference between what they pay in interest on your deposits and what you pay them in interest for the loan they made you. Banks also charge fees for services.

National Australia Bank, How Banks Work

What is “interest”?

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

Investopedia

Is interest on money natural?

The most hated sort (of money-making), and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural use of it. For money was intended merely for exchange, not for increase at interest. And this term interest (“tokos”, i.e., “children”), which implies the birth of money from money, is applied to the breeding of money, because the offspring resembles the parent. Wherefore of all modes of money-making, this is the most unnatural.

– Aristotle, Politics, Book One, Part X (c. 350 BC)

DIGGING DOWN

  • The global economy has a problem.
  • The supply of money is a defining component in the functioning of the economy.
  • Banks supply the money in the economy.
  • Banks supply the money by creating it ex nihilo (“out of nothing”).
  • Banks create new money when they make loans.
  • Banks make loans in order to make profits.
  • Banks make profits by charging interest on money they create.
  • Banks make profits by charging more in interest, than they pay in interest.
  • Interest is a charge for the “privilege” of borrowing money.
  • Making money out of money, by charging “interest” / usury on money … is not natural.

Would you be inclined to agree, that it is not a “privilege” but a burden, to have to borrow money at interest?

Would you be inclined to agree, that it is banks who have an incredibly privileged position and role in the functioning of the economy?

Would you be inclined to agree, that it is immoral and unjust to charge “interest” for the “privilege” of “borrowing” something that was created out of nothing — mere electronic digits, typed into a computer?

Would you be inclined to agree, that because banks are legally permitted to make profits from the production of money“their product is money” — that bankers are likely to have a vested interest in selling as much of their product — that is, creating as much debt — as they can get away with?

Is it possible that usury — the making of gains (profit) on the lending of money; the unnatural “birth of money from money” — is the root of the problem in the global economy?

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

– St. Paul, 1 Timothy 6:10

…no one shall deposit money with another whom he does not trust as a friend, nor shall he lend money upon interest; and the borrower should be under no obligation to repay either capital or interest.

– Plato, Laws, Book V (c. 348 BC)

And if you lend to those from whom you hope to receive back, what credit is that to you? For even sinners lend to sinners to receive as much back. But love your enemies, do good, and lend, hoping for nothing in return; and your reward will be great, and you will be sons of the Most High.

– Jesus Christ, Luke 6:34-35

See also:

Imagine A World With No Banks

A Tale Of Usury, Explosions, And A Used Car Salesman

Babylon = Usury: We Want Interest-Free Money at realcurrencies.com

The Apologia Of An Awakening Real Estate Agent

25 May

awakening

Reader “Phil” had the following to say, in response to Thursday’s post, Real Estate Marketers Now Out To Get Your Kids.

His words are an object lesson for real estate industry professionals everywhere (my bold added):

As a licensed real estate agent myself, I would like to suggest a difference between single office agencies and franchise groups. The typical stereotype of a real estate agent is derived from the high flying top 3%. There is no doubt there are some wankers in the industry. The rest that I know are hard working good people who support families and employ staff of 10 to 15 on average. That goes for many of the offices within franchise groups.

Since 2008, I have stood back and looked at the industry a bit differently. I have recognised that most real estate agents have no idea that it is bank credit expansion that causes house prices to rise. Or as Steve Keen explains, actually “growth” in credit expansion.

This is only possible due to legislation allowing private banks to use housing equity as security to create credit. We just continue to do this as that appears to be the way it always was. (IMO housing should be a consumable not an asset).

BTW, hat tip on your recent article exposing those who foster the continuation of the “housing industry” as a financial derivative.

Back to the franchise groups and franchises in general (Parasites!!!). This is not unlike usury or rent seeking. They take franchise fees from hard working small businesses and promote corporate ideals. The LJ Hooker promotion is revolting IMO.

I keep returning to your story of the used car salesman. Most people just keep doing what they know to do to get by or maybe get ahead. We are all preyed on by those who control and promote the FIRE structure.

As one who is now seeing the reality of this I feel a responsibility to speak. Much as you do. I tend to do this even as it makes me an outsider. Strange that huh?

