Credit creation: Change the flow (kill the FIRE eco)

[icm63]

Are there any bankers here..

From an idea from Steve Keen (Aussie economist, fan of Austian Economics). And Micheal Hudson.

1) There is only one creator of CREDIT in the economy, thats the banks.
2) They have a complete monopoly to whom they decide to lend too.
3) CREDIT is created by a entry into a computer.
4) Banks lend 80%+ on property. Heck they drive around in mobile vans lending to you, done over the phone in 2 mins.
5) Property lending does not create economic wealth, it raises the prices of assets and thus the cost of living ( ie rent, rates, are all percentage derivative of the cost of the land/property).
6) The flow of credit must be diverted to economic wealth production, that is it must finance the making of something (dont tell me building houses is just as good, its not, how much forex revenues is made by building a house) for export dollars.

So how can we get the banks to finance manufacturing with the equal desire as they finance property, thats the question. This is in a sense turning down the FIRE economy finance.

My idea:
By Taxation: Interest and fee revenues earnt on property lending (thats the monies secured on properties title), be taxed at 50%, and lending on other forms of security (manufacturing plant) is taxed at 10%. As there is more risk associated with the manufacturing the taxation reflects this.

...Taxing the property or taxing the individual for borrowing on the property is the wrong way to go in my view, as its not at the controlling creator of the credit.

Of course making a widget in China vs making a widget in a USA have different fixed cost struture (due to years of extended FIRE economy pushing up asset prices), and this is a huge hurdle to overcome. But you gotta start some where.

What else can be done to push the credit creation to manufacturing??

[lsa420]

Re: Credit creation: Change the flow (kill the FIRE eco)

Are there any bankers here..

From an idea from Steve Keen (Aussie economist, fan of Austian Economics). And Micheal Hudson.

1) There is only one creator of CREDIT in the economy, thats the banks.
2) They have a complete monopoly to whom they decide to lend too.
3) CREDIT is created by a entry into a computer.
4) Banks lend 80%+ on property. Heck they drive around in mobile vans lending to you, done over the phone in 2 mins.
5) Property lending does not create economic wealth, it raises the prices of assets and thus the cost of living ( ie rent, rates, are all percentage derivative of the cost of the land/property).
6) The flow of credit must be diverted to economic wealth production, that is it must finance the making of something (dont tell me building houses is just as good, its not, how much forex revenues is made by building a house) for export dollars.

So how can we get the banks to finance manufacturing with the equal desire as they finance property, thats the question. This is in a sense turning down the FIRE economy finance.

My idea:
By Taxation: Interest and fee revenues earnt on property lending (thats the monies secured on properties title), be taxed at 50%, and lending on other forms of security (manufacturing plant) is taxed at 10%. As there is more risk associated with the manufacturing the taxation reflects this.

...Taxing the property or taxing the individual for borrowing on the property is the wrong way to go in my view, as its not at the controlling creator of the credit.

Of course making a widget in China vs making a widget in a USA have different fixed cost struture (due to years of extended FIRE economy pushing up asset prices), and this is a huge hurdle to overcome. But you gotta start some where.

What else can be done to push the credit creation to manufacturing??

I like where you are going with this icm, but I disagree that the tax code is the best way to "fix" the problem. I'm an accountant and work for a wealth management firm. A large portion of my time is spent dealing with client tax issues - ie, how to avoid paying taxes (legally, of course). If you've spent any time researching tax issues, you know that the IRC is a nightmare and total sham. From my perspective, the tax code is just another way for the government to push their insane policies which only distort the economy. Artificial credit diverts production, but so does the tax code. More tax rules are not the answer.

To address the issue of credit, credit comes from savings. If there is no savings and the banks, through fractional reserve banking, create and lend out "credit" not derived from savings, the outcome is inflation and malinvestment, not economic growth. Welcome to the USA. I think that fractional reserve banking needs to be killed. It only benefits the banks. That is Step 1.

Step 2 would be to increase credit via increased savings. Savings accounts should not be taxed. If there is one thing we should do with the tax code, it would be eliminating any taxes on interest income from savings/checking/CD accounts, etc. Treasuries should fall into the same category.

Step 3, in my opinion, would be to let the market set interest rates, not the Fed. The Fed obviously has no clue what they are doing. Market interest rates would be MUCH higher than the current 0%, and this would quickly render many of the real estate investments that you speak of big-time losers. In other words, the projects would never happen. Why? Credit would be made available where it is needed the most, such as small business, manufacturing, etc.

While I'm pretty sure none of these things will ever happen, that's a few steps in the right direction in my ideal world.

[icm63]

Re: Credit creation: Change the flow (kill the FIRE eco)

How does any of what you say move CREDIT from a bias of property to a bias of manufacturing and other economic wealth creation business.:confused:

[lsa420]

Re: Credit creation: Change the flow (kill the FIRE eco)

How does any of what you say move CREDIT from a bias of property to a bias of manufacturing and other economic wealth creation business.:confused:

My argument is that the policy of fractional reserve banking, artificially low interest rates, low savings, and a poorly constructed tax code has led to inflation and malinvestment.

Credit has been diverted from productive activities like manufacturing, to unproductive activities like CDS, CDOs, McMansions and high rise condo towers specifically because of the bad policy I describe.

In order to solve the problem, we have to get to the root cause, which IS the bad policy. Who knows the best way to move credit in an economy? Definitely not the government.

