Monday, 28 March 2011

Rivero - never mind the facts.......

What a complete load of tosh. Rivero has never cared to bother to ask if the ECB is a private bank or not. It isn't.

The Federal Reserve is not a 'private central bank' either, really - it's an agency of government, subject to the will of Congress - which returns any surplus back to the Treasury each year.

People who make these claims have no idea what they are talking about.

For instance, the idea that money is debt, and that there is never enough money to pay off the debt is a complete fallacy: every bank loan is entered as double entry in the system - a bank loan is an asset for the bank, a liability for the borrower - same figure on both sides of the books. Any liability for any borrower - including interest - appears as an asset of the same value on the banks' books. And what about depositors? Where does their interest come from? It comes from the lending activities - banks lend depositor's funds. Bank deposits are listed as liabilities on bank balance sheets and if the borrowers fail to repay the bank, those liabilities fall upon the bank itself. There's really no hoodoo here at all.

All debts/liabilities in the system are listed as credits/assets elsewhere in the system. Rivero doesn't know the most elementary of banking or accountancy practice.

One might as well ask where the "extra" money for Ford to make profit selling cars comes from as they pay less to build a car than they ask for when selling it. Presumably this means nobody can buy cars, or anything else - which is clearly the case, right?


skaggz said...

I like your explanation on The Fed and the creation of currency, "last_name_left", but you did not mention fractional reserve lending? The deposit in any bank is then leveraged by 9000% or 9 times more than is deposited is then lent out on that original deposit.
Or did I get bad information from the "conspiracy nuts"?

the_last_name_left said...

Hi, skaggz, and thanks.

You're right, multiples of any deposit are lent out. The exact amount varies for all sorts of reasons.

If you are thinking that process achieves the same thing, of increasing debt, then consider:

if a bank takes 1000 deposit and loans 9000, it now has assets of 9000, and liabilities of 1000 - a net asset of 8000 whilst one customer has an asset of 1000 and nine customers owe the bank 1000 each - a gross debt to the bank of 8000

Seems startling. But where does the bank get the extra 8000 to hand over to the borrowers?

IT would have to borrow it, if the customers demanded to withdraw the entire value of their loan. The bank would then have a further liability of 8000. Making 9000 in all - the amount it lent out.

All that takes some work, and they are taking a risk - the depositors want their money kept safe and must be assured it is, whilst the borrowers might just go out and lose it all. But each borrower could go out, turn it into 20,000 repay the debt and have plenty left over. Voila - the debt has easily been repaid.

A little interest (each way) seems reasonable, when considered like that.

I think one of the ways regulators/states try to control the multiplier is by reserve controls......demanding that the banks retain a certain level of variously liquid assets (cash) relative to their operations. Keeping the multiplier under control is an apparently very tricky task, especially internationally. Squeeze the banks in London, and they go to Frankfurt or NY? Or HK....or...

But I don't think the conspiracy peeps have a sound argument on this.

It isn't an argument I've heard Ron Paul make, for example. I would expect RP, the conspiros favourite, to be in favour of reducing private sector bank regulation......allowing them freer rein, not less - fewer reserve constraints, less insurance, unregulated advertising, etc.

One thing I ask the conspiracy peeps about banks is - if it is so easy, why don't you get into it yourself?

Instead of selling tshirts and cups complaining about how easy they have it, why not become a bank, make a fortune, and properly fund their complaints? It's so easy, right? ;)

Another thing the CTs often claim but which is completely wrong, is that central banks are all private profit-seeking institutions. Just like in the USA. It isn't even true in the USA, and it is certainly not true anywhere else much.

The FED is privately owned (but subject to congress, sec of state etc). Its surplus is delivered back to the treasury every year.

But which other central banks are privately owned, profit-seeking institutions? No major ones. Mike Rivero (WRH) and Alex Jones and the rest are always implying all central banks are the same.....that they're like the USA one. They're not. But even the USA one isn't as private and independent as they like to make out - it is subject to state controls, subject to congress, law, etc. and surplus is returned to the state.

And strange that RonPaul supporters (CTs) should complain that the FED is private, for-profit. They want to nationalise it? Regulate it? Contradictory, no?

Anyway, thanks for posting.

the_last_name_left said...

Here we are:

Ron Paul on bank regulation in Dec 2010:

“I don’t think we need regulators. We need law and order. We need people to fulfill their contracts,” Paul said.


Ron Paul in June 2009:

We Need More Regulation of the Federal Reserve