Nor, in effect, was First Republic.
OK
There needs to be a new awareness. That is that the government is ultimately responsible for all money creation. The banks are simply their agents. The wiring of the system has to reflect that fact. That is not how it is right now. And those who are profiting from the pretence are going to hold on to it for as long as possible. It’s down to heterodox economists and those who really understand money to make clear that there are better choices to be made.
But the heterodox economists insist that banks don’t lend out deposits. They just invent the money by the act of making a loan. In which case having a run on deposits cannot kill a bank because they don’t use the deposits to fund their lending.
Yet FRC went bust because of a run on the deposit base. So the heterodox must be wrong. Which means they don’t really understand mony, doesn’t it?
Is “heterodox economists” the new euphemism for Mental Money Theory believers?
Don’t forget, in Spudland words mean what he chooses them to mean, neither more nor less.
Also, looking up the meaning of a word in common use would be just so Neo-liberal, someone of his self-importance can’t be expected to waste a few seconds looking it up on the Internet.
It’s a Yes Minister style irregular verb. I am heterodox, you are eccentric, he is completely insane.
There needs to be a new awareness. That is that the government is ultimately responsible for all money creation. The banks are simply their agents. The wiring of the system has to reflect that fact. That is not how it is right now. And those who are profiting from the pretence are going to hold on to it for as long as possible. It’s down to heterodox economists and those who really understand money to make clear that there are better choices to be made.
That’s not economics. Nor is it finance. It’s typing.
You misunderstand. Murphy is saying that there are two groups who must explain the better choices: heterodox economists (a widely-diverse grouping ranging from those ahead of current orthodoxy to those so far behind that they accept Marxist idiocies) and those who understand money (implicitly a sub-group within orthodox economists).
What is important is that governments do not create resources or anything that creates real wealth (rather than pieces of paper printed by/for the Royal Mint). So one of the better choices would be that government ceases to make it so difficult to create/improve resources so that the poor can enjoy them (the rich already can because they have enough money to pay someone else to deal with the tedious obstacles)
I think I’m right in saying that the failed US banks were snookered by the affect of sharp interest rate rises on their long-term investments.
According to the US government, inflation was to be temporary, and would anyway be dealt with by the Inflation Reduction Act (which would also ensure a a very healthy US economy in general).
It may be stupid to believe the US government, but would their investments have been valid from a regulatory standpoint? Doing the right thing would have meant ignoring the US Treasury.
I’m not saying there was no mismanagement involved, but the government can’t escape some blame.
I’d agree. Debasing the currency and simply printing more and more has a long long history.
What I’d like to know is just why he wants to Zimbabwfy everyone?
PS. Thanks for the link to the article on the commercialisation of the insect eating business Tim. Being selfish, I don’t care if the fish eat them. I just don’t want to do it myself.
It shouldn’t surprise me, given it’s Murphy, but nevertheless the sheer brass neck of the censor in chief posting this:
“The world is unfair and anti-democratic
Posted on May 2 2023
My friend and fellow Mile End Road economist Danny Blanchflower has fallen foul of Twitter. They have suspended his account:
I have spoken to Danny.
He has been given no reason for his suspension.
There is, apparently, no appeal.
This is not the way for Twitter to win friends, influence, users, and at the end of the day, revenue.”
@BraveFart
He also explained how he wouldn’t be posting on Twitter. Except for the posts he posts on Twitter.
@ BraveFart
“Fair” is a subjective concept, so Murphy thinks it is unfair that Twitter has applied its rules to Danny Blanchflower. [I, personally, think it is entirely fair that it applies its rules equally to everyone.]
The world is certainly undemocratic – the cost of just collecting and counting the votes for a worldwide referendum on any subject would be horrendous [when I visited Sakha, the largest republic within the Russian Federation, last century its human population averaged less than 0.4 per squre kilometre and was outnumbered by its lakes and rivers]; the concept of democracy through repeated referenda remains science fiction. “Representative democracy” through the UN or something similar? Putin has just shown that doesn’t work (as Mussolini demonstrated that the League of Nations was toothless).