By removing the bad policies, and fixing the root cause, the market will then be able to allocate credit in the most efficient manner. I think capital and credit would then flow into manufacturing and other wealth generating businesses, just as you describe. In other words, we need to actually let the market work. We've fallen victim to the fallacy that central economic planning works. It doesn't.

[icm63]

Re: Credit creation: Change the flow (kill the FIRE eco)

Oh ok..

In poor economies, say like parts of India etc, there is ZERO lending on property, its all small manufacuting.

Policy change, hows that done when the banks fund the politicians...hmmmm

[lsa420]

Re: Credit creation: Change the flow (kill the FIRE eco)

Oh ok..

In poor economies, say like parts of India etc, there is ZERO lending on property, its all small manufacuting.

Policy change, hows that done when the banks fund the politicians...hmmmm

It's also the same in many parts of Asia, such as Singapore and Hong Kong. No debt on huge office buildings is common. Think of all the credit that would be made available for production....

As I said in the original post, I'm pretty sure none of these things will ever happen, but that's a few steps in the right direction in my ideal world (which apparently doesn't exist).:cool:

[raja]

Re: Credit creation: Change the flow (kill the FIRE eco)

Oh ok..

In poor economies, say like parts of India etc, there is ZERO lending on property, its all small manufacuting.

Policy change, hows that done when the banks fund the politicians...hmmmm

Make the candidates' reelection depend on their past performance . . . thereby making campaign contributions from the Financial Elite irrelevant.

For this to work, the voters must learn who is responsible for their problems, and vote accordingly. It's a question of education.

What's coming down the road in the way of financial suffering will be an adequate motivator for the public to take an interest in what's happening to them . . . and wise up. :eek:

[Spartacus]

Re: Credit creation: Change the flow (kill the FIRE eco)

Oh ok..

In poor economies, say like parts of India etc, there is ZERO lending on property, its all small manufacuting.

Policy change, hows that done when the banks fund the politicians...hmmmm

Are you sure? My (admittedly severely limited) knowledge of India doesn't jibe with this.

Although HayekVindicated's input from some time ago, about everyone paying cash for real estate, supports your view very well.

Several families I know of borrowed heavily against their housing to send kids to school.

2 of these are about to be evicted.

Also last time I went there was a spate of newspaper articles about rural farmers in Punjab committing suicide over high farm debt. There seemed to have been a mini-epidemic of it.

[jtabeb]

Re: Credit creation: Change the flow (kill the FIRE eco)

Are there any bankers here..

From an idea from Steve Keen (Aussie economist, fan of Austian Economics). And Micheal Hudson.

1) There is only one creator of CREDIT in the economy, thats the banks.
2) They have a complete monopoly to whom they decide to lend too.
3) CREDIT is created by a entry into a computer.
4) Banks lend 80%+ on property. Heck they drive around in mobile vans lending to you, done over the phone in 2 mins.
5) Property lending does not create economic wealth, it raises the prices of assets and thus the cost of living ( ie rent, rates, are all percentage derivative of the cost of the land/property).
6) The flow of credit must be diverted to economic wealth production, that is it must finance the making of something (dont tell me building houses is just as good, its not, how much forex revenues is made by building a house) for export dollars.

So how can we get the banks to finance manufacturing with the equal desire as they finance property, thats the question. This is in a sense turning down the FIRE economy finance.

My idea:
By Taxation: Interest and fee revenues earnt on property lending (thats the monies secured on properties title), be taxed at 50%, and lending on other forms of security (manufacturing plant) is taxed at 10%. As there is more risk associated with the manufacturing the taxation reflects this.

...Taxing the property or taxing the individual for borrowing on the property is the wrong way to go in my view, as its not at the controlling creator of the credit.

Of course making a widget in China vs making a widget in a USA have different fixed cost struture (due to years of extended FIRE economy pushing up asset prices), and this is a huge hurdle to overcome. But you gotta start some where.

What else can be done to push the credit creation to manufacturing??

You MISS the point my dear friend.

Most people ( I would hazard to guess) who read this site have a perfectly good idea of what should/needs to be done to repair the Production Economy. (I think even EJ has some ideas on the matter;))

The point is NOT WHAT NEEDS/SHOULD be done, that is a relatively ACADEMIC question.

THE QUESTION is why this administration has failed to do these things.

I think most of us here have an answer for that too.

Unfortunately, I think we are ALL still trying to figure out a way to get a bunch of BASTARD FUCK CORRUPT ELITES to do the right thing (act against their own interests in the short term e.g. fix the economic system so that they SERVE their long term interests e.g. not get tared and feathered or worse from a starving mob of 200 million people).

The way I see it is they HAVE to do the right thing OR the people of this country are going to put 200+ Million firearms to good use.

IT'S THE ELITES CHOICE at this point.

Either FIX IT AND DO IT RIGHT (Justice comes to mind) or well we get a French Revolution with American characteristics (Lot's and Lot's of bullets vs guillotines).

You're preaching to the wrong folks, you might want to drop a line to the elites and let them know that they are slitting their own throats, so to speak.

[Rajiv]

Re: Credit creation: Change the flow (kill the FIRE eco)

From Banking in India

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

• In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India.
• In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India."
• The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalisation of major banks in India on 19 July 1969.

Nationalisation

By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.


A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.


The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.^[1][2]