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Rajiv
08-07-08, 10:57 PM
The Crash Course
(http://www.chrismartenson.com/crashcourse)


<iframe src="http://www.chrismartenson.com/crashcourse" title="The Crash Course" height="600" width="800">><br /> </IFRAME</HTML></iframe>

santafe2
08-21-08, 01:38 AM
The Crash Course (http://www.chrismartenson.com/crashcourse)

One of your finest digs Rajiv. This is excellent.

FRED
08-21-08, 02:12 PM
One of your finest digs Rajiv. This is excellent.

It's good except that he makes a number of classic errors. For example, in "Section 7: Money Creation" he explains how money is loaned into being by banks. He's confusing the money multiplier effect with the process of money creation.

All money is borrowed into existence. It may be loaned by a bank when you take out a mortgage, a credit card company when you buy dinner, a car company when you finance through them, Dell when you buy a latptop on lay-away, and so on. Once created, the money then flows throughout the economy: Dell pays its suppliers, who in tern spend the money, the resaurant pays the wait staff and taxes to government and so on who all go spend the money, and so on. That is the important thing to understand about the modern money system, that is has far less to do with banks but credit issued by tens of thousands of organizations, the interest rates set by the credit markets, which is why the Fed is so much less relevant today.

pococansado
08-21-08, 03:24 PM
i knew money was abstract, but this is nuts. in the case of the car dealership, i walk in, sign a contract to make some number of payments of an agreed upon amount, and drive off. where is the money created in this case? whose bank account was increased as a result of this transaction? mine? no. the dealerships? i don't think so. i thought for money to be created, somebody's bank account had to be incremented. i'm confused.

raja
08-21-08, 03:25 PM
All money is borrowed into existence. It may be loaned by a bank when you take out a mortgage, a credit card company when you buy dinner, a car company when you finance through them, Dell when you buy a latptop on lay-away, and so on. Once created, the money then flows throughout the economy: Dell pays its suppliers, who in tern spend the money, the resaurant pays the wait staff and taxes to government and so on who all go spend the money, and so on. That is the important thing to understand about the modern money system, that is has far less to do with banks but credit issued by tens of thousands of organizations, the interest rates set by the credit markets, which is why the Fed is so much less relevant today.
Isn't money also printed into existence?

metalman
08-21-08, 04:07 PM
Isn't money also printed into existence?

'printing' simply means the gov't borrows money into existence instead of the private sector.

raja
08-21-08, 05:14 PM
'printing' simply means the gov't borrows money into existence instead of the private sector.
If it's "borrowing" who is the lender that the government is "borrowing" from? And what is the mechanism for paying back the loan?

Rajiv
08-21-08, 05:47 PM
The US Treasury borrows from the Public by selling T-Bills and paying interest on them. The dollars by which these T-Bills are bought have been borrowed into existence by the US Banking system - including the Fed

As for paying back, since the US has been running deficits there is no question of paying back.

The U.S. debt is $9.4 trillion, and is the sum of all outstanding debt owed by the Federal Government.

Over half is the public debt, which is owed to individuals, corporations and foreign governments, who have purchased Treasury Bills, Notes and Bonds.

The rest is owed by the government to itself, and is held as Government Account securities. Most of this is owed to the Social Security and other trust funds, which have been running surpluses. The securities are a promise to repay these funds when Baby Boomers retire over the next 20 years. (Source: U.S. Treasury, Debt to the Penny; Debt FAQ)

From federalbudget.com (http://www.federalbudget.com/)


In Fiscal Year 2006, the U. S. Government spent $406 Billion of your money on interest payments* to the holders of the National Debt. Compare that to NASA at $15 Billion, Education at $61 Billion, and Department of Transportation at $56 Billion.

http://www.federalbudget.com/chart.gif

raja
08-21-08, 11:23 PM
The US Treasury borrows from the Public by selling T-Bills and paying interest on them. The dollars by which these T-Bills are bought have been borrowed into existence by the US Banking system - including the Fed

Sorry to belabor this, but I still don't get it . . . .

If I am "the Public", and I buy $100,000 worth of Treasuries, I am loaning the government my $100,000. No money is created in that initial transaction. When the government pays me interest, are they borrowing the interest money from somewhere, i.e., "borrowing it into existence"? Who are they borrowing it from?

You say that the money I used to buy the Treasuries was "borrowed into existence by the US Banking system - including the Fed." Who was the lender that loaned that money to the US Banking system and Fed?

Rajiv
08-22-08, 12:26 AM
See Money as Debt (http://itulip.com/forums/showthread.php?t=1139&highlight=money+debt)

metalman
08-22-08, 12:32 AM
Sorry to belabor this, but I still don't get it . . . .

If I am "the Public", and I buy $100,000 worth of Treasuries, I am loaning the government my $100,000. No money is created in that initial transaction. When the government pays me interest, are they borrowing the interest money from somewhere, i.e., "borrowing it into existence"? Who are they borrowing it from?