IMHO what Murphy wants is that the world should be Murphyocratic.
You know you’re a bitch when you end up whining on your blog that someone you know has been suspended by Twitter.
Can I just applaud our host for his restraint (in refraining from “Ragging on Ritchie”) in his article today in a much more widely-read forum, where the Potato’s name is not mentioned, but should have been.
https://www.telegraph.co.uk/news/2023/05/02/jamie-dimon-banking-crisis-over-reaction/
Glad to hear our host agrees with me – FRB is a con. And as such should not be the foundations on which a nation’s financial system is built. A part of it undoubtedly, but not the very bedrock. That should be 100% reserve banks that deal with the bread and butter financial transactions that 100% of the public use on a daily basis. Then if people actively want to invest and get a return for doing so they can deposit it in a FRB, 100% at their own risk, no statutory deposit insurance.
And of course the ‘takeover’ of First Republic by JP Morgan is a taxpayer bailout. Because JPM is one of the banks the US government cannot let fail, so it will always be bailed out by the taxpayer should something go wrong. So it can now do as it pleases. Take the most outlandish bets it likes, its backed by the US taxpayer, who will have to shoulder the losses should those bets go t*ts up.But of course JPM will keep the profits should they get lucky.
This is how fractional reserve banking ends up – the whole financial system becomes a confidence trick. Think the wrong thing and it doesn’t exist any more. How anyone can think this is a good situation to be in escapes me.
Isn’t it possible to hold a balance with one of the payment processors? This would meet Jim’s requirements surely
@ Jim
Er – I don’t think that you really understand what FRB is. It is the practical base for bread-and-butter financial transactions that the public use on a day-to-day basis.
All banks are required to have an excess of assets over liabilities.
Fractional Reserve Banking means that only a fraction of deposits have to held in cash – at least enough so that any depositor wanting to withdraw his/her deposit can walk into the bank and have his/her money handed over to him/her in legal tender. The standard when I was young was that every bank had to hold at least 8% of total deposits in cash and/or deposits with Bank of England: this was more than enough to guarantee ability to meet any normal withdrawals (including the evening of payday at the local factory or the peak shopping day before Christmas).
100% reserve banking would require that each bank held 100% of its deposits in cash. Since total currency in circulation in the UK is £93bn and Lloyds Bank alone has customer deposits of £475bn, more than five times that amount, it isn’t currently possible to do that. And if the BoE printed £5 trillion of notes, the banks would struggle to store them safely in their branches.
FRB when properly handled is not a cause of disasters: there had been no bank run in the UK for well over a century before Gordon Brown transferred bank supervision from the BoE to the FSA. You may not have noticed that the UK government’s reaction to the 2008 financial crisis was to ring-fence the (FRB) UK high street banks from the risky “investment banking” and overseas banking operations in the same group.
Statutory deposit insurance is something that requires its own lengthy debate.
Statutory deposit insurance is something that requires its own lengthy debate.
Bring it on John77, I’m up for it.
When banks were supervised by the Old Lady depositors were entitled to be reasonably confident that their deposits were safe. When occasionally this turned out not to be the case, the BoE / government acted as insurer of last resort, because they implicitly recognised that bank failure and lax supervision were two sides of the same coin.
The rot arguably started with the “lifeboat” for dodgy secondary banks in the 1970s. It was made toxic by Gordon Brown when he bailed out the rate tarts deposits in bust Icelandic banks, which were beyond the horizon of the BoE. This was the green light for privatised ultra profit and socialised losses, and the gordonbrownstuff really hit the fan in 2016.
There needs to be some mechanism to make risk and reward balance. It’s not fair on people with no savings to make them pay for the greed of savers and investors.