The Only Aussie Economist To Predict The GFC Shows Treasury Department How The Economy Really Works

26 Apr

This past Friday, Professor Steve Keen – the only Australian economist to predict the GFC and give cogent reasons why, and thus one of very few economists in the world who is not a danger to the public – gave this superb, by-invitation (!?!) presentation to staff at the Australian Treasury department.

If you want to gain a better understanding of how the economy actually works – as opposed to how all the people who run the country ass-ume it works – I highly recommend making time to watch the whole thing.

One of many highlights for me came in the question time following Steve’s presentation (1:09:20):

“One of my students put a beautiful question to me once saying, ‘Is the finance sector a Profit centre, or a Cost centre to be minimised?’ It is the latter.”

Logical inference: We must minimise the size (and power) of the finance sector.

The excesses of the finance sector are built, primarily, on the Twin Pillars of currency exclusivity (legal tender laws) … and the power of usury.

Breaking those twin pillars is where any realistic long term “solution” must begin. For those interested, this is my idea for how to begin doing that.

Enjoy this brilliant presentation by Steve Keen, and follow him on Twitter @ProfSteveKeen

* Please help educate others, by sharing this video.

Wealth, Virtual Wealth, And Debt

22 Feb

03WORLD-articleLarge

Yes, I do bang on a lot about bank(ster)ing, usury, and debt slavery. But I am far from the first.

Mankind has known of these great evils for millennia.

Literally, for thousands of years.

Great wise men have preached against the parasitic slave trade of the money-lenders throughout the ages.

Plato, Aristotle, Cato, Cicero, Seneca, Moses, Philo, Buddha, Jesus – all denounced the evil of money-lending at interest. The only Biblically-recorded instance of Jesus Christ resorting to violence, was when he chased the money-lenders out of the Temple with a whip.

And yet, in our so-called “Information Age”, when billions have access to heretofore unimaginable storehouses of historical records, books, and information, it almost seems as though humanity is further away than ever from having a solid understanding of HOW the dark worlds of “money” and “banking” really work.

Here are some quotes (bold added) from the writings of Frederick Soddy in the early 20th century (h/t Monetary Realism via Pragmatic Capitalism):

“THE PRIVATE ISSUE OF MONEY; A CHANCE RESULT OF THE BANK CHEQUE SYSTEM

No doubt there are still many people, if not the majority, who will be frankly incredulous that money vastly exceeding in amount the total national money can be, and is created and destroyed by the moneylender with a stroke of the pen. How frequently does one still read in the Press that the banks can only loan their customers spare money! Most people still think of what money once was, “a public instrument owned and controlled by the State.””

“Wealth, Virtual Wealth, And Debt”, p. 147, published 1926

“This book will show what money now is, what it does, and what it should do. From this it will emerge the recognition of what has always been the true rôle of money. The standpoint from which most books on modern money are written has been reversed. In this book it is not treated from the point of view of bankers—as those who create by far the greater proportion of money—but from that of the PUBLIC, who at present have to give up valuable goods and services to the bankers in return for the money that they have so cleverly created and create. This, surely, is what the public really wants to know about money.

It was recognised in Athens and Sparta ten centuries ago before the birth of Christ that one of the most vital prerogatives of the State was the sole right to issue money. How curious that the unique quality of this prerogative is only now being rediscovered. The “money power” which has been able to overshadow ostensibly responsible government, is not the power of the merely ultra-rich, but is nothing more nor less than a new technique designed to create and destroy money by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of the community or the real rôle that money ought to perform therein.”

Page x: “To allow it to become a source of revenues to private issuers is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government.”

– “The Role of Money”, p. ix-x, published 1934

“The Banker as Ruler.

—From that invention dates the modern era of the banker as ruler. The whole world after that was his for the taking. By the work of pure scientist the laws of conservation of matter and energy were established, and the new ways of life created which depended upon the contemptuous denial of primitive and puerile aspirations as perpetual motion and the ability ever really to get something for nothing. The whole marvellous civilisation that has sprung from that physical basis has been handed over, lock, stock, and barrel, to those who could not give and have not given the world as much as a bun without first robbing somebody else of it… The skilled creators of wealth [in industry and agriculture] are now become hewers of wood and drawers of water to the creators of debt, who have been doing in secret what they have condemned in public as unsound and immoral finance and have always refused to allow Governments and nations to do openly and above aboard. This without exaggeration is the most gargantuan farce that history has ever staged.”

