Why We Have Debt

[FOWL]

To a certain extent you are correct BradM, but what you are missing is the fact that the creation of new currency, outside of accomaditing the extraction of new resources, and a growing population, devalues the rest of currency in circulation, thus you see what is happening today, how savings made by retirees which would have been sufficient in the days the savings were made, have now been devalued to the point that they must work well past the age they had intended. Aside from this, why should a banking institute be able to reap the profits of YOUR labour with interest, all for issuing currency at virtually no cost to themselves? It is a complete racket. A stable economy is created by having a dollar pegged to the population and resources (ie gold), the system we have now, insures that every dollar you make will be worth less by the time you get to spend it.

[FOWL]

Tom, how old are you? Do you mean to tell me there has been "low" inflation in Canada? Do you remember what prices were in the 80's compared to now? In my life time, and I am young, 26, I have seen the price of major commodities at least double. This may seem "normal" to a society which has experienced this for three generations, but that means that your savings have been devalued by half, and will likely be devalued far more by the time you think you will be able to "retire", a luxury it appears the majority of my generation will not be able to afford. I have done a fair amount of research into these issues from a variety of angles, and by telling me the bank of Canada's policy of relinquishing control of the issuance of currency was a sane practice that lead "low inflation" is insane. The US before it adopted the privately owned federal reserve had decades of NO inflation. THAT is a stable economy. Where the dollar you earned has the same value when you choose to spend it. I am sorry you can't see the common sense here, but if you have a differing opinion that makes any sense, I would love to discuss this with you further. Please explain in detail, because I cannot understand where you are coming from.

[TomFoolery]

Hey FOWL,

I've got a couple of years on you. So, I've seen all the same price changes you have.

I suspect you are talking about oil when you are saying commodities prices have doubled. Very heady stuff because of all of the international politics and security issues that fall out of it.

However, there are many other commercially traded items (including other commodities) that shape our inflation rate. I think you'll find the price of wheat has not doubled. Perhaps the same can be said of Q-Tips or toothpaste or tomatoes - all of which form our consumer goods basket.

Check out this article for a bit more info on what the Canadian inflation rates have done. It is quite clear that we've been enjoying very low and stable inflation since 92

You will notice that I mistakenly attributed our last recession to the late 80s. It was early 90s. Apologies. My memory is shody.

Regardless of all this, FOWL, I reiterate my previous statement. Go and read some of the "traditional" information that is out there. Read it with criticism. Read it with skepticism. Follow up on issues you don't believe.

Just don't rely solely on "alternative" information sources. That is as foolish as relying solely on the mainstream media. Both should be distrusted.

If you really are interested in monetary policy and not just interested in standing on a fairly ineffective soap box, there are plenty of links to good lit from the BoC website.

Finally, Bradm has things a bit more dialed than you think. The banks should be able to charge you a fee for lending you money. Without them assuming the risk of your project not working, you would not have the means to undertake it. For that service they are entitled to a fee. If you don't want to pay them, do your projects without bank financing. You are not entitled to unlimited funds without cost and I am thankful the banks don't operate that way.

Ciaoder

[timouse]

Hey FOWL,

I've got a couple of years on you. So, I've seen all the same price changes you have.

I suspect you are talking about oil when you are saying commodities prices have doubled. Very heady stuff because of all of the international politics and security issues that fall out of it.

However, there are many other commercially traded items (including other commodities) that shape our inflation rate. I think you'll find the price of wheat has not doubled. Perhaps the same can be said of Q-Tips or toothpaste or tomatoes - all of which form our consumer goods basket.

Check out this article for a bit more info on what the Canadian inflation rates have done. It is quite clear that we've been enjoying very low and stable inflation since 92

You will notice that I mistakenly attributed our last recession to the late 80s. It was early 90s. Apologies. My memory is shody.

Regardless of all this, FOWL, I reiterate my previous statement. Go and read some of the "traditional" information that is out there. Read it with criticism. Read it with skepticism. Follow up on issues you don't believe.

Just don't rely solely on "alternative" information sources. That is as foolish as relying solely on the mainstream media. Both should be distrusted.

If you really are interested in monetary policy and not just interested in standing on a fairly ineffective soap box, there are plenty of links to good lit from the BoC website.

Finally, Bradm has things a bit more dialed than you think. The banks should be able to charge you a fee for lending you money. Without them assuming the risk of your project not working, you would not have the means to undertake it. For that service they are entitled to a fee. If you don't want to pay them, do your projects without bank financing. You are not entitled to unlimited funds without cost and I am thankful the banks don't operate that way.

Ciaoder

come back from the kootenays and become Minister of Finance.

