[bluekachina]

Unless we've had a trade imbalance with aliens, this worldwide debt is a joke.

Who is all this debt owed to anyway. EVERYONE can't be in debt. Seems that if that is clarified, we'll know who to put to the stake, since the entire world can't be in debt unless someone has been cheating and ripping off the planet.

Time to just forgive all debt planetwide and start over with everyone having a clean slate. And WATCH to make sure nobody cheats this time.

We need to make sure the pot stays right and crucify anyone caught stealing from the pot.

[Crazy_Dad]

I often wonder just this same question. Do conspiracy theories like "Do the illuminati exist?" have some basis in truth? Or is it just a horde of mum and dad share investors who drive the capitalist nightmare?

Someone must benefit from all the interest on debt. Who are they? Who do the Greeks owe? Where does the dude live who finances my credit card(I don't actually use one). Are the Chinese the owners of consumer debt in the west and is it sustainable? So many questions and implications...I have no answers.

[dolanbaker]

What we have, is an economy that is based on debt, money being loaned into existance.
No debt = no money!

The entire economy is relient on the interest being paid on debt to keep running. Bankers will never cancel debt as it will starve them of income and people will realise that they can do without them.

As things currently stand, China probably "ownes" most of the debt.

[AgentR]

Everyone with some quantity of debt is in debt to other people with positive balances in banking accounts; whether that is expressed as Mama Jane's savings club account or China's national foreign exchange accounts, makes not a bit of difference.

Debt only becomes a problem when someone looks at their personal balance sheet and notes with dismay that the market value of their owned assets is greatly exceeded by the market value of their debt. Whether this is from signing a contract to spend $500,000 on a house that is now worth $300,000; or from spending to many hours hoping the Psychic Friends Network will solve all your relationship problems, doesn't really make much difference in the end either.

If you can look at your own pile of accounts, stuff, and debt, and say with confidence, that if you zero it out and walk away, someone will be handing you a large check and asking you to open a bank account with them, you know you're doing it right.

[Rod_Cloutier]

Banks only have to have a small portion of the money that they lend on hand when they issue loans; the rest of the money they lend out is phantom money created by fiat.

An ethical and fair economic system would require banks to have all 100% of the funds required to make a loan. So in effect, few loans would be made because the risk of default would wipe out real capital. This is like your neighbor asking to borrow a dollar, you give him ten cents from your pocket and counterfeit the balance.

When banks now make loans and only have to have 10% or so of the money they lend out- and they make a killing. They always get the 10% back, plus the 90% phantom money they created by fiat, AND INTEREST on the total loan amount. That banks also have the gall to charge service fees is outrageous! Even if you default on a portion of the loan, they are still recovering their capital and a portion of the phantom fiat money loaned into existance.

A fair way out of the finanical mess we're in right now would be just to require indebted borrowers to repay the original 10% or so of original capital that the banks had to issue out of their own means. Then let the phantom fiat money just disappear out of existance in the same way it was created. That would solve alot of problems for everybody but the banks.

(Fat chance of the banks ever allowing that to happen though!)

[ian807]

Ok, I admit it. It's me. I lent the world a few trillion some years back and since then it's "yada, yada, yada, next week, really for sure. The check's in the mail...." Never again, man. Never again.

[efarmer]

I had suspected it was you ian807, but it was only a hunch, now of course that I am given the satisfaction of having been right all along, could you humor me a little and explain why you did it?
Before you loused it all up, we had the illusion of money tightly coupled with the illusion of tangible possessions, and this made us want to behave so we could obtain more of both and allowed us to trade one for the other. You destroyed my illusion of prosperity and ownership with your destruction of the illusion of money by such wanton dilution, and now it seems nothing more than a wild hair or seeing what might happen was behind it.

I am left confused, by the big man it takes to admit this sort of thing, and the heartless weasel that let fly with the moolah of mass destruction as if our dreams were feathers to tickle your jaded bum cleft. This is why I take great pleasure in saying, yada yada yada, iam807, your check is in the mail, and I wrote it out to "ian, slopped the hogs until they exploded, 807". Oh, and it's going to bounce.

[americandream]

Wont happen. In fact It is poised to get worse as employment moves to India and China and the previously employed Westerner increasingtly becomes self employed, casualised, multitasked and; increasingly falls into casino activities.

Activities such as day trading and other forms of online gambling (I day trade for a living and am a technician but for the most part, almost all are gamblers and each a little trainwreck waiting to happen. However, flocking to it in their droves, they are.)

Who is indebting us of these hard won earnings? The owners of the new asset derivatives. Each class of derivatives is sold, the pyramid of wealth (owned by the rich few) gets taller and the debt hole gets deeper.

[ian807]

I had suspected it was you ian807, but it was only a hunch, now of course that I am given the satisfaction of having been right all along, could you humor me a little and explain why you did it?

Aw heck, that nice pair o' guys. Donnie Regan and Ronnie Reagan walk up to me one day and say, "Hey, we can make everyone rich if we just had enough money to, you know, kind of 'leak out' to a bunch of defense contractors, some CIA guys and some of Donnie's buddies out on Wall Street. They got these new things called 'derivatives' that are gonna make us a whole lotta money. Really, we can pay you back before Xmas. Whaddya say?"

So I says to 'em. "Well, whaddya gonna give me as collateral?" and they say, "Collateral! Ha!" Man, we *print* the money if we have to. Tell you what, Bubba. We'll pay you back with interest indexed to LIBOR," and I tell ya, that's when thing started looking interesting.

