Jack C “I’d be interested to know exactly how this money creation works. ”
When you go to a Bank and ask for a loan (to buy a house for example), the Bank can simply type some numbers in a computer (£500,000 for example). In exchange, you sign an agreement to pay back the sum with interest over say 25 years. In the UK the Banks don’t even fix the interest rates in advance – after a couple of years, you have agreed to pay whatever amount they ask. If you don’t pay, they can repossess your house. The only limit on the banks ability to create money in this way is the fact that the Basel Banking regulations put limits on the amount of capital they have to have to back up loans. Normally, they need to have capital equivalent to around 10% of their assets. However, for mortage lending, the risk-weighting is only about 30%, meaning that they can lend out around 30 times more.
The remarkable exception is lending to governments. In that case, the risk-weighting is fixed at 0%, which means that the bank can create literally infinite amounts of debt, if they can find some complicit or ignorant politicians prepared to take on more debt. This is what I was denouncing in my post – what Tim describes as Flatulant Tospottery.
Please allow me to disagree. I sincerely believe that if Europe’s taxpayers knew that they had handed over more that €6.6 trillion in interest payments on public sector debt over the last 20 years, there might just be a little bit of disbelief.
And maybe a slight sense that we have all been robbed by the 1% at the top who control the money creation process, and who are so ably defended by Tim on his blog.
The bank just invents the money for your house purchase! Banks only ever have assets, no liabilities!
They do not, for example, have to balance their books once a day. The interbank market does not exist, deposits do not matter. Banks just invent money!
Remember, this guy is a scientist!
Directeur de Recherche CNRS
My current interests are centred on understanding the phenomenal processing speed achieved by the visual system. For a number of years we have been running experiments that attempt to measure just how fast visual processing is using briefly flashed natural scenes using a combination of electrophysiological and behavioural methods. With Holle Kirchner, we recently found that when two images aresimultaneously flashed to the left and right of the fixation point, humans can initiate saccades to the side where the scene contains an animal in only 130 ms. Such severe temporal constraints pose majorproblems for virtually all current theories of visual processing. In an attempt to explain this sort of ultra-rapid processing I proposed a novel coding scheme that uses the order in which cells fire spikes,rather than firing rates to encode information. It turns out that using such a code may allow us recognise objects when as few as 1% of the neurons in the visual pathways have fired a spike. In 1999, I setup a company (SpikeNet Technology) that has developed image processing software based on these principles. A demo of the software can be downloaded from the company web site (www.spikenet-technology.com).
I have recently become interested in questions of the economy and tax reform. You can find out more about my radical ideas here.