From Spain comes an excellent video on the 2008 crash, the cause and effect. Take an hour and watch it. It is bilingual, and there are Portuguese and Italian versions.
Here are some study notes:
This was produced in Spanish, where no doubt the question is urgent, and so I am viewing a translation. Nonetheless, the narrators first sentence includes a definition of wealth which implies an emphasis on money, narrowly defined, and as the solution to the necessity of double coincidence of wants.
Truly money is a solution to the problem of needing a double coincidence of wants.
But the far more widespread solution to this was credit. Credit among traders and people is far more prevalent among people and in history than the use of gold and silver or other media of exchange, something on the order of 80% of transactions, if not more.
The quick proof of this is to consider the amount of transactions in history, and the amount of coins to be found, What we see in overwhelming records is tallies or records of credit, not pots of gold. The amounts of gold and silver mentioned in ancient records, even if aggrandized, is not enough to support the markets given the population in each instance.
As Prof. Jere Bachrach, a numismatic maven notes, the gold and silver comes in demand as the end nears.
Credit in history is between two actors, you and me. Who had what credit was based on the estimation of everyone else. Why, it was anarchy!
8:30 “in exchange for interest” savers interested in something more than just depositing their money allow the bank to lend their savings to investors it considers appropriate. this intermediary role is key to the success of any economy.”
For most of economic history usury has been forbidden, so this cannot be necessary, nor sufficient. Banks are not the only way to aggregate money for investment. indeed, the banks began to sever all links with reality WHEN people began devising other ways to raise capital.
Bu to be sure, “exhcange for interest”” it is key to the success of THIS economy, in all of its wretched excesses and destruction. . in a free market no doubt there would be banks dong the above, and no doubt charging interest. People do not change simply because an economy is free. Just because prostitution is legal in Nevada does not mean everyone becomes a whore. If there is no state to write the regulations to benefit the few, then betters and wider options emerge, and the destructively limited options available to people wither on the vine. If the state stopped terrorizing children in its schools, taxing families and regulating marriage, no doubt out of less existential fear and more felicity in relations , prostitution would wither on the vine.
10 : 00 Steve baker says, “banks lend money into existence... if it is lent into existence, it is not money.
10,000 euros becomes 500,000 euros through fractional reserve banking.
They may become euros, but they do not become money. They are an ever shrinking unit of measurement.
In its intermediary role, the bank is providing the service of keeping track of all of the tallies, who is obligated to whom for what. they take a nice fee for this.
The reason govts take so much control and give banks such support is at once they are in command of the economy, such as it is, and can know all and tax all.
Mismatched maturities are a real monkey wrench in the works. the problem there is banks are borrowing short where interest rates are low and lending long where the interests are high, and arbitraging the difference. yes, often the bankers get the suppl and demand wrong, because there are way too few bankers estimating (guessing betting?) what the rest of the world will do. (or, who cares, the state will always bail us out, moral hazard.)
In a free market lending is so granular, and the deal so transparent, “the run” on the bank, is unlikely.
The problem is not that the banks hijacked money, that is the lesser of the problem because fewer transactions were conducted in money. What happened is the banks hijacked credit. Then began creating their own by marrying fractional reserve banking of money to fractional reserve of credit then in 1982, they began creating credit with not reserves of any sort. (RMA)
We went from money defined and usury outlawed, to money and fractional reserve, in which the non reserve portion of the fraction is credit, and then usury on credit.
Businesses would write checks to make payments. (bills of exchange) and soon enough a receiver had no idea if what the check represented was money or credit. Nor did a depositor quite understand that legally he did not own the money he had deposited, no, he had lent it to a bank.
Everything is so foggy that no one quite understands the situation, except the bankers.
http://en.wikipedia.org/wiki/Negotiable_instrument#Bill_of_exchange
usury makes perfect sense under PVT and natural rate of interest, and if it is set in a voluntary agreement between to econ actors.
What makes usury wrong is that it is the means to aggregate power. it creates an idolatrous illusion of wealth, an that is the idol Gates/Slim Lopez image of an amazing collection of warrants and claims and indeed, money, legally credited to an individual.
But hat is not wealth, that is a collection of tallies, dead but powerful, like a zombie.
The definition of wealth, as is experienced, is an ever widening access to an an ever widening array goods and services to an ever widening population by means of falling prices. Division of labor and competition sees to this, it cannot be commanded centrally.
Instead of weal, commonweal, we get an idolatrous version that one and all worship, an idol that religiously forbids the free market and its benefits to mankind.
Austrian economics are not prescriptive, they are descriptive. They say what happens, under these circumstances. I am always surprised at how the Cantonese express matters in terms of Austrian economics, although the field of study is largely unknown in South China. There is nothing new in Austrian economics.
And there they know during the boom to invest the funny money in owning overpriced goods, because the nominal value of the asset drops but the agreed payments remain the same. Countless Americans lost viable businesses because the service debt on loans for machinery, equipment, and realization of facilities cannot be covered by the lower revenues and tighter margins that visit a bear market.
This brings to mind the story of two hikers on a path in dense woods and finding they are in between a she bear and a cub. One hiker immediately drops and begins to change his hiking boots for a pair of Nikes. The other hiker says derisively, “You can’t outrun a bear!” To which the now Nike-shod fellow replies, “I know, I only have to outrun you.”
what they have to say about the effects of interest is quite accurate. the descriptions of the arts are correct. But if an Austrian were to pontificate on the ethicality of interest, they would be stepping outside of economics into morality. Economists call their field and value-free scientific system.
it is important to understand micro and macro economics in theory, but to also know as Sean Corrigan points out so often, mantra that there are no macro-economic issues which can be solved other than by micro-economic means. This means no solution can be centrally planned.
22 .30 the boom: when the damage is done...
for me the problem started with the Lehman crisis or words to that effect...
I think he means the unravelling at which point the decision as to who pays for the previous damage done (during the boom) was begun as a process.
Here is
another take on the problem, the more explanations the better you understand.
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