– “The Role of Money”, p. 51, published 1934

Ever here someone insist that government “printing” money is always a terrible, idiotic thing?

Private banks do it. Every single day. And make vast profits from doing so.

In the modern technological age, it is even easier for the banks than in Soddy’s day. There’s no longer any need to waste paper and ink writing down their ledger entries.

The “money” that banks create today, is just typed into a computer, every time a new loan is made.

“Genuine and Fictitious Loans.

—For a loan, if it is a genuine loan, does not make a deposit, because what the borrower gets the lender gives up, and there is no increase in the quantity of money, but only an alteration in the identity of the individual owners of it. But if the lender gives up nothing at all what the borrower receives is a new issue of money and the quantity is proportionately increased. So elaborately has the real nature of this ridiculous proceeding been surrounded with confusion by some of the cleverest and most skilful advocates the world has ever known, that it is still something of a mystery to ordinary people, who hold their heads and confess they are “unable to understand finance.” It is not intended that they should.”

– “The Role of Money”, p. 62-3, published 1934

My view?

The human race is doomed to experience the darkest dystopian future imagined by any ancient prophet, seer, or modern “science fiction” novelist.

We are within sniffing distance of the worst “Big Brother” Orwellian nightmares.

That is our fate.

Unless the exclusive, government-legislated power to create “money” is taken away from private and quasi-“government” institutions – meaning, banks and central banks.

Because that is where the ultimate physical power in the world rests.

With the creators of “money”.

For them to lose that power, requires education.

It requires people who do understand how the “money” enslavement system works, to share that knowledge with people who don’t.

Even if they do not want to hear it. Which most do not – the truth is often very uncomfortable.

Ultimately, it requires alternatives.

New “money” solutions that inherently decentralise the power of money.

Perhaps even something like this –

The People’s NWO – Every Man His Own Central Banker

The Biggest Drag On Our Economy

20 Feb

ball-and-chain

What do you think is the biggest drag on our economy?

If you said “usury“, welcome to Club Classically Correct.

Usury is not, as so many would have you believe, the charging of an excessive rate of interest.

That is the modern definition. Banker approved.

The classical definition of usury is commonly attributed to Aristotle:

“There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest (tokos), which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of any modes of getting wealth this is the most unnatural.”

– Aristotle, c. 350BC (Politics, Book I, Part X)

Today, our modern “money” system is the pinnacle of the money-lenders’ art.

Or should I say rather, the money-lenders’ “artifice”:

ar·ti·fice
[ahr-tuh-fis]
noun
1. a clever trick or stratagem; a cunning, crafty device or expedient; wile.
2. trickery; guile; craftiness.
3. cunning; ingenuity; inventiveness: a drawing-room comedy crafted with artifice and elegance.
4. a skillful or artful contrivance or expedient.

The vast majority (around 97%) of “money” is simply electronic digits.

Digital bookkeeping entries.

Created by the banking system, every time a person signs up for a new (or bigger) loan.

(See The World’s Most Immoral Institution Tells You How + Think You’ve Got Cash In The Bank? Think Again)

And here is the key to the usurers’ immense power and wealth. They have been given the exclusive rights not just to create this digital “money” in the form of debt that must be repaid. You have to pay back those digital bookkeeping entries with interest.

It is interest – usury – that is the biggest drag on our economy.

Consider this.

According to the ABS, the average size loan for a first home buyer in Australia reached an all-time high $293,900 in December 2012. A typical variable home loan rate right now is 5.6% – that’s with the RBA’s official interest rate at record “emergency” lows, mind you. According to ASIC’s “MoneySmart” online calculator, taking out such a loan right now, and repaying $2,000 a month for the next 20 years and 9 months, would result in your repaying the bank $203,598 in usury alone.

Of course, this assumes that interest rates did not rise in the next 20-something years. If (when) they do, then so too does the amount of usury you must repay to the bank.

Just the other day I was wondering, “Has anyone ever bothered to calculate the total value of one year’s worth of usury repayments, on all home loans in the Australian economy”?

To be frank, I have neither the skills nor the knowledge to make an accurate calculation.

But it is not hard to work out a very rough approximation.  Something that helps give some idea of just what a drag on the economy the repayment of usury on the banks’ digital bookkeeping entries must be.

According to the RBA, at December 2012 the Australian banking system claimed a total $1.136 Trillion in residential loan “Assets”.