I’m very much in favour of saving and investing, by the way. Just not the way bankers and investors do it at the moment.
“All banks are required to have an excess of assets over liabilities”
Ha ha ha ha ha ha ha!
Tell that to the shareholders of Northern Rock, RBS, Bearn Stearns, Lehmann Bros, SVB, First Republic, Credit Suisse etc etc etc.
@ Jim
Step away from the computer Jim, it’s clear you don’t understand the banking world amd you are just making yourself look stupid!
A bit of basic research on the banks above would do wonders…
“Step away from the computer Jim, it’s clear you don’t understand the banking world and you are just making yourself look stupid!”
Thats fine, I’m prepared to look stupid, if not being stupid means having to think the financial system we have today is the best thing since sliced bread, and can’t possibly be improved.
I mean Western economies are doing SOOOOO well ever since they let the banks rule everything aren’t they?
@ Jim
Northern Rock *did* have a surplus of assets over liabilities. I have read the accountant’s report.
In order to make Alastair Darling’s confiscation of the bank *appear* legitimate he had to engage in not just one but a whole series of contortions: assume that the Bank of England would breach its statutory obligation to act as lender of last resort, assume a “fire sale” of assets would yield substantially less than the amounts to which the bank’s auditors had written them down to cater for the event of a “fire sale”, assume that NR’s gilt-edged would be sold at a discount to market prices (the market in gilt-edged is so liquid that it could easily have absorbed the whole of NR’s gilt-edged portfolio), assume that no tax could be reclaimed against the losses, and – this one takes the biscuit – that the fees that the Treasury paid to a merchant bank to advise them on Northern Rock were a liability of Northern Rock not the Treasury.
Northern Rock had been badly managed but it wasn’t bankrupt; the run on Northern Rock was caused by Robert Peston not by the facts.
Neither was Credit Suisse bankrupt: it was taken over by UBS because it had a liquidity crisis on top of a series of scandals.
Bear Sterns and Lehman Brothers were “Investment Banks”, a pretentious re-naming of some American stockbrokers, not high street FRB banks.
Fred Goodwin made a disastrous mistake in buying ABN-AMRO for a lot more than it was worth but if you had been watching atthe time you would know that RBS was not bankrupt but was ordered to have a “Rights issue” of shares because its capital ratio was below the new level set by the (Labour) government.
The only instance where it may be (I don’t normally have access to data on US banks) the case that assets were less than liabilities is SVB where it is reported that it bought lots of US Treasury securities with customer deposits assuming that they were risk-free assets – seemingly unaware that the price could go down if they had to sell them before maturity date. As I was discussing UK banks, this is not strictly relevant.
@ philip
It’s getting late: I’ll try again tomorrow.
A decent summary, John
‘I’m prepared to look stupid, if not being stupid means having to think the financial system we have today is the best thing since sliced bread, and can’t possibly be improved.’
Strawman alert…!!!!!
@ Jim
If JP Morgan goes bust its shareholders will lose the $407.4billions they have invested in it. It is *not* relying on a government bail-out if things go wrong.
Are you *really* trying to say “JP Morgan is going to take risks because its shareholders are only on the hook for the first $400 billion or so of losses if things go wrong”? Can you say that with a straight face?
“Are you *really* trying to say “JP Morgan is going to take risks because its shareholders are only on the hook for the first $400 billion or so of losses if things go wrong”? Can you say that with a straight face?”
I’m hardly the first person to have pointed out that implicit taxpayer backing for ‘too big to fail’ banks is a moral hazard.
“If JP Morgan goes bust its shareholders will lose the $407.4billions they have invested in it. It is *not* relying on a government bail-out if things go wrong.”
Did JPMorgan’s shareholders get a say in whether they took over First Republic, or did Jamie Dimon just agree to do it because the US State told him to?
