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Credit deflation and the reflation cycle to come.


DurhamBorn

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leonardratso

hehehe, i threw my £100 quid in at £9300, it bought me dust, but now my dust is worth £106, id just like to thank all the chinese people for that £6.

Ill just curse them all to hell right now for tomorrow morning after theyve stolen that £6 back and another £40 to boot.

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3 hours ago, Barnsey said:

So Bitcoin dropped 13% in just 1 minute, yeah no thanks I'll sit this one out...

Its the waste of electricity it creates that I cant get my head around.. its sucking the global electricity supply faster than Melania Trump's vibrator..

What a dumb bunch of cock suckers we have all become.. to destroy the planet for some made up computer code,,

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Sound Money
13 hours ago, spunko said:

Does anyone in this thread have any crypto currency out of interest? Aside from those posting in the 'Investing' thread.

21% of net worth in btc, 11% in physical gold and silver (bullionvault). Got into btc in 2014 so I’m less emotional about losing or gaining 50k a month because I already took decent profits off the table. But I got into it for the technology and economics of it not for profit. But having said that, I’m very happy with taking profit, but will always be part allocated to bitcoin and will try to use it (spend it) to increase the adoption of the technology.

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4 hours ago, macca said:

Its the waste of electricity it creates that I cant get my head around.. its sucking the global electricity supply faster than Melania Trump's vibrator..

What a dumb bunch of cock suckers we have all become.. to destroy the planet for some made up computer code,,

Indeed, since the 70s the population has doubled whilst the animal population (wildlife not those sh!tty little dogs n cats) has more than halved.....

Humans and planet longevity are mutually exclusive methinks....

Have you seen 'I am mother'? The sooner the robots take over the better.....I'm getting involved in AI so I can become one of their 'friends' xD

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2 hours ago, Sound Money said:

21% of net worth in btc, 11% in physical gold and silver (bullionvault). Got into btc in 2014 so I’m less emotional about losing or gaining 50k a month because I already took decent profits off the table. But I got into it for the technology and economics of it not for profit. But having said that, I’m very happy with taking profit, but will always be part allocated to bitcoin and will try to use it (spend it) to increase the adoption of the technology.

how do you spend your bitcoin?

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10 minutes ago, Yellow_Reduced_Sticker said:

"UK car production PLUNGES for 12th consecutive month"

Oh dear...xD

https://uk.finance.yahoo.com/news/uk-car-production-dives-for-12-th-consecutive-month-220100048.html

Meh -- that's just the effect of them all shutting down production during the original post-Brexit period.  

There is a serious problem in the global car market, but that drop in production is readily explainable without it.

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ashestoashes

bit on modern monetary theory on the radio this morning

banks create money when making a loan and that's cancelled when the loan is repaid

the economy circulates money and doesn't create it

the government also creates money by spending and this gets cancelled by taxes

so if banks stop lending the answer is more government spending and if there's too much money then taxes reduce it

comment was we shouldn't have had austerity when the banks stopped lending, instead should have had government spending

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58 minutes ago, ashestoashes said:

bit on modern monetary theory on the radio this morning

banks create money when making a loan and that's cancelled when the loan is repaid

the economy circulates money and doesn't create it

the government also creates money by spending and this gets cancelled by taxes

so if banks stop lending the answer is more government spending and if there's too much money then taxes reduce it

comment was we shouldn't have had austerity when the banks stopped lending, instead should have had government spending

I have this theory about MMT.

It is definitely the way banks create money.  It is also the way government finances work.  But, it is vitally important that no-one talks about this -- because as soon as they do, you start getting people calling for massive increases in 'unfunded' government expenditure -- because it is free -- yippee!  And for a time it works, but after a little while things start getting out of control, people lose faith in 'money' (as it is a made up thing) and economies collapse.

I think we're now in the 'cat out of bag' stage, with the early signs of economies collapsing.

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2 hours ago, ashestoashes said:

the government also creates money by spending and this gets cancelled by taxes

I'm not sure I understand how this works. I thought governments got funded by collecting (taxes) or borrowing (treasuries) money, so they only re-circulated money created by banks. How do they create new money?

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reformed nice guy
1 hour ago, kibuc said:

I'm not sure I understand how this works. I thought governments got funded by collecting (taxes) or borrowing (treasuries) money, so they only re-circulated money created by banks. How do they create new money?

As a multiple of lending. When the bank gives out a loan, that money is created out of nothing!

 

2 hours ago, dgul said:

I have this theory about MMT.