[TomFoolery]

Shit Timouse, did someone from my offices leak the info??? ;-)

[FOWL]

No I agree with you Tom, people do need to assess all sources of information critically, and ensure they approach any issue from as many sources as possible. I will check out that link when I have a little bit more time, but I still think I haven't explained what I am trying to say properly, or you just aren't getting it.

I am no against interest rates, of course they are mandatory, I am against FRACTIONAL RESERVE banking, where private banks can lend ten times the amount of assets they actually own at any given time, and get real assets back with interest on imaginary money. And even further, it is COMPLETE LUNACY that our government borrows imaginary money from private banks and forces the Canadian tax payers to pay off the compound interest. I want you to really contemplate what that means before you respond.

[phishtaper]

im going to assume that the requirement to contemplate carefully applies only to Tom, and just jump in and ask my naive questions, Fowl.

ok, so the private banking sector is wrong. let's get rid of it. but, 1) how? and 2) what should replace the service that it does provide?

[FOWL]

Good question. I'm not saying to get rid of the private banking system, I'm just saying they should no longer be allowed to issue credit that they can't back up with real assets. It is fractional reserve banking that needs to end. The Bank of Canada (in my opinion, as well as in Canadian law) should issue all new currency and determine the rate at which new Canadian currency is issued. This is clearly a phenominally complicated process which involves a huge number of variables and consequences I wouldn't even suppose that I could manage properly with my current understanding of the economy, but what is abundantly clear is that our government should NOT be borrowing imaginary money from private banks. There is absolutely NO logical reason a nation with an abundance of every resource we could possibly want should be in debt.

[FOWL]

Thanks for posting that article Tom. As the graph noted, the "twin peaks" of Canadian inflation both happened after the BOC stopped issuing the majority of Canadian Currency. The first spike even happened the same year!!!

The main reason we see the rate of inflation fall in recent years is due to the skyrocketing inflation the US dollar is seeing, due to some pretty insane tactics on the part of the Federal Reserve. But inflation is only part of this discussion, the big issue here is the robbery of our tax dollars (and their ever increasing rates year after year) to pay off debt to private banks.

[phishtaper]

ok fowl, for the sake of discussion, let's accept your premise that the private banking sector is bad. i'm certain we all understand your point quite clearly now. no sense in beating this dead horse further. let's move on.

again, I ask, what do you propose we do about it? 1) how will you get rid of it and more importantly 2) what should replace the lending service that it provides the economy. surely you are not suggesting that private banks be restricted to lending only the value of their assets (which should be noted are actually our assets). by your estimate, this would reduce the total amount of lending ten-fold. should therefore there be ten times the number of banks, each lending only their value in assets? or, are you suggesting that some other entity begin lending? or, perhaps nobody should ever be allowed to borrow?

identifying a problem is only the first (and arguably, easiest) step. now, you must provide us with a possible solution.

[Hal Johnson]

Anyone wanna lend me some money so I can meet Scarlet Johanssen? Just thought Id put it out there...

[FOWL]

My solution is simple, only the Bank of Canada can issue new currency, if a private bank is allowed to invent imaginary money, then we all should be allowed to do the same thing, and as we all can see, this makes no sense. The banking industry began as a way to be able to travel and have access to your wealth, without having to carry around your gold with you. It made sense, Banks store your gold, and issue checks in order to signify that you are owed a certain amount of gold. In the meantime, you allow banks to invest your gold in projects that will grow the banks assets. Over time, they learned they could issue more checks than they held in gold, as people moved away from trading in their gold, as it was more convenient to trade in paper. Now this all makes perfect sense, but the problem is that now that there are private institutions able to issue imaginary money at any rate they wish, our whole economy and all the assets of Canada can be bought, sold, and controlled at a whim. Banks should absolutely not be able to issue currency which they do not already hold. It is that simple.

[AD]

i'm glad banks can do this. i would have been homeless for the first 18 years of my life if my parents didn't have a mortgage. a lot of my friends wouldn't have been able to afford school. etc etc

[bradm]

Banks should absolutely not be able to issue currency which they do not already hold. It is that simple.

OK, so what happens when a bank that's issued (in the form of loans it's granted/given to people) all the currency that it holds has some of its depositors withdraw some of that currency?

Aloha,

Brad

[badams]

Lets just wipe away all debt and call it even. We can all start over and live within our means

[phishtaper]

... only the Bank of Canada can issue new currency ...

so, you'd like to nationalize the banking industry. does that strike you as efficient?

also, when a bank lends out money, is it "issuing new currency"?

[TomFoolery]

OK,

There's a bunch of shit getting confused here.

First. The BoC is the only body controlling currency in Canada. Actually, its the Mint that issues it. The BoC controls the amount of currency in circulation through the issue (restriction of currency) and sale (restriction of currency) of bonds. This creates a dance between inflation and interest rates, since interest rates are influenced by the issue and sale of bonds.