Thing was, they just never got around to paying me back. Oh, little here and there maybe, but they owe so much they just keep r a c k i n' up the interest. So I ask this Bush guy for the money and he's too busy in someplace called Iraq, and then I ask this Clinton guy, and he's too busy gettin' busy. Ya know what I mean? And then there's another Bush guy with a damn speech impediment and he's too busy in Iraq too, and I'm startin' to get kinda, you know.... nervous. They owe so much now, they might never pay it all back.

[efarmer]

ian807 wrote: So I says to 'em. "Well, whaddya gonna give me as collateral?"

efarmer writes:

"Collateral damage, all you can eat."




I must say I enjoy these little talks we have ian807...

[ralfy]

Check the liquidity chart linked here:

http://www.greatcreditcontraction.com

[efarmer]

This question is already answered previously in the thread. We owe the money to ian807.
We can now ask why, or how he got it to lend in the first place, or even how we can ever pay him back. But for a change, we have solved a very major question on this forum, and we should take the most plausible explanation we have to date and just run with the damn thing.

[jdmartin]

Banks only have to have a small portion of the money that they lend on hand when they issue loans; the rest of the money they lend out is phantom money created by fiat.

An ethical and fair economic system would require banks to have all 100% of the funds required to make a loan. So in effect, few loans would be made because the risk of default would wipe out real capital. This is like your neighbor asking to borrow a dollar, you give him ten cents from your pocket and counterfeit the balance.

When banks now make loans and only have to have 10% or so of the money they lend out- and they make a killing. They always get the 10% back, plus the 90% phantom money they created by fiat, AND INTEREST on the total loan amount. That banks also have the gall to charge service fees is outrageous! Even if you default on a portion of the loan, they are still recovering their capital and a portion of the phantom fiat money loaned into existance.

A fair way out of the finanical mess we're in right now would be just to require indebted borrowers to repay the original 10% or so of original capital that the banks had to issue out of their own means. Then let the phantom fiat money just disappear out of existance in the same way it was created. That would solve alot of problems for everybody but the banks.

(Fat chance of the banks ever allowing that to happen though!)

This is a really good explanation but a little bit misleading in the idea of the money. In theory, the fiat money is not just created out of thin air - in theory, that money is future earnings created by constructing something of value. If money could never be created from non-money, then the amount of money in the world would always stay constant and there would be no such thing as "growth". Instead, it is accepted that turning rocks into diamonds or trees into paper = value added product worthy of dollars, rubles, whatever.

That said, you're right in that for the most part it's just a sham by the banks, because since each bank operates independently, they have no idea whether the money they "create" - and actually that money is created from some other location, since banks usually have to borrow the money they're loaning from someone else - is creating anything of value. Ideally, some central authority - let's say the Fed - would keep some tight grip on how much "productivity" could be created on an annual basis, and only come up with more greenbacks based on those figures. If that were the case, when the bank came down for a loan so they could loan you the money, the Fed would say "sorry, all the productivity for the year's been used" and the loan wouldn't be made. Instead, it's just a free for all, with the banks doling out more, more, more, and the Fed begging, borrowing and printing their way out of the mess.

[frankthetank]

When oil production finally collapses this whole system will crash, no? Sooner or later slave labor is coming back, and we'll all be in the fields (most of us non warlords) picking weeds and dingleberrys.

[PrestonSturges]

Indeed there must be a mechanism for money creation. Suppose we were on the gold standard, and the amount of money was constant. Wouldn't interest rates be something like 50%? We'd all be living 10 to a room because there would be no money to build anything.

[Pretorian]

You forgot about the government that prints special paper and hires 90 % of unemployed alcoholics
so they do each other's laundry, and pays welfare to the 10% who are above that, so they can make payments to helen's bar and all other businesses. Face it, an absolute majority of population (in UK especially) are making themselves look busy in the best case. They do not do jackshit. Well, aside each' other's laundry that is. So how can you get screwed if you haven't done jackshit in your lifetime?

[efarmer]

Gasmon, I have never been to Liverpool, but when Helen had the place jumping, in addition to the patrons, did you notice if she had a lot of free help that was on internship training?
These would have been Yanks from New York in most cases.

Credit at the consumer level will forever only be limited by criteria and denial rather than demand. The system from there to the very top going bogus with cooked ratings and zombie investment vehicles is very unusual. The only bit of sense it has ever made was as some sort of strategy for an organism that sensed it was about to die and didn't care to leave a legacy.

[dissident]

Indeed there must be a mechanism for money creation. Suppose we were on the gold standard, and the amount of money was constant. Wouldn't interest rates be something like 50%? We'd all be living 10 to a room because there would be no money to build anything.

The current money-from-vacuum system is not the only choice to resolve this issue. It is clear that the money supply has to grow with the economy (forget about some steady state limit for now). So the government would have to print/create money based on some realistic demand model. Then the banks should be restricted from creating money out of nothing with loans and can only lend what is on deposit plus additional annual distribution from the Central Bank. This would automatically pick the size of banks that can be viable since they would have to have sufficient deposits to issue big loans to corporations and the government itself. Some clown with an office should not have the power to lend millions of dollars based on the change in his pocket.

If the argument is that banks would be in more pain from defaults in this system, then that is being a bit too generous. In the current system they really suffer no pain unless there is a bank run. Big banks would be able to absorb defaults. And if somehow they couldn't then a government, tax funded, bailout would make sense.