 It is definitely the way banks create money.  It is also the way government finances work.  But, it is vitally important that no-one talks about this -- because as soon as they do, you start getting people calling for massive increases in 'unfunded' government expenditure -- because it is free -- yippee!  And for a time it works, but after a little while things start getting out of control, people lose faith in 'money' (as it is a made up thing) and economies collapse.

 I think we're now in the 'cat out of bag' stage, with the early signs of economies collapsing.

With this MMT it begs the question, why bother with taxation? If you can just create as much money as you like, why bother taking any back?

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2 minutes ago, reformed nice guy said:

As a multiple of lending. When the bank gives out a loan, that money is created out of nothing!

Yes, that part of money creation I understand. Banks - either central or commercial - create money.

I still don't get how governments create any money.

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31 minutes ago, kibuc said:

Yes, that part of money creation I understand. Banks - either central or commercial - create money.

I still don't get how governments create any money.

Since QE they've been creating money by issuing bonds and then immediately getting the BoE to buy them, using money issued because they've got collateral on the other side (ie, the bonds they've just bought).   So, eg, the BoE currently owns about £0.5 Trillion in UK bonds*.  The other side of this trade is that they've 'been the market', which has driven up the price of all 'safe assets' (which are government bonds, pretty much) so that you've got high prices (because the central banks have stolen supply) and the reciprocal, low interest rates (which is great for borrowers but bad for pensions (say).  But that's a side effect (if one that was wanted) -- the big deal is every one of those £s has been injected into the UK economy as 'created money'.  Now, the BoE (and all other central banks that have done this) say that it is okay -- because for every pound that they've created they also hold a debt -- that is, they'll have to cancel out that £0.5 trillion of cash they've injected at some point by the government getting hold of the money (somehow) and giving it to the BoE to buy back the bonds (eg, at redemption), at which point the money will magically vanish. But that'll never actually happen (because if it did the economy would collapse by the massive amount of money being sucked from the economy).

[* the original idea of QE was for the central banks to buy just 'assets' to support the world's economies post 2008.  It is very telling that eg, the BoE's holdings of 'assets' is £0.5 trillion of gilts and only about £10 billion of investment grade (ultrasafe) corporate bonds -- the corporate bonds side was a smokescreen -- it was all about injecting money and lowering interest rates]

33 minutes ago, reformed nice guy said:

As a multiple of lending. When the bank gives out a loan, that money is created out of nothing!

 

With this MMT it begs the question, why bother with taxation? If you can just create as much money as you like, why bother taking any back?

According to the MMT acolytes the residual purpose of taxation (now that you don't need it to fund government spending) is to modulate the economy -- so as parts of the economy speed up or slow down you use taxation to get things back into kilter.  Eg, if house prices go too high, you turn up property taxes; if you want people to drive electric cars you increase fossil fuel taxation.  This does actually make sense, but it in the end doesn't work because as soon as people realise what is happening they get all cross, and all you actually have left is carrot, not stick (ie, you use cash incentives to drive good behaviour, not taxation to remove bad behaviour) -- this will end up being very bad.

I'll repeat my assertion that MMT is mad -- the consequences of actually doing MMT will blow up the economy, and all that is required to do MMT is for enough people to believe in it.

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16 hours ago, leonardratso said:

looks like they are all just alias's for the same thing, SSLN, SSLV SVLP, not heard of XSIl, ill have a look at that, bit steep, wonder what it comprises of.

SSLN is probably just the gbp version of SSLV by the look of it, but im sure i saw SVLP for $9 odd somewhere and the description was Silver MINERS rather than physical silver, ah well, its unlikely ill be able to backtrack my web history and find it again, probably some old piece of crap or maybe its american only. Never mind, something will turn up.

SSLV isnt a great performer, doesnt seem to jump/dump with the price or sentiment like the miners do, at least it has little counter party risk, so is probably worth having just in case silver decides to fly, very much the litecoin of the metals market at the moment by the look of it.

 leonardratso, I don't think you can buy SLVP here in uk, I searched for it because I also wanted to buy a silver miner etf.               I couldn't find an alternative to the SLVP (silver miner etf) either, so if anyone knows of such I would appreciate hearing.  

(btw you don't have to login to HL; to get access to their fund data pages, kid, etc: https://www.hl.co.uk/funds/hl-funds)

 

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leonardratso
1 minute ago, JMD said:

 leonardratso, I don't think you can buy SLVP here in uk, I searched for it because I also wanted to buy a silver miner etf.               I couldn't find an alternative to the SLVP (silver miner etf) either, so if anyone knows of such I would appreciate hearing.  