Fractional reserves means the Banks can only issue debt to within 10% of their asset holdings. This is not issuing currency.

Most banking today is done without any currency passing hands at all. All we are talking about is a bunch of zero's in a computer system.

Personally, I think this is the beauty of our banking system.

I reiterate. You would not be sitting in front of your fancy computer (or probably any computer at all - I doubt they'd have been made) without the function of the banks.

Banks must hold a percentage of cash in case a LOT of people come and withdraw hard funds all in a rush. If everyone went to the bank to take it all out, there would be no money (as it really doesn't exist in hard currency) and we would have a banking crisis.

The fraction in reserve is the safeguard against a crisis. Based on an ENORMOUS amount of banking experience, the people at the BoC (who dictate the fraction based on their mandate, which is not a profit motive) have decided that a 10% (or whatever it is today - I think they may have reduced it in the last 20yrs and that may be what's got your gitch in a knot) is an adequate reserve to deal with all the people who are coming in for hard currency. Since most banking is done in transfers from account to account, there is no need for hard currency.

Canada's economy requires a limit on the currency in circulation in order to protect us from inflation. The banking system allows us to grow beyond the limits of currency without jeopardizing our monetary policy.

That one phrase - "This note is legal tender" - holds our system together. Its faith in the phrase. Presenting this note will be accepted for an accepted value. There is no gold backing it up, only faith in our banking system.

I would say the last fifty years have proven the system works. There are plenty of ethical questions regarding the banking world, but you can't possibly argue that we've had any kind of break-down in the mechanics of our current system. It hasn't happened.

There has been no currency crisis.

I just don't get the problem here.

[TomFoolery]

If you really want to look into the ugly side of banking, why don't you start researching the global management of third world debt and all the political and social implications of it.

That is interesting. Its fucked.

Canadian banking is boring. It works.

[phishtaper]

should we start calling you Bono, Tom?

[TomFoolery]

Ugh.

[FOWL]

Okay, but you aren't addressing the elephant here. Our government borrows money from private banks. In much the same way the world bank enslaves third world nations in never ending prisons of debt. The statistics I keep running into are that over 90% of our tax dollars and other revenue collected by the government goes to pay off this debt. Is this not insane to you?

[bradm]

The statistics I keep running into are that over 90% of our tax dollars and other revenue collected by the government goes to pay off this debt. Is this not insane to you?

It's not insane, it's wrong. According to

http://www.fin.gc.ca/taxdollar07/text/html/taxdollar07_e.html

The largest single federal spending item was interest payments on Canada’s public debt (that is, money borrowed by the central government over the years, which has not yet been repaid to the lenders). These payments—to institutions and people who hold federal bonds, treasury bills and other forms of the debt—cost $33.9 billion. That’s almost 14½ cents of every tax dollar.

The remaining 6 cents of the tax dollar was the $13.8-billion budgetary surplus—how much money was left after paying for all federal programs, operations and interest on the debt.

This surplus was not money available for future spending. Government accounting principles mean that any surplus at year-end automatically reduces the federal debt.

Add those two together, and you get just over 20% of collected taxes going to debt repayments.

And note that

Cash payments that go directly to individuals, to provincial and territorial governments, and to other organizations are called “transfers.†There are three major categories of transfers. Combined, they make up more than half of all federal spending—about 53 cents of each tax dollar ($124.9 billion).

Aloha,

BRad

[phishtaper]

so, 14% of our "income" is going just to make payments on loans. and this year we also paid down the principle on that with a sizable (6% ~ about three weeks of pay) chunk of extra cash we had on hand.

what are these loans for? what are we borrowing money for? 'cause, if its for a mortgage on something new we are buying, or building, then this wouldnt seem all that out of whack. but, if its just for normal daily, runnin' the government kinda stuff then yeah, this is unaccepatble.

but then how much would we save by not having to deal with private bankers? or, are we just spending more than we have coming in?

[phishtaper]

hmmmmmm, i guess the bankers got to fowl. he doesn't seem interested in the discussion anymore. :confused:

[FOWL]

AHHHH!! Just got out of a torture vault!!! Them damn bankers! haha, ya forgot about this forum for a while, sorry about that!

You are right BradM, I totally got facts confused in my head being the fool I am (and suffering from oxygen deprivation of said vault.)

The facts I was confusing were that as of 1992 (haven't gone to check the more recent numbers) show that the Canadian people owe 386 Billion in compounded interest to private banks on a principle that amounts to 37 billion! That is insane! The 33.9 Billion we paid in 2007 repeated annually on that interest will never eliminate our debt, which will continue to skyrocket exponentially. Already, having more of our tax dollars go to private banks (14.5% in 2007) than to any other institution is maddening to say the least. And for what?? Absolutely nothing.