You say that the money I used to buy the Treasuries was "borrowed into existence by the US Banking system - including the Fed." Who was the lender that loaned that money to the US Banking system and Fed?

check double entry book-keeping (http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system). clever idea invented back in 1494. call it a bank or whatever, if it has the authority to create an entry on its books of an amount as a asset to offset an entry on someone else's books as a liability, it is creating money.

BrianL
08-22-08, 02:52 AM
I'm still trying to internalize all of this myself.

You promised to pay a lender that amount of money over time. The dealer gets cash up front. Depending on how that loan is originated, that could be the created money.

Assuming the lender is a bank, they don't need to actually have cash backing the money they gave to the dealer - after all, you are going to pay it back in the future, right? The debt you have to the bank effectively becomes a 'currency' until the debt is repaid, as they could sell your debt to them to someone else.

Once you repay the debt fully, the created money is destroyed. The problem is interest. Assuming a fixed money supply, no one would be able to pay interest. It is possible that interest can be covered by the creation of value resulting from your use of the loan; for example, if the loan was used to convert natural resources into goods, the value of the goods may cover the loan. In the case of a car loan, nothing of value is added to the economy so the interest is either inflationary as the debt has value or someone has to get poorer/default somewhere in the economy to cover it.

I probably got a bunch of details wrong there, so be careful. ;)

marvenger
08-22-08, 05:17 AM
I don't understand how these organisations creating loans is adding to the money supply. I thought it would be adding to the debt but not the money supply. To add to the money supply, money has to be loaned(created out of thin air) from the fed through double entry accounting. the double entry accounting supposedly making it ok because obviously its going to be paid back.

marvenger
08-22-08, 05:22 AM
Wait sorry, banks can create money using this double entry accounting system themselves. I didn't know that non-banks could do it as well. Whats the point of calling banks banks then. Can I set up my own non-bank bank?

Rajiv
08-22-08, 09:33 AM
The example Fred gave of a car loan is actually done through a bank (e.g. GMAC) -- the dealer does not make the loan. I believe the Dell example is quite similar. Similarly, Department store credit cards (http://en.wikipedia.org/wiki/Credit_card) have a bank sitting behind them -- even though the accounting may be done by the store itself. Macy's had its own Bank - FDS Bank (http://en.wikipedia.org/wiki/Federated_Department_Stores)

For the other stores - from the above link


Other retailers' branded credit cards are usually issued and serviced by a third-party bank; Federated was so huge that it ran its own private bank, FDS Bank, which for many years issued and maintained the majority of its own consumer credit card portfolio with a portion at one time owned by General Electric Credit Corporation, an arrangement inherited from when R.H. Macy & Company (http://en.wikipedia.org/wiki/Macy%27s) sold their credit portfolio in an attempt to prevent filing for bankruptcy. In 2005 Federated finalized an arrangement with CitiGroup (http://en.wikipedia.org/wiki/CitiGroup) to sell its consumer credit portfolio, reissuing its cards under the Federated-CitiGroup Alliance name Department Stores National Bank (DSNB) and allowing Federated to continue servicing the credit accounts from its Financial, Administrative and Credit Services Group (Macy's Credit and Customer Services (http://en.wikipedia.org/w/index.php?title=Macy%27s_Credit_and_Customer_Servi ces&action=edit&redlink=1))

marvenger
08-23-08, 03:45 AM
thanks, this makes more sense. Damn, looks like I can't create money out of thin air and charge others interest for the privilege of doing so.... unless I get a bank licence.

Rajiv
08-23-08, 10:09 AM
How to Start a Bank (http://www.ehow.com/how_2062432_start-bank.html)



Instructions

Difficulty: Challenging

Things You’ll Need:

* Business plan
* Banking and/or business management experience
* $6 to $10 million
* Charter bank application package

Step 1


Evaluate how practical it is for you to start a bank. Look at your business experience. You will need to have business management skills, financial management skills and fund-raising skills.

Step 2


Get to know your market. Before you start a bank you need to find a hole in your current market. After all people are not going to come to a start up bank if they can't offer the customer something unique. If your local market is already saturated with banks consider moving your bank to an outlying area that is underserved by financial institutions, or consider starting an online bank.

Step 3


Recruit professionals to head the board of your bank. Look for people who you can work well with, for people who have banking skills and experience and for people who have business management skills and experience.

Step 4


Research the requirements your state has for starting a bank. You can find this information at your state's Department of Financial Institutions.

Step 5


Create a plan for raising the required capital funds for your bank. Search for investors, grant programs and ways to earn money to back your bank's start up. Expect to be required to raise millions of dollars for your bank's start up. California, for example, requires charter banks to have between $6 million and $10 million dollars in capital funds before their doors open.