(btw you don't have to login to HL; to get access to their fund data pages, kid, etc: https://www.hl.co.uk/funds/hl-funds)

 

aha, didnt know that, thanks.

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7 minutes ago, dgul said:

Since QE they've been creating money by issuing bonds and then immediately getting the BoE to buy them, using money issued because they've got collateral on the other side (ie, the bonds they've just bought).   So, eg, the BoE currently owns about £0.5 Trillion in UK bonds*.

But that's not money creation on the government side, is it? It's the BoE that creates money to purchase govt debt. It could just as well refuse to create money for that purpose and the govt would have to find another buyer. Isn't that what's happening in US at the moment? Even the US govt cannot just print money, it can only hope that someone with money will buy its debt.

In any moder economy I know money creation is a bank-only priviledge. Whether those banks can or cannot be influenced by governments and pushed towards more money creation is a separate issue.

So, essentially, it all starts and ends with banks and their willingness to lend. Governments are at their mercy.

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20 minutes ago, kibuc said:

But that's not money creation on the government side, is it? It's the BoE that creates money to purchase govt debt. It could just as well refuse to create money for that purpose and the govt would have to find another buyer. Isn't that what's happening in US at the moment? Even the US govt cannot just print money, it can only hope that someone with money will buy its debt.

In any moder economy I know money creation is a bank-only priviledge. Whether those banks can or cannot be influenced by governments and pushed towards more money creation is a separate issue.

So, essentially, it all starts and ends with banks and their willingness to lend. Governments are at their mercy.

The central bank is the government.

If the BoE refused to buy the debt then the government would just rearrange it so that it did.  Central banks aren't banks, they're the money arm of governments.

 

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Sound Money
5 hours ago, confused said:

how do you spend your bitcoin?

I’ve spent on computer parts on newegg.com and bought vpn subscriptions. Admittedly it’s not widespread yet

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22 minutes ago, kibuc said:

But that's not money creation on the government side, is it? It's the BoE that creates money to purchase govt debt. It could just as well refuse to create money for that purpose and the govt would have to find another buyer. Isn't that what's happening in US at the moment? Even the US govt cannot just print money, it can only hope that someone with money will buy its debt.

In any moder economy I know money creation is a bank-only priviledge. Whether those banks can or cannot be influenced by governments and pushed towards more money creation is a separate issue.

So, essentially, it all starts and ends with banks and their willingness to lend.

Kibuc, Yes I agree, but High Street Banks are always willing to lend (they are, if we are being polite, 'intermediaries'; or 'rentiers' if we are not feeling so charitable), it just varies as to which part of the economy they currently 'favour'. The favoured sector might be industry, or could be BTL or even Tulips - banks are fickle like that. However they are constrained by 'Fractional Reserve Lending' which sets the level of cash/assets they must hold - though prior to the financial crash I think this was as low as 7%. Meaning a deposit of £7 allowed a bank to lend £93 of 'made up money' (now that's a franchise i'd like a piece of!).

I realise all on this blog are financially astute and very aware of these type of crazy things happening, but I admit that when I first learned of Fractional Reserve Lending I was genuinely shocked - not by the (dubious) process in itself, but more sickening were the casually spun half-truths, and moreover what other lies of omission might be lurking out there? It was a bit of an X-Files moment for me!  ...I still remember at school being taught that my bank deposit was lent by the bank and the difference between the borrowing/lending rate was the bank's profit. I WAS NOT told that the bank effectively lent 10x my original deposit - meaning the bank did not merely making 5% profit (12%lending rate - 7%deposit rate) - but 10 x 5% = 50%/annum.

And of course this whole modern monetary mythos gets even darker if you peer into the investment banking arm of the business model, and which allows these banking institutions to really clean up. To think that, pre financial crash, these characters arrogantly boasted of being Masters of the Universe!

 

               

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14 hours ago, Barnsey said:

Ipswich Building society to "free" mortgage prisoners by removing stress tests, and new customers who aren't prisoners don't have to do them either. Being applauded by thrifty Martin Lewis no less, despicable. Here we go again!

https://www.moneysavingexpert.com/news/2019/06/mortgage-prisoners-offered-lifeline-with-launch-of-new-product/

Yesss... that titan of the mortgage industry.

Its a load of bollocks, designed to get them free press.

Never beleive the bollocks small BSes come out with.

 

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(No link, BBC news)

The US economy grew at an annualised rate of 3.1% in the first three months of the year, government figures have confirmed. The figure was unchanged from the previous estimate.

