Credit deflation and the reflation cycle to come.

[Noallegiance]

1 hour ago, Transistor Man said:

 

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.  

 

For anyone interested, this'll boil the ol' haemoglobin:

 

[Agent ZigZag]

Eye opening discussion. Very good find that I enjoyed listening to

 

 

[Democorruptcy]

7 hours 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.

You mean let the cost of debt meet willing buyers instead of the BoE driving the rate down? Also banks have to buy governbankment debt because it's supposed to be "safe".

Also another buyer wouldn't give the coupon interest back to the governbankment, like the BoE does.

[Straingone]

4 hours ago, Noallegiance said:

For anyone interested, this'll boil the ol' haemoglobin:

 

Thanks for that, Prof' Werner delivers with excellent clarity. Very surprised that Buick was not aware of the City of London status. He was a regular City contributor to LBC on the Nick Ferrari breakfast show.

[MrXxx]

19 hours ago, Sound Money said:

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

Be a certain sense of irony if you also used them to buy Centrica shares as well...the two products used to create the currency in the first place :-)

[Noallegiance]

10 hours ago, Shaneyson said:

Thanks for that, Prof' Werner delivers with excellent clarity. Very surprised that Buick was not aware of the City of London status. He was a regular City contributor to LBC on the Nick Ferrari breakfast show.

I thought his face showed a little panic. I couldn't work out if it was "Shit I should know this" or "Shit you shouldn't know this".

[leonardratso]

cna hist the fabled 85p, patience grasshopper, patience.

[Loki]

19 minutes ago, leonardratso said:

cna hist the fabled 85p, patience grasshopper, patience.

Is that significant for just that stock or the bigger picture?

[leonardratso]

not really significant to be honest, 85p was touted as a floor or major resitance area, personally id say zero was a strong resitance line.

[DoINeedOne]

Wondered if anyone had views on this 

 

[JMD]

21 hours 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.

Kibuc, thanks its an interesting article, but do you not think there's a risk here of over analysing the sheer level of crazy half-truths we have been spun by our financial elites/'masters of the universe'. It is after all tragic that even after the banks have repeatedly been found out there is still no political will to reform things.  

I don't think such reform will be easy, but where is the discussion of reform even being had, and are our politicians up to it? The myths/systems we live by are crucial for society to function. However I think its important to observe how crucial 'public trust' is in maintaining these institutions, unfortunately trust today is extremely lacking. My original basic point was that the money multiplier is a simple example of the type of manipulation which takes place. A bigger example could be the 1980's 'Japanese miracle' - which was really no such thing. Japanese corporate team management books flew off the book shelves as the rest of the world sought to learn the new 'Japanese way', but the real conceit was that Nissan made more money from its finance investments than from making motor cars (think Ford is same today).

Its pretty much obvious to everyone that that ever larger, centralised institutions, including banks, cannot operate in the public interest. Command economies, whether they be Japan's post war capitalism on steroids at one extreme, or the former USSR's socialist experiment at the other, are doomed to failure, where ever more detached leaders become mere technocrats, and subsequent paralysis and corruption sets in, infesting the system from the head down. Unfortunately, this is not just a historical cycle that we are doomed to repeat over and over, because for each cycle, the elites become more powerful and have greater destructive tools at their disposal ...thus the existential risks just go up and up. 

 

 

NoAllegiance, i'll raise you your Prof. Werner video with the following ....a bit long but it tells the 80's Japanese 'economic miracle' story and its crash ...the West doesn't seem to have learnt many lessons from the whole Japanese saga, well not yet anyway? 

 

 

 

[janch]

 

I seem to remember DB saying the FED would be "behind the curve".............someone else agrees:

 

 

            https://www.zerohedge.com/news/2019-06-28/fed-already-behind-curve

[JMD]

Has anyone views about cannabis investing?

The medical/recreational side will make some a lot of money but how best to invest? I think DB has suggested big tobacco like Imperial Brands might be good play. But are there any good potential small (US/UK) companies or even ETF's out there perhaps?  