You are forgetting that the employees of the bank are the people making the decisions as to what the bank does, the shareholders are just cannon fodder in the employees machinations. RBS is just such a case. The employees are all still there, getting paid, the shareholders long defenestrated. The bankers walked away from the wreckage of the GFC like nothing had happened. They should all have been lined up against a wall and shot, pour encourager les autres.
Jim
JP Morgan has an AGM. Agenda item: election of the board.
So arguably Jamie Dimon (elected CEO) has more of a democratic mandate than Sunak or Biden.
Under normal circumstances JPM wouldn’t have been allowed to swallow FRB, but in a panic the US govt (senescent Joe, prop.) begged them to.
Seeing an opportunity Dimon seized it, at a discount provided by the US govt and the US taxpayer.
Boo hoo! ‘Snot fair!
“So arguably Jamie Dimon (elected CEO) has more of a democratic mandate than Sunak or Biden.”
Lol. We all know how ‘democratic’ the UK and US are these days…….large corporations are run for and by the management, just like the countries are run by the permanent State of the bureaucracy. The shareholders get about as much say in how things go down as the voters do.
@ Jim
You are doing a “bait and switch”: first you say “JP Morgan is too big to fail: so takes risk and shareholders win or taxpayers lose”, then “shareholders don’t count, JP Morgan does what the government tells it to do.”
“Implicit government guarantees for “too big to fail” banks is a moral hazard” – let’s spend a few seconds looking at the UK banks which we were discussing: the “too big to fail” banks were suddenly ordered to raise more new capital in one month than the London Stock Exchange had raised for the whole of industry and commerce in any of the previous years this century; Barclays asked a foreign investor to help and its directors were faced with trumped-up charges; Lloyds was either conned or had its arm twisted to rescue Bank of Scotland whose HQ was in the next-door constituency to Alastair Darling’s and then had to make two “Rights” issues, to the second of which many individual shareholders were unable or unwilling to suscribe having just coughed up most of their spare cash to the first – so the share price fell below the “Rights price”, which allowed HMG to buy a large stake at a discount to NAV. RBS was forced to make a “Rights issue” at a discount to NAV which was likewise left mostly to HMG as the share price had fallen. [HSBC is primarily an Asian bank.]
That doesn’t look like an example of how moral hazard works.
Jim
Companies are run by the managers. That’s what managers are for.
As a farmer you probably have to take on loans. Secured against land (long term) and harvest (short term).
Would you seriously want to wait for the bank to get approval of your loan by a referendum of the participants in the pension schemes that hold most of the shares or the shareholders at an AGM every time you needed a bit of finance?
For thirty-six millions of citizens to go and fetch the corn they want from Odessa, is a manifest impossibility. The first means, then, goes for nothing. The consumers cannot act for themselves. They must, of necessity, have recourse to intermediates, officials or agents.
But, observe, that the first of these three means would be the most natural. In reality, the hungry man has to fetch his corn. It is a task which concerns himself; a service due to himself. If another person, on whatever ground, performs this service for him, takes the task upon himself, this latter has a claim upon him for a compensation. I mean by this to say that intermediates contain in themselves the principle of remuneration.
However that may be, since we must refer to what the Socialists call a parasite, I would ask, which of the two is the most exacting parasite, the merchant or the official?
Frederic Bastiat, around 1845. And – -ye gods – a Frenchman.
“ The bankers walked away from the wreckage of the GFC like nothing had happened”
Once again Jim, you demonstrate your ignorance on this topic.
Many employees at RBS lost their jobs, the vast majority of employees, particularly senior employees, were also significant shareholders, as banking rules required employees to receive much of their pay & bonuses in shares. Many employees lost hundreds of thousands of pounds of ‘savings’.
This was a similar across other banks in similar situations. You really have no clue what you are talking about.
” You really have no clue what you are talking about.”
Point me to the perp walks then. The banking industry drove the world economy into the ground and no-one was sent to jail. Not even Fred Goodwin who destroyed his entire bank. Nor the managers of Lehmann Bros. No-one, apart from a few minions who fixed Libor when told to by their bosses (or the government, or probably both).