(Yes, that’s right. Your signature on a loan document, pledging yourself to decades of debt slavery to repay the bank their digits, is considered the bank’s “Asset”)

According to Canstar’s variable rate home loan comparison chart, a variable mortgage rate of around 5.6% would appear fairly typical right now.

So, as a very basic approximation, if the total value of all the banks’ mortgage “assets” at end December 2012 were on the variable rate of usury, thus earning the banks 5.6% p.a., then (ignoring compounding, which makes the total even higher) the banks’ would stand to earn $63.6 billion in usury on home loans in 2013.

Just imagine all the far better, more productive and valuable uses that much “money” could be put to in 2013 by Aussie households.

Now again, I stress my lack of knowledge on this data. For all I know, the value of expected usury repayments may already be included in the RBA’s total of banks’ mortgage “assets”.

If so, it matters very little. Even a mere 5.6% compound interest on >$1 Trillion in mortgage debts, is a huge annual sum.

Clearly, the drag on the economy from the burden of repaying usury to the bankers on home loans alone, is truly staggering. EPIC.

And when we consider that banks have done nothing to deserve this exclusive right to profit from our lifetime labours, the truth of Aristotle’s observation is only the more clear.

Of any modes of getting wealth, usury is indeed the most unnatural.

Will You Help Revolutionise Economics?

10 Feb

MinskyT-ShirtGraphic02

Back in April 2010, I joined with and supported Professor Steve Keen on his week-long Keenwalk to Kosciuszko.  For readers who don’t know, Steve is one of just 13 economists worldwide who foresaw and forewarned of the GFC.  Indeed, Steve won the 2010 Revere Award as voted by his peers, for being the economist who first warned of the impending crisis and (more importantly) the one who most cogently explained the reasons why.

For some time now, Steve has been working to develop a new computer program for modelling economics.  It is called “Minsky”, in honour of the economist Hyman Minsky. Yes, that’s him, in the cartoon above.  He developed the Financial Instability Hypothesis, which essentially recognised that lengthy periods of economic stability are actually a cause of subsequent instability and crisis.  It was Minsky who famously coined the phrase “Stability is destabilising”.

Steve’s “Minsky” computer program is revolutionary.

How so?

Well – believe it or not – it is the first economic modelling program that actually includes the role of banks, money, and debt.

Seriously.

Mainstream economists – including all those overpaid “experts” in the world’s treasury departments and central banks – failed to see the crisis coming.

But you already know that.  What you may not know is the reason why.  And that reason is simply this.

The mainstream economic theories (thus, models) they all believe in … ignore the role of banks, money, and debt.

You really can’t make this $h!t up.

Steve wants to change all that.  He wants to give the world the tools needed to properly model the real world economy.  Not an imaginary one.  Because in the real world, banks money and debt all matter. A lot.

To make this happen – to revolutionise economics – well, sad to say, it requires money.  Money to hire not just one or two part-timers, but a team of full-time computer programmers.

So, to raise money for this project, Steve has launched a campaign on the well known fundraising website called Kickstarter.

Please visit the campaign page here –

http://www.kickstarter.com/projects/2123355930/minsky-reforming-economics-with-visual-monetary-mo

I want to encourage you to take 2 minutes to watch Steve’s introductory video.  If nothing else, it will entertain and educate you. And if you really want to be educated – in (mostly) no nonsense, layman’s language – take the time to read what Steve has to say on his Kickstarter campaign page.

Then, if you feel that this is a worthy project … I certainly do! … then please, make a pledge.

As little as $2.  Because every dollar helps.

And please share the links to Steve’s Kickstarter campaign on your own blog, Facebook page, Twitter, and other social networks.

Your simply spreading the word will be a great help, and a wonderful support.

Thank you.

Lots.

P.S.

The Economist recently had a feature on “Economics after the Crisis” called “New Model Army” which featured Minsky as an example of what the future of economics could be:

In Australia Steve Keen, an economist, and Russell Standish, a computational scientist, are developing a software package that would allow anyone to create and play with models of the economy that incorporate some of these new ideas. Called “Minsky”—after Hyman Minsky, an American economist celebrated for his work on boom-and-bust financial cycles—it places the banking system at the centre of the economy. (The Economist, January 19th 2013, p. 68)

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