[stockton]

17 minutes ago, JMD said:

Has anyone views about cannabis investing?

The medical/recreational side will make some a lot of money but how best to invest? I think DB has suggested big tobacco like Imperial Brands might be good play. But are there any good potential small (US/UK) companies or even ETF's out there perhaps?  

I mentioned this on the @201p's Presidential Cycle thread but there doesn’t seem to be much in the UK for this and what is about is very risky.  Could look to get in to some of the Canadian/USA stocks but no guarantee they will venture into the UK.

On 03/05/2019 at 10:59, stockton said:

Im struggling to find anything on cannabis stocks other than:

HNR - shale oil company that has "branched" out into cannabis production, I hold a small amount of these (a mistake on my part, chalked up to a lesson learned) and am waiting for a jump up to sell out.

HASH - https://www.hl.co.uk/shares/shares-search-results/h/high-growth-capital-plc-ord-0.1p

SATI - https://www.hl.co.uk/shares/shares-search-results/s/sativa-investments-ord

All three look risky (too risky?), are there other less risky options out there for cannabis stocks that I cant find?

Could it be a GSK type of company and Im not looking at the bigger picture?

TIA

[Yellow_Reduced_Sticker]

"Deutsche Bank considers CUTTING up to 20,000 jobs"

https://uk.finance.yahoo.com/news/british-firms-stockpiled-66-bn-of-goods-in-runup-to-brexit-uk-095504748.html

[Noallegiance]

3 hours ago, JMD said:

Kibuc, thanks its an interesting article, but do you not think there's a risk here of over analysing the sheer level of crazy half-truths we have been spun by our financial elites/'masters of the universe'. It is after all tragic that even after the banks have repeatedly been found out there is still no political will to reform things.  

I don't think such reform will be easy, but where is the discussion of reform even being had, and are our politicians up to it? The myths/systems we live by are crucial for society to function. However I think its important to observe how crucial 'public trust' is in maintaining these institutions, unfortunately trust today is extremely lacking. My original basic point was that the money multiplier is a simple example of the type of manipulation which takes place. A bigger example could be the 1980's 'Japanese miracle' - which was really no such thing. Japanese corporate team management books flew off the book shelves as the rest of the world sought to learn the new 'Japanese way', but the real conceit was that Nissan made more money from its finance investments than from making motor cars (think Ford is same today).

Its pretty much obvious to everyone that that ever larger, centralised institutions, including banks, cannot operate in the public interest. Command economies, whether they be Japan's post war capitalism on steroids at one extreme, or the former USSR's socialist experiment at the other, are doomed to failure, where ever more detached leaders become mere technocrats, and subsequent paralysis and corruption sets in, infesting the system from the head down. Unfortunately, this is not just a historical cycle that we are doomed to repeat over and over, because for each cycle, the elites become more powerful and have greater destructive tools at their disposal ...thus the existential risks just go up and up. 

 

 

NoAllegiance, i'll raise you your Prof. Werner video with the following ....a bit long but it tells the 80's Japanese 'economic miracle' story and its crash ...the West doesn't seem to have learnt many lessons from the whole Japanese saga, well not yet anyway? 

 

 

 

I'm halfway through a longer video of his (80 mins) where he goes into more detail, including some of his time in Japan and how politicians and elite citizens there (and he subsequently discovered in every other country side from Germany) understood the danger and solution but didn't/couldn't follow through.

[JMD]

3 hours ago, stockton said:

I mentioned this on the @201p's Presidential Cycle thread but there doesn’t seem to be much in the UK for this and what is about is very risky.  Could look to get in to some of the Canadian/USA stocks but no guarantee they will venture into the UK.

thanks Stockton, ref cannabis investing I think i'll go low risk and buy some big tobacco stock.

[Thorn]

16 minutes ago, JMD said:

thanks Stockton, ref cannabis investing I think i'll go low risk and buy some big tobacco stock.