I must say its interesting how many people on a so called right leaning blog suddenly turn on you when you start attacking the banks……the vested interests obviously run deep.
“As a farmer you probably have to take on loans. Secured against land (long term) and harvest (short term).
Would you seriously want to wait for the bank to get approval of your loan by a referendum of the participants in the pension schemes that hold most of the shares or the shareholders at an AGM every time you needed a bit of finance?”
Well a) I don’t borrow money from banks (or anyone else) and b) you are creating a straw man. I never said that every bank loan should be Ok’d by shareholders. But issues like taking over another bank should be decided by shareholders, not done by the whim of the CEO because the government leans on him. The same thing happened with Lloyds – the management there were leaned on by the UK government, and gave in to agree to buy HBos. The shareholders only got a say once it was a fait accompli. As I said management are in effect the owners, because they are making all the crucial decisions, which just get rubber stamped by the shareholders. There is no more corporate democracy than there is electoral democracy.
You’re not being ‘turned on’ because you’re attacking the banks, you’re being ‘turned on’ because you’re spouting a lot of absolute nonsense and repeatedly demonstrating that you don’t have a clue what you are talking about, repeatedly making claims which are not supported by facts and which have been debunked many times before.
There’s a massive difference.
“because you’re spouting a lot of absolute nonsense ”
What nonsense? Name it instead of just calling me names.
My contention is that FRB is a danger to society (as proved by the history of the world economy over the last 15-20 years) and should be abolished. Whats nonsensical about that?
“My contention is that FRB is a danger to society (as proved by the history of the world economy over the last 15-20 years) and should be abolished. Whats nonsensical about that?”
Wow, it looks like the goal posts have been moved again! It’s hard to keep up 30th the last (unsubstantiated claims) you are making.
Wow, it looks like the goal posts have been moved again! It’s hard to keep up with the latest (unsubstantiated) claims that you are making.
Still waiting for the list of unsubstantiated claims…..
You don’t work in banking by any chance do you Bill?
Jim
Can you tell me which laws were broken that would result in a jail sentence for bankers?
You claimed “The bankers walked away from the wreckage of the GFC like nothing had happened”, which is so far from the truth it’s laughable.
You went on to say “…means having to think the financial system we have today is the best thing since sliced bread, and can’t possibly be improved.” Who has said that? I think that is just a stupid strawman.
You also said “Tell that to the shareholders of Northern Rock, RBS, Bearn Stearns, Lehmann Bros, SVB, First Republic, Credit Suisse etc etc etc.’’ Again, as already highlighted, this is absolute nonsense in most cases.
Are you going to suggest that me having detailed knowledge of banking is a disadvantage when having a discussion on banking?
“Can you tell me which laws were broken that would result in a jail sentence for bankers?”
I have no idea, but if the State wanted to find some I’m sure it could, there’s enough laws out there we could all be found guilty of something. They managed to jail a few junior minions for fixing Libor didn’t they? I’m sure there’s some catch all ‘operating in a manner that brings the financial system into disrepute’ clause somewhere. But they didn’t even try. Friends in high places obviously.
“You went on to say “…means having to think the financial system we have today is the best thing since sliced bread, and can’t possibly be improved.” Who has said that? I think that is just a stupid strawman.”
You are defending the status quo, you want the system we have kept in place. I want it completely changed.
“You also said “Tell that to the shareholders of Northern Rock, RBS, Bearn Stearns, Lehmann Bros, SVB, First Republic, Credit Suisse etc etc etc.’’ Again, as already highlighted, this is absolute nonsense in most cases.”
Whats nonsense about it? Did the shareholders of those banks lose their money? Yes they did. Did all the management get fired and/or prosecuted for destroying the bank by their actions? No they didn’t. Fred Goodwin even kept his pension, and his bonuses.