Step 6


Download and fill out the required paperwork for starting a bank. These forms can be found online at your state's Department of Financial Institutions' website. This application packet will include a general information sheet, several questionnaires, financial reporting sheets and eligibility checklists. You will also be required to complete supplemental documentation to back up your request to start a bank. You may need to put together a proposal for your bank and you may also need to create a business plan.

Step 7


Wait for approval. This can take between several weeks and several months.

Step 8


Implement your business plan after getting approved by your state's Department of Financial Institutions. Start your fundraising, look for a building, acquire insurance and bonding, hire employees and develop a marketing campaign.


Also

Good time to start bank, says CEO (http://www.azcentral.com/arizonarepublic/business/articles/2008/08/11/20080811biz-sr-bankofscottsdale0811.html)


SCOTTSDALE - Bank takeovers and closures, soaring energy costs and a housing market that has yet to bottom out.

While current economic conditions are proving uneasy for some bankers, a group of investors organizing the Bank of Scottsdale is betting the shaky economy will send forgotten, disgruntled customers its way.

An independent study found that three major banks - Chase, Bank of America and Wells Fargo - control about 68 percent of Arizona deposits, said Lauren Kingry, president and chief executive officer of Bank of Scottsdale. But as the large banks concentrate on weathering the uncertain economy, they have virtually forgotten about their smaller account holders.

Enter the community bank.

"The past 18 months has moved us into a challenging environment," Kingry said. "It is a perfect time for a new bank that doesn't have the baggage of troubled loans to worry about. When we open our doors, we will have no bad loans on the books."
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marvenger
08-23-08, 11:42 AM
"The past 18 months has moved us into a challenging environment," Kingry said. "It is a perfect time for a new bank that doesn't have the baggage of troubled loans to worry about. When we open our doors, we will have no bad loans on the books."


Sounds like a good idea.

The name community bank sounds like their emphasis is on supplying the banking and credit needs of the community for productive growth rather than rent extraction. Not sure about the US but in Australia there are listed listed community banks which just automatically makes you doubt the adjective. Part of the business plan of this scottsdale bank you would hope would be to fill the hole of prudent banking; strict reserve ratio's, controls on detrivatives, strict lending standards, all done in a highly transparent way.

I just don't know if you could stay competive for long with such a model if the fire economy continues with 'the next bubble'. After initially feeling safe, depositors would start wanting to earn higher interest and borrowers would start wanting to take higher rewarding risks like everyone else, and pretty soon you'll probably have a declining business unless you join the crowd.

Rajiv
08-23-08, 12:23 PM
You should realize, that the problems are systemic, and do not necessarily lie with individual banks.

One of the major problems is the "time value of money" itself. It is a very useful concept, but its current implementation requires real economic growth -- which in turn is not sustainable. This is the probable reason why "usury" has been condemned through the ages. This by its very nature leads to a boom/bust phenomenon. Many solutions have been suggested -- but have not been widely implemented.

See some previous threads I have started on these topics

Open Money Manifesto (http://itulip.com/forums/showthread.php?t=3378)

Slow Money Revolution: the global growth of local currencies (http://itulip.com/forums/showthread.php?t=2935)

Toward an Independent Money System - The Role of Gold and Silver (http://itulip.com/forums/showthread.php?t=2913)

Complementary Currencies (http://itulip.com/forums/showthread.php?t=2488)

See also Tom Greco's site Reinventing Money (http://reinventingmoney.com/)

Complementary Currency Systems (http://appropriate-economics.org/) which has a very good online library.

You should also look at Margrit Kennedy's (http://www.margritkennedy.de/index.php?lang=EN) work

marvenger
08-23-08, 12:56 PM
Yeah I guess I was making the systemic point in a round about way. I really want to get into understanding the alternative systems, I'm getting a bit obsessed about this 911 truth stuff a the moment though. But, being realistic about the money system, its pretty hard seeing it changing given the momentum of the vested interests, oil vested interests are very powerful and their power is based on a very finite resourse wheras the bankers have an infinite resource. But then again disciplined minds says power lies in organising. I think sapiens also posted something on the constitution and self determination-it was a video with a lawyer going through the constition and saying the founding fathers were basically saying if you want things run a certain way you have to organise a bunch of buddies together and say this is how we're going to run things; if you don't like the way the federal government is going you have to band your group together and start running your group how you want to; it's up to the people to do this, or this is what I thought the jist of it was in the first mins. More and more stuff to investigate, it never ends with iTulip!

Rajiv
08-23-08, 02:09 PM
New Chapter on Peak Oil is up

<iframe src="http://www.chrismartenson.com/peak_oil" title="Chapter Seventeen: Peak Oil" height="600" width="800">><br /> </IFRAME</HTML></iframe>

Rajiv
10-25-08, 11:25 PM
THe Crash Course is now complete -- all 20 chapters