I read that the infrastructure and know-how for pressing and distributing bibles was what got Nashville  going so fast when records came about.

[JMD]

1 hour ago, Noallegiance said:

I'm halfway through a longer video of his (80 mins) where he goes into more detail, including some of his time in Japan and how politicians and elite citizens there (and he subsequently discovered in every other country side from Germany) understood the danger and solution but didn't/couldn't follow through.

Yes Prof. Werner has a real understanding of world banking problems and has I think many good ideas - i'm surprised he is not better known - but then I suppose actual real debate and discussing new ideas is not what our world does these days. 

Well worth watching 'Princes of the Yen' video. Its interesting how - with US military occupation backing - Japanese war criminals were mostly spared punishment and allowed to assume their former government, banking, etc, positions. Contrast this with Germany where ex-Nazis were all hung.      

I would prefer Prof. Werner's solution of small, local banks, etc, along with 'Adam Smith' free market capitalism, co-operatives, etc. However - although I hate to think it - but I am coming to the conclusion that, faced with an increasingly powerful China, the US/West will take the 'easy option' and instead formulate a post-war-Japan style economic model.

If this is how things do play out - what would be the implications for us investors?  

 

 

[JMD]

28 minutes ago, Thorn said:

I read that the infrastructure and know-how for pressing and distributing bibles was what got Nashville  going so fast when records came about.

point taken Thorn, no need to reinvent the wheel.

[DoINeedOne]

8 minutes ago, JMD said:

Yes Prof. Werner has a real understanding of world banking problems and has I think many good ideas - i'm surprised he is not better known - but then I suppose actual real debate and discussing new ideas is not what our world does these days. 

Whilst obviously i don't expect everyone to have a interest in him or the subjects he discusses but i couldn't help but notice his following number

Unfair comparison or maybe everything that's wrong these days

[Noallegiance]

21 minutes ago, DoINeedOne said:

Whilst obviously i don't expect everyone to have a interest in him or the subjects he discusses but i couldn't help but notice his following number

Unfair comparison or maybe everything that's wrong these days

There's no need to take an interest in how your life and that of your family's is being screwed over when the illusion provided says that you don't need to and you can all be the next big BGT winner.

I'm convinced that, at some point, this period of history will be regarded as the most moronic of all-time

[Castlevania]

On 27/06/2019 at 14:25, 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!

 

               

There’s a bit of confusion here. Banks create money by issuing loans. At the same time they’ll create a deposit. Not necessarily at the same bank. However, all banks (in the U.K. at least) need to net off their loan book to their deposit book each day.

The fractional reserve banking side of things relates to how much of the banks own reserves (shareholder equity and retained profit) that they need to hold against a loan they issued. 

[kibuc]

1 hour ago, Castlevania said:

There’s a bit of confusion here. Banks create money by issuing loans. At the same time they’ll create a deposit. Not necessarily at the same bank. However, all banks (in the U.K. at least) need to net off their loan book to their deposit book each day.

The fractional reserve banking side of things relates to how much of the banks own reserves (shareholder equity and retained profit) that they need to hold against a loan they issued. 

Those deposits are the money created. It creates a liability that is balanced by client's promissory note to repay it. There's not a deposit and a loan, the deposit IS the loan, and they all need to be balanced by borrowers obligation to repay. 

It doesn't help that the money we put in banks are also called deposits, it introduces some level of confusion. 

[DurhamBorn]

8 hours ago, JMD said:

Has anyone views about cannabis investing?

The medical/recreational side will make some a lot of money but how best to invest? I think DB has suggested big tobacco like Imperial Brands might be good play. But are there any good potential small (US/UK) companies or even ETF's out there perhaps?  

i much prefer Imperial Brands.If they pull off cannabis it should secure the divi going forward and its highly likely vaping will take a big chunk of the market.Iv been really pleased to be getting them back below £20 a share.I think they might do something after October in Canada in the space,perhaps small,but enough to show intent.