“Are you going to suggest that me having detailed knowledge of banking is a disadvantage when having a discussion on banking?”
It is when you’ve got a vested interest in the status quo.
@ Jim
First in the list of unsubstantiated claims – which I have refuted – is that we could have 100% reserve banks for bread-and-butter banking.
Second – which I have also refuted – is that FRB is intrinsically risky: we had over a century without a bank run before Gordon Brown’s “reforms”.
Third – which I have refuted – is that JP Morgan can take risks because it is sure to be bailed out – the shareholders have “only” $407 billion to lose (and any gains will be taxable) so you seem to think that justifies taking stupid bets:NO, of course it doesn’t.
Four – that Bear Sterns and Lehman Brothers were fractional reseve banks: NO, they were “investment banks” as two seconds research will tell you.
Five – “too big to fail” as it would have applied to Lehman Brothers if it applied at all
To be continued when I’ve had a pint to relieve the stress of having to talk at primary school level
‘I have no idea’
You could have just stopped your response there, as that’s a pretty good summary, for reasons already explained.
Well done John77 – > Jim is merely opinionated with no facts and only unfulfilled anger.
Fred Godwin got a pension as we believe in the rule of law. If Jim thinks that’s wrong then we have a bigger problem than Jim’s lack of understanding of the financial crises.
“First in the list of unsubstantiated claims – which I have refuted – is that we could have 100% reserve banks for bread-and-butter banking.”
The Mises Institute seems to think 100% reserve banking is possible:
https://mises.org/library/100-percent-reserve-banking-and-path-single-country-gold-standard
Quote: A fundamental condition for establishing a stable banking system has been the abolishment of fractional reserve banking, i.e., debt money, in favor of 100 percent reserve banking. This condition was stipulated by David Hume (1752), William Gouge (1833), Amasa Walker (1873), Charles H. Carroll (1850s), Frederick Soddy (1934), the authors of the Chicago Plan (1933), Irving Fisher (1936), Ludwig von Mises (1953), Murray Rothbard (1962), Maurice Allais (1999), and a number of other economists and authors. They essentially proposed a two-tier banking system:
But I suppose they are all at primary school level too……
“that Bear Sterns and Lehman Brothers were fractional reseve banks: NO, they were “investment banks” as two seconds research will tell you.”
They are fractional reserve banks in that they take people’s money and go off and do other things with it. They don’t just hold it. Retail banks take ‘deposits’ which as we all know are legally loans to the bank, so in effect retail banks and investment banks are exactly the same thing. They both borrow people’s money, and go off and do other things with it. The only difference is the scale, and what they invest in. Retail banks take smallish amounts from the general public and invest it in mortgages and business loans, investment banks borrow money from wealthy individuals and corporations and invest it in all manner of financial wizardry.But the principle is exactly the same – take peoples cash, go off and invest it to try and make a profit with it, for them and yourself.
Oh and stop behaving in such a condescending manner.
You are demonstrating your ignorance of investment banks now.
This is really fun to watch!
What is stopping anyone setting up a 100% reserve bank now to collect deposits?
“What is stopping anyone setting up a 100% reserve bank now to collect deposits?”
The State. By guaranteeing up to £85k (in the UK) they are effectively wiping out the market for a 100% reserve bank. If putting your money in a FRB meant every penny of it was at risk if the bank went belly up then there would be a market for risk averse money that wanted a home and was prepared to pay for it. Which we know there is, because people were prepared to buy government bonds with negative coupons a while back. Just to guarantee they could keep their money safe. But of course the State doesn’t want FRBs to have 100% guaranteed competition, because thats where all the cash would flow when things looked a bit dicey, leaving the FRBs high and dry (and bust). So by creating deposit ‘insurance’ (which is in effect a taxpayer backstop, as its obvious that the funds set up to guarantee deposits can’t pay out all the deposits at all the banks at once) it destroys any possibility there could be 100% reserve banks.
https://www.dailymail.co.uk/news/article-11869017/First-Republic-Bank-execs-sold-12M-stock-three-months-SVB-crash.html
See how the rats escape the sinking ship? No 100% wipeout for them, unlike the ordinary shareholders. But of course they’ll never be done for insider trading……
It sounds as though you don’t understand the difference between negative real interest rates and negative coupons!