In the final quarter of 2018, the growth rate had been 2.2%.

“Investors will be heartened by this confirmation of a strong first quarter but at this point we’re waiting with baited breath for the Q2 figures," said Nancy Curtin, chief investment officer of Close Brothers Asset Management.

"It’s near-unanimous that growth is slowing, but the extent of that slowdown is still to be seen in light of the ongoing trade tensions and the impact of weakness in the global economy."

Considerign that the US boomer are retiring at a massive clip and ~10% of the over 30s are hooked on medical smack.

Theres a huge ammount of trade coming back from China.

Meanwhile ... in Eruope, where the Economy is much more protected and old industry propped up ...

https://www.bbc.co.uk/news/business-48787165

No demand, as ECB QE has sucked all life out of the economy.

European car compnaies cannot shutdown, so they roll on, destroying value.

 

 

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1 hour ago, JMD said:

Kibuc, Yes I agree, but High Street Banks are always willing to lend (they are, if we are being polite, 'intermediaries'; or 'rentiers' if we are not feeling so charitable), it just varies as to which part of the economy they currently 'favour'. The favoured sector might be industry, or could be BTL or even Tulips - banks are fickle like that. However they are constrained by 'Fractional Reserve Lending' which sets the level of cash/assets they must hold - though prior to the financial crash I think this was as low as 7%. Meaning a deposit of £7 allowed a bank to lend £93 of 'made up money' (now that's a franchise i'd like a piece of!).

I realise all on this blog are financially astute and very aware of these type of crazy things happening, but I admit that when I first learned of Fractional Reserve Lending I was genuinely shocked - not by the (dubious) process in itself, but more sickening were the casually spun half-truths, and moreover what other lies of omission might be lurking out there? It was a bit of an X-Files moment for me!  ...I still remember at school being taught that my bank deposit was lent by the bank and the difference between the borrowing/lending rate was the bank's profit. I WAS NOT told that the bank effectively lent 10x my original deposit - meaning the bank did not merely making 5% profit (12%lending rate - 7%deposit rate) - but 10 x 5% = 50%/annum.

And of course this whole modern monetary mythos gets even darker if you peer into the investment banking arm of the business model, and which allows these banking institutions to really clean up. To think that, pre financial crash, these characters arrogantly boasted of being Masters of the Universe!

 

               

That was my understanding for a very long time, until I read this paper from the BoE about money creation:

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy

The way I understand it, the Fractional Reserves system is still in place and "money multiplier" explanation kind of sort of holds true, but the eye opener for me was that commercial banks don't need ANY customer deposits to lend money - they can always borrow enough money from the central bank to meet reserve requirements to support their lending activity. Previously I thought banks would take my deposit, lets say £10k, and multiply it by 10 to lend £100, and I never stopped to think about were that extra £90 was coming from or what would happen if they failed to get enough deposits. Now I understand that all that "multiplied" money gets created from thin air, and if my bank wanted to lend £100 but couldn't put their hand on my £10 deposit, they would simply borrow £10 from the central bank, so even the "deposit" would be created out of nothing.

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Transistor Man
18 minutes ago, kibuc said:

That was my understanding for a very long time, until I read this paper from the BoE about money creation:

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy

The way I understand it, the Fractional Reserves system is still in place and "money multiplier" explanation kind of sort of holds true, but the eye opener for me was that commercial banks don't need ANY customer deposits to lend money - they can always borrow enough money from the central bank to meet reserve requirements to support their lending activity. Previously I thought banks would take my deposit, lets say £10k, and multiply it by 10 to lend £100, and I never stopped to think about were that extra £90 was coming from or what would happen if they failed to get enough deposits. Now I understand that all that "multiplied" money gets created from thin air, and if my bank wanted to lend £100 but couldn't put their hand on my £10 deposit, they would simply borrow £10 from the central bank, so even the "deposit" would be created out of nothing.

 

Professor Werner (the one who successfully sued Southampton University last week) has a paper:

"Can banks individually create money out of nothing? — The theories and the empirical evidence"

Most academic economists don't believe this to be the case, apparently.

So Prof Werner organised a 200k loan from a small German bank, and recorded the whole process.

He concludes: "It was created as fairy dust...... Out of thin air".

It's been a while since I read it: but they didn't seem to even adjust their reserves, although maybe they did at the end of the day. 

It's well worth a read.

A BBC camera crew filmed the whole thing, apparently. Funny, I never saw the documentary.  

 

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