You won’t find any sympathy from anyone in the banking industry if the FRB bank execs are convicted of insider trading.
Once again what you think is ‘obvious’ is very far from the truth.
“You won’t find any sympathy from anyone in the banking industry if the FRB bank execs are convicted of insider trading.”
But they won’t be will they………..
“It sounds as though you don’t understand the difference between negative real interest rates and negative coupons!”
Oh, I understand the difference very well. Maybe you aren’t as clever a banker as you think:
https://www.reuters.com/article/britain-bonds/uk-sells-first-government-bond-with-a-negative-yield-idUSS8N2CU0EP
This bond does not have a negative coupon, despite what you might claim.
Don’t forget that we can’t afford the luxury of division against the likes of Murphy. As we see from. The XR, IB and JSO protests as well as the coordinated strikes the left is out there working as a fifth column throughout wider society – FWIW Jim I can see some merit in your contentions but they seem to be a rather forlorn attempt to turn the clock back and would lead to the financial services sector decamping to more favourabl jurisdict
“This bond does not have a negative coupon, despite what you might claim.”
No, but the buyers were prepared to pay a price such that made it a negative yielding bond, in nominal terms, even before inflation. People were prepared to pay a price for security.
” FWIW Jim I can see some merit in your contentions but they seem to be a rather forlorn attempt to turn the clock back and would lead to the financial services sector decamping to more favourable jurisdiction”
Losing the current financial ‘services’ sector would be akin to the death watch beetle deciding to up and leave your house alone.
I see that another ‘safe and secure’ FRB is easing down the slipway of bankruptcy in the US:
https://www.reuters.com/markets/deals/pacwest-explores-options-amid-stock-price-plunge-sources-2023-05-03/
Even our old friend AEP is cottoning on:
https://www.telegraph.co.uk/business/2023/05/02/half-of-americas-banks-are-already-insolvent-credit-crunch/
As for a ‘united front’ against the likes of Murphy, I hardly think a few middle aged gammons spouting off on a tuppenny ha’penny blog counts as a ‘movement’…….lets face it the West is doomed, there’s absolutely no way of saving it now, the best one can do is try and position yourself so you avoid as much of the inevitable collapse as possible.
Murphy is an arrogant, hypocritical moron, who can safely be ignored. He is seemingly not liked by those people who have some alignment with his views, and seems to fall out with anyone and everyone he works with.
He only has importance on his own blog, where he can block anyone who dares to point out the flaws in his arguments or his repeated lies.
@ Jim
When I was at Primary School I learned the meaning of the word “lie”. To say that the abolition of debt money is a prerequisite for stable economic growth is a lie. Does the Mises Institute thinks that we could have simultaneously grown our GDP to over £500 billion and limited the total volume of money in circulation to equal the value of the 310 tonnes of gold bullion sitting in the vaults of the Bank of England? If so, that would require a velocity of circulation of 20x – stretching credulity past its snapping point when most salaries and pensions are paid only 12 times a year nd normal payment terms on invoices are 30 days. In real life the UK velocity of money is in low single figures.
I suggest that you stop trying to tell me that I am wrong when you don’t actually know what you are talking about
@ Jim
Bear Sterns took other people’s money to buy stocks on the New York Stock Exchange (and ASE and NASDAQ) and delivered those stocks to their customers. That is NOT what a FRB does. It did not make loans financed by customer deposits.
You are just plain wrong.
Lehman Brothers was a financial services firm: it did not have high street branches, take retail deposits nor issue cheques.
Why not check your so-called “facts”?
@John77: you said we could not have 100% reserve banking. We can. It might (or might not) have consequences for economic growth, however it is possible, as evidenced by the Mises link. And there is no necessity for a 100% reserve banking system to also be a gold standard. The Mises idea is for that to be the next step, but its perfectly possible to have a 100% reserve banking system that is also entirely fiat. Money creation would be done by the central bank, not the banking system by creating debt money.
So who is the liar now?
We ‘can’ have lots of things, doesn’t mean we should or it is sensible or it would not result in massive negative implications for the entire economy.
@ JIm
No, we cannot have 100% reserrve banking. You may be willing to revert to barter and mediaeval peasant lifestyle but 99% of the UK population are not. So trying to run the UK economy on the basis of fiat currency that is limited to the size of the government’s stock of gold bullion is just not going to happen (do you fancy being burnt in effigy?).
The fiat currency has two parts, that backed by gold which would continue if the BoE switched to being a 100% reserve bank and the “fiduciary issue” which is “debt money”. If you abolish “debt money” you abolish the “fiduciary issue”.
You seem to be saying that we can do without “debt money” by having “debt money”.
The idea that high street banks could exist without a source of income from lending is far-fetched: they have costs (staff and premises) that need to be paid for and it is simply not credible that they could cover these costs out of the money that depositors would be willing to pay for safe custody of their golden guineas and pound notes. Most of us would prefer a locked cash box kept under the bed.
@ philip
There is a case for *some* statutory deposit insurance since that provides the “little guy” with confidence that the money that he puts in the bank is safe – and, crucially, that the wages that his employer pays in on Friday will still be there on Monday morning. Without that confidence most of the working class would have stayed in the “cash under the mattress” era. [Yes, we had the Post Office Savings Bank but one couldn’t write cheques, let alone Standing Orders, BACS etc]
Total deposit insurance, however, creates the risk of moral hazard as those who are scoundrels and/or gamblers could attract deposits by offering a marginally higher interest rate on deposits and use the money for high-risk lending or buying their own shares or paying astronomical salaries or …
IMHO, those with large sums to deposit should be expected to carry out some due diligence and then decide whether they want the security of an utterly safe bank or they are willing to accept a degree of risk in order to get a higher return.
There is a question of who should pay for the deposit guarantee: should it be the banks covered by it or the government? If the latter the government (or its agent, the BoE/the “Fed”/Bundesbank …) should be responsible for vetting the banks that it licenses and the guarantee should apply only to licensed banks. If the former then the banks should form a mutual insurance society which will assess the risks for each bank and set insurance accordingly: each bank would then be aware that if it chose to actin a manner that increased the risk of insolvency its premium would be appropriately increased.
One thing that should never happen is that the UK government accepts responsibility for bailing out foreign banks over which it has no control. Nor should the government order a group of banks to guarantee the deposits of other banks that are not prepared to adhere to the group’s standards.
I think that the £85k limit is far too high: if one has £85k to deposit one either has just sold a house and one’s solicitor can choose one or two safe banks wherein to place the money or one has some elementary knowledge of finance or one can afford to pay a financial adviser for quarter- or half-an-hour’s work to identify safe places for it. The limit should protect the “little guy” and cover amounts in respect of which paying an adviser to carry out due diligence on one’s behalf seems unreasonable {admittedly that last is a subjective judgement, but one can choose a number aimed at that).
The £85k is a hangover from the EU’s €100k limit.
I’ve told the story before of my mate who was Investment Director of an insurance company. When his CEO asked what they were doing to maximise returns on overnight money, he replied: “Absolutely nothing. Sure, we could get a few extra basis points using Iceland or India, but there’s a1 in a 1,000 chance the money won’t be there in the morning”. A few months later, Kaupþing went titsup.
@ Chris Miller
Demonstrating the difference between maximising and optimising